The Mercatus Center released a paper (PDF) this month co-authored by Ted Gayer (an economist at the Brooking Institution) and W. Kip Viscusi (an economics professor at Vanderbilt), titled “Overriding Consumer Preferences with Energy Regulations” which questions the economic justification for various government schemes implemented to force energy efficiency improvements in consumer household products, automobiles, lightbulbs, etc. The abstract is below:
This paper examines the economic justification for recent U.S. energy regulations proposed or enacted by the U.S. Department of Energy, the U.S. Department of Transportation, and the U.S. Environmental Protection Agency. The case studies include mileage requirements for motor vehicles and energy-efficiency standards for clothes dryers, room air conditioners, and light bulbs. The main findings are that the standards have a negligible effect on greenhouse gases and the preponderance of the estimated benefits stems from private benefits to consumers, based on the regulators’ presumption of consumer irrationality.
The paper walks through the basic economic understanding of consumer rationality, and explains why behavioral critiques of consumer rationality fail to undermine the general conclusion that consumers are overwhelmingly rational and tend to act in their own best interest, and that “in most contexts consumers are better equipped than analysts or policymakers to make market decisions that affect themselves.” [click to continue…]
Farhad Manjoo of Slate is convinced that a new L.E.D light bulb being produced will look similar to incandescent lighting and still save consumers money over the life of the bulb, according to their predictions and his calculations:
[…] On average, an incandescent bulb lasts about 1,000 hours—that’s about a year, if you keep it on for about three hours a day. Electricity in America also costs about 11 cents per kilowatt hour (that’s the average; it varies widely by region). In other words, a 50-cent, 60-watt incandescent bulb will use about $6.60 in electricity every year. Switch’s 60-watt-equivalent LED, meanwhile, uses only 13 watts of power, so it will cost only $1.43 per year. The Switch bulb also has an average lifespan of 20,000 hours—20 years. If you count the price of replacing the incandescent bulb every year, the Switch bulb will have saved you money by its fourth year. Over 20 years, you’ll have spent a total of about $142 for the incandescent bulbs (for electricity and replacement bulbs) and less than $50 for Switch’s 60-watt bulb. (I made a spreadsheet showing my calculations.) [click to continue…]
This week Philips Co. showcases its newest success at capturing rents produced by government mandates: it has produced a 17-watt LED bulb that functions as equivalent to a 75-watt incandescent bulb. The catch: they will initially cost around $50.
The announcement contains the usual boilerplate about how in just a few more years these light bulbs will be the cat’s pajamas, and everyone will be buying them. Go get in line. Lynne Kiesling comments:
This week Philips is releasing a mass-market LED light bulb with a physical and lumens-delivering profile to mimic incandescents at a fraction of the energy use. But they’ll still be priced at $40-45, which is a bit steep for customers who are accustomed to cheap, short-lived bulbs, so their market success will require some education and adaptation of expectations. They will also have to overcome the hurdles of the failed expectations of compact fluorescent bulbs, which have not demonstrated the required longevity/price tradeoff to make them economical (in addition to their other shortcomings). I may buy one to test, but I don’t plan on fitting out my whole house in these LEDs any time soon, based on my CFL experience.
[click to continue…]
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