The efficiency standards of refrigerators in the state of
California are the subject of a favorite anecdote told by Nobel
prize-winning physicist Steven Chu (who appears now to be
president-elect Obama's pick for energy secretary). He often includes this anecdote in his
public talks about how scientists and governments need to address
the global climate crisis. Chu is a staunch
advocate for a national engineering and scientific project to mitigate
the effects of anthropogenic global warming, and under his
directorship since 2004 the Lawrence Berkeley National Laboratory has
put a lot of its resources into research projects related to renewable
energy (mainly solar power) and energy efficiency (mainly
energy-efficient building design).
The way Chu tells the story about refrigerators is the following:
when California set about to enact ambitious efficiency standards for
refrigerators in the 1970s, it met a lot of resistance from industry groups. What the groups tried to tell the
legislators and to convince the public was that higher standards
would mean much more expensive refrigerators for the consumer. The
standards California was contemplating, they said, could not be
achieved with foreseeable technology at any reasonable price. When
California imposed the ambitious standards nevertheless, it forced the
manufacturers to innovate. What ended up happening belied the industry
groups' claims: the average refrigerator in California is now twice as
cheap (adjusted for inflation), three times more efficient,
and 10 percent bigger.
Obviously, there was a market failure in the refrigerator
business. Manufacturers did not feel a pressure to
compete in efficiency, because they banded together in
their industry groups to fight the efficiency standards. The new
standards created the simultaneous incentive for all of the
manufacturers to improve their refrigerators' efficiencies
competitively, and instead of paying the lobbyists to fight the
legislation, they had to start paying the engineers to innovate.