Incorporating Experience Curves in Appliance Standards Analysis
The technical analyses in support of U.S. energy conservation standards for residential appliances and commercial equipment have typically assumed that manufacturing costs and retail prices remain constant during the projected 30-year analysis period. There is, however, considerable evidence that this assumption does not reflect real market prices. Costs and prices generally fall in relation to cumulative production, a phenomenon known as experience and modeled by a fairly robust empirical experience curve. Using price data from the Bureau of Labor Statistics, and shipment data obtained as part of the standards analysis process, we present U.S. experience curves for room air conditioners, clothes dryers, central air conditioners, furnaces, and refrigerators and freezers. These allow us to develop more representative appliance price projections than the assumption-based approach of constant prices. These experience curves were incorporated into recent energy conservation standards for these products. The impact on the national modeling can be significant, often increasing the net present value of potential standard levels in the analysis. In some cases a previously cost-negative potential standard level demonstrates a benefit when incorporating experience. These results imply that past energy conservation standards analyses may have undervalued the economic benefits of potential standard levels.