NearWalden

Yesterday I again voiced my criticism of the “Light Bulb Bill”, which is now on hold. Today, I’ll lay out what I would propose the federal government should do.

I’ll start by defining the problem we’re trying to solve, beginning with two things that aren’t a problem. First, I don’t believe there is an issue with motivation to innovate in the bulb manufacturers; they are now well aware of the potential to cut American’s electricity bills and split the savings with them, bringing billions in new revenue and potential profits to their industry. I am also sure they are well aware of why Americans aren’t buying their current products design to replace incandescents, and are working to fix those issues.

Second, I don’t believe that this has anything to do with a willingness among the US public to switch to more efficient bulbs. Americans switch products all of the time in other areas, and will be happy to do it here if their desires for features and up-front costs are met. It is also not an issue of awareness – Americans are at a historical high in awareness of lightbulb electricity costs and efficiency – its impossible to avoid.

The issue is actually quite simple: Americans aren’t happy with the product features and upfront costs of today’s efficient bulbs, so aren’t changing over to them in large numbers yet. So what should the federal government do?

I propose a three prong approach, playing to the strengths of the US Federal government:

1) Continue to fund focussed, R&D in lighting. The US Government is great at this, and has a hugely effective vehicle in ARPA-E to drive this agenda.

2) Continue with traditional EPA programs. The EPA is pre-eminent efficiency organization in the world, and understands how to educate consumers and provide data which fuels state and local programs. These techniques are proven, and will work over time provided reasonable alternative products exist.

3) Use the purchasing power of the government to create a better market. The US government is the largest consumer on earth. Each year the federal government should select the best bulb alternatives and purchase those throughout the organization. This will drive predictable sales volume for the latest, best technologies, and will provide yet another vehicle for highlighting the best of emerging bulb technology.

My prediction is that if we do these things, by the sometime in the second half of this decade we’ll have successful replacement technologies for inefficient incandescents, and incandescent bulbs will no longer dominate the US lightbulb market.

I understand that the main criticism for this approach is that it is not a sure thing, and that if we’re going there already we should just mandate the change. But I will argue that the result is quite different: if companies are forced to produce desirable products before they get adoption and the resulting revenues, they will innovate until they reach that point. If adoption of their undesirable products is mandated by the government, their need to produce desirable products is diminished, and exists only to the extent that the market is truly competitive. We will get better products faster if we make the big manufacturers earn their reward for more efficient products.

I’m sure the saga isn’t over yet, but for the moment Congress has starved the EPA’s lightbulb efficiency efforts of the money they needed to carry out their planned program (I’ve written about it a number of times this year – start here for my thoughts). While most of the surrounding discussions have replayed the same arguments that have come from both sides over the last few years.

Roger Pielke, Jr (fellow Breakthrough Institute Sr. Fellow) has taken a different tack, saying that stopping this effort is “anti-innovation, anti-jobs and, ultimately, anti growth”.. While I usually find my self agreeing with Roger’s logic, this time I find myself on the exact opposite side: the “light bulb law” was anti-competitive, anti-innovation, and anti-growth, and hopefully someone will salvage the good parts EPA’s lighting efficiency programs and keep the bulb law dead for good.

First, its important to remember that this is only an issue because the government took the unprecedented step of making the 100W incandescent light bulb, a popular, widely used product, illegal for energy efficiency reasons. (I know, they didn’t directly make the bulb illegal, but they set the standard at a point where the common bulb is, in fact, illegal. And I know that there’s lots of great bulbs on the market and coming out, but Americans have not been happy with any of them yet, and if they had, this law would be irrelevant.) EPA has had lots of successful efficiency programs over the years, but so far none had taken this step.

Why did the bulb manufacturers go along with this? They not only went along with the law, but they encouraged it, which is the root of my issues with it.

Efficient light bulbs are a financial dream for the bulb industry. They can charge far more than their traditional product, but it takes even more money from the electricity producers. As a result, customers save money in the long term, and previously unavailable revenue and profits move from the electricity generation industry into the light bulb manufacturing industry. What could be better?

The problem was that the American public didn’t play along. Even with massive consumer rebates and taxpayer and ratepayer funded ad/education campaigns, adoption was minimal. Americans felt the more efficient bulbs were inferior in ways that mattered to them. On the other hand, there wasn’t broad outcry against the efforts either; Americans are generally supportive of traditional efficiency programs, and were willing to accept it here as long as they still had choice.

I’m sure the EPA was also frustrated by the lack of progress, and at some point they and the bulb industry found out how aligned their interests were. It was at this point that the EPA, with full industry support and praise, took the unusual step of forcing consumers to switch, whether they wanted to or not (with the elitist DC undertones that, actually, most consumers are too dumb to make the right choice).

Roger’s believes that this is anti-innovation, because the large companies were promised the profits that would come with innovating more efficient bulbs. I believe the opposite, for two reasons. First, instead of innovating products that consumers actually wanted, the government stepped in and forced consumers to adopt the products they didn’t want, letting the bulb manufacturers from doing the innovation the market was demanding of them. Second, the government gave tilted the market in favor of the big, entrenched manufacturers, and against the disruptive, innovative startups. The big guys had taken a bet innovated and built a product Americans didn’t want, but instead of taking a hit and doing battle with startups in a weakened state, the government bailed them out of their mistake and forcefully redefined the market to their liking and benefit. This is the best way I know to drive venture money away from an industry, killing the jobs and innovation that come with the associated startups.

