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New DOE rules on home furnaces could see savings go up in smoke

By   /   July 8, 2015  /   No Comments

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BURN BABY BURN: The new DOE proposed rule on furnace efficiency is unlikely to have enough benefits to outweigh the cost, according to the Mercatus Center.

By PG Veer | Watchdog Arena

The Energy Policy and Conservation Act of 1975 and the Energy Independence and Security Act of 2007 have given the Department of Energy the authority to regulate the efficiency of residential gas furnaces. The DOE has decided to move forward with a proposal to update such rules, pushing a mandate for furnace manufactures to increase burn efficiency from 78 percent – set in 1992- to 92 percent.

However, a new analysis from the Mercatus Center questions this approach from the DOE. The analysis argues, not only wasn’t the DOE obligated to upgrade its efficiency standards, but Research Fellow Sherzod Abdukadirov and MA Fellow David Wille go as far as questioning the pertinence of such rules.

More specifically, they question the DOE’s assertion that “left to their own devices, consumers underestimate the projected energy savings from buying a more efficient furnace.” The department claims that its new efficiency rules – which would crowd out less efficient furnaces – will save consumers nearly $23 billion over a 30-year period, along with benefits the environment from a lower fossil fuel consumption.

The Mercatus analysis points out that people who purchase less efficient furnaces may be doing it so on purpose. Consumers “may be rationally concerned about large upfront costs of more efficient appliances in the face of uncertain future energy savings.” This uncertainty, according to economists Michael Greenstone and Hunt Alcott, is justified since DOE figures tend to overestimate savings, as test furnaces are used in a controlled environment. In other words, real-life savings are usually inferior to estimates.

Greenstone and Alcott also say that people buying energy-efficient appliances expect them to be repaid in energy savings within 3.5 years. However, the new DOE rules would more than double (7.2 years) the time frame between the purchase and the net savings.

In addition, Abdukadirov and Wille say that the supply-side approach of the DOE – forcing consumers to buy certain models – is less efficient than a demand-sided approach. And markets are taking this latter approach thanks to tools like feedback and energy calculators in the private sector, and even government tools like Energy Star labels, “which render the DOE’s regulation redundant.”

Furthermore, the paper states that the DOE admits that the new rule would incur a net cost for about 20 percent of all consumers, most of whom are low-income households. Since their access to credit (to finance the new furnace) is limited, imposing a one-size-fits-all solution would lead to hardship.

The new DOE proposed rule on furnace efficiency is unlikely to have enough benefits to outweigh the cost, according to the Mercatus Center. Since the estimated benefits are calculated in a controlled environment, they are usually overestimated.

There are already government (Energy Star) and private (Opower in Virginia, which reports energy consumption to households) programs helping consumers make smart choices when it comes to energy consumption.

The DOE must review its existing energy efficiency standards for residential furnaces by June 27, 2017.

This article was written by a contributor of Watchdog Arena, Franklin Center’s network of writers, bloggers, and citizen journalists.

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PG (Pierre-Guy) Veer was born and raised in Quebec City, Canada. After living all over his native country, he settled in Boise, Idaho in 2011, and earned a political economy degree in 2013. His writings have been published in the Daily Caller, The Blaze, the Huffington Post Québec and many more.