• Do Republicans support energy efficiency?
• Should the government intervene to promote efficiency?
• What effect do efficiency measures have on costs?
• Do efficiency standards really reduce energy usage?

Congress Set To Push Energy Efficiency Bill

Bipartisan Energy Efficiency Bill Introduced Into Senate. The World Resources Institute described the “Shaheen-Portman energy-efficiency bill”:

New energy efficiency legislation has been introduced by Senators [Jeanne] Shaheen [D-NH] and [Rob] Portman [R-OH] that could come before the U.S. Senate as early as this month. This bill, formally known as the Energy Savings and Industrial Competitiveness Act of 2013 (S. 761), provides goals, incentives, and support for energy efficiency efforts across the U.S. economy. Passage of this bill would be a positive step toward saving money through improved efficiency while helping reduce greenhouse gas emissions.

On May 8th, the Shaheen-Portman energy-efficiency bill passed the Senate Energy and Natural Resources Committee by a 19-3 vote. In a period where Congress has struggled to pass new legislation, it is notable that this bill has broad, bipartisan support and was voted out of committee with seven Republicans and 12 Democrats in favor. The bill is a slimmed-down version of earlier legislation introduced as S.1000 in 2011. Through a mix of building codes, financing, voluntary labeling, technical assistance, and rebate programs, the bill promotes efficiency improvements in residential and commercial buildings and industry. [World Resources Institute, 7/25/13, emphasis added]

• Senators Shaheen and Portman are reportedly committed to a deficit-neutral bill, and have dropped a provision from the bill to reduce costs. [E&E News, 6/3/13]

FACT: Promoting Efficiency Has Historically Enjoyed Bipartisan Support

MYTH: Government Promoting Efficiency Is Left-Wing

• Syndicated columnist Charles Krauthammer called light bulb energy efficiency standards the “nanny state gone wild. If you don't trust people in the market, we have to have a new system of government.” [Fox News, Special Report with Bret Baier, 3/22/11, via Nexis]
• The Heritage Foundation wrote that the Shaheen-Portman bill is “nothing more than corporate welfare and government paternalism.” [The Heritage Foundation, 7/24/13]
• Fox News contributor Charles Payne claimed that energy efficiency standards for light bulbs were designed to push a “tree-hugger” ideology. [Media Matters, 7/15/11]

Fox News Figures Have Expressed Support For Energy Efficiency And Conservation. Several Fox News figures have expressed support for energy efficiency and conservation, and suggested they would support policies to promote them:

• BILL CLINTON: No but I think the idea of moving to a cleaner energy future and doing more energy efficiency --

       BILL O'REILLY: Love it.

       CLINTON: -- makes smart sense. [Fox News, The O'Reilly Factor, 12/20/11, via Nexis]

• O'REILLY: Everybody can conserve in this country and everybody should and I think the Bush administration made a major mistake saying conservation shouldn't be a policy. It should be a policy because it costs nothing. Everybody can be a little less selfish and help out. [Fox News, The O'Reilly Factor, 5/29/01, via Nexis]
• SEAN HANNITY: I think we could have new technology. I believe in conservation. I believe these are gifts from God. We've got to be good stewards. [Fox News, Hannity, 11/6/08, via Nexis]
• SARAH PALIN: We've got to remind Americans that the effort has got to be even greater today toward conservation because these finite resources that we're dealing with obviously - once oil is gone it's gone, once gas is gone, it's gone. And I think our nation has really become kind of spoiled in that arena. [Fox News, Hannity's America, 10/12/08, via Nexis]
• LAURA INGRAHAM: Encourage conservation. I'm with you on the conservation. [Fox News, The O'Reilly Factor, 7/20/08, via Nexis]
• O'REILLY: We're big conservation people. [Fox News, The O'Reilly Factor, 11/25/05, via Nexis]

Reagan Signed Appliance Efficiency Standards Into Law. The Los Angeles Times reported at the time:

President [Ronald] Reagan signed legislation on Tuesday requiring national energy conservation standards for large appliances.

The efficiency standards apply to 12 specific classes of major home appliances, the White House said in an announcement. They affect such appliances as refrigerators, stoves and air conditioners. [The Los Angeles Times, 3/18/87]

George H. W. Bush Signed Various Efficiency Standards Into Law. USA TODAY reported at the time:

A sweeping energy bill aimed at curbing oil imports by reducing energy consumption in the United States has been signed into law by President [George H. W.] Bush.

