The so-called incandescent light bulb ban (not actually a ban) included as part of the recent energy bill has prompted a low-level but consistent set of complaints that deserve further consideration, because they betray a fair amount of confusion about which policy tools to break out for which issues.
On the right, the reaction to the new lighting efficiency standard has ranged from hysterical whining to hysterical snark. But even on the left, it’s fairly common to run across the high-minded opinion that finicky legislation like the lighting efficiency standard only wastes time and stirs up needless recrimination. Instead we should set a price on carbon, and let the market sort out the rest.
It’s an excellent theory, one that I subscribe to under most circumstances, but sometimes command and control really is just the thing. The math on light bulbs is pretty easy to run. Follow along if you’re interested, or just skip the next two paragraphs.
Let’s assume that carbon costs $7 per ton. This isn’t an arbitrary figure — it’s the price cap baked into the carbon legislation coming online soon in the northeastern states. Assume normal usage patterns (100-Watt bulb, four hours per day) and average carbon intensity for the electrical grid (1.34 lbs CO2 per kilowatt hour). Such a carbon tax would impose a surcharge of $0.45 per bulb per year.
Let’s increase the carbon tax to $80 per ton, bearing in mind that even if we were to enact the Obama plan tomorrow, it will be many years before carbon reaches this price. In this scenario the carbon surcharge is $5 per bulb per year. As a percentage increase on the cost of ownership for a light bulb, $5 is actually quite high. But it’s still nowhere near the direct annual electricity costs to power a light bulb. And it’s still only $5.
That’s the problem. Information costs for consumers standing in a supermarket aisle trying to get their shopping done swamp the possible savings. Such information costs are certainly higher than $0.45, and possibly higher than $5. Yes, eventually the invisible hand will do its thing. But if we want to quickly achieve the massive efficiency gains that are technologically possible today, the most straightforward path is an efficiency standard, plain and simple.
And we do want to achieve those gains quickly. The benefits are quite large, and they go beyond the immediate, direct carbon reductions. It’s easy to get so caught up counting pounds of CO2 that we lose sight of the bigger picture of transforming our energy infrastructure. If you build a coal plant today, be prepared to look at that plant for the next fifty or more years. Efficiency standards can complement carbon pricing nicely, because they help to relieve the pressure on our infrastructure now while we put into place the legislative and technological solutions needed for the longer term.