Issues: Energy

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Presented before the House Commerce Committee's Subcommittee on Energy and Power by David B. Goldstein, Ph.D., NRDC energy program director.

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Back to Appliance Efficiency Index

Executive Summary

The Natural Resources Defense Council (NRDC) strongly supports the Department of Energy's Appliance Efficiency Standards program for both substantive and procedural reasons.

Appliance efficiency standards represent environmental protection that pays consumers back. Efficiency standards currently adopted or under consideration by the Department of Energy will reduce energy use for all purposes in the United States by more than 4%, with comparable reductions in emissions.

The reduction in emissions of carbon dioxide will make a significant contribution to meeting the goal of climate stabilization. Reductions in emissions of air pollutants that damage human health could save some 2,000 lives per year.

Appliance efficiency standards can save consumers over $200 billion, or $2,000 per American household. These savings produce new jobs and enhance the global competitiveness of American industry.

Appliance efficiency standards benefit industry also--at least that is what companies subject to these standards tell their shareholders. Appliance efficiency standards encourage technological innovation. Indeed, NRDC believes that this is the primary reason they have become controversial. The primary argument is not between advocates of efficiency and advocates of industry's interests, or between proponents of regulation versus proponents of market forces. Rather, it is between supporters of technology advancement, both in the public interest sector and in the affected industries, and those in industry who are content to rest on their laurels. Standards encourage American companies to be technology leaders in global competition. This is good for the economy, good for job growth, and good for the environment.

Current appliance efficiency law is the result of a negotiated agreement between efficiency advocates and appliance manufacturers that received near unanimous stakeholder support. That compromise, embodied in the National Appliance Energy Conservation Act (NAECA) ended over a decade of disputes between manufacturers, consumers, environmentalists, states, utilities, and others, by providing a framework for deciding on the merits of new appliance efficiency standards. NAECA requires all new standards to be economically justified, and to have beneficial or at least tolerable effects on consumers, manufacturers, and utilities.

To make nonconsensus changes in the appliance standards law would inevitably spread the controversy over appliance standards to a wider variety of legislative and administrative forums throughout the United States and internationally, producing an atmosphere that is more disruptive to manufacturers, less beneficial to consumers, and likely less beneficial to the environment.

1. Introduction

My name is David B. Goldstein. For the past sixteen years, I have been the Energy Program Director of the Natural Resources Defense Council (NRDC), an environmental protection organization with over a quarter million members nationwide. The position NRDC is presenting today on appliance efficiency standards is also supported by 25 other national environmental organizations with a combined membership of approximately 9 million.

NRDC views appliance efficiency standards as a critical environmental issue. Increasing appliance efficiency reduces the emissions of air pollutants that compromise human health; it is also one of the most effective control strategies for global climate pollutants such as carbon dioxide. Increasing efficiency also reduces a host of environmental problems associated with the extraction, processing, and transportation of energy resources.

A recent NRDC study estimated that 64,000 premature deaths per year are due to a certain type of air pollution. If appliance standards currently in effect or proposed by DOE reduce pollution proportionally to energy use, some 2,000 lives that are currently lost to air pollution related disease every year could be saved.

Appliance efficiency standards are not an issue that pits environmentalists against industry, or environmental protection against economic growth. Appliance standards not only save energy and pollution, they also save money. Standards currently in effect or proposed will cut net consumer costs -- including the cost of compliance with the standards themselves -- by about $200 billion, or $2,000 for every American household.

This increased spending power will be used by consumers to purchase other goods and services that are much more labor intensive than energy, creating new jobs and promoting economic growth. The standards will also improve American industrial competitiveness by encouraging the development and commercialization of new technologies.

The effectiveness of standards at promoting new technologies lies at the heart, we believe, of the true controversy. The issue is not between proponents and opponents of job creation, or even between proponents of regulatory approaches rather than incentive-based approaches. The true controversy is between advocates of new technology, including public interest organizations and forward-looking companies such as Whirlpool and Carrier, and proponents of technological lassitude.

NRDC believes that appliance efficiency standards are a win-win policy for all affected interest groups. They save substantial amounts of money for consumers, reduce the environmental problems associated with energy use and increase competition and profitability in the appliance and equipment industries.

They are controversial primarily because a few companies are more comfortable with the status quo, in which they can milk existing investments in older technologies, than they are with the prospect of competing over technologies that are more beneficial to their customers.

It can be painful and difficult for a company to make the continuing improvements in energy efficiency that produce and maintain globally competitive products. So it's not surprising that some companies resist government policies that encourage innovation. But technological stagnation leads to a loss of jobs. We urge this Subcommittee to affirm its support for an appliance standards program that rewards innovation by American manufacturers.

2. National Appliance Standards as a Compromise Policy with Nationwide Benefits

Appliance efficiency standards have been promoted by state and federal officials and legislators of both parties in various forms since the early 1970s. Standards were adopted in response to legislation in several states by the mid-1970s, and were required of DOE by the National Energy Conservation and Policy Act in 1978.

