September 10, 2010

Energy Efficiency Standards for Commercial Clothes Washers

Proposed Rule
Summary

Score: 40 / 60

Additional details
Agency
Department of Energy
Regulatory Identification Number
1904-AB93
Agency Name
Department of Energy
Rule Publication Date
11/09/2009
Comment Closing Date
12/09/2009

RULE SUMMARY

On October 17, 2008, the U.S. Department of Energy (DOE) issued a notice of proposed rulemaking (NOPR) in which it proposed amendments to the energy conservation standards for several residential products and commercial equipment, including commercial clothes washers (CCWs). DOE decided to conduct additional, supplemental rulemaking analyses for CCWs to address certain alleged data problems. Today’s document details these supplemental analyses and proposes revised CCW standard levels for consideration.

Visit the Department of Energy's website to view the Regulatory Impact Analysis associated with this proposed 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 regulation can be found on regulations.gov using a RIN search. The RIA is not in the regulations.gov docket. The preamble includes multiple references to the RIA as a chapter in a Technical Support Document. No reference to the RIA for this notice includes a web address, but it can be found by going to the web address listed for RIAs conducted previously in this proceeding. Neither the proceeding nor the RIA turn up via intuitive links or using the search function on the DOE's home page. The chapter in the technical support document that is called the RIA focuses solely on assessing benefits of alternatives; the preamble addresses some other aspects of regulatory analysis. Assessing the quality of analysis for all of our criteria requires reading the entire preamble and the entire technical support document, not just the chapter called the Regulatory Impact Analysis. A non-specialist looking for the full regulatory analysis of costs and benefits of all alternatives and standards might overlook this.
2/5
2. How verifiable are the data used in the analysis?
Data are all on agency-dedicated websites with links when necessary. Some data sources are given in the RIA document, with full citations and sometimes links. Parts of the analysis are based on data from other chapters of the technical support document that includes the RIA. Similarly, the preamble refers the reader to the technical support document and previous RIAs and NOPRs for many data. Many data sources are mentioned in the preamble, occasionally linked. Most data sources in the technical support document are linked. Data provided by industry are in an appendix.
5/5
3. How verifiable are the models and assumptions used in the analysis?
The models used are straightforward and verifiable. DOE publicly posted spreadsheet models used to calculate the effects. Most assumptions for analysis of alternatives are based on studies or past experience with similar initiatives. A few assumptions are offered with little or no justification. Some assumptions presume that firms do not act in their own best interests, and hence must be forced to make good investments in energy efficiency. Sources cited are a mix of government, consulting studies, and peer-reviewed journal articles. Full citations are provided, but only a minority include links.
4/5
4. Was the analysis comprehensible to an informed layperson?
The RIA and supporting documents are well written but a little dense for the layperson. Many acronyms and shortcuts are used. Good use is made of charts and graphs. The chapter called the RIA is reasonably well-written, with a modest amount of jargon and insider language. Some parts have to be read twice to understand how the analysis got to the reported results. Much relevant analysis is in the rule's preamble or in the separate technical support document, and these are sprinkled with unfamiliar acronyms and much more technical language. Example: "For the final rule and this SNOPR, DOE updated the NOPR LCC and PBP analysis, as well as the LCC subgroup analysis, to reflect current energy costs." And the documents insist on using "CCWs" as an acronym for commercial clothes washers.
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?
Yes; consumer cost savings over the life cycle of the appliance that accrue privately, environmental benefits in the form of reduced water use and lower emissions, and security/reliability of the nation's electric system.
5/5
Does the analysis identify how these outcomes are to be measured?
The first three benefits are measured in pyhsical units and also monetized (in $2008), with the monetary savings converted to net present values.
5/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
The analysis assumes that there will be 100 percent compliance with the quantitative standard and that will produce the results. Theory is minimal—standards will produce savings because we can calculate the savings that result when consumers use washing machines with higher efficiency. Precisely why government action can give consumers savings that the consumers themselves do not appear to value is addressed only obliquely in the discussion of market failure (see below).
2/5
Does the analysis present credible empirical support for the theory?
The report is strong on the enginering and cost analysis but weaker on its behavioral assumptions. For the chosen alternative, the RIA just assumed that 100 percent compliance will lead to savings calculated as the difference between current levels and those produced by the standards. For other alternatives, size of effect is estimated based on experience with similar programs.
3/5
Does the analysis adequately assess uncertainty about the outcomes?
Some types of uncertainty are modeled with probability analysis but others are assumed away. The analysis uses distributions of input values to account both for variability of inputs (eg, electricity prices in different parts of the country) and uncertainty about some inputs (eg, equipment lifetime). A chart indicates which inputs are point values and which inputs are distributions. The inputs using distributions are all factors that affect operating costs, which drive the estimates of benefits. DOE conducted a Monte Carlo analysis.
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?
2/5
Does the analysis identify a market failure or other systemic problem?
For consumer products, the analysis suggests that consumers lack information or processing capability. Where parties other than the consumer (developers, landlords) make the purchase, the analysis suggests transaction costs or asymmetric information create a market failure. RIA admits that these problems are unlikely for commercial clothes washers. It also mentions external benefits such as environmental effects and energy security. So, the analysis names some potential market failures but does not even argue strongly that they exist in this context.
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?
