Reforming the Energy Policy and Conservation Act: Learning from Experience on Energy Efficiency

Sofie E. Miller

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Need for Reform

The Energy Policy and Conservation Act of 1975 (EPCA), as amended, grants the Department of Energy (DOE) broad authority to regulate the maximum energy intensiveness of everyday household appliances such as microwaves and dishwashers. As the pace of these energy efficiency regulations has increased, the effects of these standards—and the analyses on which they are based—reveal a need to revisit this statutory authority to reduce burdens for consumers.

DOE’s analyses of its energy efficiency standards rely heavily upon assumptions about analytical inputs like future energy prices and consumer behavior. Problems with these initial assumptions and analyses can lead to suboptimal standards that saddle consumers with high costs for little benefit. These analytical problems can be identified using retrospective review, which creates better information for the next round of regulatory analysis. However, DOE doesn’t systematically review the effects of its standards, and the standard amendment process laid out in EPCA doesn’t allow time to learn from previous rules before pursuing new standards. Further, EPCA prohibits DOE from reducing the stringency of its efficiency standards, which makes it impossible to correct regulatory mistakes. Each of the above problems can be addressed via EPCA reform.

The points below illustrate three reasons to rethink EPCA’s appliance standard provisions:

1. The pace of regulations setting energy efficiency standards has accelerated during the last decade and is likely to continue. These standards regulate appliances used by most consumers and, because they affect almost all households and incur such large potential benefits and costs, they merit close inspection.
2. American households reflect significant diversity and have very different needs and preferences when it comes to appliances regulated by DOE’s efficiency standards. As a result, one-size-fits-all energy efficiency standards can deprive consumers of the ability to make purchases that best suit their unique circumstances and constraints. In such cases, these regulations are a cost to consumers rather than a benefit.
3. Efficiency standards are particularly costly for low-income households who have different constraints and are less able to benefit from the tradeoff between higher upfront costs and lower long-term energy bills as a result of increased efficiency.[3]

Proposed Reforms

To address the problems outlined above, Congress and DOE should consider the following EPCA reforms:

• EPCA should be revised to allow DOE enough time between its energy efficiency standards to allow for an effective review of each rule’s effects before increasing the stringency of its standards. Alternatively, Congress could eliminate the requirement for DOE to consider at regular intervals whether to increase the stringency of its standards, or it could replace that requirement with a “sunset” provision that prevents obsolete standards from remaining in place indefinitely, but does not mandate an escalation.
• To evaluate the outcomes of its biggest rules, DOE should incorporate plans for retrospective review into its economically significant or major rules. If Congress decides to maintain the current EPCA standards review process, it should require DOE to evaluate the impacts of its standards—particularly on consumers and vulnerable populations—during this process.
  • As part of this evaluation, when possible DOE should encourage surveys or other measures of actual consumer behavior to ensure that its assumptions about household appliance energy use are accurate.
  • DOE should also consider using existing measures—such as the Herfindahl-Hirschman Index—to assess whether its existing energy efficiency standards have had negative effects on competition in the regulated industries, and take this information into account for future related rulemakings.
• Remove EPCA’s anti-backsliding provision to allow DOE to fully respond to the results of its retrospective reviews. This would allow the agency to make policy adjustments if a thorough review indicates that the standard in question harms consumers or a vulnerable consumer sub-group, such as low-income and/or elderly households.
• Congress should consider revisions to EPCA that could improve DOE’s regulatory analysis of its standards, including the following:
  • Congress should consider what the purpose of the rebuttable presumption should be in establishing new energy efficiency standards, such as by changing the statutory language to allow the Secretary of Energy to consider the rebuttable presumption when determining whether standards are economically justified.
  • The Department should consider establishing guidelines for determining whether new standards are economically justified, such as by defining a threshold for the proportion of consumers who experience net costs. Alternatively, Congress could amend EPCA to specify the appropriate threshold of consumer net costs beyond which standards are no longer economically justified.
• There is no good justification for DOE’s current statutory authority to issue energy efficiency standards via direct final rule. The EPCA should be revised to restrict the use of these rules, which cuts consumers out of the rulemaking process and provides an opportunity for businesses to restrict competition.
  • Consumers are inadequately represented in the negotiated rulemakings that lead to direct final rules. Barring comprehensive reform to end the use of direct final rules, EPCA should be amended to require negotiated rulemakings and joint petitions to include consumer representatives.