November 12, 2013

Energy Conservation Program: Energy Conservation Standards for Walk-In Coolers and Freezers

  • Antony Dnes

    Chair in Economics, University of Hull in the UK
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Click here to view the Regulatory Impact Analysis for this rule.

The Department of Energy (DOE) wishes to implement additional energy conservation standards for walk-in coolers and freezers. Its proposals go beyond the current standards developed from the 1975 Energy Policy and Conservation Act, which requires the DOE to consider from time to time whether more stringent standards would be technically feasible and economically justified. The DOE claims its new proposals meet both requirements, but its economic analysis is poor because of significant omissions. 

The proposals are not transparently described in the Regulatory Impact Analysis (RIA) or elsewhere. The DOE refers to tabulated data covering refrigeration systems, panels, nondisplay doors, and display doors, all rated at different heat outputs and energy inputs.1Broadly, the proposals are based on the selection of one trial standard level from among five, based on an assessment of technical feasibility, economic impact, employment effects, and reduced carbon emissions. 

This notice of proposed rulemaking (NPRM) focuses on the details of the selected conservation standard, rather than a step-by-step account of how it was chosen. With 15 separate product standards embedded in the chosen conservation standard, it is not possible to give a meaningful overall figure for the tightening of standards, some of which are cited as formulae. Energy savings, financial impacts on manufacturers, cost changes facing consumers, and reduced NOx and other assorted emissions are all assessed at the national level. Reduced emissions of CO2 are valued in terms of the international (‘global’2) Social Cost of Carbon (SCC), measuring the greenhouse impact of the chosen standard. The global SCC is approximately four to 14 times the national figure and thus imparts a bias in favor of tighter standards from the DOE’s analysis. 

The key to understanding the NPRM is in the assumed technical changes to be adopted by manufacturers in meeting the proposed standards. Clearly, the proposal is more restrictive in terms of energy efficiency than other conservation standards, except for the one that was rejected as unduly burdensome to small businesses. To put this into perspective, the DOE estimates that the present value of the cost impact of its proposal on consumers of walk-in coolers and freezers over a nine-year period will be $1.98 billion (2012 dollars, using a seven percent discount rate). It further estimates the total energy savings, compared with doing nothing more now, over the period from 2017 to 2046 to be 5.39 quadrillion British thermal units.3Consumers will, in general, value non-energy product characteristics, such as ease of use, aesthetic properties, noise levels, and the practical storage features attached to coolers and freezers, and tend to trade off certain characteristics for others—which is why we do not all end up buying the same product. Indeed, the DOE admits as much in its rejection of one highly energy-efficient standard because of its disproportionate cost impact on small businesses, but does not develop this idea by widening its approach further, as it should. 

The proposal is to be commended for including the possibility for a manufacturer to demonstrate it already has technology that will yield results equivalent to one that would follow from the proposed standards. Unfortunately, the route for validating alternative approaches amounts to meeting a rebuttable presumption that a manufacturer’s technology is not energy efficient, which shifts the costs of showing the presence of “good” technology onto the manufacturers. The DOE has effectively framed private-sector decision making as inefficient, even though there is a good argument in favor of the view that manufacturers would respond to consumer demand for cost-effective, energy-saving coolers and freezers. Over time manufacturers will bear the cost of demonstrating that their technology is indeed efficient, and the very process of doing so will create a perception that regulatory intervention really is necessary because private-sector decisions are obviously not trusted to be optimal.

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