December 20, 2013

Energy Conservation Program for Consumer Products: Energy Conservation Standards for Residential Furnace Fans

  • Robert P. Murphy

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The Department of Energy (DOE) is proposing to increase energy-efficiency standards for residential furnace fans.1 It is doing so under the authority granted to it by the Energy Policy and Conservation Act of 19752 and the Energy Independence and Security Act of 2007.3 Currently there are no standards in place. The DOE is required by the Energy Policy and Conservation Act “to consider and establish energy conservation standards for residential furnace fans by December 31, 2013.” 4 To that end, the DOE has proposed minimum energy-efficiency standards for residential furnace fans (both manufactured domestically and imported) that would apply five years after adoption, which is to say, beginning in the year 2019. 

Although the DOE presents a case to justify the proposed rule, there are serious shortcomings in each element of the justification. The rule will impose higher prices on consumers that, by the DOE’s own analysis, will take longer than three years to “pay for themselves” in seven out of eight product classes. (We mention this criterion of a three-year payback period because it underlies the “rebuttable presumption” for demonstrating economic justification for a conservation measure.) Further, the DOE’s own analysis shows that only a minority of Americans will experience net financial benefits for most of the product classes analyzed. Beyond these problems, the entire premise that the DOE must force consumers to save money for themselves is dubious; there could be perfectly “rational” reasons for them to opt for lower-efficiency products, such as facing higher financing costs than what the DOE assumed. 

The DOE’s estimate of benefits accruing from a reduction in carbon dioxide emissions is also problematic. In particular, the reported estimates of $11.5 billion in benefits at a seven percent discount rate is simply incorrect, as it ignores the most appropriate estimate for the social cost of carbon available, and it neglects to follow OMB guidelines to adopt a domestic (not global) perspective in assessing federal regulations. Correcting for these two issues makes the estimated benefits (from reduced carbon dioxide emissions at the seven percent discount rate) fall from the DOE’s reported figure of $11.5 billion down to a more accurate figure of $547 million. 

The alleged financial benefits to consumers from lower energy costs and the reduction in future climate-change damages because of lower carbon dioxide emissions constitute almost the entirety of the reported benefits of the proposed rule. As we have just explained, the DOE’s reported benefits from emissions reductions would fall by 95 percent (using a seven percent discount rate) if OMB’s guidelines were followed. Rather than resorting to a one-size-fits-all standard, the DOE could attempt to mitigate genuine consumer error through a voluntary educational campaign. This approach is more robust than the proposed rule, because it would still capture much of the net benefits (if they actually exist) for consumers, while it would avoid imposing net harms in the case that the DOE is overstating consumer irrationality. If the DOE maintains that it is obligated to issue an efficiency standard—rather than merely providing educational materials to consumers and businesses—then it is still the case that the present comment shows the DOE has not demonstrated that its recommended efficiency standard is economically justified, as required by statute. 

In the following sections, we will elaborate upon these and other considerations, to conclude that the DOE has not adequately justified the proposed rule. 

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