December 27, 2011

Energy Conservation Program: Energy Conservation Standards for Fluorescent Lamp Ballasts

Proposed Rule
Key materials
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Additional details
Agency
Department of Energy
Regulatory Identification Number
1904–AB50
Agency Name
Department of Energy
Rule Publication Date
04/11/2011

RULE SUMMARY

The Energy Policy and Conservation Act (EPCA) prescribes energy conservation standards for various consumer products and commercial and industrial equipment, including fluorescent lamp ballasts (ballasts). EPCA also requires the U.S. Department of Energy (DOE) to determine if amended standards for ballasts are technologically feasible and economically justified, and would save a significant amount of energy, and to determine whether to adopt standards for additional ballasts not already covered by federal standards. In this NOPR, DOE proposes amended energy conservation standards for those ballasts currently subject to standards, and new standards for certain ballasts not currently covered by standards.

To view the Regulatory Impact Analysis for this rule, please visit the Department of Energy's Web site.

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 comes up on regulations.gov but it takes work to find it. The TSD is long and broken up into many chapters and appendices and can be found on regulations.gov. The RIA is included as an ending chapter, even though it is not a complete RIA since it focuses on comparisons of proposed standard with six non-regulatory alternatives.
3/5
2. How verifiable are the data used in the analysis?
Data are clearly sourced and linked throughout the analysis and most come from known sources.
4/5
3. How verifiable are the models and assumptions used in the analysis?
Models and assumptions are often clearly described and discussed in the technical support document's 17 chapters and 16 appendices. However, there is little such discussion as DOE states that earlier discussion (of other rulemakings) in a related matter has already gone over this issue.
3/5
4. Was the analysis comprehensible to an informed layperson?
Analysis was long and heavy reading for an informed layperson who would have difficulty piecing together the many separate analyses and discussions. It had the feel of an engineering report rather than a more comprehensive cost-benefit analysis of regulation. A separate appendix summarizes numerous acronyms. While NOPR was highly detailed, readers would find it somewhat disjointed and confusing as they are required to switch back and forth between different types of analyses.
3/5

