For over four decades, Presidents of both major parties have required agencies to quantitatively and qualitatively assess expected regulations before issuing them. Executive Order 12866, issued by President Clinton in 1993, continues to guide today’s regulation development. It requires agencies to conduct a regulatory impact analysis (RIA) that (1) identifies the public need for regulation, (2) evaluates alternative approaches to address that need, and (3) estimates the benefits and costs of those alternatives.1
In fulfilling this requirement, the U.S. Department of Energy (DOE) prepares RIAs for its energy and water conservation standards, and the latter are referred to as the National Standards Program in the context of the RIA. This chapter considers the RIAs as they appeared in the Technical Support Documents for the three rulemakings the committee was asked to evaluate (i.e., residential dishwashers, commercial refrigeration equipment [CRE] and residential furnaces). The discussion in this chapter is reviewing the analysis of various government interventions but is not advocating for any of the government interventions ‘real world.’
Broadly speaking, these RIA documents for the three rulemakings evaluate a small set of alternatives (see Box 5.1) in isolation rather than as an integrated part of the standard-setting framework. Because the purpose of the RIA is to ensure regulations do more good than harm—based on available ex ante information—and endeavor to maximize public welfare, greater attention to the RIA could improve the consumer impacts and societal outcomes of DOE’s standards.2 As previous chapters discuss, the costs and benefits of efficiency standards depend critically on context, including characteristics of the environment within which the appliance or equipment is installed; how homeowners or commercial businesses use the appliance and; characteristics of the manufacturing market. These and other drivers are affected by regulatory regimes that can both directly shape the environment or shape household and business incentives in a way that affects appliance and equipment purchases and use. While RIAs are used by DOE to identify alternatives to a proposed standard, RIAs also identify the context within which a potential standard can be evaluated, both improving the standard setting process within DOE as well as elucidating alternatives for other regulatory entities.
In evaluating how the RIA treats these alternatives to the National Standards Program, the committee is not advocating for any of them. Nor is there any judgment implied by the omission of any one
1 See OMB, 2003, “Circular A-4, Regulatory Analysis,” last modified September 17, https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf.
2 H. Beales, et al., 2017, “Government Regulation: The Good, the Bad, and the Ugly,” Regulatory Transparency Project of the Federalist Society, June 12, https://regproject.org/wp-content/uploads/RTP-Regulatory-ProcessWorking-Group-Paper.pdf.
intervention from the list. Rather, the committee is recommending these alternatives be considered in the RIA analysis.
The built environment is the building or system that the appliance and equipment performance standards can influence. Prominent examples include residential, commercial, and industrial buildings. Technology facets of buildings that substantially contribute to appliance and overall energy efficiency include the appliance’s surrounding built environment and the synergetic operation of the appliance with the building and adjoining components.
One example of this relationship is that the actual energy consumed by an HVAC device is a function of its rated efficiency over a range of expected performance; its size in relation to the building; the installation quality; the building’s windows’ and doors’ insulation; expected ventilation; ambient temperature and humidity vs. design parameters; and its operation. Similarly, for domestic water heating, the actual energy consumed depends on the ambient conditions, the water delivery systems’ thermal integrity, and the input water temperature and the water heater’s controls.
These relationships, as well as the independent operation of appliances, are far more complicated in actual use than in laboratory conditions. In an ideal world, energy-efficient appliances would be installed appropriately, optimally operated, and well maintained. In reality, appliances are not perfectly installed or well-maintained and operate under various circumstances unintended by designers. However, as is discussed further below, efficiency in larger commercial buildings is becoming more controllable by remote monitoring and control of connected loads.
Building commissioning addresses the integrated use of energy in buildings, from houses to highrises to industrial buildings. Commissioning involves monitoring key energy consumption parameters and using the building’s controls to make needed adjustments in an initial or start-up phase. Since the building and its major end-use devices are continually monitored, it also allows for optimizing maintenance and promptly identifying and rectifying malfunctions.