Appliance standards were originally conceived as a way of remedying a problem in the consumer market for energy efficiency -- namely that, as explained by then-Congressman David Stockman in 1977, "The average consumer looks for a payback from higher purchase prices within three years. In the case of an appliance with a useful life of ten years, this short payback horizon severely limits the amount of higher purchase price the consumer will accept in choosing a more efficient product over a cheaper, less efficient product." Clearly, if the market requires that efficiency pay back five times its cost over a fifteen year product lifetime, the nation will achieve less efficiency than is justified purely on the economics, to say nothing of the environmental or energy security benefits.

National standards were supported as a compromise policy by different interests for different reasons. Environmentalists supported national standards because of their broader scope than state standards. Industry supported national standards because they preferred dealing with uniform standards at the national level rather than having to contend with potentially conflicting standards at the state level. This issue become particularly salient in the mid 1980s as several states -- led by both Republican and Democratic administrations -- adopted appliance and equipment efficiency standards.

Refinements of this tradeoff -- national standards that required significant technological innovation in return for preemption of state efforts -- were negotiated by NRDC with all major manufacturers in 1986. The resulting agreement was presented to Congress, and adopted in the National Appliance Energy Conservation Act of 1987 (NAECA).

NAECA was also supported by a broad coalition including states, gas and electric utilities, both public and privately owned, retailers, consumers, and other organizations. It ended more than a decade of disputes among these stakeholders in all three branches of government at both the state and the federal levels.

In supporting national appliance standards in 1987, manufacturers accepted the principle that the Department of Energy would regularly review appliance efficiency standards and propose new ones that would achieve "the maximum level of energy savings that is technologically feasible and economically justified." The standards would also have to save energy without compromising consumer convenience or features.

Manufacturers also succeeded in addressing major concerns over timing in the agreement embodied in NAECA. At their request, the law requires a minimum of three years between DOE adoption of a standard and its effective date. It also forbids DOE from increasing a standard for at least five years.

Many in the current Congress have advocated that environmental regulations be subject to tests of economic justification. Yet appliance efficiency standards have always had to meet this criterion by legislation. If an increase in a standard level is not cost effective to the consumer, and to the nation, then current law prevents DOE from adopting it. Similarly, if a potential standard reduces the usefulness of a product to the consumer, DOE may not adopt it.

States, in particular, agreed to the 1987 NAECA legislation because they were willing to give up their power to control the high energy costs of their citizens in return for national uniformity. But they expect DOE to consider their needs to save energy. Many states, therefore, have expressed grave concern over current proposals to reevaluate the deal that all parties agreed to in 1986 (or 1988 or 1992, depending on product type).

This Subcommittee should take particular note of the fact that the 1987 law specified dates and deadlines for DOE actions up through the year 2007. It is clear that the parties supporting the legislation, having spent considerable effort on reaching a mutually acceptable compromise, wanted that position to stick.

Many supporters of standards who agreed to the NAECA compromise are therefore concerned about the good faith of those advocating moratoria or other slowdowns in the standards process. For example, California Energy Commission Chair Charles Imbrecht chastised those manufacturers that have advocated a moratorium on standards in Congress, stating, "I believe that it is fundamentally incumbent and a matter of good faith that the trade associations that have not heretofore been active participants in upholding their end of the bargain that was struck when NAECA was approved, that they reconsider those positions."

Following this discussion, the Commission unanimously approved the attached resolution, stating that it "fully supports continuing implementation of national appliance standards by the U.S. Department of Energy as called for by NAECA"

NRDC would be deeply troubled about making changes in the appliance standards legislation -- whether directly or through the budgetary process -- that did not attract consensus support from all affected stakeholders. By changing the rules of the game, Congress would be opening the door to attempts by any affected party with a temporary political advantage to try to change appliance efficiency standards whenever they had the opportunity. This would be disruptive to manufacturers' ability to plan rationally for investments, and greatly raise the cost of compliance with standards.

Regulatory predictability is an important business consideration: nonconsensus change in the appliance standards program undercuts predictability. Moratoria on standards also compromise regulatory predictability. Environmentalists, too, are concerned about this prospect, because many of the energy-efficient solutions to our environmental problems require commitments to extended product development cycles.

Despite the protestations of some companies, standards also tend to improve profitability for manufacturers. The managers from some companies that testify before Congress may try to say that they expect standards to hurt profits. But what are these same companies' managements telling their shareholders? A survey of annual reports of companies making products regulated by appliance standards found that many companies attributed higher profits to the existence of standards, noting that it is better business to sell higher cost, higher value products than lower-end products, and that standards often make the market for the higher quality product. Interestingly, no examples were found of management reporting to their shareholders that standards had compromised profitability.

Similarly, several Wall Street analysts' reports on companies mentioned current or prospective appliance efficiency standards as a positive influence on the value of a company's stock; similarly, no negative projections were found.