Analysis

5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
4/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
Projected benefits stem from gains in net consumer cost-savings and environmental benefits from the energy saved from lower use of electricity. Though not quantified or elaborated upon, nonmonetary benefits include improvements to the security and reliability of the nation’s energy system as well as reduced costs for maintaining the reliability of the nation’s electricity system. These affect citizens' quality of life.
3/5
Does the analysis identify how these outcomes are to be measured?
Benefits and costs for products sold in 2014–43 are expressed in terms of annualized values and are the sum of (1) national economic value of benefits from consumer operation of products meeting proposed standards (primarily operating cost savings from using less energy minus increases in equipment purchase and installation costs and how they affect changes in lifecycle costs and payback periods) and (2) monetary value of benefits of emission reductions including CO2 emission reductions.
5/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
Proposed regulations increase efficiency of lighting and thus benefit household and industrial consumers. DOE estimates benefits of emission reductions associated with lower energy use.
4/5
Does the analysis present credible empirical support for the theory?
Numerous engineering studies assess effects of different standards on energy efficiency. Environmental analysis of impact on air emissions of amended energy conservation standards for ballasts are largely driven by changes in power plant types and quantities of electricity generated under each of the alternatives.
4/5
Does the analysis adequately assess uncertainty about the outcomes?
Benefits and costs are estimated with several discount rates and for primary estimates, low estimates (emerging technologies, roll-up scenario) and high estimates (existing technologies, shift scenario). To account for uncertainty and variability in specific inputs, such as product lifetime and discount rate, DOE uses a distribution of values with probabilities attached to each value. But, DOE states: "A recent report from the National Research Council 42 points out that any assessment will suffer from uncertainty, speculation, and lack of information about (1) Future emissions of greenhouse gases, (2) the effects of past and future emissions on the climate system, (3) the impact of changes in climate on the physical and biological environment, and (4) the translation of these environmental impacts into economic damages. As a result, any effort to quantify and monetize the harms associated with climate change will raise serious questions of science, economics, and ethics and should be viewed as provisional."
4/5
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?
After mentioning that the issue was discussed in “previous DOE standards rulemakings and a recent Notice of Data Availability (76 FR 9696, Feb. 22, 2011),” DOE notes the economics literature provides various reasons for why “consumers trade off upfront costs and energy savings in the absence of government intervention” thus providing the hypothesis that “regulation that promotes energy efficiency can produce significant net private gains.” In a later section they add, "There are external benefits resulting from improved energy efficiency of ballasts that are not captured by the users of such equipment. These benefits include externalities related to environmental protection and energy security that are not reflected in energy prices, such as reduced emissions of greenhouse gases." DOE does not offer credible empirical evidence that consumers are irrational in their current behavior since they have not directly drawn on studies of the issue at hand.
2/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal?
The economic rationale is indirectly discussed on page 79 (89 page) of the Federal Register notice. Five areas of evidence are argued to support the hypothesis that consumers undervalue future energy savings: (1) a lack of information, (2) a lack of sufficient savings to warrant delaying or altering purchases, (3) inconsistent weighting of future energy cost savings relative to available returns on other investments, (4) computational or other difficulties associated with evaluation of relevant tradeoffs, and (5) a divergence in incentives (e.g., renter vs. owner; builder vs. purchaser). Another reason offered is that consumers may lack perfect foresight and face a high degree of future uncertainty about cost-savings. There is little to support DOE's rationale for regulation in its documents. There is no discussion of why suppliers lack profit incentives to make these cost-savings apparent to customers other than there are opportunity costs to pursuing such a strategy.
1/5
Does the analysis present credible empirical support for the theory?
DOE concludes that, given the mix of evidence in the empirical literature, “analysis of regulations mandating energy efficiency improvements should explore the potential for both welfare gains and losses and move toward fuller economic framework where all relevant changes can be quantified. While DOE is not prepared at present to provide a fuller quantifiable framework for this discussion, DOE seeks comments on how to assess these possibilities.” Thus DOE does not present credible empirical support for the theory.
1/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
Basically argues that future research and comments should further advance such uncertainty about the existence or size of the problem.
1/5
7. How well does the analysis assess the effectiveness of alternative approaches?
4/5
Does the analysis enumerate other alternatives to address the problem?
DOE identified six major, non-regulatory alternatives to standards as representing feasible policy options to achieve potentially similar improvements in ballast energy efficiency.
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)?
The six alternatives are: no new regulatory action, consumer rebates, consumer tax credits, manufacturer tax credits, voluntary energy efficiency programs, and bulk government purchases. There is no discussion of using taxes to raise energy prices that would also promote greater incentives for consumers and producers to want greater energy efficiency and that might also lower environmental harm.
4/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
DOE developed estimates of the market penetration (i.e., what percent of consumers below the target efficacy level would migrate to the higher efficacy product) of high-efficiency products with each of the non-regulatory policy alternatives and compared them to the NIA (national impact analysis) base case. With these modifications, DOE calculated the NES and NPV of each non-regulatory alternative and compared it to that of the proposed standards, which correspond with trial standard level (TSL) 3.
