Evaluation in a Post-Standards World

As with building energy codes, equipment standards are a very cost-effective way to save energy by requiring a minimum level of energy efficiency for certain products, thereby transforming the market. Similarly, the Environmental Protection Agency’s ENERGY STAR program has resulted in decades of energy savings supported by relatively little federal spending. However, recent federal changes put both standards and the ENERGY STAR certification at risk. Let’s investigate the impacts of these unnecessary changes and their effect on evaluations.

What Are Standards?

Appliance and equipment standards are minimum efficiency requirements established by the federal or state governments for new products. By setting a minimum efficiency value, standards reduce the energy use compared to the alternative for households and businesses purchasing these products, resulting in utility bill savings. By prohibiting the sales of products that do not meet the minimum requirement, standards compel manufacturers to develop energy efficient technologies at the least cost. Because all competitors are held to the same requirement and can take advantage of the efficiencies of scale provided by selling to a state or national market, manufacturers can invest in improving the performance of their products without being undercut by other firms with less efficient products.[1] This results in a market of energy efficient products that are more affordable and widely available than otherwise would be.

Standards help overcome several barriers hindering the adoption of energy efficient equipment. These include split incentives (when the higher cost of the efficient equipment is born by a party other than the one who will benefit from the lower energy use/utility bills, such as a typical landlord/tenant setup), replace on failure situations (when a consumer has to replace a broken piece of equipment quickly without time to shop around or do research), and the high first cost of high efficient equipment manufactured in limited quantities. Standards are also a major tool to help with energy equity as it lowers the cost of efficient products for everyone, not just those who can afford the top of the line product.

The Impact of Standards

According to this paper from ACEEE, existing standards saved the average US household approximately $500 on utility bills in 2015 or 16% of total utility bills. This varied by state. Not surprisingly, states with the largest electric savings per household were in the south, due to higher electric usage from ACs/HPs and greater prevalence of electric water heaters. Similarly, fossil fuel savings were higher in northern states due to higher heating loads and penetration of natural gas and fuel oil space and water heating equipment. Across the US, the paper found that appliance standards resulted in 2015 bill savings of 13% for electricity, 4% for natural gas and fuel oil, and 9% for water.

Annual energy savings increased from 2015 to today as more efficiency standards took hold. However, digging up an estimate of savings in 2025 is difficult for two reasons and both are related to Trump. First, many of the standards expected to be implemented between 2016 and 2021 were not because the first Trump administration slow rolled their adoption. Second, many standards that were recently adopted forecasted savings out to the future with the assumption that they would be adopted, not abandoned as the second Trump administration is doing.

A little history: under George W. Bush, Congress passed several law establishing new standards and schedules for the review and update of all standards and test procedures to ensure they would keep up with technology advancements. Generally speaking, within six years of a standard’s adoption or update, the DOE is required to determine whether an improved standard would be technically and economically feasible. If so, they must propose one. If not, the DOE can propose to keep the standard as is. The DOE has two years after the proposal to update the standard, resulting in an eight-year cycle. Because Trump’s first administration did not conduct regular reviews of standards as the laws expected, it fell upon the Biden administration to catch up and deal with the backlog, creating a bubble of updates that Trump’s second administration is now targeting.

Where We Are Today

Framed as an effort to lower costs and increase consumer choice, Trump recently announced the withdrawal or postponement of many energy efficiency standards. The DOE has withdrawn standards on electric motors, ceiling fans, dehumidifiers, and external power supplies. It has also postponed the effective dates for test procedures for central air conditioners and heat pumps and efficiency standards for walk-in coolers and freezers and gas instantaneous water heaters. Additionally, the DOE has limited the enforcement of existing standards. This could result in a significant increase in energy use and the utility bills of American households and businesses.

How Will This Affect Evaluations

When estimating energy savings of energy efficient equipment, we need to compare the energy use of what was installed compared to a baseline. In many cases, the baseline is assumed to be the least efficient product available that meets current equipment standards.[2] Now, however, without clarity on the minimum efficiency standards, it will be more difficult to estimate energy savings because there is no basic counterfactual.

The exact effect of the non-enforcement of energy efficiency standards is difficult to determine. As ACEEE points out, “manufacturers would still have a legal obligation to ensure their new products meet standards. But unscrupulous importers and manufacturers could unleash illegal products in the market, and consumers wouldn’t know the hidden costs they bring.” It is likely that the majority of products in the market would still meet existing standards because changing product lines would cost time and money; it’s not like a furnace manufacturer will suddenly shift from manufacturing 80% AFUE furnaces to 60% AFUE furnaces from 40 years ago because they won’t get in trouble. But, as ACEEE describes, some manufacturers could redirect products from countries with weaker standards to the US market.

In the short and medium term, it may be instructive to look at past changes to standards to understand how to treat the current changes. When EISA came into effect, utility programs and evaluators often assumed that the changes to the lighting baseline should be delayed because there would be a sell-through period in which previously stocked light bulbs would need to be sold.[3] Similarly, when the DOE shifted to updated minimum efficiency levels for AC equipment (SEER2/EER2), it specified a staggered adoption to account for stock sell-through and specified dates after which non-compliant equipment could not be installed. If we assume that the supply chain currently has a certain amount of equipment that complies with existing federal efficiency standards, then there will be a sell-through period before any changes to the baseline needs to be made. After that period (maybe a year?), programs and implementers should conduct research to determine the state of the market and if changes to baseline assumptions are warranted. This picture is clouded even more by Trump’s tariffs which may affect both the availability of foreign products in the US as well as the incentive for manufacturers to reduce costs as much as possible (e.g., through reduced efficiency).

The End of ENERGY STAR?!

As I was writing this post, it was announced that the Trump administration plans to end the ENERGY STAR program as part of announced budget cuts. ENERGY STAR represents a major success in government/business collaboration and has resulted in the savings of billions of dollars. This voluntary program helps both customers and businesses quickly differentiate efficient products from less efficient products using standardized methods. For energy efficiency programs and evaluators, it provides simple definitions for program offerings and a marker against which we can measure market transformation. The benefits of this program outweigh the costs in a way that is probably unparalleled in federal government and cutting it would be a huge mistake. 

For a concise history of the ENERGY STAR program and a description of its many benefits, I highly recommend reading the letter to the EPA by hundreds of companies supporting it; they can make their case much better than I can. Let's hope enough people recognize the program's benefits so that it survives.                                      

[1] Importantly, standards programs not only set the minimum efficiency level but also enforce manufacturers’ compliance.

[2] And building energy code, but that’s another story.

[3] Incidentally, clicking on many DOE links about EISA are broken and just take you back to the Department of Energy homepage as if the law doesn’t exist.