Energy efficiency standards for residential and commercial equipment: Additional opportunities

Energy efficiency standards set minimum levels of energy efficiency that must be met by new products. Depending on the dynamics of the market and the level of the standard, the effect on the market for a given product may be small, moderate, or large. Energy efficiency standards address a number of market failures that exist in the buildings sector. Decisions about efficiency levels often are made by people who will not be responsible for the energy bill, such as landlords or developers of commercial buildings. Many buildings are occupied for their entire lives by very temporary owners or renters, each unwilling to make long-term investments that would mostly reward subsequent users. And sometimes what looks like apathy about efficiency merely reflects inadequate information or time invested to evaluate it. In addition to these sector-specific market failures, energy efficiency standards address the endemic failure of energy prices to incorporate externalities. In the U.S., energy efficiency standards for consumer products were first implemented in California in 1977. National standards became effective starting in 1988. By the end of 2001, national standards were in effect for over a dozen residential appliances, as well as for a number of commercial sector products. Updated standards will take effect in the next few years for several products. Outside the U.S., over 30 countries have adopted minimum energy performance standards. Technologies and markets are dynamic, and additional opportunities to improve energy efficiency exist. There are two main avenues for extending energy efficiency standards. One is upgrading standards that already exist for specific products. The other is adopting standards for products that are not covered by existing standards. In the absence of new and upgraded energy efficiency standards, it is likely that many new products will enter the stock with lower levels of energy efficiency than would otherwise be the case. Once in the stock, it is either impossible or more costly to improve the energy efficiency. Therefore, by not expanding or upgrading energy efficiency standards, opportunities for saving energy would be lost. In the past two decades, standards have significantly raised the level of energy efficiency for new products. How much more might be gained by making standards more stringent on products already subject to them, or by extending standards to products not yet covered? The main goal of this study is to estimate key national impacts of new and upgraded energy efficiency standards for residential and commercial equipment. These impacts approximate the opportunity for national benefits that may be lost if standards are not upgraded and expanded from current levels. This study also identifies the end uses where the largest opportunities exist. This analysis was prepared for the National Commission on Energy Policy (NCEP). It uses an analytical approach that is similar in concept to that used by the U.S. Department of Energy (DOE) to set standard levels. It relies on much less data and uses more simplified assumptions than the detailed and complex formulations used in DOE's standard-setting process. The results of this analysis should thus be viewed as a first approximation of the impacts that would actually be achieved by new standards. All monetary values in this report are in 2002 dollars.