Federal energy efficiency requirements are outdated and should be repealed

This is the second article in CEI’s Special Briefing Series: Defending the Personal Energy Choices of Americans.

Americans have experienced appliance inflation over the past few years and it could be about to get worse as the Biden Administration continues its onslaught of appliance regulations.  

While blaming Washington bureaucrats is always a reasonable response, in this case any problems that they are causing is a result of them exercising the authority granted to them by legislation passed at the height of the 1970’s energy crisis—the 1975 Energy Policy and Conservation Act (EPCA). 

EPCA gives the Department of Energy (DOE) authority to regulate nearly everything in a household that uses energy. While it doesn’t require DOE to continuously impose ever stricter standards, the reality is this is precisely what it does. Worse, this trend has worsened in recent years as the Biden Administration freely uses EPCA to advance its extreme agenda with ever stricter government standards, using climate change as a primary justification. 

While EPCA does grant the secretary of energy broad authority, current law also requires that certain factors, like the effect on cost and competition, the amount of energy saved and the need for energy conservation in general, be taken into account. Unfortunately, Washington bureaucrats not only routinely ignore these requirements in any meaningful way but choose instead to focus on extraneous alleged benefits like climate change.

This could be expected, perhaps, because the underlying justification for the efficiency regime established by EPCA has largely dissipated over time.  EPCA was born out of a time of perceived energy scarcity. But today, America has hundreds of years of known energy reserves and new technology is allowing for new discoveries and more efficient use of existing reserves all the time. 

In justifying the policies that EPCA ultimately set in place, President Gerald Ford laid out three broad policy objectives. These included reducing oil imports, ending American vulnerability to economic disruption by foreign suppliers, and developing energy technology and resources to supply a significant share of the free world’s energy needs.

In each case, America has achieved President Ford’s objectives.

The Energy Policy and Conservation Act has lost relevancy

In 1975, net imports of crude oil were close to 6 million barrels per day.  By 2020, the United States had become a net exporter. Geopolitical shocks and cartels, specifically the Organization of Petroleum Exporting Countries (OPEC), which produces about 40 percent of the world’s crude oil, can still have a near-term impact on American energy prices.  However, due to the large amount of energy on global markets, energy disruptions do not present the sort of systemic threat that policymakers feared in the 1970s.

The extent to which the United States economy remains vulnerable is purely a function of energy restriction policies, like Biden’s recent decision to ban energy development in parts of Alaska,  and have nothing to do with energy efficiency. Further, American technologies like fracking, the nation’s vast coal resources, and commercial nuclear reactors not only can keep America energy independent but also grow its role as a global supplier of energy.

Further, appliances of all sorts are becoming more efficient because that is what people want.  While the consuming public considers many attributes of the purchases they make, including capability and upfront cost, efficiency is clearly something Americans value. The government does not need to compel efficiency, the market demands it.

America is in an era of energy abundance, not scarcity

America has ample energy reserves. According to the US Energy Information Agency (EIA), in 2020 the United States held over 373 billion barrels of technically recoverable crude oil reserves, which would provide the US with over 50 years of supply.  The same is true for natural gas.  EIA estimated in 2020 that the US held 2,925.8 trillion cubic feet of technically recoverable natural gas. At current consumption levels, that equates to nearly 100 years of supply.

Further, new discoveries are always occurring that would expand this supply over time, which is demonstrated by the growing availability of unconventional sources like oil shale. According to EIA, the US currently holds 195.5 billion barrels of crude oil and 1,712.9 trillion cubic feet of natural gas in unconventional reserves. According to the Institute for Energy Research, conventional and unconventional reserves combine to provide nearly 300 years of energy supply at current consumption levels. These energy resources do not even account for uranium deposits, which are widely spread throughout the US, nor for advancements in other energy generating technologies. 

Any regulatory regime promulgated out of fears regarding energy scarcity simply can no longer be justified.

Compelled efficiency standards reduce competition

Energy efficiency regulations do not simply alter standards; they can effectively remove products and technology from the marketplace and reduce competition. This is antithetical to Congress’s wishes as evidenced by EPCA that makes clear that maintaining a competitive market for the covered products is an essential element of the cost-benefit calculation. Yet ultimately most rules have a tremendous effect on the market. Whether its gasoline engines, light bulbs, furnaces, or showerheads, every American will ultimately experience less choice in terms of price, availability, and capability. In some case, such as with incandescent light bulbs and some refrigerants, this is already the case.

What DOE does not appreciate is the positive benefit that technological competition and product variation has on long term market health, something even the White House has acknowledged.   According to a memo published on July 9, 2021, “Healthy market competition is fundamental to a well-functioning U.S. economy.” It goes on to point out that insufficient competition will lead to higher prices and lower quality.

By removing entire classes of technology and product lines from the market, efficiency standards limit incentives to lower prices, or even to increase efficiency further, because the regulation will have captured a substantial portion of the market for the preferred technology. Further, the efficiency standards eliminate opportunities for firms to specialize in specific offerings to gain market share. While some firms may retool to compete, it is unlikely that the market will support the same number of firms when they all must adhere to strict regulatory standards.       

This will almost necessarily lead to fewer firms offering fewer choices.  

Fewer firms and less technological competition will be bad for consumers and is antithetical to EPCA. Having a lower price option that may be less efficient competing against a more efficient higher price option will engender competition to develop technologies that move prices lower and efficiency higher overall. By eliminating half of the equation, these compelled standards eliminate an essential force to move technology forward. 

Congress, right or wrong, sought to improve consumer product efficiency when it passed EPCA, but it was not seeking to empower DOE to in effect ban products.

Empower Americans, not Washington

None of this is to argue that energy efficiency does not have value. It obviously does. However, that value is best determined by American consumers and businesses calculating the value of long-term savings against the near-term costs. 

The flexibility to assess economic tradeoffs is even more important to low-income Americans. According to the United States Office of Management and Budget, “some research indicates that energy efficiency regulations adversely affect lower-income consumers more than those who earn a higher income.” Scholarly research shows further that, energy efficiency regulation hits lower income Americans harder than energy taxes, which are recognized as being generally regressive. 

Indeed, marketplace choice provides the precise sort of flexibility that American consumers depend on to manage home economic challenges. 

DOE often attempts to justify increased near-term costs with alleged savings. Unfortunately, these savings are generally averages for an entire market and often do not account for variability for costs like installation fees and retrofits. The fact is that some families will necessarily incur much greater costs than others and DOE rarely reflects this reality.

This is a critical point when assessing how a proposed standard will affect individual Americans—especially those facing economic challenges. American are perfectly capable of weighing for themselves the value of additional efficiency against the additional costs associated with most compelled efficiency upgrades. Indeed, Americans are making those decisions, and many are opting for greater efficiency, which makes imposing these costs on everyone even less rational and justified. 

Conclusion

Given America’s energy abundance, the value of efficiency to consumers, and the importance of consumer choice, the president, be it President Joe Biden or a future president, should direct the secretary of energy to cease all efficiency related actions pending a review and certification that those actions are consistent with the word and spirit of EPCA. Simultaneously, Congress should begin work to significantly curtail, if not completely repeal, EPCA’s energy efficiency provisions. 

The conditions that gave rise to EPCA in 1975 are clearly no longer in place. Further, like most regulations, federal bureaucrats have taken the authority granted them by Congress to expand their power far beyond what anyone intended. The time has come for policymakers to stop complaining about ridiculous efficiency regulations and finally do something about it.

Jack Spencer is Senior Research Fellow for Energy and Environmental Policy at The Heritage Foundation.