January/February 2009 Editorial: Now We Know the Value of Energy Star
The elections overshadowed a press release by Energy Star announcing a settlement with LG, one of the world’s largest manufacturers of appliances and consumer electronics. That’s a pity because the settlement sends an important message to manufacturers. It also reveals how valuable LG thinks the Energy Star endorsement actually is.
Recall that Consumer Reports (and Home Energy almost a year earlier) found that LG refrigerators were designed to either circumvent DOE test procedures or were tested in such a manner that led to a much lower energy use than what would actually occur in real kitchens. Indeed, these measures reduced the energy consumption enough so that the refrigerators qualified for an Energy Star endorsement. LG’s methods have been an open secret for some time and the Australian Government actually fined LG for a closely related infraction last year.
The terms of the Energy Star settlement are stunning. LG promised to replace a circuit board in each of the several hundred thousand refrigerators covered by the agreement. The circuit board will (presumably) result in lower energy use though it’s not clear from the statement how this will be accomplished. Replacing the circuit boards will require an LG representative to visit every home with a refrigerator. In addition, LG will reimburse owners for the additional electricity used caused by this design for the average lifetime of the refrigerators (but paid in advance).
How much is the settlement costing LG? Let’s assume that the settlement covers 300,000 refrigerators. I can’t imagine a home visit by an appliance technician to cost less than $80. The reimbursement for higher electricity bills will be $30 a year for 14 years (which will be made up front rather than in installments). Together, these actions cost about $500 per refrigerator and roughly $150 million for the whole settlement.
What made LG offer this settlement? Perhaps they settled because the alternative would have been even costlier. DOE could have asked to remove Energy Star endorsements from all LG products, that is, from refrigerators to TVs to washing machines. LG evidently thought that the potential damage to its reputation from loss of the Energy Star designation on all products exceeded the costs for repairs and reimbursements for refrigerators.
This settlement is also a signal to other manufacturers veering close to the edge of misrepresentation of energy use that they shouldn’t mess with DOE. Rumor has it that DOE is aware of several manufacturers in that position.
Consumer Reports recently used the article title, “Energy Star has lost some luster.” Perhaps, but you wouldn’t know it from LG’s actions.