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Author: Mark Krebs — September 18, 2024
“The Competitive Enterprise Institute is leading a coalition of free market advocates trying to organize support to stop the IRA's obscene and consumer misuse of funds. In response, the Biden administration is trying to quickly exclude IRA funding through contracts Protect it.
Earlier this month, Lucas Davis, a professor of business and technology at the Haas School of Business at the University of California, Berkeley, published an article titled “ How can we increase the impact of heat pump subsidies? In April, Professor Davis published a foreword article entitled: Why are heat pump sales declining?
The result is that, despite federal rebates of up to $8,000 under the Inflation Reduction Act, the economic reality for electric heat pumps is bleak. Several commenters on the second article appropriately summarized the reasons from a consumer perspective.
Case 1
As the owner of a 30 year old gas furnace, I am in the market for a heat pump throughout 2023. Receive $8,000 subsidy for 2022.
I got a $25,000 heat pump bid for the summer of 2022, but I'm waiting for the IRA subsidy to take effect. I then discovered that the bidder failed to mention that installing the heat pump would also require new ductwork because the existing ducts were too small to handle the larger air volumes required by the heat pump. Two bids in mid-to-late 2023 ranged from $30,000 to $40,000 when including ductwork.
So when the furnace broke in December 2023, when I was 31, I had to make a quick choice: replace the gas furnace (cost $12,000, 18 months 0% loan, and 2 days wait time for installation), or $30,000 Dollars and up for a heat pump that takes months to wait for installation. It is estimated that the annual fuel savings from a heat pump is less than $1,000, not even enough to exceed the $18,000 capital cost difference. The fact that a heat pump has a life expectancy of 15 years while a gas furnace has a life expectancy of 30 years doesn't help at all.
Here's my anecdote: It's not interest rates, it's not tax laws, it's not fuel prices to a large extent, it's the cost of capital. If the original $25,000 bid was legitimate and the $8,000 subsidy was available by mid-2023, I would choose the $17,000 heat pump over the $12,000 furnace based on environmental concerns. But considering $30,000 and $12,000, I didn't do that.
Case study two
I also got pricing for a 6-head mini-split heat exchange system installed in each room, two pumps and 6-head wiring, installation and testing for $26,000. Pricing is important.
Yes, pricing (i.e. total installed cost) matters. The total installed cost of a heat pump (as the above commenter attests) can include expensive retrofit costs that can often be avoided when not switching from a traditional gas furnace to an electric heat pump. Nothing in heaven happens like a motherboard failure that goes out of warranty (which tends to be much shorter than furnace warranties).
Unfortunately, however, our federal energy efficiency “experts” have also ensured that conventional/cheap (non-condensing gas furnaces) will soon become illegal because they abuse their regulatory authority over energy policy and minimum appliance efficiency standards. Conservation Act (EPCA), designed to respond to the 1973 oil crisis by formulating comprehensive federal energy policy.
The American Public Gas Association (APGA) explains:
The U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy (EERE) issued a notice of proposed rulemaking establishing a new 95% annual fuel utilization efficiency (AFUE) standard for furnaces. This recommended standard can only be met by condensing furnaces and is effective Ban non-condensing furnaces that have been in millions of American homes for a generation or more.
“But wait, there's more” (Ron Popper’s immortal quote). EPCA also noted that DOE may include “any other factors that the competent authority deems appropriate.” The Social Cost of Carbon SCC is a prime example of how the Department of Energy uses this ambiguous authority to impose carbon reduction benefits in its cost/benefit analysis. Ben Lieberman of the Competitive Enterprise Institute (CEI) explains SCC:
The junk science behind federal appliance regulations is about to get junkier
The Biden-Harris administration has launched a wave of anti-consumer appliance regulations over the past few years. Each claim is justified in part by exaggerating the benefits of climate change. Now, the Department of Energy (DOE) is proposing a new approach that would further exaggerate the benefits of these assumptions to justify worse regulation in the coming years.
