September 28, 2011

Energy Conservation for Commercial Freezers and Refrigerators

Proposed Rule
Summary

Score: 34 / 60

Key materials
Additional details
Agency
Department of Energy
Regulatory Identification Number
1904-AB59
Agency Name
Department of Energy
Rule Publication Date
08/25/2008
Comment Closing Date
10/24/2008

RULE SUMMARY

The Energy Policy and Conservation Act prescribes energy conservation standards for certain commercial and industrial equipment and requires the Department of Energy (DOE) to administer an energy conservation program for this equipment. In this notice, DOE is proposing new energy conservation standards for commercial ice-cream freezers, self-contained commercial refrigerators, commercial freezers, commercial refrigerator-freezers without doors and remote condensing commercial refrigerators, commercial freezers, and commercial refrigerator-freezers.

Visit the Department of Energy's website to view the Technical Support Document for this Propsed Rule.

METHODOLOGY

There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.

Criterion Score

Openness

1. How easily were the RIA , the proposed rule, and any supplementary materials found online?
The NPRM but not the technical support document is available in regulations.gov. The NPRM does not provide a link to the analysis document. The reader already has to know how and where these technical support documents can be found on the DOE web page. Links on the DOE website are not very intuitive. Energy efficiency links no longer lead to these regulations. The reader has to go to "laws and regulations" in the site map. We did not find the technical support document until 2011, more than 2 years after the NPRM was published.
1/5
2. How verifiable are the data used in the analysis?
Most data are presented in appendices with sources also given. A substantial portion is available online.
5/5
3. How verifiable are the models and assumptions used in the analysis?
Sources are extensively referenced; about half also have links. DOE highlights where simplifying assumptions were made. It would have been useful to know why DOE believes the simplifying assumptions are generally true. DOE assumes that demand for refrigeration equipment is inelastic with no qualifying evidence. It is only one assumption but from the point of view of economic analysis a fairly major one. Spreadsheets used for calculations are available online.
4/5
4. Was the analysis comprehensible to an informed layperson?
DOE takes an unusual and complex approach to structuring the analysis for energy conservation regulations. It explains how it all fits together in Chapter 2 of the technical support document. Photos of a typical product in each class make it much easier for the reader to visualize what the regulation applies to. Explanations of calculations are tedious, and all but the simplest will be rough going for the layman. It is not very transparent how the higher cost of more efficient equipment affects sales -- a key relationship for understanding the analysis of alternatives.
2/5

