by Jack Spencer
In an attempt to force Americans to conserve energy, the Department of Energy is banning a whole class of popular furnaces, eventually raising heating costs and reducing product choices for families and businesses alike. And it is using an outdated law to give itself the authority to do so.
While the DOE did recognize many of the comments that I submitted arguing against its attempt to regulate gas furnaces, it did little more than brush them off. Unfortunately, higher costs and less choice won’t be so easy for American families and businesses to ignore.
Furthermore, the DOE relied on outdated congressional authority to devise its final rule, and the law itself doesn’t require the department to tighten standards for gas furnaces when there is no good reason for it to do so (and there isn’t).
The new rule does not simply alter standards; it would effectively remove a technology from the marketplace and reduce competition. This is antithetical to Congress’ wishes expressed in the 1975 Energy Policy and Conservation Act, which makes clear that maintaining a competitive market for products the law covers is an essential element of the cost-benefit calculation. Yet ultimately, the rule would have a tremendous effect on the furnace market by eliminating an entire technology, namely noncondensing gas furnaces.
While the DOE determined that noncondensing furnaces do not constitute a separate marketplace offering relative to condensing models, which it prefers, its conclusion is based on an overly narrow definition of separate product categories. Essentially, the department concluded that because both technologies are used to heat homes, they are not competitors and thus should not be considered separate product categories for regulatory purposes.
While both condensing and noncondensing furnaces heat homes, they have different costs, perform differently, and have different installation requirements. Condensing furnaces cost more and entail installation expenses that can be significant.
These differences matter to consumers, and this is why both technologies are sold in the marketplace. Indeed, the DOE estimated that noncondensing furnaces would represent 42% of furnace shipments in 2029, prior to its proposed rule taking effect, demonstrating the enduring value that American consumers find in noncondensing furnaces.
Congress, right or wrong, sought to improve consumer product efficiency when it passed the Energy Policy and Conservation Act nearly 50 years ago, but it was not seeking to empower the DOE to in effect ban a product that, according to the department’s own estimate, represents 42% of the market.
Congress also expressed a deep concern with ensuring that any conservation measure be supported by an underlying need for energy conservation. In fact, the Notice of Proposed Rulemaking specified when the “DOE may not prescribe a standard.” Among other factors that the notice stated the secretary must consider is “the need for energy and water conservation.”
Indeed, the value, if not the underlying legitimacy, of government imposing its will on the American consumer when considering this conservation factor could only be relevant when there is a current and pressing problem concerning conservation. Such a scenario does not exist now, and, in fact, there is energy abundance, even though much remains untapped largely due to government constraints.
According to the Energy Information Agency, in 2020, the United States held over 373 billion barrels of technically recoverable crude oil reserves, which would provide the U.S. with over 50 years of supply. The same is true for natural gas. The agency also estimated in 2020 that the U.S. held more than 2,925 trillion cubic feet of technically recoverable natural gas. At current consumption levels, that equates to nearly 100 years of supply.
Of course, new discoveries are always occurring that would expand this supply over time, which is demonstrated by the growing availability of unconventional sources like oil shale. According to the Energy Information Agency, the U.S. currently holds an additional 195.5 billion barrels of crude oil and 1,712 trillion cubic feet of natural gas in unconventional reserves. According to the Institute for Energy Research, conventional and unconventional reserves combine to provide nearly 300 years of energy supply at current consumption levels.
These energy resources do not even account for uranium deposits, which are widely spread throughout the U.S., nor for advancements in other energy-generating technologies.
This era of energy abundance is different from the early 1970s when the Energy Policy and Conservation Act was passed.
Given that the relevant context of any imposed energy efficiency mandate is, at a minimum, some demonstrable condition of energy scarcity and that the U.S. obviously does not meet that condition, the justification for this or nearly any other efficiency rule is clearly weakened.
Further, within the context of establishing the need for energy conservation, the DOE’s underlying analysis for the rule attempted to justify it based on alleged emissions benefits.
But according to the Environmental Protection Agency, U.S. air quality has been improving for decades. The EPA reports that nationally, air pollutant concentration levels have declined significantly since 1990, including levels of carbon monoxide, lead, nitrogen dioxide, ozone, sulfur, and particulate matter.
By almost any measure, America’s air quality is clean and getting cleaner. Thus, to argue that this regulatory action’s alleged air quality benefits outweigh the substantial costs to American consumers is weak.
The legitimacy of any policy, especially those that restrict Americans’ ability to pursue their own happiness, requires policymakers to balance all of the costs and benefits of a particular action. Thus, a reasonable assessment of the impact on consumer choice, family finances, and broad inconvenience weighed against the alleged air quality benefits should have provided the secretary of energy adequate information to stop this regulation in its tracks.
The 1975 Energy Policy and Conservation Act was borne out of time of perceived energy scarcity. In justifying the policies that the act ultimately set in place, President Gerald Ford laid out three broad policy objectives. These included reducing oil imports, ending American vulnerability to economic disruption by foreign suppliers, and developing energy technology and resources to supply a significant share of the free world’s energy needs.
In each case, the United States has achieved Ford’s objectives. In 1975, net imports of crude oil exceeded 5 million barrels per day. By 2020, the United States had become a net exporter. Additionally, American technologies like fracking and commercial nuclear reactors are helping to power modern economies around the world.
Geopolitical shocks and cartels, specifically the Organization of Petroleum Exporting Countries, or OPEC, which produces about 40% of the world’s crude oil, can still have a near-term impact on American energy prices. But due to the large amount of energy produced in America and traded on global markets, energy disruptions do not present the sort of systemic threat that policymakers feared in the 1970s. The extent to which the United States economy remains vulnerable is purely a function of energy restriction policies created by our own government and have nothing to do with energy efficiency.
Thus, while efficiency certainly remains an important piece of the energy calculation for American consumers, it is no longer something that needs to be imposed at the systemic level.
Though the 1975 act clearly authorizes the DOE to place restrictions on industry and consumer choice at the behest of the secretary of energy, the department should recognize that the environment that gave rise to the act has changed drastically, given advances in technology and energy discovery. While this does not diminish the authority of the secretary to impose standards, it does dramatically diminish the impact of those standards relative to the overall purpose of the act, which is to secure adequate energy resources for the American economy.
In other words, saving a slice of a small pie has much more impact than saving the same size slice of a much larger pie. As detailed above, the United States has hundreds of years of known energy reserves, and new technology is allowing for new discoveries and more efficient use of existing reserves all the time.
Further, appliances of all sorts, including furnaces, are becoming more efficient. While the consuming public considers many attributes of the purchases they make, including capability and upfront cost, efficiency is clearly something the American consumer values. Indeed, as energy becomes more expensive, the value of the efficiency in a free market will most assuredly increase.
Put succinctly, the value proposition for energy efficiency has shifted dramatically since 1975 due the broad availability of energy. Thus, forcing Americans to purchase certain products based on efficiency within an environment of energy abundance no longer has the same impact on energy availability as it did during times of perceived energy scarcity. The new standards do not meaningfully advance the intent of Energy Policy and Conservation Act and do not justify the restrictions the rule will impose on American consumers’ choices.
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Jack Spencer is a senior research fellow for energy and environmental policy at The Heritage Foundation.
Photo “Furnace” by ActiveSteve. CC BY-NC-ND 2.0.