As I’ve said before, I’m a huge fan of the EPA’s energy efficiency programs. But when the EPA colludes with big business to shape markets in their favor, I’m on the other side.

In 2008 I predicted that 2007 would prove to the be peak CO2 output for the USA (I termed it “peak carbon”). Checking in on the 2010 results published by the EPA we see that my predication has held up, but seeds of its possible undoing have been sown.

The total US CO2 emissions rose over 2009 levels, but is still solidly below the CO2 emission levels in the years from 2003 through 2008. As the graphs on the EPA website show, the uptick in emissions (expectedly) followed an increase in US industrial production, and the resulting increase in energy usage.

What was less expected was the increase in carbon intensity of the US energy supply (i.e. the amount of GHG emissions per unit of energy delivered went up), and in particular the carbon intensity of electricity production (tons of CO2 per kWh). If the economy continues to improve and energy usage grows, this is the key number to watch.

Presumably we’d all like to see the economy grow, but that will put us in the following race: can we bring on line lower carbon electricity sources faster than the increase in electricity demand that the economy is driving. Cleaner electricity could come from wind or solar, but it could also come from natural gas or nuclear, which are both far cleaner than coal.

In 2010 we did not win this race. The figure below from the EPA site shows that most of the increase in electricity usage was fueled by coal, followed by natural gas and (a distant third) renewables. As a result, the carbon intensity of US electricity delivery went up in 2010.

In addition to the growth of the economy, there’s one other driver of electricity use that we need to be aware of. As I have discussed previously, switching from gas to electric cars does not necessarily result in a reduction of emissions when the electricity is primarily sourced from coal. And as 2010 shows, when we increase electricity usage today, most of it is coming from coal.

The 2011 numbers will be out in mid-2012, and it will be interesting to get another look at the economic growth, the increases in energy and the sources of that energy.

For the past few days I’ve been going back and forth with @NobleIdeas on the national lightbulb law (formally known as the Energy Independence and Security Act of 2007), but I thought I’d break out of the 140-character limit and write down my rationale.

Those who know me know that I’m a big fan of efficiency, especially when it results in economic gain as well as environmental. During my term as CSO at Sun we did big lighting retrofit projects, and saved tons of money.

I’m also a big fan of government efficiency programs, provided they are thoughtful and competitively balanced. Topping the list is EPA’s Energy Star program which is the envy of countries around the world, and for good reason. It puts useful data in consumer’s hands, and is a platform for thousands of other efficiency programs. For example, many state and local rebate programs use Energy Star as their benchmark for rewarding efficient consumer choices. Unfortunately, as efficiency as grown in economic significance, the standards setting processes are becoming increasingly political, and prone to domination by the largest companies in a given industry.

About the Law

The lightbulb law didn’t technically ban incandescent lights, but it practically did. Incandescents are typically 5% efficient (meaning the other 95% is waste heat), and the law requires bulbs to be at least 30% more efficient, and incandescents aren’t going to get there (even if they could, the major bulb manufacturers now have no incentive to do it since they already make and sell the more expensive alternative). The law starts in 2012 with 100W bulbs and picks up many of other common bulbs by the end of 2014.

While industries often fight against efficiency laws, the lighting industry, led by giants GE and Philips Electronics were way in favor of this one. To understand their support, you have to look no further than the economics of compact fluorescent lightbulbs (CFLs), the only practical alternative that meets the federal law. While everyone touts the decreased cost to consumers, all of the savings is in energy. CFL manufacturers are charging many times the price of an incandescent bulb, but consumers are making up more than the difference in energy costs. And while some cite longer life spans, the economic advantages based on that alone are inconclusive.

I’m sure that environmental policy types played a role in this law, but I’m confident that such a draconian law would never have been passed without the full support of the industry. It’s actually pretty incredible when you think about it: major companies got the federal government to outlaw a widely used product, forcing customers to buy a higher priced alternative from the same companies. And through this statement you can start to see why this law is so unique:

1. for the first time in the efficiency space the government has banned products below a certain level, instead of using an informational program like automobile MPG labels, a branding program like Energy Star, or doing a portfolio standard, like the CAFE standard for cars.

2. the government banned a product which is widely used and which is not a direct hazard to consumers.

3. the government banned a product when is no true, equivalent replacement product available. CFLs, the only economically viable option, have different spectra, have disposal and safety issues due to their mercury content, and have known deficiencies in warm environment, such as recessed lighting, to name a few. Sure CFLs work great in many cases (we use them in our house), but they don’t replace all current uses of incandescent lights.

Why I Don’t Like the Law

At this point you’ve probably guessed why I don’t like the law, but I’ll spell it out anyway.

1. It treats Americans like dirt. In my experience supporters of the law have had two views on consumers: 1) they’re being stupid for not understanding the long term cost benefits, or 2) they have reasons to want to still use the old ones, but GHG reduction is more important. I believe US consumers are smarter than people believe, and are making rational decisions based on their own situation. As a result, I find both of these views disrespectful and outside of the founding ideals of this country.

2. Other industries will try the same thing. If you think the success of this ploy by GE and Philips hasn’t been noticed in other parts of those companies and in other industries, then you’re quaintly naive.

3. It’s setting a really bad precedent. The federal government now believes it has a new tool in its efficiency toolkit: outlawing inefficient products, irrespective of whether they are popular or there exists a true replacement in the market. Many have said “relax, its only lightbulbs”. Beyond the fact that sometimes lightbulbs matter to people (see #1 above), lets see what products the government tries to apply to tool to next.