This week’s “Daily Journal” guest columnist is Daren Bakst, Legal and Regulatory Policy Analyst for the John Locke Foundation. You can learn more about this topic by reading his Spotlight report, “Energy Behavior Modification: The Failure and Arrogance of Centrally Planned Energy-Efficiency Programs.”
How many North Carolinians does it take to buy a light bulb? Millions. Every North Carolina electricity consumer will be helping to pay for light bulb purchases of other consumers. Utility managers and government bureaucrats will be determining what light bulbs North Carolinians should buy. A lot goes into the complex science of buying a light bulb, at least in North Carolina.
In 2007, the North Carolina legislature passed legislation (Senate Bill 3) that authorized the central planning of home appliance purchases. Through what are referred to as energy-efficiency programs, electricity consumers have to pay a hidden tax in their electricity bill to subsidize incentives for consumers to purchase energy-efficient goods and services. The government (via the utilities) will determine what goods and services individuals should buy.
Duke Energy’s Save-A-Watt program is an energy-efficiency program that has received significant criticism. While there are some unique problems with Save-A-Watt, primarily how much Duke would be permitted to recover for running the program, most of the problems are not unique to this program. Energy-efficiency programs simply are inherently flawed.
A major problem with energy-efficiency programs is the rationale used to justify them. Energy-efficiency program proponents believe consumers should be investing in more energy-efficient goods, given the level of savings that can be achieved from less costly electricity bills. To explain this “underinvestment,” consumers are expecting an irrational rate of return on their energy-efficiency investment.
In plain English, consumers are stupid. If they were as smart as the enlightened proponents, they would be buying more energy-efficient goods and services. North Carolinians are simply incapable of buying heat pumps, air filters, and washers and dryers on their own. The enlightened ones must free them of their home appliance ignorance by taxing them and giving them money back if they don’t act like dolts.
Consumers have a significant incentive to buy energy-efficient goods (to save money on energy bills). However, there are an infinite number of reasons why a consumer may choose to buy, for example, a less expensive (up-front costs), less efficient appliance. The most obvious reason is individuals simply don’t have the money lying around to spend on the higher up-front costs for the appliance. Consumers have the nerve to use the money to feed their families or to pay for the higher electricity prices that will be coming because of these energy-efficiency programs.
Every appliance isn’t the same, although proponents seem to think that the choice is between goods that are identical except for energy efficiency. The quality of a high-efficiency good may not be as good as a less efficient alternative. In its latest report on washing machines, Consumer Reports states:
Washers have become more efficient in the last 10 years. But some new ones are having a tough time meeting new federal energy rules without sacrificing cleaning. Our latest tests found huge performance differences among machines…. But several major manufacturers are meeting the new standard in part by lowering wash-water temperatures, which often lowers performance.
There also are opportunity costs, something proponents seem to ignore. A consumer may be able to save money when buying a more expensive appliance. However, consumers consider what investments they must forgo in order to make the investment in the appliance. The alternatives may be more profitable.
Let’s assume that a consumer doesn’t buy a more efficient refrigerator that would save her lots of money because she can’t get the product in purple. This “irrational” reason requires no defense. The government has no business in trying to correct our “mistakes.”
Energy-efficiency programs are behavior modification systems. This isn’t an exaggeration. That is precisely what they are designed to be. As Duke stated in testimony on Save-A-Watt:
Over time, the Duke Energy Carolinas’ energy-efficiency programs can affect the nature of the energy-efficiency market such that customer behavior, vendor behavior, and even manufacturer behavior is altered.
If the government planning our behavior is not problematic enough, there are many more problems with energy-efficiency programs. The idea of becoming more energy-efficient is a good goal, yet not at the expense of overall economic efficiency.
When businesses reject energy-efficiency investments, they are doing so because it would be an inefficient use of their resources. To get these businesses to invest any way, energy-efficiency programs require individuals and other businesses to help pay for these inefficient investments.
There is no way to know what kind of gains in energy efficiency would have occurred without the energy-efficiency programs. Individuals who would have purchased energy-efficient goods or services are discouraged from doing so on their own. Even worse, these programs can steer consumers into purchasing goods that are less efficient than what they would have purchased.
The poor generally will be unable to take advantage of the incentives. Regardless, they, like everyone else, will have to subsidize the purchases of other consumers. It is a massive wealth transfer from the poor to the wealthy.
Legislators who allege they believe in freedom supported this type of central planning. Even worse, by supporting Senate Bill 3, they made a statement that they don’t believe their constituents are capable of making the “tough” choice about which heat pump to buy. Next year, the legislature can fix a horrible mistake by getting rid of these energy-efficiency programs.