Some studies have suggested that building’s energy efficiency can degrade from 3-6% per year (Toole, 2006). One approach to address this is continuous commissioning, in which commissioning is not be limited to a building’s start-up phase, but used to optimize buildings through all seasons. Consequent operations monitoring of the building’s heating, ventilating, and air conditioning (HVAC) equipment can detect and notify when retuning is needed. Once optimized, the building naturally starts a new degradation process if left alone. Connectivity provides a method to economically monitor the building equipment’s ongoing performance by reporting consumption and parametric data that can be analyzed to find (1) when the loss of efficiency occurs and (2) what to do to return the efficiency to optimal operations. In many cases, this can be accomplished autonomously or by a remote capability. In other
cases, a technician or engineer can be dispatched to repair the problem. The key is to know when and what as soon as degradation occurs. This ongoing monitoring and response service can be provided at a lower cost than the increased cost due to degradation, primarily because of connectivity. One study cites paybacks for continuous improvements identified at typically less than 3 years and energy savings of between 15 and 35%.3 Manufacturers’ literature describes the initial operation of end-use energy-consuming devices and appliances and many already includes commissioning guidelines for those devices.
The committee considered whether appliance and equipment standards could be designed to regulate the minimum efficiency of a device, as it now does, and also regulate attributes of how and where it is installed and the controls which are later applied to it and decided that aside from possibly adding attributes of appliance control, such changes are complex and impractical. Current state energy efficiency building codes address some of the relevant issues; geographic diversity from both a technical and political perspective adds additional complexity to national standard setting efforts.4 However, the attributes of appliance controls strongly influence the energy consumption of appliances and devices. Chapter 6 outlines a possible path aimed at including digital communications and sensors that could address this opportunity.
DOE’s RIAs consider the impact of several alternatives to the National Standards Program intended to modify consumer behavior to enhance energy efficiency, including consumer rebates and consumer tax credits (see Box 5.1). However, the RIAs consider each alternative individually, while the policy analysis literature emphasizes the effectiveness of a portfolio of responses, so that current RIAs are likely to understate the effectiveness of these options. In addition, these policies can be complementary to standards. For example, one study considered the combined effect of appliance standards, labeling and financial incentives and found them to be complementary (Ürge-Vorsatz et al., 2012). Similar results are found in the “Consumer Behavior Studies” funded by DOE5 under the American Recovery and Reinvestment Act of 2009, which attempted to use randomized control experiments to rigorously investigate how demand-side policies such as informational pamphlets and programmable thermostats complement real-time pricing to induce greater load shifting. (See Allcott, 2011.) Newer devices for
4 Codes and standards created by various scientific and engineering organizations with fairly broad applicability include
- The American Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) Standard 90.1-2019 is the current code. Many states delay adaptation from 3 to 6 years and often modify the code that they adopt.
- The Illuminating Engineering Society of North America (IESNA) publishes standards for the lighting industry standards. These standards guide lighting professionals and others via recommendations for product design, output and best practice. The International Code Council (ICC) publishes residential, energy efficiency and building code documents for code officials. The IECC (International Energy Conservation Code) uses substantial portions of ASHRAE 90.1. https://www.iccsafe.org/wpcontent/uploads/Code_Adoption_Maps.pdf.
- Air Conditioning Contractors of American (ACCA) publishes standards for residential air conditioners.
- The United States Green Building Council (USGBC) developed the Leadership in Energy and Environmental Design (LEED) program, which has become the most widely used green building rating system in the world.
Title 24 California Building Standards Code is perhaps the most complete set of requirements for “energy conservation, green design, construction and maintenance, fire and life safety, and accessibility,” and apply to the “structural, mechanical, electrical, and plumbing systems” in a building in California.
5 Further information available at U.S. Department of Energy, “Recovery Act: Consumer Behavior Studies,” https://www.smartgrid.gov/recovery_act/overview/consumer_behavior_studies.html.
managing demand such as learning thermostats afford the end-user a greater degree of control (Mieth et al., 2021).
This section describes one possible combination of alternatives involving demand-side management. Analogous opportunities exist on the supply side: current RIAs consider manufacturer tax credits and bulk government purchases as alternatives to minimum efficiency standards; however, an extensive literature details how such policies, in conjunction with standards and public R&D programs contribute to energy efficiency. (See, e.g., Mazzucatto, 2013; NRC, 2001.)
Demand-Side Management programs have been proven to be more effective when complementary elements are combined. Popular examples include combining alternative pricing with equipment leasing or consumer education with time-of-use rates. A programmatic approach would study the optimal combination of demand-side management alternatives, a portfolio that would provide the best results instead of or in combination with regulatory action.