The law sets new standards for lights and electric motors, eases licensing rules for nuclear power plants, uses tax benefits to promote renewable energy sources and opens the electric utility industry to competition.
But environmentalists are critical of the law, signed by Bush during the weekend, noting that Congress' two-year effort produced a bill lacking new auto fuel efficiency standards. Major provisions:

- New efficiency standards for lights, shower heads, electric motors and commercial heating and cooling systems, and measures to encourage utilities to provide energy conservation rebates. [USA TODAY, 10/26/92, via Nexis]

George W. Bush Signed Bipartisan Efficiency Standards Into Law. The National Journal reported:

At the time it was introduced, the [Energy Independence and Security Act of 2007] was championed by Democratic and Republican leaders alike. The original 2007 lightbulb efficiency language was cosponsored by Rep. Fred Upton, R-Mich., and Rep. Dennis Hastert, R-Ill. It passed easily through the House Energy and Commerce Committee and was added as an amendment to a bill that passed the Senate by a vote of 86-8, passed the House by a vote of 314-100, and was signed into law by President George W. Bush. [National Journal, 7/8/11]

Polls Show Widespread Support For Energy Efficiency Standards.

• A 2011 poll by the Consumer Federation of America found that “nearly three-quarters of Americans (72%) support 'the government setting minimum energy efficiency standards for appliances,' with strong support from 28%.” [Consumer Federation of America, March 2011]
• A 2011 poll conducted by the Natural Resources Defense Council, Consumers Union and several state public interest groups found that "[i]n Illinois, 85 percent of Democrats, 76 percent of independents, and 66 percent of Republicans support energy efficiency standards; in Michigan, 84 percent of Democrats, 76 percent of independents, and 69 percent of Republicans; in Ohio, 80 percent of Democrats, 73 percent of independents, and 68 percent of Republicans; and in Maine 86 percent of Democrats, 78 percent of independents, and 64 percent of Republicans." [Natural Resources Defense Council, 9/19/11]

FACT: Promoting Efficiency Corrects Market Failures

MYTH: No Need To Promote Energy Savings That Consumers Already Prefer

• Fox News co-host Andrea Tantaros said “energy efficiency -- yes, people are turning toward it. But they don't need the government micro-managing it. They don't need the government prodding us to do it.” [Fox News, The Five, 4/4/12, via Nexis]
• On Fox News, Denny Strigl, former CEO of Verizon Wireless, stated: “businesspeople in the United States, owners of buildings are smart enough to know a very simple concept: If they can get a return from the money that they spend, they will do that. So, if there was greening to be done, if there were energy savings to be had, my guess is that many of these business owners would have already done that.” [Fox News, Your World with Neil Cavuto, 6/13/11, via Nexis]
• In a National Review Online post, The Heritage Foundation's Nicolas Loris wrote that efficiency standards are unnecessary because “Businesses and families [already] make energy-saving investments when it makes sense to do so.” [National Review Online, 6/27/13, via The Heritage Foundation]

CBO Analyst: Less Than Optimal Decision-Making Involved In Energy Efficiency Choices. In a 2012 paper, Congressional Budget Office analyst David Austin identified several reasons why policies to promote energy efficiency would correct market failures, including that people are not paying for the social costs of pollution and have imperfect information about efficiency:

Meaningful energy savings could be achieved if, at each opportunity to install or replace a building technology, decisionmakers chose the optimal level of energy efficiency, taking into account trade-offs in purchase price, performance, and social costs.

In this paper, however, I argue that imperfections--relating to misperceived prices, imperfect information, and biased reasoning--in markets for energy-using products interfere with people's ability to make privately optimal decisions. The result is an energy-efficiency gap, or an “energy paradox”: Energy-efficient technologies with lower lifetime costs diffuse more slowly through the economy than would be expected given their cost advantages.

Because of energy's social costs--not only regional pollutants (primarily particulates and oxides of sulfur and nitrogen) and global greenhouse gases (primarily carbon dioxide) from energy production and consumption, but also local pollution, traffic, and noise from resource extraction and transport--there are social benefits from policies that narrow the energy-efficiency gap. Growing concerns about global climate change have made it important to identify ways of reducing greenhouse-gas emissions at relatively low cost. Policies that address imperfections in markets for energy efficiency can reduce polluting emissions at a cost that is relatively low compared with the benefits. With buildings responsible for a substantial share of U.S. energy consumption, such policies make buildings an important potential source of lower-cost emissions reductions.

