Leave Those Air Conditioners Alone!

The Bush Administration caught unshirted hell from environmentalists last month for ordering a 20 percent increase in energy efficiency standards for air conditioners sold after 2006. The Clinton administration, you see, had proposed a 30 percent increase in standards, so the Bush administration is once again being hammered for relaxing environmental standards, promoting wasteful energy consumption, accelerating global climate change, and risking California-style blackouts during hot summer months for years to come.

While the Greens would have us believe that Bush was once again carrying water for corporate America, the president was actually doing us all a small favor.

First, the Clinton standards would have imposed huge costs on consumers. The U.S. Department of Energy (DOE) estimates that the Clinton standards would have increased the price of your typical air conditioner by a whopping $332 to $435. The Bush administration standards would increase prices by only (!) $144 to $213.

Second, the DOE had failed to adequately consider the possibility that some manufacturers would be driven out of business by the Clinton standards, thus reducing competition that helps restrain prices. So even those expected astronomical price increases were almost certainly low-ball estimates.

Third, the DOE concluded that over 40 percent of consumers buying air conditioners that meet Clinton's standards would never recover the higher costs through energy cost savings. Under the Bush administration standards, only about 25 percent of consumers would be net losers.

The Greens are right, however, to point out that the Bush standards will accomplish little on the environmental front, but the Clinton standards would not have achieved much either. Consider: The DOE estimates that the Bush standards will reduce growth in energy consumption by "about 3 quads" between 2006-2030, a figure deemed by the department as "significant." The nation, however, is expected to use about 3,200 quads of energy from 2006-2030, so "3 quads" equals but 9/100 of 1 percent of projected energy use. The DOE's claims about avoided emissions of carbon dioxide and nitrogen oxides are equally overblown.

While we should be grateful that the Bush administration has adopted efficiency standards that are somewhat less costly than those planned by the Clinton administration, the unwarranted economic burden and restrictions on consumer choice remain too great. Consumers, not bureaucrats, should have the final say about what's in the home.

The chance of recovering the higher cost of air conditioners through reduced energy consumption, after all, depends heavily on electricity prices and the frequency with which the air conditioner is used. Given that electricity prices vary widely throughout the United States (highest unit prices are more than double the lowest), and that consumers' usage patterns vary for dozens of reasons (e.g., geographic location, family size, tolerance for warm temperatures), paying more up-front at the cash register to reduce operating costs by a small amount for years to come makes sense for some but not for others.

While that observation should be rather obvious, it is - for practical purposes - ignored by appliance efficiency standards that apply to everyone whether it makes sense or not. The result is that many consumers are forced to incur higher costs than they would if allowed to base their decision on factors affecting their energy bills. The requirement is roughly equivalent to an attempt to restrain hat costs by requiring that everyone wear a size seven hat.

Moreover, the entire regulatory exercise is fraught with uncertainty. The government, for instance, assumes that it can accurately forecast the conditions affecting future appliance manufacture, sales, and use during the next 30 years, including changes in technology, markets, energy prices, consumer and appliance manufacturer behavior, raw material, labor and overhead costs, and wholesale and retail markups. How likely is that, particularly when much of the data comes from appliance manufacturers with a direct financial interest in the DOE's decisions?

The upshot is that all analytic uncertainties in the exercise are resolved in favor of tighter standards because only the well organized - typically those positioned to gain the most from government action - can affect the rulemaking process. Big appliance manufacturers, for instance, are happy to have the government impose regulatory barriers to entry into their market, barriers that serve to cartelize the industry. Bureaucrats are always on the lookout to expand their power and reach. Green political lobbies consider energy conservation a religious virtue regardless of economic realities and are in the business of delivering such mandates in return for contributions from the faithful.

Everyone wins but the poor consumer who is for the most part oblivious to these regulatory machinations undertaken at his expense. The administration did us a favor by minimizing the hunk of flesh taken out of our economic hides. But it would be better to junk these standards and make the consumer, once again, king of his own pocketbook.