The U.S. Department of Energy is setting new energy use limits for stoves, dishwashers, stoves, washing machines, water heaters, ceiling fans, refrigerators and more. The agency has always maintained that consumers receive a net benefit from the regulations, but CEI has weighed in and been highly critical of these optimistic assumptions. In fact, such rules often increase the upfront cost of the equipment beyond the possible payback in the form of energy savings. Some rules also affect equipment selection, performance, and reliability.
But the Department of Energy’s fictitious consumer welfare is only part of the problem. CEI also disputes the agency's assertion that the regulations bring quantifiable climate change benefits. For example, the Department of Energy expects the expensive residential furnace final rule in 2023 to deliver such benefits worth $16.2 billion.
The agency arrived at this figure by calculating the amount of energy use that would be reduced by energy efficiency standards and then estimating the greenhouse gas emissions that would be avoided (mainly carbon dioxide from coal- or natural gas-fired power plants). The avoided emissions are then multiplied by the calculated dollar cost to society of such emissions per unit.
Until now, the Department of Energy has relied on the 2021 Interagency Working Group on the Social Cost of Greenhouse Gases (IWG 2021). IWG 2021 provides the agency with a social cost per ton of greenhouse gas (SC-GHG) value.
Relying on IWG 2021 is bad enough, but in the recently proposed commercial refrigeration equipment rule, DOE is switching to the updated 2023 SC-GHG version provided by EPA.
The new approach takes several already questionable assumptions from the 2021 IWG and extends them further. For a class of commercial refrigeration equipment covered by the proposed rule, the DOE calculated climate benefits under IWG 2021 to be $4.8-320 million, but calculated climate benefits under the new approach to be as high as $56.4-1.713 billion. About 5-10 times higher.
More attention
In May 2022, I published an article on Real Clear Energy titled “The Myth of Supplying U.S. LNG and Electric Heat Pumps to Europe to Fight Putin and Global Warming.” First, it summarizes the flawed “energy efficiency” physics behind the Biden administration’s plan, which would be referenced repeatedly in the so-called Inflation Reduction Act months later. I supported this article and received 189 comments.
This raises my biggest question: What is the underlying motivation behind all of this? This is:
- Globalized social control through the creation of an all-electric energy monoculture.
- The transition and development of energy efficiency regulations to carbon efficiency regulations.
The figure below illustrates this powerfully:
‘Shift’ from energy efficiency to carbon efficiency boosts regulatory business
Source: “Electrification – What does it mean for energy efficiency?”
In short: The Department of Energy and its agencies no longer have sufficient resources to regulate under EPCA's existing energy efficiency regulations. Initiatives on carbon efficiency regulation significantly expand their regulatory empire. The IRA is providing huge amounts of taxpayer funds to enforce this anti-consumer agenda. For more information, see Dangerous “Deep Decarbonization” (Krebs PowerPoint for Cooler Heads Coalition). For the record, the brief established the $8,000 heat pump tax credit stated at the beginning of this article.
As Travis Fisher testified before the House Energy and Commerce Subcommittee on Energy, Climate, and Grid Security on September 11th” IRA subsidies for wind, solar and batteries alone could cost U.S. taxpayers $3 trillion by 2050”. Fisher also testified: “Between IRA subsidies and EPA rules, I'd summarize the administration's grid policy as follows: Green the grid and prepare for blackouts”.
The Competitive Enterprise Institute is leading a coalition of free-market advocates trying to organize support to stop the IRA's obscenity and consumer misuse of funds. In response, the Biden administration is trying to quickly exclude IRA funding to protect it through contracts. For more information, see Letter from Alliance to Repeal Inflation Reduction Act Green Subsidies
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Mark Krebs is a mechanical engineer and energy policy consultant who has been engaged in energy efficiency design and project evaluation for more than three decades. Mark has served as an expert witness in dozens of state energy efficiency lawsuits, served as counsel to the Department of Energy, and filed dozens of federal energy efficiency filings. You can find his many MasterResource posts on natural gas and electricity and federal policy for “deep decarbonization” here. Marchk's first article was published in Public Utilities Biweekly with the title 'It's a war: Gas workers question electricity efficiency' (December 1996). Krebs recently retired from Spire Inc. and joined other veteran energy analysts to form an energy policy consulting firm (Natural Gas Analysis and Advocacy Services).
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