[...]

By themselves, markets may supply imperfect information about energy efficiency because there may be little private return to the effort to figure out how to express that information in a way that would be most useful to consumers. [Congressional Budget Office, August 2012, in-text citations removed for clarity]

Paper: Irrational Underinvestment In Efficiency Justifies Intervention. As a research paper published by the Southeastern Environmental Law Journal explained, the irrational behavior of some consumers (as shown by underinvestment in energy efficiency and psychological studies explaining this pattern) distorts the market, justifying government intervention to promote energy efficiency:

For decades, economists and energy policy analysts have noticed the existence of an “energy efficiency gap” - a significant underinvestment in energy efficiency measures whose benefits outweigh their costs - among residential consumers. Promoting energy efficiency is generally the most cost-effective manner to reduce greenhouse gas emissions and to meet future energy demand, while simultaneously promoting economic growth and reducing poverty. Economists have attempted to explain the energy efficiency gap by applying theories of market failures that retain the underlying assumption that consumers generally act as economically rational actors. These theories partly explain the energy efficiency gap, but because they fundamentally misconstrue the reality of human behavior, traditional economic theories alone fail to adequately account for the energy efficiency gap. Social psychologists have discovered a number of predictable behavioral tendencies that contradict the rational actor assumption of economists. Many of these behavioral tendencies serve as significant cognitive barriers to investments in energy efficiency. Because traditional economists' explanations for the energy efficiency gap are incomplete, their public policy solutions to close the gap are likewise insufficient. Specifically, most traditional economists reject forms of public policy they deem paternalistic. The article describes a number of general factors that should be considered when determining whether a market intervention is justified and applies these factors to some specific policies designed to promote residential energy efficiency. The article finds that a suite of market interventions - such as financial subsidies and mandatory minimum energy efficiency standards for buildings, appliances, and electronic devices - is justified to address the energy efficiency gap. [Environmental Law Journal, 2010]

Another Market Failure Arises When Builders Buy Inefficient Appliances And Tenants Foot The Bill. A 2012 study by a Stanford University Ph.D. candidate explained that landlords and builders may be paying for cheaper but less efficient appliances if they will not be paying the energy bills for usage of the appliances. The study quantified this gap, finding it particularly large for space heating and cooling. From the study:

One of the biggest problems in the marketplace is the split incentives problem, where one party (the landlord, builder or manufacturer) makes decisions about energy impact, while another party (tenant, buyer or user) foots the bill. That means parties are usually systematically rewarded for inefficiency, such as a real estate developer who has an incentive to minimize first cost prior to flipping the property. These market failures and barriers to energy efficiency can be overcome through performance-based mandates (Supple and Sheikh).

However, just as there is no single cause and type of PA problem, there is no single solution.

A portfolio of policies, codes, standards, and strategies is necessary to correct the information asymmetry and mitigate split incentives. Recommended approaches include information and disclosure, incentives and financial assistance, minimum standards and policies, and effective messaging. [Stanford University, 6/1/12]

FACT: Efficiency Standards Bring Net Benefits

MYTH: Efficiency Standards Increase Net Costs

• The Heritage Foundation, in a report on proposed Environmental Protection Agency (EPA) regulations later promoted by conservative media outlets, claimed: “Efficiency mandates actually increase the cost of meeting carbon reduction targets by forcing technologies whose cost is not fully offset by savings.” [Heritage, 6/27/13] [Media Matters, 6/26/13]
• Several conservative media outlets have complained that fuel economy standards would increase the cost of a car without noting that reduced operating costs more than offset this increase. [Media Matters, 7/29/11] [Media Matters, 8/29/12] [Media Matters, 11/28/11]

Study: Enacted Efficiency Standards Will Save Consumers $241 Billion Net By 2030. From a 2008 study by the Lawrence Berkeley National Laboratory of efficiency standards implemented from 1988 to 2006:

This study estimated energy, environmental and consumer economic impacts of U.S. Federal residential energy efficiency standards that became effective in the 1988-2006 period, and of energy efficiency standards for fluorescent lamp ballasts and distribution transformers.

[...]

The estimated cumulative net present value of consumer benefit amounts to $241 billion by 2030, and grows to $269 billion by 2045. The overall ratio of consumer benefits to costs (in present value terms) in the 1987-2050 period is 2.7 to 1.

