The Senate is expected to vote next week on the Energy Savings and Industrial and Competitiveness Act, sponsored by Senators Jeanne Shaheen and Rob Portman, with 10 amendments all aimed at improving efficiency in buildings, homes, and manufacturing processes. Hailed as a kumbaya moment between Democrats and Republicans to help Americans reduce energy use and save money, the federal government’s paternalistic micromanagement of America’s energy choices through regulations and taxpayer-funded “incentives” overrides the preferences of Americans and makes us worse off.
Many of the provisions in Shaheen–Portman are simply not the role of the federal government, and are duplicative of past and present federal and state efforts. Congress should limit the federal government’s role in promoting efficiency to entirely voluntary programs, with no strings attached, and promoting efficiency within the federal government.
Duplicating Federal and State Efforts
Shaheen–Portman provides taxpayer-funded subsidies for worker-training programs, generating renewable energy and efficiency retrofits at schools, and for improving efficiency for state and tribal buildings. Taxpayers have already funneled billions of dollars to similar initiatives, and plenty of state programs exist to promote efficiency.
For instance, the Energy Independence and Security Act (EISA) of 2007 has provisions for energy savings in federal state, local, and commercial industrial buildings as well as a green jobs program for energy efficiency and renewable energy workers. The Energy Efficiency and Conservation Block Grant (EFCBG) authorized by EISA provided $10 billion in taxpayer money over five years to states, cities, and counties for efficiency and climate provisions. In a survey of 204 cities that received EFCBG grants, 87 percent spent money on efficiency retrofits to their respective federal buildings.
Additionally, the 2009 stimulus law allocated $32 billion for energy efficiency and retrofits, which included billions for weatherization projects, worker-training programs, and federal, state, and tribal building-efficiency improvements.
On top of that, the Department of Energy (DOE) provides a list of all state initiatives that improve efficiency including targeted tax breaks, rebate programs, revolving loans, low-interest loans and regulations. The list comprises over 4,200 state initiatives with efficiency and renewable projects making up the large majority of the programs. Even though the legislation offsets new spending by reducing spending elsewhere, policymakers should question why additional taxpayer money must be spent when a laundry list of programs already exists.
Markets, Not Corporate Welfare, Will Drive Efficiency
The fundamental problem with the federal government’s efficiency measures is that it ignores the fact that American families and businesses have many different needs. Thus, a one-size-fits-all regulation or subsidy to artificially elevate the importance of energy efficiency is not only wasting taxpayer dollars, it is skewing preferences. Businesses and families make energy-saving investments when it makes sense for them to do so. The paternalistic view of federal intervention in energy efficiency ignores the trade-offs, budget constraints, and payback periods that families and investors face, as well as the preferences they hold.
A great example in Shaheen–Portman of the federal government’s ignorance of the free market’s ability to drive efficiency is the provisions for fostering research, development, and commercialization for improved manufacturing efficiency and industrial processes, as well as the rebate programs for electric motors and transformers.
Shaheen–Portman purports to improve transparency, direction, and collaboration in DOE’s Advanced Manufacturing Office (AMO), which provides grants to companies to improve manufacturing efficiency. The bill also provides rebates for electric motors and transformers. Taxpayers provided tens of millions of dollars to automotive and chemical companies that have huge market capitalizations and, in some cases, spend more than a billion dollars on research and development.
Furthermore, if manufacturers believe purchasing more efficient electric motors or transformers will help them lower costs and gain a competitive edge, why do companies need taxpayer-funded rebates to make those investments?
Companies will make these investments if they believe these energy-saving technologies are worth the risk and represent the best use of their investment dollars. As the legislation indicates, businesses should have access to the expertise at the DOE and National Institute for Standards and Technology, which they can use to invent and invest in new industrial processes that save energy and money, but the cost of those activities should be paid completely by the private sector, not cost-shared with the taxpayer.
Workforce Training: Throwing Good Money After Bad
Shaheen–Portman also creates multiple programs and allocates millions of dollars to wasteful workforce training programs. Providing taxpayer money to train “the next generation of workers” in energy efficiency misunderstands how industries generate workforces, and acknowledges that the efficiency gains do not have market value and that, therefore, the government must artificially create both the demand and the supply.
