In the interest of trying to make better choices for consumers, Congress has been determined to legislate efficiency mandates for American homes and businesses since the late 1970s. The latest and much-awaited efficiency legislation is being reintroduced in the Senate tomorrow, with a House companion bill coming as early as Friday. Reports indicate that the bill from Senators Jeanne Shaheen (D–NH) and Rob Portman (R–OH) has been modified from previous renditions to make it more acceptable to Democrats and Republicans alike.
Regardless of how “less bad” this new efficiency bill is, any federal efficiency policy should have these four basic requirements:
- Recognize that the free market rewards efficiency without government intervention
Supply, demand, and competition all work together to drive down prices, give better performance, and provide greater efficiency. So long as prices mean something rather than hiding real costs by subsidies and the like, the market incentivizes efficiency and American families and businesses can make wise decisions about energy efficiency investments. Congress should focus on removing the policy and regulatory barriers that diminish the market incentive to pursue efficiency upgrades.
- Recognize that consumers and businesses have other preferences
Efficiency mandates may save families money, but that doesn’t mean that makes Americans better off; in fact, it most certainly makes them worse off by restricting their choice and having the government override their preferences. Consumers make purchases and businesses make investments for a number of reasons, including to save money on energy. But a mom might want a safer car for her children. A business may have a limited budget to invest. The federal government is in no position to dictate those decisions—and when they do, it’s making us worse off.
There are also cases when the government’s mandates do not even save consumers money. For example, examining the Department Of Energy’s (DOE) latest final rule for dishwashers shows that almost 20 percent of households will experience a net cost because of the new standards and almost 65 percent will see no net savings at all. Businesses must choose to take a financial hit or pass the added costs of meeting mandates onto consumers, whether in costs or in quality.
- Recognize that American families and businesses do not need to be paid or compelled to invest in efficiency when the gains of a particular technology or behavior outweigh the costs
Federal efficiency mandates and tax incentives too often assume either that all Americans use energy the same way or that the government knows better how Americans should use energy. But it’s in our nature to find ways to get more for less. Thanks to entrepreneurs, technological advances, and consumer desires, Americans have become almost 60 percent more energy efficient over the past half century. When the savings outweigh the costs, Americans invest in energy efficient upgrades absent subsidies. If the government needs to entice Americans and businesses to make efficiency investments, one has to wonder if there really are any net benefits.
- Refrain from using or risking taxpayer resources to subsidize private sector efficiency
Both mandates and subsidies to use specific products or technology distort, usually upward, actual prices. Thus Americans pay for the costs of efficiency twice—once as consumers and again as taxpayers. The ones who actually benefit from efficiency subsidies (or are hurt least) are the financially comfortable and politically connected. It’s those who can afford home solar panels, expensive energy efficient dishwashers, and electric cars that receive the benefit and yet all taxpayers cover the costs.
Mandates also hamper the efficiency investments that an individual or business would have made in a free market because they must respond to new (and ever changing) federal standards. Fuel efficiency standards, for example, drive up the sticker prices of new vehicles and therefore consumers are more likely to hold on to their older cars longer rather than upgrading to a more fuel efficient vehicle at a time that best suits them.
Americans are motivated to save money where they can without mandates and subsidized efficiency upgrades. It is ridiculous to think that the federal government can better make cost decisions for Americans buying appliances, cars, or new windows or has longer foresight than businesses trying to save energy expenses.
The government could easily mandate very strict efficiency standards, but it does not follow that Americans will be made better off. But there would also be costs not only in dollars and fuel efficiency. Balancing these competing factors—quality, cost, preference and efficiency—is a decision best left to consumers, not government.
Nicolas Loris is a Policy Analyst at The Heritage Foundation . http://www.heritage.org/ Roe Institute for Economic Policy Studies. Loris researches and writes about energy, environment and regulation issues such as the economic impacts of climate change legislation, a free market approach to nuclear energy and the effects of environmental policy on energy prices and the economy.