Energy Star program comes under attack

Does a gas-powered alarm clock the size of a small generator sound energy efficient to you? Or how about something a company claims is a room air cleaner -- actually a space heater with a feather duster and fly strips attached to it, judging by the product image on the company's Web site? Officials at the Environmental Protection Agency gave both products the Energy Star seal of approval without asking any questions.

Both items were the inventions of covert investigators at the Government Accountability Office, demonstrating that GAO officials have a sense of humor and the Energy Star efficiency rating program has a credibility problem.

A GAO report last week showed investigators had little trouble setting up sham companies that sought and received Energy Star certification for more than a dozen bogus products, including the alarm clock and the air cleaner. The Energy Star program is managed jointly by the Energy Department and EPA to certify and promote energy-efficient appliances and products.

"The results of the GAO's investigation are astounding and raise doubts about the validity of the Energy Star rating," said Sen. Susan Collins, R-Maine, ranking member of the Homeland Security and Governmental Affairs Committee. Collins requested the investigation.

The program purports to give consumers, businesses and federal agencies valid information about the most energy-efficient products in 60 categories. In 2009, more than 40,000 products by 2,400 manufacturers were Energy-Star qualified.

Federal policies have given the Energy Star program significant clout. The government requires agencies to buy many products certified through Energy Star or the department's Federal Energy Management Program unless an agency head declares in writing that a statutory exemption applies. What's more, federal money funds tax credits and product rebates for businesses and consumers who purchase Energy Star products. Nearly $300 million of Recovery Act funds were appropriated for a state rebate grant program to further encourage such purchases.

"The GAO's investigation proved that the absence of controls and oversight make the Energy Star program highly vulnerable to fraud and abuse," Collins said.

Between June 2009 and March 2010, investigators set up four fake companies, each of which easily entered into the required partnership agreement with either EPA or the Energy Department, under which manufacturers agree to comply with Energy Star eligibility criteria. The fictitious companies then submitted 20 products for Energy Star certification. Fifteen of the products were approved, two were denied and GAO withdrew three because they had not received a qualification determination by the time the investigation was completed in March.

"Our investigation found that companies can easily submit fictitious energy-efficiency claims in order to obtain Energy Star qualification for a broad range of consumer products," the report said. The sham companies even received product and service solicitations from would-be buyers.

"These solicitations are an example of the value placed on being an Energy Star partner, and emphasize why rigorous screening is necessary," investigators wrote in the report.

Among the bogus products approved were major appliances, including a dishwasher, clothes washer and refrigerator; a commercial HVAC system; a geothermal heat pump; a furnace; a boiler; and computer equipment.

The two products rejected were a ventilating fan (an EPA reviewer rejected it because it did not appear on a trade association registry assuring compliance with standards), and a compact fluorescent light bulb, because it did not have the required third-party certification by a designated lab.

"Our proactive testing revealed that the Energy Star program is primarily a self-certification program relying on corporate honesty and industry self-policing to protect the integrity of the Energy Star label," said the report.

"Taxpayers are being fleeced twice," Collins said. Consumers fail to reap the promised efficiency benefits of some products, and federal money funds rebates and tax credits to promote products that might not meet efficiency standards. Companies that produce genuinely efficient products could be outpriced by unscrupulous firms, she noted.

This isn't the first time investigators have found problems with the program. In August 2007, the EPA inspector general reported the agency's lax management of controls and oversight of the Energy Star certification process. Last October, the Energy IG found similar problems with Energy's oversight. Each agency is responsible for setting efficiency standards for products under its purview and for ensuring the proper use of the Energy Star label in the marketplace.

GAO auditors also noted that the October 2008 issue of Consumer Reports reviewed the program and found lax qualifying standards, outdated federal testing procedures and reliance on industry self-policing, without any evidence of its effectiveness.

"EPA and DOE are taking aggressive action to promote confidence in the Energy Star brand through both testing and enforcement," according to a joint statement from both agencies. The statement noted the agencies have taken action against 35 manufacturers in the past four months for violating efficiency standards.

Last week, Energy issued subpoenas to four manufacturers as part of investigations into potential standards violations of lighting and air conditioner products. "As part of our expanded energy efficiency enforcement efforts, the Department of Energy will continue to open investigations whenever we have credible information that products are violating federal conservation standards," said department General Counsel Scott Blake Harris in a statement.

Also last week, Energy began testing six of the most common product types: freezers, refrigerator-freezers, clothes washers, dishwashers, water heaters and room air conditioners. The agency said it will test about 200 basic models at independent test laboratories during the next few months.

EPA and Energy are developing plans to require independent testing of all products seeking the Energy Star label, and ongoing verification testing to ensure continued compliance. An EPA official said the agency was in the process of defining requirements across all 60 product categories. The goal is to require qualification testing by EPA-approved independent labs by the end of 2010, the official said.

Collins said she would push for aggressive internal controls at Energy and EPA to verify product efficiency claims.

"I want to make sure we pursue changes that are more than window dressing. As GAO's investigation results indicate, increased use of third-party verification may be an effective mechanism to help ensure that energy efficiency claims are confirmed," she said.