National Academy Of Sciences Report On Energy Efficiency Standards May Have Come Too Late

In recent years, a debate has raged over the Department of Energy (DOE)’s equipment standards, which regulate how much energy consumer and business products can use in their operations. A new report from the National Academy of Sciences (NAS) could help settle at least a few unanswered questions, but it may have come too late to have much impact.

Here is some background followed by a few of the report’s findings.

When the DOE proposes new energy standards, it produces economic and engineering analyses that predict what the standards will accomplish in terms of energy usage and value for society. Over time, debates about equipment standards have devolved into debates about the assumptions contained in the technical analysis, since the most important assumptions ultimately end up driving many DOE conclusions.

When Donald Trump became president in 2017, some observers expected his administration to make changes to the way DOE conducts analysis, as some DOE practices are particularly controversial. For example, when the agency removes certain appliances from the marketplace through its energy standards, it touts the outcome as a benefit to the end consumer. Implicitly, and explicitly in some cases, DOE is saying that consumers make poor decisions when purchasing appliances and that DOE knows better.

Rather than update the analytical methods, however, in 2019 the Trump DOE commissioned a report from the NAS asking for feedback on its methods. The thinking may have been that in the absence of a trusted third-party recommendation, changing assumptions in DOE analysis would prove too controversial, and by extension be easily reversible by a future administration. Therefore, the NAS, a prestigious Washington institution, could give scientific legitimacy to changes.

Around this same time, in February of 2019, the DOE published a notice of proposed rulemaking to update and modernize what is known as the “Process Rule.” This is a regulation DOE imposes on itself, first enacted in 1996, establishing the process by which it sets energy standards. The Trump administration was proposing changes, including defining what constitutes “significant” energy savings for new standards, which could affect how often standards get updated going forward.

The Trump update to the Process Rule was finalized in February of 2020, so it may have been unlikely the NAS report could ever inform that effort. Moreover, the coronavirus pandemic and other unknown factors seem to have added significant delays. As a result, the report wasn’t released until December of 2021, long after President Trump left office. In fact, the Biden Administration had already succeeded in repealing the Trump-era update of the Process Rule before the NAS report was even published.

The members of the NAS committee have now written a letter to the Biden DOE seeking for the public comment period on the repeal of the Trump-era Process Rule to be reopened.

Whatever the outcome of that effort, it’s worth pondering what the NAS report says, as well as its relevance. Despite appearing to arrive too late to have much short-term influence, the report does include some useful recommendations:

First, the report recommends that the DOE reorganize its economic analyses to conform with a format closer to one other agencies follow when they submit “regulatory impact analyses” to the Office of Management and Budget. Currently, engineering components dominate DOE’s analyses, which can run over 1,000 pages in some cases. This recommendation would potentially put economics—which could speak to the trade-offs of various engineering approaches—more front-and-center in regulator decision making.

Next, NAS asks the DOE to better justify its rationale for regulating, including by identifying whatever market failure the agency hopes to correct. As noted earlier, DOE often assumes consumers and businesses are making mental mistakes or other socially suboptimal decisions when purchasing energy-consuming products. NAS is asking for DOE to back up those claims with evidence.  

The NAS report also recommends the DOE better track the results of its rules, so that reviews can be conducted later comparing predictions made before a regulation is enacted with real-world outcomes after it takes effect. Given the significant uncertainty surrounding DOE’s predictions, better and more quantitative accounting of uncertainty upfront would also be an improvement, according to the NAS committee.

These are all reasonable recommendations, which hopefully DOE will consider regardless of whether they are adopted in a formal regulation, such as the Process Rule.

Finally, there are also several topics the NAS report did not touch on, which is unfortunate, because improvements in these areas could also shore up DOE analysis.

For one, DOE makes no effort in its analyses to determine how its regulations affect real resource utilization. A regulation might impose compliance costs on businesses or save some consumers money through lower utility bills, but DOE makes no distinction as to whether those dollars saved and spent would be invested in the economy or instead lead to increased consumption. The efficiency basis of a rule critically depends on this information, but the NAS report was strangely silent on the issue.

Second, DOE’s analyses include an assortment of figures which are often not directly comparable to one another but are added together regardless. For example, the lives presumably saved by a regulation, as well as health improvements from reduced air pollution, tend to be valued based on what domestic residents of the United States are willing to pay for them. However, a subset of pollution benefits related to carbon dioxide emissions are sometimes valued based on what the whole world would pay for them. These various benefits and costs are added together despite being based on different underlying methodologies.

While a debate is ongoing about the proper scope of an economic analysis, all reasonable people should agree that once a perspective is selected—domestic or global—all benefits and costs in the analysis should be valued from that perspective. Yet this principle is not adhered to by DOE, and the NAS committee had nothing to say on the matter.

Most concerning of all is not anything in the report itself, but rather the reputational hit the NAS may take for failing to release its report in time to inform an important policy debate. There is a strong chance that future administrations may not bother with NAS committees if they believe reports won’t surface until they are out of office. The most likely lesson from this whole episode may have nothing to do with the DOE or its energy standards, but rather be that the NAS is in danger of becoming irrelevant.

Susannah Barnes, an MA fellow with the Mercatus Center at George Mason University, contributed to this article.