During the 1970s, demand-side management (DSM) gained increasing traction among policymakers, regulators, and electric utilities around the world and encouraged widespread adoption of energy-efficient appliances.6 DSM modifies consumer consumption behavior through education and financial incentives from electric utilities. DSM allows utilities a lower cost alternative to reducing consumption than building new assets or acquiring generation capacity in wholesale electricity markets (Gellings, 1984). Recently, Demand Response has emerged as a related concept (Peak Load Management Alliance, 2017). Demand Response matches consumers’ demand with supply and embraces peak clipping, load shifting, and energy conservation.
DSM tries to change the consumer’s behavior in one of two ways: (1) by encouraging the adoption of a more energy-efficient technology option; and (2) by encouraging the consumer to optimize a technology’s operations, referred to as consumer response (Gellings, 1985). The RIA already considers several of the programmatic attributes that could be part of a demand-side management program. However, the most effective way to use these individual attributes is in combinations deliberately crafted to leverage their synergistic effects. DSM is offered here as a necessary action to consider in evaluating the overall effectiveness of a proposed appliance efficiency standard—not as an alternative to appliance efficiency standards.
Customer characteristics influence both consumer acceptance and response. Characteristics include income, motivations, attitude, knowledge, and awareness of the technologies and programs available and decision criteria such as cash flow or perceived benefits and costs. External factors, such as economic conditions, energy prices, technology characteristics, regulation, and tax credits also influence consumer acceptance and response. DOE relies on the characteristics of available technology choices and overall energy use to implement appliance and equipment efficiency standards.
Consumer Preferences and Behavior
Data on Consumer Preference and Behavior
To improve the existing National Standards Program’s effectiveness or to evaluate alternative approaches, energy efficiency planners need to understand which consumers’ needs are most critical in the energy purchase decision and how to meet those needs. There are data available on behavior related to
6 Prior to the 1970s, utilities tried to change load curves through so-called “Load Management” programs that included direct load control and time of use pricing, but, notwithstanding the pricing strategy, were not thought of as attempting to modify consumer behavior. See Gellings (1981).
consumer behavior in both residential and commercial buildings. Such data are important in tailoring a portfolio of Demand-Side Management programs and activities to each appliance.
The sources of data needed to tailor such a portfolio include the U.S. Energy Information Administration’s (EIA’s) Residential Energy Consumption Survey (RECS) and Commercial Building Energy Consumption Survey (CBECS). These surveys, which are two of the data collections of energy consuming end-use sectors managed by EIA, provide useful data for understanding which stimulus elements to use for each device. Other organizations and academics have validated and refined these needs in numerous studies beginning in the 1970s (Taylor, 1975). The Electric Power Research Institute (EPRI, 1994), for one, identified basic residential customer needs, the importance of which varies depending on the individual consumer. These include7
- Low Energy Cost: Consumers prioritize saving money on energy bills. They are less interested in unit prices (e.g., cents/kWh or $/therm8), and more in the total energy bill. Alternative tariffs, bill credits, or incentives that lower the bill entice these customers. Incentives like pricing options allow planners to target consumers in promoting new appliances.
- Maintaining Comfort: Many consumers use heating, cooling, and dehumidification to stay comfortable at home. In promoting a new standard, emphasizing this attribute may enhance success.
- Safety: Many consumers worry about the safety of appliances and electric and gas systems in and around their homes. Concerns include electrical surges, gas leaks, carbon monoxide (CO) poisoning, and fires set by electric distribution systems. New standards that improve real or perceived safety could use this attribute in encouraging consumers to adopt more efficient appliances.
- Convenience: Convenience to consumers means not only buying time-saving appliances but also engaging with providers hassle-free. Consumers do not want to waste time researching appliances or being able to choose tariff options online. There are many current examples, such as the investor utilities in the state of Texas where residential electricity consumers can choose the tariff they wish to be billed under.
- Environmental Impact: Consumers are increasingly aware of resource conservation needs, impacts of energy consumption on the environment, and the movement of reducing or eliminating fossil fuel use.
- Security: Consumers worry about their security and that of their homes and properties. Certain new standards may include features, such as remote monitoring, that make standards desirable.