The study included the following chart showing the increasing net monetary savings for consumers and businesses from energy efficiency standards:

[Lawrence Berkeley National Laboratory, March 2008]

CBO Analyst: Benefits Of Efficiency Standards Outweigh Costs. A paper by Congressional Budget Office analyst David Austin found that in 2000, energy efficiency standards saved consumers $4.8 billion while costing only $2.5 billion upfront:

Federal appliance standards were first implemented in 1987. From 1987 through 2007, related federal spending totaled between $200 million and $250 million, or around $12 million per year (in 2012 dollars). The costs to consumers have been greater by several orders of magnitude: In 2000, appliance standards added an estimated $2.5 billion to consumers' appliance-purchase costs. However, the value of their energy savings, an estimated $4.8 billion in 2000 and around $64 billion cumulatively through 2005 in the residential sector, are greater still. [Congressional Budget Office, August 2012, in-text citations removed for clarity]

McKinsey: U.S. Could Save $1.2 Trillion In Waste Through Efficiency. The consulting firm McKinsey & Company found that the U.S. could eliminate more than $1.2 trillion in waste - “well beyond the $520 billion upfront investment” required -- while reducing the greenhouse gas emissions driving climate change:

The research shows that the US economy has the potential to reduce annual non-transportation energy consumption by roughly 23 percent by 2020, eliminating more than $1.2 trillion in waste--well beyond the $520 billion upfront investment (not including program costs) that would be required. The reduction in energy use would also result in the abatement of 1.1 gigatons of greenhouse-gas emissions annually--the equivalent of taking the entire US fleet of passenger vehicles and light trucks off the roads.

CBO analyst David Austin noted in a 2012 paper that this study estimated the savings that are technically feasible, whereas a report by the utility-sponsored Electric Power Research Institute found that, based on consumer willingness to adopt energy efficient technologies, the realistically “achievable” energy savings would be 10 percent by 2020, as opposed to 23 percent. [McKinsey & Co., July 2009] [Congressional Budget Office, August 2012]

Energy Efficiency Is More Cost-Effective Than Any Other Solution. To meet energy demands, utilities can save money by turning to energy efficiency improvements rather than adding more supplies of fossil fuels, according to an analysis by the American Council for an Energy-Efficient Economy:

In 2004, ACEEE reviewed the cost-effectiveness results from nine leading states. On the costs of “saving” kilowatt-hours (kWh) through utility ratepayer-funded energy efficiency programs, the reported utility costs of saved energy (CSE) ranged from $0.023 to $0.044 per kWh (with a median value of 3.0 cents/kWh).

This report updates and expands that assessment, and finds that the energy efficiency programs from recent years in 14 states have utility CSEs ranging from $0.016 to $0.033 per kWh, with an average cost of $0.025 per kWh. The six natural gas efficiency programs covered in this report also saved energy cost-effectively - spending $0.27 to $0.55 per therm, with an average of $0.37 per therm.

At these costs of saved energy (CSE), energy efficiency is by far the least costly energy resource option available for utility resource portfolios. Saving a kilowatt-hour through energy efficiency improvements is easily one-third or less the cost of any new source of electricity supply, whether conventional fossil fuel or renewable energy source. In addition, the results of this research suggest that the cost of energy efficiency has remained very consistent across states and over time. [American Council for an Energy-Efficient Economy, 9/1/09]

The Natural Resources Defense Council created the following chart based on those results and 2013 data from the nonpartisan Energy Information Administration:

[Natural Resources Defense Council, 6/26/13]

FACT: Efficiency Standards Lead To Significant Energy Savings

MYTH: “Rebound Effect” Will Erode Most Benefits Of Standards

• David Owen, a staff writer for The New Yorker, claimed that efficiency improvements “haven't shrunk our energy consumption” and suggested that "[o]n the contrary" it has expanded it due to people's tendency to use their energy efficient appliances more often (the “rebound effect”). [New York Times, 4/4/12] [New Yorker, 12/10/10]
• A New York Times article titled “When Energy Efficiency Sullies the Environment” stated that "[p]aradoxically, there could even be more emissions as a result of some improvements in energy efficiency, [a growing number of] economists say." [New York Times, 3/7/11]
• In a Wall Street Journal op-ed titled “The Hidden Flaw of 'Energy Efficiency,” the Institute for Energy Research's Robert J. Michaels said the rebound effect is a “problem,” without mentioning the economic benefits of providing increased services for the same amount of energy consumed. [Wall Street Journal, 8/20/12]

