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Annals of Unintended Consequences: California Edition

by Michael Levi
April 25, 2010

I like labeling schemes, like Energy Star, that help consumers make more energy-efficient choices. But sometimes policymakers slip up. In California, they’ve just started offering a $200 rebate on new refrigerators whose efficiency exceeds Energy Star requirements by a substantial amount. What could be wrong with that?

A friend in San Francisco writes:

“I just went to the appliance store and they said there was no rebate on ten cubic foot Energy Star fridges, but I could buy a fridge that was two-and-a-half times larger for less money because of the rebate.”

If that sounds bad, it’s because it is. What gives? It’s difficult for small fridges to meet the stringent requirements for the California rebate. (The rebate is technically available to fridges that meet CEE Tier 2 standards. The smallest fridge that meets the standard appears to be 16.5 cubic feet.) This means that one can sometimes qualify for a rebate only by buying a more efficient but larger fridge that uses more energy.

Take a concrete example. Let’s say I’m thinking about buying this 10.3 cubic foot Sanyo refrigerator, which uses 309 kWh/year of electricity, for $463.12. But wait: I can buy this super-efficient (and much prettier) 26.0 cubic foot Samsung, advertised price $605, for only $405 – nearly $60 less – after rebate! Alas, my government-encouraged purchase consumes 543 kWh of electricity each year, a whopping 76% more than the fridge I’d originally planned on buying. Which was probably not the policymakers’ intent.

Post a Comment 7 Comments

  • Posted by Gabe

    Nicely put.

  • Posted by Robert V

    Maybe it was the policymakers intent.

    Lobbyists use the environment as an issue, and I’m sure the utilities lobby and the appliance lobby would happily contribute to someone’s campaign if they passed a law increasing demand for their respective services and products.

    This law is also a transfer of wealth, because the taxpayer is the one paying the $200. Money is being transferred from those who aren’t buying kitchen appliances to those who are. More votes!

    In many ways, democracy and capitalism are incompatible, making almost inevitable this sort of petty government interference in the market system (in order to get re-elected).

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  • Posted by Dana M

    I would be inclined to think that if consumers were savvy enough to consider a rebate along with price, efficiency/operating cost, and cubic feet, most would also be shrewd enough to spot the long-term problem in operating cost (and emissions) – assuming cost and/or environment are foremost in that consumers’ mind. But for those looking to remodel/upgrade, go for the $200.

    Unfortunately, I fear this is what gives well-intentioned policies a black-eye; which leads to greater skepticism in other legislation and government.

    Is it just me, or does this have shades of cash-for-clunkers?

    While many pay for the rebate, the select get a “prettier” appliance. Many feel good.

    Robert’s point is well-taken.

  • Posted by david vartanoff

    Yup, another stupidly (or crookedly) crafted program. For years the 18.x cuft fridges were cheaper out the door than the 14s even though the latter clearly use less materials. The EnergyStar program clearly needs tweaking so that the smaller fridges are cheaper and use less electricity.

  • Posted by Josiah

    Not noted is that policymakers have a terrible time estimating the “appropriate” levels which rebates should be set at. In some states they set them much too high resulting in oversubscription and a reduced number of appliances (or whatever) actually purchased. In other states they set the rebate too low, with the same consequence. The “goal” for the policymaker should be to maximize the number of units sold (and thus energy saved) with the dollars available to them. They fail to do this most of the time.

  • Posted by MartinJB

    This is a great example of why a price on carbon, paired with subsidies to make more efficient products price-competitive is worthwhile.

    On its own, a price on carbon will instantaneously raise energy costs. Using more energy-efficient products mitigated the increased energy cost. With subsidies to buy more energy-efficient products the hurdle to getting those products is lower.

    The perfect combination doesn’t even need the subsidy: Double energy costs and make the product twice as energy efficient makes for a strong incentive to go into the more efficient product. Where increases in efficiency can’t match the increase in energy cost, the subsidy can provide additional incentive.

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