- Control: Consumers value control. They want to control their appliances. They distrust utility programs that restrict their energy use unless those programs offer a sound value proposition.
- Appearance: Consumers want their appliances to be attractive, including their electric and gas service connections. Standards that impact installing auxiliary devices on buildings, such as added meters and switches, can impact appearance.
- High-Tech: Some consumers are increasingly interested in high-tech appliances with easy-to-use or customizable features.
The above can modify consumer purchasing behavior, and the alternatives considered in the RIA will be able to factor these into the analysis using the available data.
8 10,000 British thermal units.
Measures Affecting Consumers9
Many energy suppliers and governments rely on consumer education to promote public awareness of energy efficiency. These actors may use brochures, utility bill inserts, information packets, clearinghouses, educational curricula, or direct mailings. Consumer education is the most basic of the DSM methods available, and can:
- Inform customers about products/services offered and their benefits, and influence customer decisions in purchasing and operating these appliances;
- Increase the perceived value of energy-efficient technology and services;
- Inform consumers of the eligibility requirements for participation in programs offered by electric utilities, government agencies or others;
- Increase the consumer’s knowledge of factors influencing energy purchase decisions, leading to a better understanding of energy efficiency elements. This could include knowledge of various electric utility tariffs, awareness of trade ally groups, and a broader understanding of technologies;
- Provide consumers other information of general interest; and
- Improve relations between consumers, energy suppliers, trade allies, and government entities.
Direct Consumer Contact
Direct consumer contact techniques are face-to-face communications between the consumer and an energy supplier, technology vendor, trade ally, or government representative to encourage greater consumer acceptance of energy-efficient appliances and their effective operation. Energy suppliers employ marketing and customer service representatives to advise on appliance and equipment choice and operation, sizing of systems, for example, HVAC systems, lighting design, and even home economics. Direct consumer contact can take many forms, including the following:
- Direct personal (customer) contact. Direct personal contact involves circumstances where utility representatives come face-to-face with consumers either deliberately or in casual encounters. Examples of direct contact include canvasing consumers door-to-door, engaging a customer while providing a service or reading meters, or setting up a booth at the county fair or at the local market. Direct contact is effective in initiating contact with consumers and underscores that every employee represents their company. The best sales representatives are often those who already have a foot-in-the-door such as meter readers and service technicians.
- Energy audits. Energy audits identify qualified candidates for renewable energy systems and improvements for heating and air conditioning systems, building envelopes, and water heating systems. They allow suppliers to interact with consumers and sell demand-side options. Energy audits also aid in obtaining customer feedback and responding to customer concerns.
- Program services. Program services involve energy suppliers’ activities such as those of electric utilities to support specific demand-side measures like installation and maintenance of heat pumps, building weatherization, and renewable energy systems such as photovoltaics. Examples of such programs include equipment installation, servicing, and analyses of consumer options. Multiple sources provide program services, including government employees, energy suppliers, contractors, or trade allies.
- Store fronts. A business area where vendors display and inform the public (existing and prospective consumers) on energy and appliances.
- Workshops and energy clinics. Energy suppliers, equipment vendors, and utilities host workshops, clinics, and courses. They range from a few hours in duration to one- or two-day sessions and cover various topics, including home energy conservation, third-party financing, energy-efficient appliances, and other demand-side management technologies or activities.
- Exhibits and displays. Exhibits or displays are useful for large public events, including conferences, fairs, or large showrooms. Vendors use exhibits to promote greater customer awareness of energy-efficient technologies, appliances, and devices through direct contact. Vendors also use mobile displays and designed “showcase” buildings.
- Inspection. Inspections typically involve an on-site review of the materials and installation quality of demand-side measures. These inspections are frequently related to compliance with safety or code requirements and manufacturer specifications. Inspections offer the implementer additional opportunities to promote demand-side management options.
Direct incentives increase short-term market penetration of a cost control/customer option by reducing the net cash outlay required for equipment purchase or reducing the payback period to make the investment more attractive (i.e., increasing the rate of return). Incentives also reduce customer resistance to options without proven performance histories or options that extensively modify a building or customer’s lifestyle.
Direct incentives offer financial incentives that may influence the consumer’s purchase decision regarding appliances and devices and include
- Cash grants. These are payments, typically one-time sums, made to consumers who adopt a certain appliance or one or more cost control options.