The fact is that if efficiency improvements really saved that much money, and if demand for more energy-efficient buildings and manufacturing processes existed, these programs would not be necessary. As the private sector expands, it trains workers appropriately to meet demand and capture more opportunities—and will make those investments with its own resources.
Taxpayers already experienced the inability of the federal government to create a market through the green-jobs training programs funded by the stimulus. A September 2011 Department of Labor Office of Inspector General report found that “grantees have expressed concerns that jobs have not materialized and that job placements have been fewer than expected for this point in the grant program.”
A follow-up report released in October 2012 found that the program fell well short of its retention goal of 71,017 workers (only 16 percent of participants remained employed longer than six months); much of the training was delivered to already employed workers and was not necessary for them to perform their jobs. The same report also found that more than 20 percent of training certificates went to workers who had only one day of training, and 47 percent received five or fewer days of training.
If You’re Paid, Is It Voluntary?
Shaheen–Portman aspires to reduce energy use in state government and tribal buildings by establishing more restrictive building codes. The bill charges a group of parties, such as the Council of American Building Officials and other “appropriate organizations,” with updating and encouraging the adoption of building energy codes for state governments and Indian tribes. After the qualifying parties update the code, state governments and Indian tribes have to certify whether they have reviewed and updated their building codes and whether the new codes have resulted in energy-cost savings.
The bill authorizes $200 million of taxpayer money to “incentivize and assist” states and tribal groups to meet allegedly voluntary building codes. But the taxpayer did not volunteer to help states and tribes pay for efficiency improvements. Any state or tribal group that participates should not be eligible for federal support to implement the codes or to achieve compliance.
Forcing Energy Efficiency in Mortgage Appraisals
One of the problematic amendments lumped into Shaheen–Portman is Senators Michael Bennet’s (D–CO) and Johnny Isakson’s (R–GA) Sensible Accounting Value Energy (SAVE) Act of 2013—which will effectively further subsidize government-backed mortgage loans under the pretense of energy efficiency. The bill imposes new regulations on loans insured by federal agencies, such as the Federal Housing Administration (FHA), and even those purchased by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
These regulations go further than most of the current mortgage rules, however, because they dictate an increase in the amount of money that people will be able to borrow. For starters, the proposal requires the “expected energy cost savings” from conservation programs to be included in borrowers’ debt-to-income test. In other words, loan applicants will effectively have their income increased because underwriters will be required to reduce borrowers’ estimated future living expenses. Regardless of whether their actual living expenses decline in the future, borrowers would qualify for larger loans as a result of this requirement.
Another feature of the proposal potentially magnifies this effect by micromanaging the appraisal process. Section 5 of the SAVE Act requires appraisers to add the value of estimated energy savings to the property under consideration for a mortgage. To the extent that a home’s existing energy-conservation measures should be included in the estimated value of that home, this section of the proposal is unnecessary. Appraisers already base their estimated market values on all existing elements of the property, including energy-efficiency products in the home.
The bill seems to acknowledge the redundancy of this provision, but it leaves too much room for appraisal values to be artificially inflated. In particular, the proposal requires appraisers to add this estimated value to the home “unless the appraisal includes the value of the overall energy efficiency of the subject property, using methods to be established under the guidelines issued under subsection (a).” The problem is that Section 5 requires these guidelines be written specifically to “determine the maximum permitted loan amount” for the property.
It is entirely possible, for instance, that regulators will ultimately require appraisers to add the value of anticipated energy-efficiency programs to a home’s value. Overall, the SAVE Act will most likely inflate home prices beyond the level that existing federal programs already do. At the very least, the SAVE Act will encourage additional borrowing via government-backed mortgages.
Government’s Role in Energy Efficiency Must Be Limited
The federal government can play a very limited role in providing information to help consumers make well-informed decisions and in improving energy efficiency within the government. Several titles in the Shaheen–Portman bill adhere to this concept, but the legislation largely oversteps the boundaries of the role that the federal government should play in the energy sector.