A. The Proposed Rule
On December 19, 2014, the US Department of Energy (DOE) issued a Notice of Proposed Rulemaking (NOPR) on Energy Conservation Standards for Residential Dishwashers.1 The proposed rule has been authorized under Title III, Part B, of the Energy Policy and Conservation Act of 1975 (EPCA), which authorized the “Energy Conservation Program for Consumer Products Other Than Automobiles.”2 These products include residential dishwashers. Any new or amended standard issued under the act must be designed to “achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified” and must result in a “significant conservation” of energy.3 The NOPR details energy conservation standards for dishwashers that will become effective in 2019. It also summarizes studies by the DOE and others that purportedly show that the NOPR satisfies EPCA’s “maximum improvement” and “significant conservation” criteria. Current dishwasher standards were established in the DOE’s 2012 direct final rule, based on submittals by manufacturers, energy and environmental groups, and consumer groups and effective for products manufactured on or after May 30, 2013.4 EPCA requires that, within 6 years of issuing a final rule, the DOE shall publish either (1) a notice of determination that amended standards are not needed or (2) a NOPR that includes a new proposed standard.
B. Purpose of this Comment
The Regulatory Studies Program of the Mercatus Center at George Mason University is dedicated to advancing knowledge about the effects of regulation on society. As part of its mission, the program conducts careful and independent analyses that employ contemporary economic scholarship to assess rulemaking proposals and their effects on the economic opportunities and the social wellbeing available to all members of American society. This comment addresses the efficiency and efficacy of this proposed rule from an economic point of view. Specifically, it examines how the proposed rule may be improved by more closely examining the societal goals the rule intends to achieve and whether this proposed regulation will successfully achieve those goals. In many instances, regulations can be substantially improved by choosing more effective regulatory options or more carefully assessing the actual societal problem.
C. Summary of Comment
The NOPR provides, at best, a questionable rationale for the proposed rule. This comment concentrates on three aspects of the proposal:
1. Treatment of so-called “market barriers” to energy and economic efficiency. The NOPR’s implied estimate of consumers’ abilities to make rational decisions is significantly at variance with market reality. Markets for efficiency (in part through other DOE policies) have developed to a level at which we must rethink the presumption held by many economists: that market barriers still make governmental decisions more likely than private decisions to produce efficient outcomes.5
2. Uncertainty about benefits and costs. Uncertainty about magnitude of both benefits and costs is pervasive in the DOE’s analysis of the proposed rule. These uncertainties mean that small errors can change the benefit-cost balance. Some of these errors are remediable though further research, but others are inherent in the research methodology used by the NOPR’s authors.
3. Overestimates of benefits. The calculations exhibited in the NOPR are in important cases misleading, and important details are omitted or treated inadequately. In its analysis of the possible benefits of reduced US emissions under the rule, the NOPR arrives at estimates that are likely to be overestimates. Its treatment of benefits from the proposed rule to US residents being valued as benefits to the rest of the world is in violation of guidance from the Office of Budget and Management (OMB).
Further, the NOPR at numerous other junctures appears to depart from established methods of economic and policy analysis. Its treatment of the market responses and its consequent estimates of the profitability of appliance producers is highly ad hoc. Limits of time and space do not allow a full analysis of these and other difficulties here, but should not be ignored.6