Consumer-related market failures are briefly explained. The RIA section refers the reader to a 2008 NOPR for a fuller discussion of the market failure issue. The reader is left wondering why regulation is necessary to confer large savings on consumers. There is no clear explanation why firms don't act in their own best interests when most of the benefits of the regulation acrue to the same firms.
2/5
Does the analysis present credible empirical support for the theory?
DOE solicited data that would let it test these theories, but it did not test them because no commenter supplied the data.
1/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
The problem and its size are assumed with certainty to exist. This regulation and RIA present an excellent example of how an agency can reach paradoxical results and ignore possible alternative solutions if it doesn't do the market failure analysis carefully.
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?
A large number of alternatives and alternative standards are assessed. It identifies no action plus six non-regulatory alternatives: consumer tax credits, consumer rebates, manufacturer rebates, voluntary standards, early replacement, and bulk government purchases. DOE also considers standards of varying stringency.
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)?
Alternatives range from voluntary standards, to various incentive-oriented approaches, to the proposed mandatory standards. This is a creative and wide-ranging list of alternatives for inducing customers to purchase washing machines that meet the proposed standards. However, it does not consider other means of accomplishing the environmental outcomes that don't involve inducing customers to buy washing machines that meet the standards.
5/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
The analysis assesses how alternative approaches would affect market share of washers that meet the standards, energy savings, water savings, and net present value of monetized energy and water savings. The analysis estimates effects on costs, employment, emissions, etc. of alternative standards.
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?
The baseline assumes no change over 40 years even though the analysis finds that the standard is strongly in the private interests of the firms that buy the machines. Baseline "by definition" assumes that no new action generates no energy savings. Thus, it fails to consider whether other marketplace developments might improve energy and water efficiency in the future—especially given forecast increases in electricity and water prices.
1/5
8. How well does the analysis assess costs and benefits?
4/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
It appears to be pretty comprehensive; the main cost is the increased price of washing machines.
4/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
The cost analysis is quite complete.
5/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
The analysis calculates effects on the price and operating cost of washing machines. It does not consider lost consumer surplus due to higher prices. It considers whether the standards would affect gas or electricity prices but concludes they would not.
4/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
The analysis implicitly assumes that firms fail to maximize profits. The analysis incorporates elasticities of demand but solicits further comment, because it uses elasticities that come from studies of consumers rather than laundromat and apartment building owners. Elasticities are used to forecast sales but not to estimate deadweight loss. The RIA considers "rebound effect" but concludes that a small amount of research indicates it is not significant in this case. DOE projects an increase in employment because the standards would raise costs and its model assumes employment increases in proportion to the cost of goods sold; this is questionable.
2/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
Ranges of costs are provided.
4/5
Does the analysis identify the alternative that maximizes net benefits?
The analysis calculates life-cycle cost savings for standards of different stringency, which is the equivalent of calculating net private benefits and costs. It also calculates net social costs and benefits.
4/5
Does the analysis identify the cost-effectiveness of each alternative considered?
Formal cost-effectiveness analysis is not performed, but data are there that could be used to do one.
2/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
The analysis considers effects on different types of manufacturers. It also considers the possibility that the poor will bear a disproportionate burden, but concludes the poor are just as likely to benefit from commercial laundry facilities' reduced operating costs. DOE calculates the life-cycle cost and net effects on low-income households, senior citizens, consumers not served by municipal sewer and water, and small laundromats and rental property owners. It considers the percent of consumers who will receive net benefits, no net benefits, or pay net costs.
5/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
When estimating change in life cycle costs, a separate analysis was performed for the groups discussed above. Incidence of environmental benefits was not estimated.
4/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
The change from the NPRM to the SNPRM a year later indicates that data and analysis played a role in modifying the proposal. DOE says it is considering higher standards but tentatively concludes that they might not produce the estimated benefits and might also produce other undesirable effects. A separate RIA section of the technical support document assesses benefits of alternative approaches and concludes the mandatory standards are the most effective method to achieve the goal. A complicated but helpful graphic in chapter 2 of the technical support document explains how different parts of the analysis are supposed to produce specific types of information and/or affect the decisions.
4/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
Legal standard: the new standards must achieve the maximum energy savings that are economically justified and technologically feasible. DOE believes these standards are the highest that meet this requirement. The preamble contains a detailed discussion of how DOE used the results of the analysis to choose the standard. It appears DOE did not choose the standard that maximizes net benefits because that standard would significantly harm manufacturers, reduce competition, and create incentives for consumers to substitute less efficient but less expensive top-loading units for front-loading units (a cross-price effect that was not included in the analysis).
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, but the benefit measures used in the RIA—consumer cost savings and emissions reductions—could be used as measures.
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?
DOE does not address future evaluations. Data on actual energy and water use by these machines, and actual sales, could be gathered after installation.
2/5
 
Total 40 / 60