- Rebates. Like cash grants, rebates are normally single payments made to consumers who install a specific option, either as original equipment or as a replacement for an existing device. The supplier or implementer generally sets rebate levels in proportion to the relative benefits of the option.
- Buyback programs. These are special incentives that reflect supplier cost savings resulting from implementing a mix of cost control options.
- Billing credits. These are credits applied to a customer’s energy bill for installing a particular option.
- Low-interest or no-interest loans. These are loans offered at below-market interest rates, or without interest, for the purchase and installation of specific high-efficiency options.
- Direct and indirect incentives. Direct incentives are used in numerous demand-side management programs to encourage customer participation. Indirect incentives include tax credits from taxing municipalities and those from state or federal agencies.
While this list is not all-inclusive (variations and combinations of these incentives are often employed), it presents common, direct incentives for large-scale customer adoption. One additional type of direct incentive is the exchange of free, or heavily subsidized, equipment installation or maintenance for participation. Such incentives may cost the supplier more than the direct benefits from the energy or demand impact but can expedite customer recruitment and collect valuable empirical performance data.
Both customer acceptance and response to direct incentive programs and potential benefits and costs of these programs depend on the incentive, the technology, and the customer’ characteristics.
Advertising and Promotion
Energy suppliers and government energy entities use various advertising and promotional techniques to influence consumer behavior relative to energy efficiency. Advertising uses various media to communicate a message to customers to inform or persuade them. Advertising media applicable to DSM programs include the range of all media: the Internet; radio; television; magazines; newspapers; outdoor advertising; and point-of-purchase advertising. Promotion supports advertising through press releases, personal selling, displays, demonstrations, coupons, and contest/awards. Like customer education methods, advertising and promotion have widespread applicability.
FINDING: Demand-side management offers a wide range of methods which, used in combination, influence consumer acceptance and use of efficient-energy appliances and hasten their adoption and market penetration. In this sense it could be seen as a complementary effort to the Appliance and Equipment Standards Program.
Changing the time, pattern, and amount of energy demand on the electric power generation and delivery system has numerous impacts. Increasing electric demand potentially strains the power delivery system and adversely affects the environment. When old appliances are replaced with new, energy-efficient ones, it reduces energy consumption. Consumption decreases result in reduced power generation, conserving natural resources and decreasing power losses.
As is discussed in Chapter 4, the energy system savings, including reduced environmental impacts, from efficient appliances are economic benefits of the standards, and are properly included in the economic assessment of costs and benefits (see Recommendation 4-10). However, regulatory and policy changes to the grid, including the nature and mix of renewable generation and policies over electricity pricing both constitute alternative means to increase efficiency of appliances and, like DSM, may complement the standards program.
System Effects of Coefficient of Performance
Since standards have a 7- to 10-year gestation period from concept to implementation, DOE should consider the future power generation sources. Today’s heating systems can be either gas furnaces or electric heat pumps. Coefficients of performance (COPs), that is, energy output versus energy input, for gas furnaces typically range from 0.8 to 0.96. Electric heat pumps have COPs of 3 and above in most climates, but can be as low as 1.0 in cold weather applications.
When electricity is generated with wind, solar, or hydroelectric power, the effective COP of electric heating is at a minimum 3.0 and can reach 6.0 or higher. The United States and the rest of the world are dramatically increasing the use of wind and solar. Colorado has set a goal to be all renewable electricity) by 2040.10 Standards need to consider the future generation source since standards take a decade to be put into use and power sources can rapidly evolve during that time. The replacement market also needs to be considered.
10 Colorado Governor Jared Polis, 2019, “Governor Polis Releases Roadmap to 100 Percent Renewable Energy and Bold Climate Action,” May 30, https://www.colorado.gov/governor/news/governor-polis-releases-roadmap100-percent-renewable-energy-and-bold-climate-action.
