Cato Policy Analysis No. 504 December 23, 2003

Policy Analysis

The High Costs of Federal Energy Efficiency
Standards for Residential Appliances

by Ronald J. Sutherland

Ronald Sutherland is a consulting economist and adjunct professor of law at George Mason University and a senior scholar at the Center for the Advancement of Energy Markets.


Executive Summary

The U.S. Department of Energy administers a program that imposes minimum energy efficiency standards for residential appliances. Analysts at DOE's Lawrence Berkeley National Laboratory estimate that those standards will save consumers a net total of $150 billion through 2050 with a benefit/cost ratio of 2.75/1.

The LBNL calculations, however, rely on an underestimation of energy efficiency gains that would occur absent government mandates and use an unrealistically low consumer discount rate to calculate the value of future energy savings. A correction of those errors suggests that the DOE's energy efficiency standards will actually cost consumers a net $46.4 billion to $56.2 billion through 2050 in addition to the $200 million to $250 million required to run the program over that period. The program's costs are borne disproportionately by low- and middle-income households.

Because the appliance standards do not correct a market failure, increases in energy efficiency via government mandates—even if the standards were recalibrated—are unlikely to enhance the efficient use of energy resources or improve consumer well-being.

Full Text of Policy Analysis No. 504 (PDF, 15 pgs, 101 Kb)

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