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Request for Information ) Energy Cons Before the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy Re: Request for Information ) Energy Conservation Program: ) Energy Conservation Standards for ) EERE–2017–BT–STD–0003 Consumer Refrigerators, ) Refrigerator Freezers, and Freezers ) Comments of Consumer Federation of America Mark Cooper Mel Hall-Crawford Director of Research Director of Energy Programs FEBRUARY 13, 2020 TABLE OF CONTENTS EXECUTIVE SUMMARY 1. INTRODUCTION AND CONTEXT 1 A. Organizational Background of the Consumer Federation of America Relevant to the Above Captioned Proceeding B. A Pragmatic Consumer Approach to Setting Standards C. Outline 2. A LOOK AT THE REAL WORLD: THE TRACK RECORD OF APPLIANCE ENERGY 4 EFFICIENCY PERFORMANCE STANDARDS A. Simple Trends B. CFA’s Econometric Analysis of Appliances C. Prices D. The Benefits of Energy Efficiency Standard: Trump’s Two Trillion Dollar Mistake E. Low Income Consumers 1. Simple Mathematics of Income and Energy Consumption 2. Vulnerability to Market Imperfections 3. Exposure to Externalities 3. COMPREHENSIVE, MARKET FAILURE EXPLANATIONS OF THE EFFICIENCY GAP 17 A. The Efficiency Gap 1. The LBL Framework 2. The Resources for the Future Framework 3. The United Nations Industrial Development Organization B. Empirical Evidence of Market Barriers and Imperfections 1. Market Imperfections 2. Positive Externalities 3. Information and Behavior 4. Market Structure and Transaction Costs 4. STANDARDS AS A RESPONSE TO MARKET FAILURE 27 A. Rigorous Cost Benefit Analysis B. Standards as a Policy Response 1. Traditional Market Failures 2. Positive Externalities 3. Endemic Information and Behavior 4. Market Structure and Transaction Costs 5. COMMAND-BUT-NOT-CONTROL STANDARDS 31 A. Key Characteristics of Well-Crafted Performance Standards 1. Long-Term 2. Product Neutral 3. Technology-neutral 4. Responsive to industry needs 5. Responsive to consumer needs 6. Procompetitive B. Overestimation of Compliance Cost and the Tendency of Costs to Decline C. Non-Energy Benefits D. Macroeconomic Benefits of Standards 6. OTHER REASONS TO SUPPORT APPLIANCE EFFICIENCY STANDARDS 38 A. The Statutory Basis of “Command-But-Not-Control” Regulation 1. Executive Branch Guidance on Rulemaking B. Public Support for Appliance Efficiency Standards 1. Methodology 2. Attitudes toward Appliance Efficiency and Standards 3. Perception of Benefits and Support for Minimum Standards (2011) 4. Appliance Efficiency Standards Compared to Fuel Economy Standards EXECUTIVE SUMMARY Section 1: Introduction and Context These comments respond to the Request for Information regarding efficiency standards for refrigerators. They focus on the simple most important issue in the development of standards, market failures and imperfections, an issue that the DOE devoted little attention to and gave little guidance for in seeking comments. As a group that has represented consumer interests in virtually every regulatory proceeding in the past ten years involving efficiency standards for energy using durable, we take a unique approach that can be summarized in asking and answering four questions. Are there significant energy expenditures that appear to be wasteful in the sense that there are technologies available that cost less than the savings on energy use? Why is there an efficiency gap that imposes unnecessary costs on consumers? Is a standard an appropriate policy to address the market imperfections? How can the standard be best designed to achieve the goal of lowering consumer cost and protecting public health? To ass further support for these comments, we have attached and make direct reference to a report entitled Trump’s Two Trillion Dollar Mistake: The War on Energy Efficiency. This report has been filed with the all the agencies responsible for energy efficiency standards in response to earlier proceedings. Section 2 answers the first question: Are there significant energy expenditures that appear to be wasteful in the sense that there are technologies available that cost less than the savings on energy use? A Look at the Real World: The Track Record of Appliance Energy Efficiency Standards This section reviews empirical analysis of historical, contemporary and future benefits, for appliance standards in general and refrigerator standards in particular. Efficiency standards for refrigerators have led to dramatic reductions in energy consumption at very low cost, resulting in substantial consumer savings. Section 2 also places the standards in a broader context not only for consumers and commercial business, but also for the economy, public health and safety. This adds depth to our conclusion that standards are in the consumer and national interest. We estimate that over $1 trillion of potential consumer pocketbook