Site Energy and Source Energy: An Alternative Way of Measuring Energy End-Use in Building
Energy planners are typically concerned with both so-called “site energy”—energy consumed at the site or building, and source energy—total energy consumed to produce the energy needed to supply site energy and that consumed by end-use devices. Source energy is the energy used in the production and delivery of electricity or natural gas and would include energy expended in mining, transportation, and losses in electric and gas transmission and distribution. Another way of measurement put forward for energy consumption by buildings, including that of the appliances and equipment within, is by the source energy used, therefore accounting for the net efficiency of natural gas and electricity production and delivery. As the use of renewable resources grows, however, this measure is becoming less meaningful. Consumer product (i.e., appliance) efficiency standards appropriately are counted toward site energy use consumed. More generally, in homes, buildings, and industry, site energy generally falls into three facets:
- Converted input energy used for comfort, convenience, or service appliances like lighting or motive power. Examples include converting natural gas, electricity, or fuel oil into heated water or tempered air to cool or warm a building;
- Energy consumed by the space or associated devices of the appliance. Examples include building insulation, insulated fenestrations or the pipes and ducts that are part of the heating system; and
- Energy consumed because of operation and maintenance controls. Examples include temperature set points or frequency of filtration cleaning.
Other external factors significantly interact with the national standards program to influence consumers, their contractors, and their suppliers. Addressing these factors through government intervention is outside the scope of the Buildings Technology Office; however, their impact can be analyzed in the RIA.
Trade Ally Cooperation11
Trade ally cooperation and support can contribute significantly to the adoption of energy efficient technology and the success of many energy efficient programs. A trade ally is any organization that can influence the transactions between the supplier and its customers or between implementers and consumers. Key trade ally groups in energy efficiency include home builders and contractors, local and national chapters of professional societies (e.g., the U.S. American Society of Heating, Refrigeration and Air Conditioning Engineers, the U.S. American Institute of Architects, the Illuminating Engineering Society, and the Institute of Electrical and Electronic Engineers), technology/product trade groups (e.g., local chapters of the Air Conditioning and Refrigeration Institute and the Association of Home Appliance Manufacturers), trade associations (e.g., local plumbing and electrical contractor associations), and associations representing appliance retailers.
Depending on the group, trade allies can perform a wide range of services, including
- Development of installation guidelines and procedures;
- Technology transfer;
- Certification of installers and service personnel;
- Marketing and sales of energy efficiency activities; and
- Installation, maintenance, and repair.
In performing these diverse services, trade allies significantly influence appliance and equipment efficiency and the consumer’s choice.
Alternative Pricing of Energy Efficiency12
The cost of ownership of appliances and equipment is a function of the relative price (first cost) of the energy consuming device or appliance (the “product” in DOE appliance efficiency terms) and the cost of the energy consumed. To enhance their energy efficiency, a consumer can (1) buy a more expensive, higher first cost, but more efficient product or (2) buy less energy or buy the same energy needed at a lower price. Alternative pricing refers to different schemes of presenting first cost and different terms under which to purchase the energy desired. Both of these can influence the appliance’s adoption, potentially encouraging the consumer to choose one alternative over another. With energy-efficient appliances, the first cost of an energy efficient device may often be higher, but the cost to operate the device be lower. Pricing as a market-influencing factor performs three functions:
- Informs producers and consumers of the cost or value of products and services being provided;
- Provides financial incentives to use the most efficient production and consumption methods; and
- Determines who can afford how much of a product.
These three functions are closely interrelated. Alternative pricing through innovative schemes that differ from the norm can help utilities promote demand-side management options. Electricity is purchased under certain agreed upon conditions called a tariff or rate schedule. There are various tariffs that often specify the charge per unit energy (e.g., cents/kWh). Sometimes there are also charges for the maximum demand in a time period (e.g., $/kW for the maximum kW in any 15-minutes in a month). These tariffs typically vary by season (summer and winter). Tariffs called time-of-day or time-of-use, which vary by time-of-day of the week, are becoming very popular. In a few cases, dynamic pricing is being explored, allowing prices to vary in real-time. A group of alternative tariffs has been offered as an effective means to encourage optimal electricity utilization patterns. Such tariffs can be combined with other strategies (such as direct incentives) to achieve electric utility DSM goals like adopting energy efficient appliances.
Various pricing structures, such as alternative tariffs or rate designs, are well-suited for different types of demand-side management options. For utilities, time-of-use rates are offered or tied to specific technologies (e.g., storage heating and cooling, off-peak water heating). They can be useful for electric energy storage (e.g., batteries), thermal storage heating or cooling, energy and demand control, and efficient equipment operation.
