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Department Of Energy Has Overestimated Energy Efficiency Standard Costs

This article originally published on Climate Progress
by Joanna M. Foster

Has the Department of Energy been systematically overestimating the cost of energy-efficient standards for decades? A new study says yes and it means you’re not getting the best technology available.

As a July that smothered much of the East coast in protracted heat waves comes to a close, air conditioners continue to whir away in homes and offices across the country. Most people know that air conditioners use enormous amounts of energy to keep us comfortable, and anyone looking at a summer utility bill, or who has endured sitting in a sweaty office after all those precious air conditioners have caused city-wide rolling blackouts, would probably agree that setting standards for energy-efficient appliances is a must.

But customers might be getting a lot less than they bargain for: The new report from the American Council for an Energy-Efficient Economy, ACEEE, provides data that shows that the Department of Energy has a systemic problem in calculating its estimates of how much new efficiency standards will cost. The Department regularly projects that manufacturers selling more efficient appliances will have to increase their costs, when in fact the cost of production actually decreases over time.

This throws off the cost-benefit analysis, and results in standards which are far from the DOE’s own goal of “the maximum level of energy efficiency…which is technologically feasible and economically justified,” the report authors say.

In the U.S., energy-efficiency standards for room air conditioners were set back in 1997. DOE estimated that for manufactures to comply with the standard, an average sized unit would be about $13 more for them to produce. In actuality, though, the manufacture price per unit has dropped — from $441 when the standard was set to $280 in 2011.

While air conditioners are an extreme case and there were many factors contributing to the dramatic reduction in their price over this time, the over-estimation of the cost to manufactures of producing more efficient appliances is not limited to one kind of appliance or even a class of appliances. It’s embedded in every standard.

“In defense of DOE, we understand that they are under enormous pressure from industry to push that ‘cost’ part of their calculation up,” said ACEE Executive Director Steven Nadel. “But when you look back at what DOE said it would cost and what it actually ended up costing, it’s clear that the math is off, and there’s reason to believe that stricter standards are still economically justified.”

The ACEEE study looked at nine appliance standards that took effect over the 1998-2010 period and found that DOE overestimated price impacts in every case. DOE estimated an average increase in manufacturer’s selling price of $148. On average the actual change in price was a decrease in manufacturer’s selling price of $12.

According to Nadel, the biggest problem with how the DOE does its math is that there is no accounting for innovation to meet the standards.

“We believe that new standards can and do drive innovation,” said Nadel. “But DOE doesn’t take that into account. It’s not necessarily an easy calculation, but those calculations are out there and could help optimize the benefits of energy efficiency for everyone involved.”

In his June climate change speech, President Obama pledged that energy efficiency standards for appliances and federal buildings during his administration would cumulatively result in three billion metric tons of avoided carbon pollution by 2030.

Whether or not the DOE takes a good look at it’s calculations may well influence Obama’s ability to reach his 2030 goal. The DOE is legally required to set or update federal minimum energy efficiency standards for more than a dozen products during the remainder of Obama’s presidency.

There’s plenty Obama can do in the meantime though. Currently there are four draft standards at the White House’s Office of management and Budget that have been gathering dust for over a year, waiting for review and approval. Draft standards for walk-in coolers and freezers have been on ice for nearly two years now, just a little over the 90 days in which OMB is supposed to get drafts turned around.

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