President Obama’s recent “climate action” speech includes an expansion of subsidies and mandates requiring additional energy efficiency. The president calls these policies a “great deal” for consumers, but they are anything but—energy efficiency mandates impose lawmakers’ and bureaucrats’ preferences on the American people. These mandates assume that most Americans do not make wise choices and therefore Washington must require more energy-efficient products.
Energy efficiency mandates are truly a lousy deal for the American people. But that does not stop bureaucrats from imposing new energy efficiency requirements. California, for example, began regulating energy efficiency in 1974 with the creation of the California Energy Commission. Since then, the state claims it has been “at the forefront of American energy policy, working to protect the stability of California’s energy resources and the security of its energy consumers.” As alleged proof, the government boasts that its regulatory policies have kept per-capita electricity consumption flat since the 1970s.
While California’s per capita energy use has stopped increasing over the last three decades, a recent study commissioned by the National Bureau of Economic Research (NBER) finds that the state’s energy efficiency standards are not the cause. The study points to other factors which account for 90 percent of California’s residential electricity savings since the mid-1970s, concluding that the state’s policies provide “no lessons for other states or countries considering adopting or tightening their energy efficiency standards.”
The last part is important. President Obama’s climate action plan calls for reducing carbon dioxide emission by at least 3 billion metric tons by 2030, which the administration says is equivalent to half of all CO2 emissions from the U.S. energy sector in a given year. To that end, the administration will impose a host of new subsidies and regulations through unilateral executive action without input from Congress or the American people.
The Department of Agriculture (USDA), for example, will provide up to $250 million through its Energy Efficiency and Conservation Loan Program to encourage rural utilities to adopt energy efficiency upgrades. The USDA will also “streamline” its Rural Energy for America subsidy, which has already doled out nearly $24 million in grants and loan guarantees for agricultural producers since 2009. This is in addition to the almost $14 billion the Obama administration has spent on tax subsidies for energy conservation programs since 2009, according to IER’s new Federal Energy Spending Tracker.
If California’s history is any indication, the Obama administration’s latest efforts to engineer energy savings will fall woefully short. But it should come as no surprise, since many economists have long questioned the merits of energy efficiency mandates. An IER summary of recent research into energy efficiency shows how “rebounds” explain why government mandates often fail to live up to expectations.
As Professor Robert Michaels explains, rebound effects often negate the purported benefits of policies designed to reduce energy consumption. In general, rebounds occur because consumers who use products that are more energy efficient tend to use more of those products. The economics literature reveals, for example, that household behavior before and after installation of energy-efficient appliances produces rebounds between 10 and 60 percent. In some cases, efficiency mandates even increase net energy use, known as “backfires.” Even the environmentalistBreakthrough Institute recognizes the failure of energy efficiency mandates.
A 2008 study from Stanford University supports the conclusion that energy efficiency policies, at least in the case of California, fall short. The study finds that only 23 percent of California’s energy savings since the 1970s can be attributed to energy conservation measures. In other words, it is unlikely that exporting California’s energy efficiency schemes to the rest of the country would significantly reduce energy use.
Indeed, decades of energy efficiency mandates have left California “at the forefront” of high energy prices. California’s retail electricity rates are seventh highest in the nation, while the state’s gasoline prices are nearly 40 cents a gallon higher than the national average. California’s electricity rates are also higher than its neighbors: Arizona, Nevada, and Oregon.
The reality is that while energy efficiency is important, it is just one of many factors for consumers to consider. For example, if the choice is between two cars that cost the same, have equally powerful engines, and have the same amenities, but one gets better fuel economy, everyone will choose the more fuel-efficient vehicle. People are not stupid about energy efficiency.
But unlike the hypothetical car example, in real life there are tradeoffs. Cars with high fuel economy are usually smaller and more expensive than comparable cars. Energy efficiency is just one of many factors that matter when buying an automobile. But when the government mandates higher fuel efficiency, automakers are more likely to scrimp on other attributes such as size, comfort, safety, and price to meet the mandate.
Energy efficiency mandates are based on the premise that Americans need government bureaucrats to make wise choices about energy. The problem is that bureaucrats could never know what is in the best interest of all 114 million American households. Instead of imposing more costly and dubious mandates on the American people, the president should let the public decide for itself how to best use and conserve energy resources.
IER Policy Associate Alex Fitzsimmons wrote this post.
