The High Costs of Federal Energy Efficiency: Standards for Residential Appliances

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The U.S. Department of Energy administers aprogram that imposes minimum energy efficiencystandards for residential appliances. Analystsat DOE's Lawrence Berkeley National Laboratoryestimate that those standards will save consumersa net total of $150 billion through 2050with a benefit/cost ratio of 2.75/1.

The LBNL calculations, however, rely on anunderestimation of energy efficiency gains thatwould occur absent government mandates anduse an unrealistically low consumer discount rateto calculate the value of future energy savings. Acorrection of those errors suggests that theDOE's energy efficiency standards will actuallycost consumers a net $46.4 billion to $56.2 billionthrough 2050 in addition to the $200 million to$250 million required to run the program overthat period. The program's costs are borne disproportionatelyby low- and middle-income households.

Because the appliance standards do not correcta market failure, increases in energy efficiencyvia government mandates--even if the standardswere recalibrated--are unlikely to enhancethe efficient use of energy resources or improveconsumer well-being.

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.