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Comparison of Australian and US Cost-Benefit Approaches to MEPS

17-Mar-2006

The Australian Greenhouse Office contracted with the Collaborative Labeling and Appliance Standards Program (CLASP) for LBNL to compare US and Australian approaches to analyzing costs and benefits of minimum energy performance standards (MEPS). This report compares the approaches for three types of products: household refrigerators and freezers, small electric storage water heaters, and commercial/industrial air conditioners. This report presents the findings of similarities and differences between the approaches of the two countries and suggests changes to consider in the approach taken in Australia.

The purpose of the Australian program is to reduce greenhouse gas emissions, while the US program is intended to increase energy efficiency; each program is thus subject to specific constraints. The market and policy contexts are different, with the USA producing most of its own products and conducting pioneering engineering-economic studies to identify maximum energy efficiency levels that are technologically feasible and economically justified. In contrast, Australia imports a large share of its products and adopts MEPS already in place elsewhere. With these differences in circumstances, Australia's analysis approach could be expected to have less analytical detail and still result in MEPS levels that are appropriate for their policy and market context.

In practice, the analysis required to meet these different objectives is quite similar. To date, Australia's cost-benefit analysis has served the goals and philosophies of the program well and been highly effective in successfully identifying MEPS that are significantly reducing greenhouse gas emissions while providing economic benefits to consumers. In some cases, however, the experience of the USA-using more extensive data sets and more detailed analysis-suggests possible improvements to Australia's cost-benefit analysis.

The principal findings of the comparison are:

  1. The Technology and Market Assessments are similar; no changes are recommended.
  2. The Australian approach to determining the relationship of price to energy efficiency is based on current market, while the US approach uses prospective estimates. Both approaches may benefit from increased retrospective analysis of impacts of MEPS on appliance and equipment prices. Under some circumstances, Australia may wish to consider analyzing two separate components leading to price impacts: a) changes in manufacturing costs and b) markups used to convert from manufacturing costs to consumer price.
  3. The Life-Cycle Cost methods are similar, but the USA has statistical surveys that permit a more detailed analysis. Australia uses average values, while the US uses full distributions. If data and resources permit, Australia may benefit from greater depth here as well. If implemented, the changes will provide more information about the benefits and costs of the program, in particular identifying who benefits and who bears net costs so that programs can be designed to offset unintended negative consequences, and may assist the government in convincing affected parties of the justification for some MEPS. However, without a detailed and statistically representative national survey, such an approach may not be practical for Australia at this time.
  4. The National Benefits and Costs methods are similar prospective estimates of shipments, costs and energy savings, as well as greenhouse gas emissions. Additional sensitivity studies could further illustrate the ranges in these estimates. Consideration of lower discount rates could lead to more stringent MEPS in some cases.
  5. Both the Australian and US analyses of impacts on industry, competition, and trade ultimately depend upon sufficient consultation with industry experts. While the Australian analysis of financial impacts on manufacturers is less detailed than that of the US, the Australian treatment of impacts on market shares imported from different regions of the world is more detailed. No change is recommended.
  6. Implementing these changes would increase the depth of analysis, require additional data collection and analysis, and incur associated costs and time. The recommended changes are likely to have incremental rather than dramatic impacts on the substance and implications of the analysis as currently conducted.

Author: James E. McMahon; Lawrence Berkeley National Laboratory (LBNL)