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KREUTZER: Dreamliners and the hidden cost of efficiency

- - Wednesday, March 13, 2013


Boeing's new 787 Dreamliner fleet is grounded. It's not that the plane is bad. But when a battery system keeps catching fire, it's hard to focus on a plane's virtues.

The new lithium-ion batteries are designed to reduce weight and increase efficiency. Odds are Boeing will figure out a fix, but at a price well beyond that of the battery's initial purchase price.

The moral of the story: Complex new technologies come with great uncertainties and often great costs beyond those projected in the spreadsheets.

This truism argues against regulations that require performance levels — especially when the justification is saving money. Yet that has become all the rage during the Obama administration, and it is virtually certain there will be even more envelope-pushing energy-efficiency mandates during the second term.

Here are three predictions:

• These mandates will have at least some bipartisan support. After all, who could be against efficiency?

• During hearings for new efficiency legislation or rules, witness after witness will present analyses demonstrating that the mandates will save consumers and manufacturers lots of money.

• Those calculations will not include the costs for things like emergency landings or grounded fleets. Nor will they include the costs of lost convenience, comfort and safety.

These predictions are based on past experience. For example, consider the corporate average fuel economy (CAFE) standard for automobiles. These are popular because, hey, who doesn't want to get better gas mileage. They are also popular because they are presented as costless: Just tell those who-moved-my-cheese auto manufacturers to get off the dime and start making cars that'll deliver 55 mpg. And, if they're so stupid as to not have the technology to deliver that kind of performance … well, that's their problem. Let them figure it out.

In reality, of course, consumers only demand efficiency where it makes sense. Mandates force consumers into smaller, lighter, more expensive and less-safe vehicles, which are tradeoffs few consumers want. In fact, studies estimate that previous CAFE standards led to thousands of additional highway fatalities per year.

Or consider washers. In calculating savings, analysts are blissfully happy to extend the cycle from just over an hour to two or three hours to save a gallon or two of hot water. It's harder for consumers to ignore the inconvenience, and the costs of replacing the clothes whose stains the new machines cannot remove.

Yes, consumers and producers value efficiency. It saves them money. That is why Boeing put in the new energy-saving systems in the first place — airlines will pay more for more-efficient airliners.

It may turn out that Boeing Co. chose the wrong battery technology for its new jet. However, Airbus, Bombardier, Embraer and others get to make their own independent choices to offer what they think will be the most attractive combination of efficiency, cost, reliability and risk. That's how the free market works: producers pursue the paths they think best to deliver the product they think will fill a void, and consumers — with their purchases — decide which have done the best job of providing value.

These free choices should not be needlessly restricted by the federal bureaucracy. And they certainly shouldn't be dictated by the bureaucrats. But that's not the game plan in D.C.

In 2008, the Environmental Protection Agency issued an advanced notice of proposed rule-making. It is a 500-plus-page confession of desire to regulate every aspect of energy use to reduce CO2 emissions. Twenty pages sketch out plans to force changes in airplane design and operation.

However, government mandates for specific technologies, or even just efficiency standards, may lead some manufacturers to make tradeoffs that push their customers closer to the safety envelope than either would want.

Efficiency is not costless in terms of manufacturing expense, durability, comfort, convenience or safety. Pretending otherwise does not help consumers or travelers.

David Kreutzer is research fellow in energy economics and climate change in the Center for Data Analysis at the Heritage Foundation (