July 2, 2015

Energy Conservation Standards for Residential Furnaces

Key materials

Background 

The Department of Energy (DOE) is proposing to increase energy efficiency standards for non-weatherized gas furnaces and mobile home gas furnaces, with the expressed goal of reducing environmental impacts of energy consumption and enhancing consumer welfare through savings from lower energy use. The estimated consumer savings constitute the overwhelming share of the regulation’s benefits and are crucial to justify its substantial costs.

In a new public interest comment for the Mercatus Center at George Mason University, research fellow Sherzod Abdukadirov shows that the DOE fails to present convincing evidence that the energy efficiency standard will produce the savings for consumers the agency claims. Instead of imposing a one-size-fits-all rule on consumers as the agency proposes, consumers would be better off with freedom to choose products according to their own needs, leaving the market to determine the correct standards, with DOE helping to better inform consumers in their decision-making, instead of constraining their choices.

Findings 

The DOE fails to present convincing evidence that the energy efficiency standard will produce the estimated consumer savings:

  • DOE’s analysis shows that many consumers, especially low-income consumers, would be worse off under the amended standard. 
  • Studies show that engineering models may overstate the true extent of energy savings. 
  • Consumers may rationally opt for less efficient furnaces due to concerns over high upfront cost of efficient models or other considerations not included in the DOE model.
  • Even when consumers do undervalue future energy savings, the DOE’s evidence in support of amending energy efficiency standard is insufficient. There is a growing market for products that help consumers correct their mistakes and choose more efficient products, which renders DOE’s regulation redundant. 

Recommendation

Instead of imposing a single standard on all consumers, the DOE should help consumers make an informed choice, and let markets address the sources of consumer error.