One particularly appropriate role for government to play in
otherwise free markets is requiring that all of the economic actors
(producers, consumers, merchants, etc...) have access to the
information necessary to make good (dare I say "rational"?) decisions.
Knowing that it is often difficult for consumers to obtain and
interpret certain types of relevant information, requiring
producers to present such information in a clear and consistent way
will typically lead to more efficient results overall.

American consumers are most familiar with this sort of
obligatory
labeling in the form of the ubiquitous "Nutrition Facts" labels,
present on all food products since 1994. Without this information, it
would be prohibitively difficult for the consumer to evaluate the
nutritional value of two different foods and make an informed choice.
Imagine trying to compare the caloric or sodium content of two
different types of cookies. How would you do that
in less than 10 seconds in the supermarket aisle? Yet for the producer,
it's relatively simple and low-cost calculation compared
to other parts of the
production chain.
Energy
Efficiency Labeling in Europe
In the case of energy efficiency, it is the European Union which stands
ahead in requiring that clear and consistently presented information be
available to consumers. Thanks to the EU Energy Label program, from
washing
machines to automobiles, the efficiency of consumer products is clearly
presented on a color-coded scale running from A to G. At a
glance, consumers can evaluate the efficiency and better estimate the
total cost of ownership of these products. The intended result is, of
course, lower overall energy consumption as consumers, whether
motivated by cost or by environmental concerns, choose higher
efficiency products.
Energy
Efficiency Labeling in the US
Clearly borrowing from this design, the American
Society of Heating, Refrigerating
and Air-Conditioning Engineers (ASHRAE)
has proposed a similar label for buildings, called the Energy Quotient.
This is a positive step,
but there is a danger in the proliferation of different labeling
standards. Standardization (as in the case of the EU Energy Label or
the US Nutrition Facts) is vital to ensuring the usefulness of the
information. Should a consumer prefer anEnergyStar
rated appliance, or an appliance with a B-rating on the EU Energy
Label? Should a homeowner look for a LEED-certified building,
or a B-rated Energy Quotient building?
This is where government
action becomes key. Both the EU Energy Label and the US Nutrition Facts
programs are the result of government decree. The fact that they are
now ubiquitous, standardized, and, as a result, useful comes from this
legislative origin. Voluntary, industry-led labels, while laudable, are
insufficient in this regard. The EU has already done it's part, the US
needs to now follow suit.
Next Steps
Going beyond the predicted energy efficiency of a product, real-time
information on a consumer's energy consumption is the holy grail of
energy information. In his excellent (and free!) book, Sustainable Energy -
without the hot air, David MacKay compares the current
process of paying for energy consumption (monthly bills, often based on
estimations) to going grocery shopping in a market with no price tags,
filling up your cart, and then paying by weight on your way out, based
on the average cost of all the goods in the store. Giving consumers
real-time information on how much energy they are using and, most
importantly, how much that is costing them, is one of the biggest steps
that we can make in reducing energy consumption at the individual level.
The role, then, for
government, is to require that this information be made available for
the interested consumer. New building codes may require that houses be
wired to collect and present this information, new communication
standards will have to be established to ensure that the various
devices can communicate with one another, and utilities will be
required to broadcast real-time energy prices. If this can be done
without a government decree, all the better, but I certainly have my
doubts.
Steps are being made in
this direction, one good example being software like Google's Power Meter.
At the level of the consumer, the advent of the smart
grid will most likely be realized through the availability of
this information. The most important future advances in energy will
come not from incremental gains in the efficiency of obscure
thermodynamic cycles, but rather the integration
of information technology with energy technology.