Key features of existing programs limit their ability to foster fuel switching, but there are alternatives.
The simplest way to get people to choose A instead of B is to eliminate B as an option. Ergo, if you want to get people to electrify their space heating, water heating, clothes drying or cooking, the most direct way is to simply ban the alternatives that use gas, propane or oil.
Some policies do exactly this. Arguably the biggest news on building electrification in the last few years is the banning of gas hookups in new construction in various cities, many here in California. Could something similar happen at the federal level?
The federal government doesn’t manage a national building code that can be amended to ban fossil appliances, but the Department of Energy does establish minimum efficiency standards for products and equipment that cover all the key appliances that electrification advocates seek to convert. Unlike building codes, which have thus far focused on new construction, a federal appliance standard could have a wider reach by influencing appliance replacements in existing buildings. Might DOE’s programs be a powerful tool to foster fuel switching?
Does electrification need a federal push?
If cities and local governments are creating a wave of electrification via local action, do we even need to worry about federal policy?
I think the answer is yes, both because it will be critical to harvest economies of scale from national action and because the fossil fuel industry is fighting back. In the last couple of years, the natural gas industry has pushed to enact state laws that prohibit local rules from restricting gas utility services. In effect, the gas industry asked to speak to the manager.
And their strategy seems to be working. In just the last two years, 20 states have adopted policies that protect gas connections, which I call “right to gas” laws. The map below, which colors “right to gas” states in red and states with some form of pro-electrification legislation in blue, will have a familiar pattern for followers of the electoral college.
These laws are creating a massive bulwark against local efforts, which swings us back around to the question of federal policy.
Source: S&P Global
If electrification is a round hole, DOE’s standards are a square peg
DOE standards mandate a minimum efficiency level for specific types of appliances and equipment. Roughly, DOE determines whether there are sufficient market ready technologies such that it simply doesn’t make sense to settle for a less efficient product, when you take into account the up front costs of adding efficiency improvements, the energy savings during a product’s lifetime, and the impact on pollution.
How might this relate to fuel switching? DOE could directly compare, for example, electric water heaters to gas ones, creating a common standard that applies to both. If they determined that (again, taking pollution into account) the gas water heaters were inferior, then they might pass an efficiency standard that effectively eliminates the gas option. Alternatively, DOE could maintain separate regulations by fuel type. But, where viable electric options exist, they might consciously decide to ratchet up standards on fossil alternatives, knowing that consumers can go electric.
I recently had an opportunity to learn more than I thought I would ever want to about how these DOE standards get evaluated while I served on a National Academies committee that reviewed DOE’s methods. (If you are looking to nail down a great Mother’s Day gift ahead of schedule, for a recipient with distinctive tastes, you can find our final report here.)
Our review of DOE’s process left me deeply impressed by the efforts they take, but it also taught me that their program is ill suited to create the kind of fuel switching incentives I just described. In fact, their ability to force technology or lead the market in various ways is sharply constrained by the originating statutory authority.
The program was authorized by the 1978 National Energy Policy Conservation Act, which among other things stipulated that:
“the Secretary may not prescribe an amended or new standard . . . [that] is likely to result in the unavailability in the United States in any covered product type (or class) of performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States at the time of the Secretary’s finding” (42 U.S.C. 6295(o)(4)).
In other words, we can’t have a standard that would threaten extinction of any configuration or feature that is currently on the market. In practice, DOE’s solution is to create a multitude of new product categories anytime some attribute has nontrivial energy implications.
There is both art and science involved in deciding what is functionally the same and what is different. For example, an LED was deemed to deliver the same service as incandescent bulbs. But, we have distinct efficiency minima for refrigerators based on their fresh food volume, frozen food volume, door type (french or single hinge), whether the freezer is on top, bottom or side, and whether there is through-the-door ice. Where one of these features causes a fridge to consume more energy, DOE creates a handicap for it, lest a standard nudging up the more efficient configurations prohibit some functional feature that consumers might value.
Giving related products with different characteristics a regulatory sliding-scale is a form of what economists call attribute-based regulation, the properties of which I’ve bemoaned in other contexts. The problem with standards built this way is that potentially efficient ways to reduce emissions include, for example, opting for smaller refrigerators with fewer energy-consuming features. The sliding scale approach fails to motivate that type of mitigation.
The upshot is that DOE is not only careful not to push the envelope within a product category, they are eager to steer clear of anything that will bring lawsuits (of which there are many) based on this provision. That means a standard that tilts the playing field towards one fuel source or another, even if it is based on sound science, is strictly out of bounds.
What role can the federal government play in pursuing electrification?
There are, of course, other levers to pull in the nation’s capital. First, consider the Energy Star program, which is sort of a first cousin to DOE’s rules. It lacks the teeth of DOE’s mandates, but it is far more flexible. The EPA could grant more stars to modern electric equipment, while raising the bar for fossil appliances, or even refusing to certify whole categories.
Last fall they took a baby step in this direction, when they announced that they would not grant Most Efficient status (their “super star” badge, a tier above the regular label) to gas dryers, furnaces or boilers. The move came at the urging of environmental groups.
Second, the federal government can use its buying power to boost electrification. The Biden administration has made some important moves in this direction. It announced last year that it would develop the first ever federal building standard, which would set standards for federally managed properties. That standard is expected to heavily favor electrification, while leaving room for gas that comes from low-carbon pathways. This has real potential to accelerate market maturity for electric equipment, as the federal government owns or leases about 1 billion square feet of property (roughly 1% of all commercial space).
A third category is to simply throw money at the problem. This can include R&D spending to improve electric appliances, programs to train installers, financial incentives for installers and customer subsidies for fuel switching. Some of these things are already happening under provisions of the infrastructure bill, but it is unclear how many additional appropriations we can expect from Congress in the near future.
All of the policy options have strengths and weaknesses, and several, including standards that ban gas through either building codes or minimum standards, are usually viewed with disdain by economists, who prefer policies that fix prices but preserve choice. But, my hunch is that achieving deep decarbonization in this country is going to require that we deploy a wide range of tools, including some with major drawbacks and others we are only beginning to think through.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Suggested citation: Sallee, James. “Can Federal Appliance Standards Spur Electrification?” Energy Institute Blog, UC Berkeley, February 22, 2022, https://energyathaas.wordpress.com/2022/02/22/can-federal-appliance-standards-spur-electrification/
James M. Sallee is an Associate Professor in the Department of Agricultural and Resource Economics at UC Berkeley, a Research Associate of the Energy Institute at Haas, and a Faculty Research Fellow of the National Bureau of Economic Research. He is a public economist who studies topics related to energy, the environment and taxation. Much of his work evaluates policies aimed at mitigating greenhouse gas emissions related to the use of automobiles.