How Your Tax Dollars May Save Energy but End Up Penalizing Homeowners

Published August 7, 2017

Governments often intervene in markets. In a very few cases this can be justified because markets may provide important misleading signals because they do not take into account the effects of particular activities or products on those not involved in these activities or production or consumption of various products. This is the justification for many environmental regulations where pollutants that are emitted have actual adverse effects on those that are not involved in the emissions. But in all too many cases these effects do not actually exist, as recently alleged, for example, concerning emissions of very fine particulates, or are so minor that implementing the regulations costs more than the adverse effects.

One of the worst examples is that of alleged global warming/climate change. Here climate alarmists claim that human-caused emissions of CO2 results in this, but the best available science says that there is not. So should the Federal Government get involved? The answer is clearly no. It has never been shown that such human-caused CO2 emissions have any significant effect on global temperatures. And even if they do, it may be advantageous for the world to have warmer temperatures. Further, even if the climate alarmists are correct, the alleged remedy will not work unless the alarmists’ assumptions are correct and would cost hundreds of trillions of dollars, particularly lower income energy users. Almost as bad are regulations requiring the use of corn ethanol, which clearly only benefit corn producers and processors at the expense of gasoline users and illustrates how government interference in private markets can be used by special interests to reallocate income to themselves.

A Less Dramatic but Interesting Example

A less dramatic but interesting example is regulations to make air conditioning systems more energy efficient. In the early days advocates argued that lower use of fossil fuels would reduce US vulnerabilities to cut-offs by unstable foreign oil producers. But the US is now close to producing most of the energy it consumes. Then advocates argued that oil production had peaked, and conservation was necessary to conserve supplies. But US production has dramatically increased in the case of both oil and natural gas. Now they argue that reduced emissions will prevent climate change/global warming and that the world will experience various alleged dooms if that is not done. All this has been shown to be wrong and the alleged dooms never happen as repeatedly predicted. I argue that regulating the energy efficiency of air conditioning units is unwise and best left to the private market.

A friend’s central air conditioning system lasted 38 years and never failed due to refrigerant leaks or even required refrigerant recharging. A replacement, high efficiency system lasted all of 10 years before a repairman said it was in need of complete replacement because of slow refrigerant leaks that “could not be fixed.” Replacement, he was told, would cost about $5,000. How could this be? One repairman said that the leaks were caused by use of much thinner copper tubing in the coils used to transfer heat to and from the refrigerant.

He said that a major way that increased energy efficiency was being achieved, as now required for new systems by the US Government, and thus lower energy bills, was by making the coil tubing thinner, thus facilitating heat transfer. I have no direct means to verify this hypothesis, so I looked on the internet to see if anyone else had reported anything similar. I found such a report, which claimed that the leaks are primarily due to formaldehyde in indoor air, which results in formic acid that eats pin holes in the newer thinner coils.

The average life span for a central air conditioning system is now about 12 to 15 years according to Google. So it may cost my friend about $5,000 for replacement every 12 to 15 years. Does that save him money? I really doubt it despite the energy savings taking into account the higher cost of high efficiency air conditioners, particularly at high personal discount rates. And then there is the added aggravation for homeowners in dealing with more frequent breakdowns. But any new installations must now meet energy efficiency standards set by the US Department of Energy. All that may be happening is that replacements are much more frequent, energy use and costs lower, and equipment and maintenance costs higher. I fail to understand why this substitution is in my friend’s or anyone else’s interest even though our tax dollars were used to pay those writing the energy efficiency regulations. I can see why research might be useful in this arcane area, but why is the US Government imposing regulations that appear to end up costing homeowners both money and aggravation?

Government Efforts to Save Energy Are Generally Counterproductive

Saving energy is not an appropriate goal for government regulation or even an important one. Energy is very important to modern civilization but it is just one of many commodities required by modern life. The way to judge whether particular energy efficiency measures are worthwhile is rather to compare the total costs with and without the “energy saving” approach being evaluated. Homeowners are better able to determine this without government intervention. So why are these mandatory regulations being prepared? There is no sign of a market failure that might justify government intervention now that the climate argument has been shown not to be based on valid science.

Government regulations requiring particular features on energy-using appliances for the purpose of saving energy are simply counterproductive and something that government can make no useful contribution. One obvious problem is that people have different risk tolerances (in this case for the risk that air conditioning coils will develop pinholes) and different preferences for short term savings compared to longer term losses (in this case buying a whole new air conditioning system more frequently). Obviously less wealthy households are very adversely affected by the Energy Department air conditioner regulations since they may well have great difficulty finding $5,000 on short notice. This is similar in its effects on less wealthy households as most climate alarmist-inspired regulations. The only winners are the regulation writers and those who profit from supplying the energy saving devices that government mandates, such as air conditioning system makers and service firms. As usual, the losers are homeowners, who appear to be paying more for inferior energy saving appliances and more for maintenance services. Anecdotal information suggests that many other Federal appliance energy regulations have similar effects.

Some Interesting Complications

An interesting footnote. You can now buy sealants to add to air conditioner refrigerants that the sealant manufacturers claim seal tiny leaks when exposed to air through leaks. Air conditioning manufacturers are generally opposed to their use, and try to discourage it. Air conditioning service firms would often prefer to sell a new system rather than make another service call. One manufacturer has switched to aluminum coils rather than copper ones, which they claim will not develop such refrigerant leaks. I believe that no Federal regulation writer can take all this into account as well as the needs of particular homeowners; the best approach is to leave decisions on air conditioning energy efficiency to the market although possibly supplying independent research for homeowners to use in making his/her decision as to which make, model, size, etc. best meets their needs.

But taxpayers are currently funding people to write energy efficiency regulations that homeowners must follow even though they often lose as a result.

[First published at Carlin Economics.]