CBS Newsletter
Winter 1996
pg. 1

Cutting Energy-Efficiency R&D: Penny-wise and Petro-foolish

Consumers save about $150 billion per year (about $600 per person) thanks to improvements in energy efficiency, policies that encourage efficiency, structural changes and lower energy prices. DOE's energy-efficiency programs cost about one-tenth of 1% of the annual U.S. energy bill.

While Congress moves to cut or eliminate a host of government energy-efficiency programs, little thought is being given to the billions of dollars of energy savings that will be forfeited by American homes and businesses. As oil imports eclipse levels that preceded the first energy crisis, as scientists discover yet more evidence of global climate change, as energy bills become a higher percentage of income for the poor, and as our competitor countries expand their energy R&D spending, we should look before we leap into slashing tomorrow's programs in the name of "efficiency."

Government R&D Makes Markets More Vibrant

Improving energy efficiency was our economy's single most cost-effective response to the energy crises of the 1970s. Price- and policy-induced gains averaging about 25% in all sectors are today saving energy users a staggering $150 billion each year. Low-income households benefit; so do high-tech industries. Yet there remains a huge untapped potential to curb our ravenous $500-billion-a-year energy appetite ($2,000 for each American). The hard truth is that we are consistently less efficient than our global competitors, the rate of efficiency improvement has stalled, and energy demand-for the first time since OPEC became a household word-is rising.

The U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy spearheads the nation's efforts. Its world-class R&D infrastructure and unique technical resources are designed to improve energy efficiency and indoor environmental quality in U.S. buildings, to make our transportation systems less dependent on imported oil, and to enhance energy productivity in industry. The DOE strategy combines technology push and market pull, in partnership with private-sector providers of energy-efficient goods and services. It focuses on developing basic materials and software, solving engineering problems, helping industry and policymakers understand the market's functioning, supporting utility demand-side management programs, and crafting mandatory standards to improve efficiency where other measures fail.

Past DOE efforts have already paid for themselves many times over, creating multi-billion-dollar markets for new products and services. For example, consumers save $1,000 for every dollar spent by DOE on its appliance standards program. And delivering energy efficiency creates more jobs than producing raw energy.

The market has by and large welcomed DOE's involvement. Building and appliance standards (the latter of which were signed into law by President Reagan) were arrived at through a remarkable consensus of manufacturers and trade organizations. Computerized design tools are embraced by architects and engineers who lack the ability to develop their own. The heating, ventilating, and air conditioning industry has expressed strong support for continued federal research on indoor air quality. Under the Partnership for a New Generation of Vehicles (PNGV), the big three auto makers will make Japanese cars look like gas-guzzlers-if Congress lets them.

DOE's programs do not interfere with the functioning of markets; they make these markets more vibrant. The work is far from done. Promising projects now on the lab bench include better, CFC-free insulation; advanced gas heat pumps; the super-efficient S-lamp; "smart" windows whose properties adjust with changes in light and thermal conditions; a new generation of standards that harvest savings made possible by emerging technologies; and multimedia design tools that vastly expand the ability of architects and engineers to apply new technologies. Other efforts focus on improving efficiency in basic industries such as steel and paper. PNGV is a bold effort to produce a midsize car three times as efficient as those sold today, with no sacrifice in cost, performance, or safety.

The building industry also looks to DOE for cost-effective and energy-efficient solutions to ventilation and indoor air-quality problems. DOE has responded with new technologies for better duct systems, inexpensive pollutant-monitoring devices, and designs for energy-efficient, radon-resistant homes. While saving money on energy bills, we could simultaneously address the hidden costs associated with the infamous "sick building syndrome," respiratory illnesses, lung cancer, asthma, many allergies, carbon moNOxide poisonings, and other health problems.

These are worthy goals. Indoor air-quality problems are one of the most common causes of litigation in the buildings industry today. Around 20,000 deaths, and ten times as many illnesses, are attributed to indoor air pollution in the U.S. each year.

Efficiency R&D in the Balance

Despite the prospective benefits, many of DOE's promising research programs could be eliminated or substantially reduced by a Congress that hastily dubs them "corporate welfare." In addition, several programs that promote the market deployment of energy-efficient technologies may be significantly downsized-among them the Weatherization Assistance Program for low-income households. Why is government involvement necessary? There are clear market failures that make industry reluctant to embark on certain kinds of R&D. Although private companies are often the source of innovation, they have short time horizons and shrinking research budgets. Small companies are at a particular competitive disadvantage and can benefit from the nonproprietary knowledge base, specialized resources, and risk-sharing available to them through DOE. Efficiency R&D funded by states and the utility industry is rapidly waning, making federal R&D more important than ever.

DOE has demonstrated an ability to unify disparate actors in the fragmented buildings industry. As an example, the recently formed National Fenestration Rating Council (NFRC) established for the first time a coordinated group of glass, frame, and window manufacturers to agree on a common yardstick for quantifying and labeling the energy performance of windows. The labeling system helps utilities, code officials, ESCOs, and others in need of an objective and standardized efficiency measurement for windows.

DOE's programs leverage substantial private R&D cofunding. More important, industry eventually makes vastly greater investments in manufacturing and marketing the new technologies. On the demand side of the equation, DOE's market-conditioning programs address a host of informational, economic, and institutional barriers that keep consumers from purchasing efficient products. Government funding is not a handout; it's a catalyst for market creation. DOE also helps the government put its own house in order and to lead by example. In keeping with the theme of reducing the cost of government, federal managers are using the products of their own R&D to trim the government's $11-billion annual energy bill. This not only saves taxpayers money, but creates considerable demand for energy-efficiency goods and services provided by private companies. Take for example the energy management program in DOE's own 14,000 buildings around the country. Eliminating this activity-as proposed by both Houses of Congress-will only cost the taxpayers money: $5 for each $1 ostensibly "saved" through budget cuts.

Today, funding for DOE's efficiency programs represents a mere one-tenth of one percent of the U.S. energy bill (only $3 per capita). By trimming these programs further, government would divest itself of a proven tool for meeting its responsibility to ensure energy security, a livable environment, jobs, economic competitiveness, and prosperity for its citizens.

Evan Mills leads the Center for Building Science at Lawrence Berkeley National Laboratory.

Jack White is the former Senior Director of Energy Programs at Pacific Northwest Laboratory and former President of the New York State Energy Research and Development Authority.

Tony Schaffhauser is Director of the Energy Efficiency and Renewable Energy Program at Oak Ridge National Laboratory.

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Evan Mills
Center for Building Science
(510) 486-6784; (510) 486-5394 fax

Based on an article entitled "Cutting Government Programs to Save Energy Overlooks Benefits" by the authors in the Los Angeles Times, Business Section, September 10, 1995, p. D2.


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