IV. Giving Credit Where Credit Is Due

The decades-long effort to bring the CFL to its full market potential has been a huge success, with enormous economic and environmental benefits across the globe. One estimate puts the energy savings to date at nearly 200 billion kWh, with total utility bill savings to U.S. consumers of approximately $20 billion.15 As of 2012, CFLs represented 27 percent of the bulbs installed in the over 3 billion medium screw-based sockets in the United States.16 But rather than being universally hailed as a model effort, recognition has been limited for a number of reasons that are worth considering.

First, efficiency opportunities like the CFL fly in the face of a simplistic economic worldview in which consumers always choose the option that will save them the most money. This perspective doesn’t account for the realities of how people buy lightbulbs or market failures like lack of information and attention, as well as the reluctance to change lightbulb-buying habits that have persisted for decades. (CFLs faced an additional hurdle with some consumers concerned about their mercury content, even though the level is extremely low – typically 3 milligrams per bulb, which is up to 200 times less than in a mercury thermometer.)

Second, the broad-based, collaborative effort that it took to transform the lightbulb market makes it difficult to attribute benefits to a single factor in a particular initiative in a specific year. As a result, conventional efforts to evaluate the ULP program have typically failed to capture its full impact.

Attribution is particularly difficult for market transformation programs because of their wide-ranging, long-term character. A successful market transformation program always requires the coordinated efforts of multiple actors. Attempting to determine what share of the success each was responsible for is like trying to figure out whether the motor or the drive train makes your car move. By the same token, the benefits extend beyond the program cycle and therefore, cannot be accurately captured in an assessment focused solely on that period.

These problems can dramatically understate the true benefits of market transformation programs like the ULP. A prime example is the experience in California, where the California Public Utilities Commission’s (CPUC) Energy Division issued a report on the investor-owned utilities efficiency programs between 2006 and 2008 that included evaluation of the ULP initiative. The California Public Utilities Commission staff estimated the ULP saved consumers $50 million, but my independent analysis found the net benefits were actually more than 20 times larger – over $1 billion. A flawed economic analysis, problems with attribution, and failure to account for benefits outside a narrow three-year program cycle resulted in a gross underestimate of benefits and a large overestimate of program costs.

The factor the evaluation study attempted to approximate that had the biggest impact on the final savings estimate was how many CFLs would have been sold in the absence of the program, a parameter known in the energy efficiency literature as the net-to-gross ratio (NTGR). Unfortunately, as the CPUC study reported, none of the complicated statistical analyses employed to estimate the NTGR produced a useable result and the authors instead chose to rely on an estimate of 54 percent based on ‘‘best judgment.’’

In other words, the evaluators estimated the utility program was ‘‘responsible’’ for only about half of the savings achieved. Since this program was such a substantial part of the portfolio, this one estimate led some to conclude the utility programs provided far less benefits than anticipated and to even go so far as to say that incentives should no longer be provided for CFLs. But an analysis of CFL sales growth trends shows the opposite is true: Annual sales of CFLs in California increased 10-fold from 2003 to 200817, more than twice the rate of growth in the rest of the nation. If one simply assumes that the sales growth in California would have matched the growth in the rest of the country, the benefits credited to the ULP would double.

The evaluation study made two other fundamental mistakes. First, it failed to account for the savings to consumers from buying fewer incandescent lightbulbs. As described earlier, consumers saved money just by buying the ULP-discounted bulbs. Second, CPUC policy rules only credited the ULP with savings from bulbs installed by the end of 2008. This meant that all the program costs were included in the analysis, but one-third of the benefits were left out.

Together with the flawed attribution analysis, these three factors resulted in an underestimate of net benefits of over $1 billion. All told, every $1 invested in the ULP produced over $7 in benefits in energy-saving and pollution reductions.18 With five-year returns providing a seven-fold return on program costs, the ULP compares favorably to investments more commonly associated with highly successful venture capital funded startups.

Endnotes:

5. Allen D. Lee and Robin Conger, Market Transformation: Does It Work?— The Super Efficient Refrigerator Program, Pacific Northwest National Laboratory, VOL03/069, 1996.

6. There were a number of early programs targeting rebates upstream, not all of which were called the “Upstream Lighting Program.”

7. Environmental Protection Agency’s paper Energy Star Product Retrospective: Residential Lighting, at “http://www.energystar.gov/ia/ products/downloads/Residential_ Lighting_Highlights.pdf”

8. The Cadmus Group et al., Compact Fluorescent Lamps Market Effects Final Report, prepared for California Public Utilities Commission, Energy Division, April 12, 2010.

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