IEA: Rebound Effect Is “Very Small To Moderate.” The International Energy Agency examined the academic literature on the rebound effect -- the idea that by lowering the cost of energy, energy efficiency efforts can increase energy use -- and concluded:

Energy efficiency analysts who suggest that the rebound effect erodes some of the energy savings due to technical efficiency improvements do make a valid point, based on the empirical evidence. Some consumers and businesses will increase their demand for energy services as the cost of the service declines. But empirical evidence suggests that the size of the rebound effect is very small to moderate, with the exact magnitude dependent on the location, sector of the economy, and end-use. Most of the direct energy savings from technical improvements in energy efficiency in OECD countries remain even after the direct rebound effect is accounted for.

Those suggesting that the direct rebound effect will lead to a net increase in energy use appear to be grossly exaggerating the magnitude of the phenomenon. Nonetheless, policy makers and energy efficiency proponents should account for a small to moderate rebound effect in projections of the overall energy savings due to energy efficiency policies and programmes.

The agency included the following chart summarizing various rebound effects based on an “in-depth literature review”:

The IEA further noted that the rebound effect, while reducing efficiency gains, still provides economic benefits, if not environmental ones:

It is important to note that the direct rebound effect, to the extent that it occurs, is not evidence that energy efficiency is a failure. It simply means that some consumers choose to respond to reduced energy costs in part by increasing their level of energy service, for example by increasing their level of space heating or cooling, rather than minimising energy consumption and energy costs. Energy efficiency improvements still contribute to an improvement in “general welfare” whether by enabling a higher level of comfort, increased activity, or lower energy cost, or some combination of these responses. [International Energy Agency, August 2005]

Study: Direct And Indirect Rebound Effects Are Small. Carnegie Mellon researchers found that the direct and indirect rebound effects of energy efficiency (or “re-spending” effect) only total about 15 to 25 percent, meaning that 75 to 85 percent of the environmental benefits of energy efficiency standards are maintained. From a press release on the papers, which were published in the Ecological Economics journal:

“What we found is that even after households re-spend their budget savings on more energy or other goods and services, this contributes to a modest 15 to 25 percent rebound effect for the average household,” said [Ines] Azevedo, an assistant research professor in the Department of Engineering and Public Policy and executive director of CMU's Center for Climate and Energy Decision Making (CEDM). This means that energy efficiency investments lead to 75-85 percent of the environmental benefits found by studies that ignore re-spending behavior and rebound effects.

[Brinda] Thomas, a CEDM postdoctoral fellow, argues that the rebound effect can be beneficial if energy efficiency policies, such as Energy Efficiency Resource Standards that are now in place in 20 states, were complemented with climate policies. “With a carbon tax or cap and trade policy in place, this would ensure that society as a whole benefits when households spend the savings from an energy efficiency investment,” Thomas said. [Carnegie Mellon University, 4/18/13]

Report: Energy Efficiency Policies Associated With Decrease In Energy Use. In response to a report by the Breakthrough Institute, a report by CO2 Scorecard found that states with strong energy efficiency policies have lower energy use per capita than other states, undercutting the argument that the rebound effect eliminates the energy saving benefits of energy efficiency policies:

Using ACEEE's [American Council for Energy Efficient Economy's] 2009 data, we found that a 1% improvement in ACEEE's energy efficiency score [for state policies] leads to an estimated 0.18% decrease in energy use per capita at the state-level in the US.

[...]

These new findings verify what the US Energy Information Administration has been putting forth for over a decade: energy efficiency policies are central to cutting emissions. Just last year the EIA published estimates on building efficiency improvements using best available technologies, but the agency noted that even with the best technology, policies would still need to be in place to promote efficiency. Data further confirm these findings--as shown in the Exhibit-7, California, which is among the most energy efficient states and has pursued efficiency policies since 1974, was able to put a lid on the average per capita electricity consumption for over three decades--in comparison electricity use per capita increased at an annual rate of 1.4% for the rest of the US. If Rebound effects were as rampant as claimed by the Breakthrough Institute, we would not find a robust relationship between energy efficiency policies and lower electricity use per capita trend.

The report included the following chart, showing that California's energy use remained flat after adopting energy efficiency polices. Although California's energy use may have been impacted by several factors unrelated to efficiency measures including demographics, the paper found a “consistent and statistically significant” relationship between all 50 states' energy efficiency policies and their energy use per person.

[CO2 Scorecard, 1/12/12, via Think Progress]