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?
Because the alternative of No New Regulatory Action has no energy or NPV impacts, essentially representing the NIA base case, DOE did not perform additional analysis for that alternative. DOE appears to assume that no new regulatory action yields zero energy savings and NPV and thus implicitly assumes market will not evolve toward lowering energy costs in absence of government action.
2/5
8. How well does the analysis assess costs and benefits?
4/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
DOE estimated energy savings and cost effectiveness of six non-regulatory policy alternatives (excluding alternative of no new regulatory action) for identified ballasts.
4/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
Analysis excluded any administrative costs for non-regulatory policies (including such costs decreases NPVs slightly). Analysis of impacts on manufacturers (estimates financial impact of more stringent energy conservation standards for each product by comparing changes in INPV between base case and various trial standard levels TSLs in standards case) and utility companies (changes in installed capacity and generation, by fuel type, and energy consumption) is conducted.
4/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
An engineering analysis estimated the manufacturer selling prices (MSPs) associated with more energy-efficient ballasts. A markups analysis converted estimated MSPs derived from the engineering analysis to consumer prices.
4/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
DOE considered the rebound effect that occurs after the installation of energy-efficient lighting equipment (consumers responding to cost savings associated with more efficient equipment that leads to greater product usage thereby diminishing some portion of the anticipated benefits from improved efficiency). Based on a summary of literature, DOE calculated a rebound rate of 8.5 percent in the residential sector and 1 percent in the commercial and industrial sectors. DOE also concludes any initial decreases in net employment would be caused by dominance of capital costs in early years, while impacts of operating cost savings from reduced energy use rise slowly over time, resulting in net positive impact on employment in later years. While DOE acknowledges there is a low recycling rate for fluorescent lamps, it ignores associated pollution effect.
3/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
Recognizing several inputs to LCC and PBP analysis are either variable or uncertain, DOE incorporated Monte Carlo simulation and probability distributions into models. DOE used two rates of discount to measure cumulative NPV of non-regulatory alternatives compared to proposed standards and considers primary estimates, low estimates (emerging technologies, roll-up scenario) and high estimates (existing technologies, shift scenario) of costs.
4/5
Does the analysis identify the alternative that maximizes net benefits?
Annualized monetized benefits and costs (using primary, low and high estimates and various discount rates) are identified over 2014-2043 for proposed standards along with "net benefits/costs." The benefit figure is a bit unusual because it nets out cost increases to consumers when calculating consumer benefits instead of categorizing them as a cost. "Net benefits/costs" are not calculated for policy alternatives.
3/5
Does the analysis identify the cost-effectiveness of each alternative considered?
DOE concludes that no policy alternative would save as much energy as and all have lower NPV than proposed standards level of TSL 3. The same conclusion was determined for its analysis of cumulative NES of non-regulatory alternatives. Cost per unit of outcome such as energy saved or carbon emission prevented were not disclosed but could have been. Also, several alternatives would require legislation, such as commercial customer or Federal tax credits, because there is currently no authority to carry out those alternatives.
3/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
DOE calculates net present value from national perspective of economic impacts on consumers over forecast period used in a particular rulemaking. Most analysis based on producers since consumers assumed to mostly gain. DOE reports impacts on different types of manufacturers, including analysis on small manufacturers. DOE considers impact of standards on domestic manufacturer employment and manufacturing capacity, as well as potential for standards to result in plant closures and loss of capital investment. DOE specifically assessed the impact of standards on low-income consumers, institutions of religious worship, and institutions that serve low-income populations. In considering these subgroups, DOE analyzed variations on electricity prices, operating hours, discount rates, and baseline ballasts.
4/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
DOE concludes that efficiency levels considered in NOPR will not affect any features valued by consumers, such as starting method, ballast factor, or cold temperature operation. Citizens gain from improved efficiency and environmental quality. Lifecycle costs savings were shown for various subgroups.
4/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
DOE had been directed to conduct two rulemakings to consider amending the current standards. This rulemaking fulfills the statutory requirement to determine whether to amend standards a second time. DOE appears to argue the proposed standard is best because alternatives do not save energy as efficiently or cheaply as the proposed standard.
4/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
DOE concluded the proposed standards represent the maximum improvement in energy efficiency that is technologically feasible and economically justified and would result in significant conservation of energy. Apparently proposed standards were chosen because DOE concluded alternatives did not save as much energy and all have lower NPV. "Net benefit/cost" is only presented for proposed standard.
4/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
None discussed, though cost-savings could be tracked, but it would be difficult to sort out the extent to which savings are solely the result of proposed standards since there are other changes likely affect such calculation.
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?
None discussed, though DOE requests information from manufacturers and also discusses that future estimates of social costs of carbon are likely to be different from what is used in its analysis.
2/5
 
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