Some of the most popular rate designs in use today include
- Demand rates that include charges for both energy (kWh) and rate of energy use or demand (kW) can be arranged to influence peak demand;
- Time-of-use or time-of-day rates can influence when consumers use appliances;
- Off-peak rates can encourage use during off-peak periods instead of other periods;
- Seasonal rates can reduce demand during high use seasons or encourage consumers to shift use from one season to another;
- Inverted rates charge an increased cost per unit as consumption increases furthering encouraging conservation of energy;
- Variable levels of service charge more for higher reliability;
- Promotional rates can encourage use of certain appliance like storage water heaters or electric vehicles; and
- Conservation rates can force the installation of higher efficiency devices like air conditioners.
These alternative rates are rapidly entering the electricity market, together with the associated metering and communication equipment. Chapter 6 discusses the opportunities created by these new technologies and the Internet of Things.
A national standards program can have an impact on the electric power system, and this impact can be understood quantitatively. The objective is to estimate a system load shape (purchase pattern of demand) with and without an action such as the national standards program discussed in the RIA. Using the load shape, a further estimate can be made through a capacity expansion and production costing model to understand the impact on the need for capacity and the cost of electricity. While there is no one integrated model, end use models for efficient appliances and distributed energy resources are available from NREL, a number of electric utilities have employed elements of modeling done by EPRI (REEPS for residential; COMMEND for Commercial; IN-DEPTH for industrial), and various consultants such as NERA.
Pollution or emissions taxes (Pigouvian taxes13) are perhaps considered the most comprehensive policy alternative to a standards program. If the market failure associated with a product is externalities associated with energy use, then a pollution tax or cap-and-trade program can internalize that market failure by providing consumers with efficient price signals. These market-based approaches exist in the United States and other countries, both for specific pollutants, such as the sulfur dioxide trading program for major emitters in the United States, and carbon emissions more broadly. Such programs, particularly for greenhouse gas emissions, could well become a key component of energy and environmental policy.
Both theoretical and empirical work suggests that Pigouvian taxes and standards are complementary for efficient environmental and energy policies (Hanemann, 2010; Jaffe et al., 2005). With respect to appliances, the discussion in Chapter 4 indicates that the market failures associated with appliances are not limited to externalities from energy use; rather, informational, behavioral and structural features may also be important. But as with the DSM programs discussed in this chapter, the juxtaposition of market-based pollution programs and DOE’s appliance program raises issues important to the evaluation of the standards themselves: does the setting of efficiency standards interact with other public policy measures currently in place to address these externalities (e.g., carbon trading and markets in California, the Northeast Carbon market, etc.)? Will regional policy differences mean that energy efficiency standards might be different in different locations?
13 Taxes on activities that impose unpriced costs on others (externalities) are called Pigouvian taxes in honor of Arthur Pigou, a 20th century British economist who showed that, unlike taxes on capital and labor, whose net benefits depend on using the tax revenue for some purpose that offsets the economic efficiency loss necessarily imposed by the tax, these taxes may confer an economy wide economic efficiency benefit. If the revenues are used for something useful, all the better.
The appliance program provides a useful mechanism to start considering how standards and a market-based emission program—perhaps a national cap-and-trade program for greenhouse gases—can complement each other to enhance social benefits.
RECOMMENDATION 5-2: DOE should consider how to incorporate a greenhouse gas cap-and-trade or tax program into its evaluations of the costs and benefits of energy efficiency appliance standards.
The RIA could include a more complete survey of the alternatives to the National Standards Program. The RIAs reviewed by the committee already include some of the more prominent examples of alternatives already in deployment. For example, consumer rebates are one of the alternatives currently in the RIA. To expand on this example, there are additional elements of demand-side management that might be included. This would make the set of alternatives more indicative of measures that are currently deployed for energy and water conservation.
A more robust RIA could prove to be a more influential tool in the standards-setting process. As discussed in Chapter 2, and in particular Recommendation 2-1, DOE would benefit from organizing its analyses per the RIA process whereas current the RIA is merely last stage in a series of analyses. The RIA comes after the analyses DOE has evolved pursuant to its EPCA responsibilities. The analytical framework of the RIA nonetheless is the step during which important summative attributes of the National Standards Program such as cost-benefit ratio are invoked. These attributes will be important to a welfare-maximizing standards-setting process.
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