savings are being placed at risk by Trump’s $2 Trillion Mistake; The “War on Energy Efficiency.” Section 2 concludes with a discussion of th impact of standards on low income households. The opponents of standards invariably and inevitably claim that standards harm low 1 income consumers disproportionately. We cite three broad categories of factors that suggest low income consumers benefit disproportionately from standards. First is the simple math of income and energy consumption dictates that energy savings will be larger and lower in cost for this group in absolute. Net savings will be larger relative to their income, Second, market imperfections, that are addressed by standards are more likely to impact low income consumers. Third, low income households are also more likely to benefit from standards that lower energy consumption and reduce negative externalities or increase the capture of positive externalities. Section 3 answers the second question: Why is there an efficiency gap that imposes unnecessary costs on consumers? Comprehensive, Market Failure Explanations of the Efficiency Gap This section identifies the market failure and imperfections that result in the underinvestment in energy efficiency, This section examines the conceptual and empirical bases for concluding that the explanation for the success of standards lies in the failure of industry to invest in and deliver consumer appliances that dramatically reduce energy consumptions. The “efficiency” gap debate is the starting point, with a discussion of the frameworks offered by several major energy research institutions. Next the section examines another source of discussion of market failures – by almost two dozen Nobel Laureates in Economics. They define five avenues of analytic criticism through simplistic, neoclassical economic models that have grown into schools of thought about market failure Finally, empirical studies from the energy efficiency and climate change literatures that support about 50 specific market imperfections across the schools are though are identified. The attached study identifies over 200 individual studies and gives specific quotes that define the market imperfection. Section 4 answers the third question: Is a standard an appropriate policy to address the market imperfections? These questions go hand-in-hand. Why will a standard work and how should it be designed. The section first identifies numerous imperfections that standards address. It starts from the observation that rigorous cost benefit analysis is the key to selecting policies to address market failures. The literature and the agencies identify well over a dozen market imperfections. Section 5 answers the fourth question: How can the standard be best designed to achieve the goal of lowering consumer cost and protecting public health? Command-But-Not-Control Standards 2 Our analysis identifies six key characteristics of performance standards that make them attractive as a policy: Long-Term, Product Neutral, Technology-neutral, Responsive to industry needs, Responsive to consumer needs, Procompetitive. Striking a balance between these characteristics is an important step toward writing an effective standard. Beyond the conceptual arguments in favor of performance standards, we see an extremely important outcome of these standards in the marketplace that lends strong support to our conclusion – the very clear tendency for the cost of compliance to decline and be much lower than regulators of industry anticipate. Section 6 The Legal Terrain of Standards for Energy Efficiency and Environmental Protection This section offers two other reasons that market failures and imperfections should be the focal point of the DOE analysis of standards. First, we show that the legal context in which the Agency makes these decisions demands it. Standards are not optional; they are mandatory under the statute. The Administrative Procedure Act requires that the decisions are made on the basis rigorous analysis applied to real world data. Both the law and the procedure strongly support our conclusions. Our analysis shows that while the OMB Guidance for regulatory decision making has been modified over the years, the basic structure has remained the same since the Reagan Administration. Second, we find strong support for energy efficiency standards in public opinion polls. Two-thirds of all respondents support standards. Among those who see benefits from standards, four-fifths support them. The support for appliance efficiency standards equals the high level of support expressed fuel economy standards, which are much more frequently studied. For both appliance and auto standards, almost three-quarters of respondents support the standards with a five-year payback. 3 1. INTRODUCTION AND
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