Low-Energy Fridays: How Many Regulators Does It Take to Change a Lightbulb?

It may be lights out for the fluorescent lightbulb. The Biden administration finalized new efficiency standards for lightbulbs earlier this month, increasing the minimum efficiency for new bulbs from 45 to 120 lumens per watt. This means that new bulbs must use less than half the amount of electricity to produce the same amount of light. The new standards are part of a series of increasingly stringent efficiency standards adopted over the last decade that effectively force a transition from fluorescent to light-emitting diode (LED) bulbs. 

According to the administration, these new standards will be a major boon to consumers. Analysis by the U.S. Department of Energy found that the new rule would reduce electric bills by up to $27 billion over the next 30 years while also preventing 70 million metric tons of carbon dioxide emissions. 

But if more efficient lightbulbs save consumers so much money, why does the government have to force people to buy them? The answer to this question raises some deeper, almost philosophical questions about regulatory policy. 

The issue is that while LED bulbs save consumers money, they are also more expensive than fluorescent bulbs. This may sound paradoxical, but it all has to do with how you value time (I told you things would get philosophical). When you buy a bulb at the store, the more efficient bulb will cost more money than a less efficient one. However, because that bulb is more efficient, it costs less in electricity—meaning you will more than make that money back over time. And because LED bulbs last longer than fluorescent bulbs, you save on replacement costs, too. 

Essentially, you pay the higher costs now, and the savings happen years later. To account for this, regulators apply a discount rate to savings that result from regulation at a future point. While debates over the proper discount rate might start fights on economists’ night at the local bar, the truth is that the same discount rate does not apply to everyone. Some people have a “low time preference,” meaning their future money is worth almost as much as it is today. This type of person probably saves lots of money for retirement and flosses after every meal. Others have a “high time preference,” characterized by the old saying, “Life is short. Eat dessert first.” Even an individual’s time preference may vary depending on the circumstances. For example, waiting for a long-term payoff is easier for wealthy people than for those living paycheck-to-paycheck.   

The implicit premise for a lot of energy efficiency regulation is the idea that people who don’t buy more energy efficient products are making a mistake—that if they just penciled out all the costs and benefits involved, they would see that adopting energy-saving devices is the way to go. Another school of thought says that if econometric analysis shows a discrepancy between how people should behave versus how they actually behave, then the analysis is likely missing something. Under this view, instead of forcing consumers to make expert-approved choices, it would be better to provide more information and see if their choices change. Failing to account for the diversity of human preferences can lead to perverse consequences. It is clear that claims that energy efficiency rules save consumers a certain number of dollars are more complicated than they first appear.