One Discount Rate Fits All? The Regressive Effects of DOE's Energy Efficiency Rule
![handle is hein.journals/plyps22 and id is 36 raw text is: Policy Perspectives I Volume 22
One Discount Rate Fits All? The Regressive Effects of
DOE's Energy Efficiency Rule
By Sofie E. Miller
This paper examines the Department of
Energy's (DOE) reliance on low discount
rates to estimate the benefits of its energy
efficiency standards and uses existing
literature on implicit consumer discount
rates to calculate a range of benefits for
DOE's furnace fan rule. While DOE
calculates large net benefits from its en-
ergy efficiency rule, using discount rates
that better represent average consumer
time preferences shows that this standard
results in net costs. Furthermore, given
the variation in consumer discount rates
by income, this standard is effectively a
transfer payment from low- and median-
income households to high-income house-
holds.
Introduction
As a part of its Energy Con-
servation Program for consumer
products, the Department of Energy
(DOE) establishes energy efficiency
standards for many appliances used
daily in American households, such
as microwaves, clothes dryers, and
air conditioners. DOE receives statu-
tory authority for these rulemakings
through the Energy Policy and Con-
servation Act of 1975 (EPCA), which
requires that any new or amended
standard for [covered products] must
be designed to achieve the maximum
improvement in energy efficiency
that is technologically feasible and
economically justified (DOE 2013,
64073). Furthermore, all such stan-
40
dards must result in a significant
conservation of energy (DOE 2014,
38131). These statutory instructions
require a careful analysis of the costs
and benefits of DOE's energy effi-
ciency rules.
In July 2014, DOE published a
rule that, for the first time, set energy
efficiency standards for furnace fans
used in residential central heating,
ventilation, and air conditioning
systems. The rule is intended both to
reduce greenhouse gas emissions and
save consumers money by increasing
energy efficiency. However, according
to DOE's calculations 86 percent of
the benefits of this policy change are
energy savings for consumers (DOE
2014, 38132-33, Tables I.3-I.4),1 indi-
cating that the primary benefit of this
rule is to reduce energy expenditures
rather than carbon dioxide emissions.
Valuations of consumer sav-
ings-especially savings that are far
into the distant future, as is the case
with this rule-can vary significantly
depending on the discount rate used.
Discount rates discount the value of
future streams of benefits to present
values so that benefits and costs can
be compared in the same timeframes.
This paper examines the sensitivity
of DOE's anticipated benefits to dif-
ferent discount rates by drawing on
1. This figure is calculated by dividing the
benefits that DOE lists for Operating Cost Savings
at the 3 percent discount rate by the total benefits at
the same discount rate listed in tables 1.3 and 1.4.](ViewImageLocal?handle=hein.journals/plyps22&div=7&collection=&method=preview&ext=.png&size=3)
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One Discount Rate Fits All? The Regressive Effects of DOE's Energy Efficiency Rule
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