On November 21, 2017 the Department of Energy issued a Request for Information (RFI)1 that provides notice DOE is considering wholesale changes to its energy conservation standards program. The current program is a prototypical “command-and-control” mechanism for reducing energy consumption, under which appliances and a wide variety of consumer, commercial, and industrial products must meet certain mandatory, minimum efficiency standards promulgated by DOE at least every six years. The RFI suggests, however, that the Trump Administration is considering replacing this long-standing structure with more market-oriented mechanisms to achieve reductions in energy consumption. The RFI specifically solicits feedback on how trading schemes that have been successful in other regulatory programs might be applied to energy conservation, and gives interested parties 90 days from publication of the RFI in the Federal Register (which should be any day) to comment.2

Background

The Energy Policy Conservation Act (EPCA) requires the Department of Energy to set minimum energy conservation standards for over 60 consumer, commercial, and industrial products (“covered products”). Companies are then required to test and certify that covered products they manufacture and/or import comply with the applicable energy conservation standards prior to initial distribution of each product, and annually thereafter. The penalty for non-compliance is steep. Manufacturers can be fined up to $440 for every product unit they knowingly distribute in violation of minimum efficiency requirements, with penalties applicable for up to 5 years looking backward.

EPCA also requires DOE to review the energy conservation standard for each covered product at least every six years and to issue a determination as to whether the standard should be revised. A fundamental feature of EPCA is its “anti-backsliding” provision, which prevents DOE from reducing energy conservation standards as part of the review process, irrespective of compelling reasons for such weakening (e.g., enabling technological change that results in greater overall reduction in consumption).

While the Obama Administration regularly made energy conservation standards more stringent for a wide variety of covered products and issued new standards for products previously without them, the Trump Administration appears to be taking a different approach. It has put a hold on several energy conservation standards promulgated in the waning days of the Obama Administration, which means those standards cannot take effect, and Secretary Perry recently issued a memorandum identifying the energy conservation program as one that is “overly burdensome” and ripe for reconsideration.3

The RFI

The RFI solicits feedback and suggestions on how market-based approaches might be used to improve energy efficiency. The agency explains that it is particularly interested in “designs that would use market-based policy mechanisms such as averaging, credit trading, or feebates,” where “feebates” essentially reward energy-efficient practices and penalize the failure to adhere to such practices. The RFI suggests that such mechanisms might be “less burdensome alternatives” to the existing, prescriptive energy efficiency regime.

As models, the RFI identifies several successful market-oriented approaches to reducing pollution that may be used as a framework for DOE’s energy conservation program, including the automotive corporate average fuel economy (CAFE) standards, which permit automobile manufacturers to average the fuel efficiency of their automobiles across their entire fleet rather than meet individual fuel efficiency standards for particular vehicle classes. The EPA Acid Rain Program is also identified in the RFI, which is the national cap-and-trade program, created in Title IV of the Clean Air Act Amendments of 1990, which implemented material reductions in sulfur dioxide and nitrogen oxides from power generators by creating marketable emission allowances that generators could use to meet their mandatory reduction targets. The RFI suggests that similar market-based frameworks could produce the same or even better energy conservation results in the EPCA program, at reduced cost and more efficiently.

The RFI acknowledges that there may be concerns and potential challenges to implementing a market-based solution, such as the impact a market-based program may have on small firms or on types of products with few market participants or where there is otherwise not yet a fully developed competitive market. DOE will also need to consider how to square its proposed market-based solutions with EPCA’s anti-backsliding requirement, and whether a trading scheme like the Acid Rain Program will work in the appliance market given that so many appliances are purchased by intermediaries like landlords and developers rather than the end-users who directly benefit from the savings of energy efficient appliances. For example, because these intermediaries might not obtain the tradeable credit associated with using an energy efficient product, they might not be incentivized by such a program to purchase more energy efficient appliances.

An Opportunity to Reshape the Appliance Standards Program

The RFI launches the first significant reexamination of the DOE energy conservation standards program since the modern version of the law was enacted in 1987. The RFI also fits squarely within the administration’s broader efforts to scale back the “regulatory state” and to usher in more business-friendly and market-oriented regimes in the federal government. (Significantly, Dan Simmons, the author of the RFI, is both DOE’s Principal Deputy Assistant Secretary for Energy for Energy Efficiency and Renewable Energy, and DOE’s “regulatory reform officer” in charge of implementing President Donald Trump’s Executive Order 1377 establishing a regulatory reform task force within each agency.) As such, manufacturers and/or importers of appliances and other commercial and industrial products covered by the existing DOE energy conservation regime have an opportunity to provide significant and meaningful feedback on the RFI for the first time in many years.

The 90 day comment period will start when the RFI is published in the Federal Register, which should be soon. The input provided by companies at this early stage will likely go a long way toward informing DOE on how best to reform the energy conservation standards program in a way that improves energy efficiency while also giving companies flexibility in how they may achieve those energy efficiency gains, such as those that are most cost-effective for them.

Manufacturers and/or importers of covered appliances, industry groups, and other interested parties should strongly consider developing comments on these proposals, and identifying issues that DOE should consider as part of its redesign.