Analysis

5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
3/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
The primary outcome directly linked to quality of life is life-cycle cost savings. Energy savings are also considered an outcome in their own right, with little explanation as to why. Reduced pollutant emissions are at best an intermediate outcome.
3/5
Does the analysis identify how these outcomes are to be measured?
The primary measures are energy savings, the monetary value of energy savings, the net present value of savings (or costs) taking energy savings and higher equipment costs into account, and pollutant emissions. Environmental benefits are expressed as emission reductions, not improvements in air quality or human health. The NPRM, but not the TSD, assigns a preliminary range of monetary values to the reduction in carbon dioxide, mercury, and NOX emissions. To the extent that most of the energy savings occur late at night, the social benefits may be over-estimated because the marginal social cost of baseload power plants is low.
4/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
No explicit theory is elaborated. Implicit theory is that 100% compliance with standards will lead to energy savings, with few perverse consequences that could increase energy use. The possibility that the regulation may motivate stores to keep inefficient equipment longer is mentioned but dismissed.
2/5
Does the analysis present credible empirical support for the theory?
Analysis assumes the outcomes will occur and calculates them. Given DOE's extensive experience with these kinds of regulations, one might expect that some kind of retrospective analysis of earlier regulations could demonstrate actual energy savings. For alternative policies, effects are estimated based on studies of similar programs.
2/5
Does the analysis adequately assess uncertainty about the outcomes?
Savings and payback periods are presented as probability distributions. Sensitivity analysis performed for fuel prices, assumed baseline efficiency level, and LED lighting costs. Energy savings were simulated in 5 different climates to see whether engineering analysis was accurate. DOE performed some sensitivity analysis accounting for stores that may not use lighting 24 hours a day, but retained the 24-hour assumption after manufacturers commented that 24-hour operation is highly likely.
3/5
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?
1/5
Does the analysis identify a market failure or other systemic problem?
No explicit systemic problem is identified anywhere in the technical support document. It is simply assumed that voluntary decisions have not led to the "right" amount of energy consumption. The NPRM says DOE-solicited information on market failures in the ANPRM, but received no response. It then asserts that these commercial customers lack information about energy efficiency for the equipment in question.
1/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal?
NPRM contains one assertion that store owners lack information because they don't replace equipment often. There is also an assertion that utility of display is more important to stores than energy savings, but this is not elaborated into a theory of why profit-minded retailers ignore energy cost savings. No explicit theory of environmental externality is presented either, although that would have been easy to do.
1/5
Does the analysis present credible empirical support for the theory?
The TSD notes that some equipment on the market already exceeds some of the trial standard levels. This presents an opportunity to analyze companies' decisions to adopt energy-saving equipment, but the analysis did not take advantage of this opportunity.
0/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
The problem is not well-defined, but some kind of problem is assumed to exist with certainty.
0/5
7. How well does the analysis assess the effectiveness of alternative approaches?
3/5
Does the analysis enumerate other alternatives to address the problem?
Several alternative policy approaches and multiple standard levels.
5/5
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)?
One chapter considers five reasonably different alternatives to the proposed standards: no new regulatory action, tax credits, customer rebates, early replacement, and bulk government purchases. For the standard, the RIA considered five "trial standard levels" in addition to the baseline. However, if the goal is to reduce energy consumption in general, then different ways of getting commercial users to buy more efficient fridges is pretty narrow. Even within that framework, numerous other approaches (such as requiring doors) were not analyzed due to legal constraints; this could have shed light on opportunity costs of the legal constraints.
3/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
RIA estimated net present value of energy savings for the first three alternatives, and concluded the others are impractical. TSD estimated energy savings, net savings to customers, and reductions in pollutant emissions for each trial standard level.
4/5
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future?
"Baseline" technology specifications appear to reflect what is done now, rather than a projection of what manufacturers or state governments will do in the future in the absence of a federal regulation. Analysis explicitly declines to incorporate effects of any voluntary market initiatives in the future due to lack of data, in spite of analysis that shows it's in the customers' own best interest to adopt more efficient technologies. Baseline for cost savings includes electricity prices projected by the Energy Information Administration.
1/5
8. How well does the analysis assess costs and benefits?
3/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
Analysis identifies incremental costs of all standard levels and three out of the five alternative policies. Costs are hard to separate out because they are buried in the calculation of life cycle costs and change in manufacturers' net present value.
4/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
Expenditures required to comply with alternative standards are analyzed in great detail.
5/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
DOE estimated how the costs would affect equipment prices for the customer using different markups that varied based on distribution channel. For electricity, a pretty good analysis using a partial equilibrium model of the energy industry is given. No consideration of how the regulation would affect the price of food is given.
4/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
Analysis assumes that firms fail to maximize profits. It fails to consider the fact that customers prefer the (supposedly more expensive overall) option. Absent some explained market failure that would imply a loss of utility at least equal to the measured gain in NPV. This deserves a fairly large deduction in points because it would dramatically change the outcome had it been considered. The shipments analysis assumes that equipment price has no effect on quantity of equipment purchased because DOE lacks data to estimate this effect. This allows DOE to estimate that the regulation will increase employment because manufacturing higher-efficiency units requires more labor. No analysis of a "rebound effect," whereby lower operating costs might lead to more intensive use (or less used of conservation measures, like night covers) or delays in replacing old equipment.
1/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
A sensitivity analysis explored the effect of fluctuating metal prices and LED lighting costs.
2/5
Does the analysis identify the alternative that maximizes net benefits?
Analysis identifies alternative with the lowest life-cycle cost, identifies costs borne by manufacturers for each alternative, and calculates the national energy savings associated with each alternative. This is not exactly a calculation of net social benefits (it excludes environmental benefits), but it allows DOE to make the comparisons the statute requires. The information would have been a lot easier to understand if it were crosswalked into OMB's required accounting statement of social benefits and costs.
3/5
Does the analysis identify the cost-effectiveness of each alternative considered?
This was not done. If the information had been presented as a social accounting of benefits and costs, then energy savings could have been divided by cost to estimate cost-effectiveness.
2/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
Effects on small business are analyzed separately. Small businesses would likely pay higher prices for equipment and have higher cost of capital, but they also pay higher prices for electricity, so the net effect on small business would be similar to the effect on other businesses. The TSD also estimates how the standards would affect electricity generation and generating capacity. Finally, an input-output model concludes that the effect on employment would be small. It is possible a big loss to retailers goes unmeasured because retailers may prefer to select equipment based on other criteria.
3/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
The main beneficiaries are apparently the customers who buy the equipment, who achieve lower life-cycle costs as a result of the standards, but for some unexplained reason they must be forced to save money. Environmental benefits, which presumably accrue to a broader group of citizens, are mentioned, but the analysis shows the regulation would reduce emissions by less than 1 percent. The effect on generation capacity was interpolated after a model found an effect smaller than random noise, which seems ad hoc.
2/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
The decision to establish standards was required by statute. DOE explicitly states that calculations guided selection of the standard level. A great deal of discussion in the NPRM deals with stakeholder comments and suggestions regarding various parameters and assumptions in the calculations.
4/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
The law requires that standards must "achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified." Comparison of benefits and costs is somewhat opaque due to the way the analysis is conducted. The NPRM presents some annualized, discounted benefit and cost numbers that suggest the standards maximize net benefits, although the calculations do not include environmental benefits.
5/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
No commitment to goals or measures. The RIA could provide a basis for establishing goals and measures, especially if the results were crosswalked into the regulatory accounting chart required by OMB.
1/5
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so?
No commitment to gather data for monitoring future performance. The description of the analytical process suggests that DOE could get access to data for retrospective analysis if it wanted to, and the RIA could provide a useful template for measuring costs and benefits.
2/5
 
Total 34 / 60