August 20, 2008
RALEIGH – The current controversy over Duke Energy’s Save-A-Watt program highlights problems linked to all government-mandated energy-efficiency plans. That’s the assessment of a John Locke Foundation analyst whose new Spotlight report recommends scrapping government mandates.
Click here to view and here to listen to Daren Bakst discussing this Spotlight report.
“Save-A-Watt has received tremendous criticism, as it should, because Duke would receive an excessive amount of money to run this program,” said Daren Bakst, JLF Legal and Regulatory Policy Analyst. “But the Save-A-Watt controversy is just one example of a larger problem. Any government-mandated energy-efficiency program creates major concerns. It’s time for the General Assembly to eliminate the provisions from a 2007 state law that authorized mandated energy-efficiency programs.”
The N.C. Utilities Commission has been holding hearings on Save-A-Watt since late July. Those hearings have exposed some key flaws in state government’s effort to force N.C. consumers to subsidize energy-efficiency measures, Bakst said.
“With Save-A-Watt or other mandated energy-efficiency programs, consumers would be forced to pay a hidden fee — in other words, a new tax — on their electricity bills to subsidize this energy-efficiency program,” he said. “Specific program measures would include financial incentives for customers to purchase energy-efficient goods or services, such as energy-efficient appliances.”
Proponents of energy-efficiency mandates make the arrogant assumption that people make poor energy choices, Bakst said. “In simple terms, these proponents do not think consumers invest in energy efficiency as much as they should due to their unrealistic expectations regarding the rate of return that can be achieved from energy-efficiency investments,” he said. “These proponents want energy-efficiency decisions turned over to a central planner.”
These proponents ignore the fact that customers have “innumerable” reasons to choose among different options, Bakst said. “A more expensive, more efficient appliance might eventually save a customer more money,” he said. “But the customer might not have enough money to pay the higher price for the appliance. He might need the additional money to pay for basic needs, such as food and electricity. Ironically, his electric bill will likely grow because of energy-efficiency programs.”
The customer might base his decision on other factors as well, such as the quality of the appliance or the opportunity costs, Bakst said. “Opportunity costs are the investments customers forgo in order to buy the appliance.”
Energy-efficiency mandates create other problems, Bakst said. “For instance, energy-efficiency gains come at the expense of overall economic efficiency,” he said. “Consumers pay for the energy-efficiency investments that businesses have previously rejected as being an inefficient waste of resources.”
Artificial incentives actually stifle natural market processes that promote increased efficiency, Bakst said. “There is no way to know what kind of gains in energy efficiency there would have been absent the incentives,” he said. “That’s because the programs create a disincentive for individuals and businesses to invest in energy efficiency on their own. In fact, the programs steer individuals into buying goods and services that are less efficient than what would have been purchased.”
The effectiveness of these mandated energy-efficiency programs is a “guessing game,” Bakst said. “But there’s at least one outcome that involves no guesswork,” he said. “The poor are unlikely to be able to take advantage of incentives, yet they would be forced to pay the same hidden tax as other customers. This means the poor would help pay for subsidies used by the wealthy.”
Lawmakers can address the problem by amending Senate Bill 3, Bakst said. That’s the 2007 measure that authorized energy-efficiency mandates like the “heavily criticized” Save-A-Watt program, he said.
“North Carolina, as a result of this law, will have bureaucrats planning the types of refrigerators and heat pumps people should buy,” he said. “Consumers would contact Duke Energy to see if their new light bulb is covered under Duke’s policies, much like a patient contacting an HMO.”
“Save-A-Watt’s basic problems are common to any mandated program,” Bakst said. “The legislature has a simple choice next year: Get rid of the failed and arrogant policy of centrally planning the purchase of home appliances and other energy-efficient investments, or do nothing and continue believing that North Carolinians are ignorant.”
Daren Bakst’s Spotlight report, “Energy Behavioral Modification: The Failure and Arrogance of Centrally Planned Energy Efficiency Programs,” is available at the JLF Web site. For more information, please contact Bakst at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].