Nicolas Loris: A real path toward energy savings

04/08/2013 12:00 AM

04/05/2013 6:16 PM

Imagine Congress passes a law that bans the use of light bulbs entirely in favor of candlelight. Meanwhile, the Environmental Protection Agency and Department of Transportation mandate that only Smart cars can be produced. Proponents would breathlessly trumpet the money your government allegedly would be saving you on electric bills and at the pump.

This line of thinking is not too far from what the politicians and regulators on both sides of the aisle espouse when they speak of new money-saving energy-efficiency standards for automobiles, light bulbs, dishwashers, washing machines and other appliances. It’s a rationale that says consumers don’t know how to make the best choices for themselves.

We don’t need federal regulations to mandate energy-efficiency standards for vehicles, appliances or manufacturing processes. Families and businesses already place a high value on saving money. Consider the perennial consumer complaint of high gasoline prices when they surpass $3.50 per gallon, or the fact that chemical companies bemoan the possibility of more natural-gas exports raising their input costs. Both families and businesses are naturally wired to want to save money on energy.

When the savings outweigh costs and other preferences, families and businesses will make those investments, and the reward will be reduced energy bills and more competitive prices for their products.

But families have other preferences, too. A car with more weight, safety and power. A dishwasher or laundry machine that takes 30 minutes for a cycle, not 90. A cheap light bulb to throw in closets and the attic where households infrequently turn the lights on. Restricting those choices reduces consumer freedom, or the satisfaction he receives from buying those goods or services.

Families and businesses also face budget constraints and must make tough choices. A manufacturer may be able to install a new piece of equipment that saves on the energy bill, but it may want to use that money to hire new employees. A mom and a dad may choose to pay a year’s tuition for their child rather than buy a brand-new, more fuel-efficient vehicle. They may have legitimate concerns that the higher upfront cost isn’t worth the future savings, or have concerns that those savings will never be fully realized.

Sure, there are times when markets fail or consumers aren’t acting in their own best interest. But when it comes to energy savings, that’s rarely the case. Consumers and businesses generally do what’s best for themselves. And even when a family isn’t capturing the energy savings it should, that doesn’t mean a government regulation will make it better.

One could argue that we’ve had decades’ worth of efficiency standards, and we still have a wide variety of choice for vehicles and appliances. This is true, but that doesn’t mean having the government take a paternalistic role in how we buy and sell our goods is making us better off.

Consider this. A 2011 paper from the Massachusetts Institute of Technology found that if weight, horsepower and torque were held constant at 1980 levels, fuel efficiency would have increased 60 percent from 1980 to 2006 instead of the 15 percent increase that did occur.

The federal government could have mandated that 60 percent increase, but clearly that’s not what consumers wanted. Instead, over the years, auto manufacturers met consumers’ demand for heavier, more powerful vehicles.

Having the government slowly take those choices away with more and more stringent efficiency mandates is making us increasingly worse off. The government isn’t correcting a market failure. It’s unnecessarily dictating what should be a market choice by investors, entrepreneurs, homeowners, car buyers and newlyweds buying their first washer and dryer together.

Consumers understand how energy costs affect their lives, whether at the pump or the plug, and make decisions accordingly. Energy efficiency per dollar of gross domestic product has improved dramatically over the past 60 years. Some might wrongly suggest that this was the result of efficiency standards. Wrong. Technological improvements and consumer preference are the cause. Energy intensity was in decline long before a national energy-efficiency policy.

Markets have driven the energy economy in the right direction. Mandates do the opposite. As government regulators take us on a slow march to a federal sodalike ban for vehicles and appliances, we need to ask why the government is taking these choices out of our hands.

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