Consumers are a major beneficiary of appliance efficiency standards, and have supported standards consistently both through their nationwide and state organizations and in responses to polls. Appliance standards typically save consumers two to three dollars in utility bills for every dollar they cost. Delays in standard setting penalize consumers by delaying the cash flow of savings. Every day of delay in adopting standards currently under consideration by DOE costs the nation's consumers $10 million.

3. Standards versus Market-Based Programs

Some representatives of companies opposed to appliance standards have argued over the years that "market forces", or voluntary programs, should be used in place of energy-efficiency standards. This argument attempts, misleadingly, to pit proponents of regulation against proponents of free markets.

NRDC supports energy efficiency, and is not wedded to any particular method for achieving it. Indeed, while some companies have talked a lot about market-based programs, NRDC has invested several personnel years of effort in trying to establish such programs. Ironically, when these programs look like they might be effective in promoting new technologies, some of the same companies that oppose standards also oppose the market-based programs.

NRDC has worked closely with utilities -- both public and investor owned, including electric, gas, and water companies -- a s well as government agencies in developing such market-based programs and making them succeed. Yet, virtually everyone who has tried to implement such a program recognizes that, in most cases, it is costlier to the consumer, directly or indirectly, and less effective than a standards program. For example, many utility-based programs have used rebates as a way of promoting new technologies and encouraging their acceptance in the market place. These programs have been successful, often achieving market penetrations well over 25%.

But, there is a price to pay: the cost of rebates must be borne by other utility customers, and some customers object to paying such costs. In California, NRDC has worked with others to develop a mechanism that allows utility participation in market-based programs even in a deregulated electricity sector. But in other states, less broadly accepted methods of deregulation are feared to undercut utility efforts to support market-based programs.

And in all cases, if the issue were obtaining savings through utility-based programs versus obtaining the same fractional savings but with higher market penetration through programs that cost nothing to the non-participants, they would clearly prefer the latter. Thus, even with an effective, broad-based market incentive program, there would still be a need for energy efficiency standards.

4. Protecting America's Economic Competitiveness

Besides their direct advantage to the American environment and the consumer, energy efficiency standards can also help protect the global competitiveness of American-made products. Up until now, appliances have been one of the few areas where imports have not cut significantly into domestic manufacturers' market share. In large part due to past state and federal standards, the efficiency of appliances has improved dramatically: refrigerators use less than 1/3 of the energy that they did in 1973, despite having gotten larger and having enhanced or new consumer features such as automatic defrost and through-the-door ice service. In other products, such as automobiles, when energy efficiency lagged, we have seen foreign competitors introduce new technologies to the American economy, and take over substantial fractions of the market.

On the export side of the picture, energy efficiency will be an increasing concern in the fast-growing markets of the developing world, where inefficient energy use means that it is impossible to supply sufficient amounts of electricity to meet consumer demand. As other countries increasingly look for advanced energy-efficiency technologies, the American economy will gain if our companies are offering the world's leading edge technologies. Appliance standards are a key tool in encouraging this desirable result.

5. DOE's Administration of Appliance Standards

During Congressional discussions of moratoria on appliance standards, many parties expressed concerns over DOE's administration of the Appliance Standards program. Many of these concerns -- particularly those revolving around the Departments' overly bureaucratic and non-transparent process for making decisions -- were shared by a broad spectrum of stakeholders. NRDC has participated in an eight month long process improvement effort sponsored by DOE, which has culminated in an Interpretive Rule published on July 15, 1996. This rule was developed with strong input from all stakeholders.

We believe that this rule resolves the legitimate concerns with DOE's process. The rule was designed by DOE to be responsive to stakeholder issues. But in many cases, the stakeholders disagreed on what changes to make. NRDC believes that DOE made a fair and equitable decision in its published rule. Many of the issues remain controversial: neither NRDC nor, we believe, any other stakeholder is fully satisfied with the results. But we believe that DOE has done a responsible and competent job at finding a justifiable middle ground and promulgating workable criteria that will solve the problems that have occurred in the last few years.

6. Summary and Conclusions

Appliance efficiency standards have multiple benefits:

• They save money for consumers, both homeowners and businesses

• They are a key part of the nation's policy for protecting human health through reduced pollution emissions

• They are a major component of an economically justified climate protection strategy

• They make American business more competitive and profitable

• They do it without the need for government subsidies or other programs with costs to non-participants

From a process point of view, the current law makes sense because:

• It represents a compromise between all affected stakeholders that was envisioned to last through the next decade and beyond; and

• It transfers authority over appliance efficiency standards from the state level to the federal level in a way that is acceptable to states.

Thus, NRDC supports continued and fully funded support of the DOE Appliance Efficiency Standards program and its underlying law by Congress. We are deeply troubled by the fact that a few stakeholders who previously supported the DOE standards programs are now going back on their word and advocating against national standards. Congress should support stakeholder efforts to work out their disagreements among themselves. Any nonconsensus changes in the appliance law -- whether these changes supported or retarded energy efficiency -- would be destabilizing, ultimately increasing costs and burdens to manufacturers and consumers.

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last revised 7/25/1996