Confronting Regulatory Cost and Quality Expectations. An Exploration of Technical Change in Minimum Efficiency Performance Standards

Abstract

The dual purpose of this project was to contribute to basic knowledge about the interaction between regulation and innovation and to inform the cost and benefit expectations related to technical change which are embedded in the rulemaking process of an important area of national regulation. The area of regulation focused on here is minimum efficiency performance standards (MEPS) for appliances and other energy-using products. Relevant both to U.S. climate policy and energy policy for buildings, MEPS remove certain product models from the market that do not meet specified efficiency thresholds.This project took the form of a retrospective review of regulation, which is a type of detailed case study that compares data on ex ante (i.e., before regulation) expectations about regulation to ex post (i.e., after regulation) observations of regulatory performance so that empirical evidence can guide future rulemaking decisions. This project differs from other retrospective reviews, however, in its focus on regulatory expectations and post-regulatory outcomes of technical change, which is a particularly important factor in the performance of MEPS, as it is in other areas of regulation. It also differs from other retrospective reviews in its focus on five products with different regulatory histories, namely room air conditioners, refrigerator-freezers, dishwashers, clothes washers, and clothes dryers. These five products, which heavily saturate U.S. households and are manufactured in a highly concentrated industry sector, are the full set of large household appliances which were subject to federal MEPS informed by rulemaking analyses conducted by the Department of Energy (DOE) from 1990 to 2012. The research advantages of focusing on these appliances in this time period include limiting selection bias, ensuring the likelihood of sufficient data for retrospective review, and limiting variation in product markets. Finally, this project differs from other retrospective reviews in the scope of data employed. Ex ante data included rulemaking analyses and other documents in the regulatory docket. Ex post data included rich, often high resolution data covering several aspects of product price, quality, and design: (1) extensive 2003-2011 U.S. point-of-sale data on appliance models matched to model energy use data (for all but clothes dryers) which facilitated construction of a monthly panel of model-specific prices, quality characteristics, and market shares; (2) authorconstructed datasets from independent third party appliance testing and product reliability surveys; and (3) an author-constructed dataset of the features identified in the product manuals of 1,109 clothes washer models sold in the U.S. in 2003-11 (these models represented 95% of the identifiable models in the point-of-sale data, which account for 29% of U.S. units sold over that period).At least seven questions were addressed in this project, which cluster around considerations of whether and how product price, quality, and design changed after regulation...

Retrospective Analysis of U.S. Federal Environmental Regulation

“…Taylor, Spurlock and Yang (2015) assessed minimum efficiency performance standards (MEPS) set by the Department of Energy (DOE) for five appliance types – room air conditioners, refrigerators–freezers, dishwashers, clothes washers, and clothes dryers. The authors compare the observed ex post appliance prices and performance with the ex ante engineering-cost analyses developed in the RIAs.…”

Cooling Egypt: Cost and benefits of room air conditioner efficiency improvement in Egypt

“…For instance, in the United States, this is due to the statutory requirement in the Energy Policy and Conservation Act (EPCA) that revisions to the Minimum Energy Performance Standards (MEPS) be "technically feasible and economically justified." Prices of higher-efficiency equipment decline over time in various markets as higher-efficiency equipment is produced at scale (Taylor et al, 2015;Abhyankar et al, 2017;Spurlock, 2014). Similar methodologies have been used to a more limited degree to support energy efficiency standards processes in countries such as India, China, Ghana, Mexico, etc.…”

Accelerating Energy Efficiency Improvements in Room Air Conditioners in India: Potential, Costs-Benefits, and Policies

“…To determine the incremental price paid by consumers, we first have to estimate what the price would have been in the absence of the efficiency improvement (counterfactual price). Examples in Japan and Korea discussed above and examples in several other countries for other appliances and equipment indicate that efficiency policies and efficiency improvements do not increase inflation-adjusted prices over time and may in fact reduce prices compared to the counterfactual prices (Taylor, Spurlock, & Yang, 2015;Van Buskirk, Kantner, Gerke, & Chu, 2014). However, at any given point in time, prices of efficient ACs appear to be higher than prices for conventional ACs, and engineering estimates also indicate that at any given point in time, it costs more to produce efficient ACs.…”