In mid-November, the California Energy Commission passed a law regulating energy efficiency in televisions 58” and smaller.  The outcry from manufacturers and many consumers was swift, loud, and often nasty.  The praise from environmental and regulatory groups was just as swift, not nearly as loud, and had no reason to be nasty.  A bunch of you asked for my take on the situation, but I wanted to wait a little while until the hullabaloo died down.  With CES kicking off in a couple of days, I figured now’s as good a time as any to comment.

As many of you know, I lead the IEEE 1680.3 Television Energy Conservation effort; composed primarily of the world’s leading television manufacturers and environmental groups (including the Environmental Protection Agency), our group is testimony to the power of cooperation.  While our participants often come at an issue from diametrically opposite viewpoints, we’re fortunate that passion plus respect has equaled progress.

Some of you are aware that this past September, the EPA published Energy Star TV 4.0 and 5.0, with 4.0 taking effect in May 2010, and 5.0 taking effect in May 2012.  The development of ES TV 4.0 and 5.0 has taken place over many months, with multiple rounds of comments submitted by manufacturers, retailers, environmental groups, consumers, and other interested parties.  I think that it’s reasonable to say that most manufacturers consider ES TV 4.0 to be difficult but fair, and that most consider ES TV 5.0 to be difficult and unfair—particularly at large screen sizes.

However, when the EPA published the new regulations, the public outcry wasn’t deafening—it was non-existent.  Why?  Well, here’s my theory.  Energy Star is a program created to recognize energy leadership in given categories—if you’ve bought a refrigerator, washer, dryer, or dishwasher over the past few years, odds are good that you spent part of your time in the showroom comparing the annual energy cost shown on each appliance’s label.  While these numbers aren’t necessarily going to apply to each homeowner, they’re a convenient yardstick, similar to the estimated miles per gallon rating on a vehicle sticker.  All other things being reasonably equal, shoppers will rarely pick one vehicle over another solely because one gets a mile or two per gallon better mileage, but there’s still value in the metric.  Similarly, most consumers aren’t going to pick a fridge solely based on whether it’ll save them $60 a year in energy cost.  The average Peter or Lois will choose based on format (side-by-side, top freezer, bottom freezer), features (in-door ice and water dispensers, shelf adjustability), or style (finish, color), with energy consumption as an interesting-but-not-vital component.

That said, don’t get the impression that I’m underestimating the value of Energy Star—the label dramatically simplifies the consumer shopping experience by defining the exact guidelines by which manufacturers measure and declare energy consumption.  Manufacturers certainly understand the value of the label, as evidenced by the ongoing lawsuit (and countersuit) between LG and the EPA regarding the ES program stripping the Energy Star label off of LG’s refrigerators.  For truly energy-conscious consumers, the ES label is the starting point; non-ES appliances won’t fit their bill.  For consumers who may be less energy-conscious (perhaps the average Peter or Lois), the absence of the ES label in a room full of ES-labeled appliances can prompt enough questions that lead to the elimination of non-ES devices from consideration.

So, why the public outcry over the CEC’s new regulation (and not the new ES requirements?)

What’s different here is that the Energy Star program, just like the IEEE 1680.3 program (commonly known as EPEAT), is voluntary.  Manufacturers don’t have to comply, although market forces certainly compel them to.  More so, leading retailers like Wal-Mart and Best Buy either have mandated or are rumored to be contemplating mandatory compliance with Energy Star in various categories of appliances.  Thus, manufacturers who want to sell through the Wal-Marts and Best Buys of the world would be compelled to deliver ES-labeled devices, in effect being required to do so by their most valuable channel partners.  Consumers typically aren’t aware of these types of restrictions put in place by retail channels, despite the fact that they often end up as direct beneficiaries.

Here’s a case in point.  The High Definition Multimedia Interface was designed as the digital interconnect between sources and sinks (typically televisions), enabling copy-protected and in-the-clear high definition content to be digitally delivered over a single cable.  The problem is, HDMI 1.0 sucked.  Did it suck for the vast majority of consumers?  Actually, no.  For most consumers, it worked just fine, if they were lucky.  But, for an annoyingly high percentage of the consumer population (meaning, more than a rounding error), HDMI 1.0 didn’t work just fine.  In fact, it worked intermittently, if at all.  Sometimes the problems were electrical, with the source and the sink having physical mismatches which prevented the fancy HD signal from being displayed on the fancy new HDTV.  Often, the problems were logical, with the High Definition Content Protection scheme ensuring that the content couldn’t be ripped off, protecting it so well that you couldn’t even watch a freakin’ movie.  So many high-ticket item televisions came back to the stores that HDMI was in real danger of being laughed out of existence.  And, keeping in mind that six years ago were the days of $4000-8000 flat panel TVs, retailers weren’t too thrilled with the rate of return caused by a wonky connector.

At that point, Best Buy put a stake in the ground, demanding that manufacturers take their devices through HDMI/HDCP compatibility testing.  SimplayHD compliance testing went from being a nice-to-have to being a must, a requirement to sell products through Best Buy.  Gradually, compatibility problems went from severe, to moderate, to nearly zero.  Sure, the rare edge case still slips through the cracks, but for the most part, today’s HDMI/HDCP devices just work.  A leading retailer established a policy with which suppliers had to comply; ultimately, everyone benefited—seamlessly interoperable devices meant fewer consumer returns, which meant happier retailers, which meant happier manufacturers.  Win-win, all around.

Similarly, a mandate from a leading retailer mandating Energy Star labeled products would cut energy consumption, leading to lower consumer power bills.  Dissimilarly, the retailer doesn’t necessarily win anything here (outside of great press, which can’t be discounted), and the manufacturer has to innovate even harder to deliver energy efficient televisions, all other things being equal.  But, that said, I can certainly understand a retailer’s perception that this would be the “right” thing to do.

In the case of the CEC, I believe that manufacturers (and a small but vocal portion of outraged consumers) are concerned that California has jumped the shark.  To them, the EPA publishing ES guidelines is one thing; the state of California prohibiting the sale of televisions which exceed CEC guidelines is an entirely different animal.  I’ve seen comparisons drawn to just about anything you could imagine: the Second Amendment (right to bear arms); the Fourth Amendment (search and seizure); Cuba; Soviet Russia; the Terminator (of course, with the Governator as the ultimate overseer of the CEC, maybe they have a point); and many more.

The one comparison that I haven’t seen is the one that I think bears the most resemblance to the matter at hand—one which also (not coincidentally) took place in California.

I’m talking about “California emissions”.

Those of us old enough to remember that term also recall Los Angeles’ reputation for brutal air quality in the 60’s and 70’s; while well-deserved, it wasn’t exactly the type of reputation an entire metropolis seeks.  As far back as 1960, California began studying methods to minimize pollutants, setting the country’s first motor vehicle emission standards in 1966.  Growing up in Chicagoland in the 70’s, I remember automobile commercials always having a little something different to say about cars sold in California.  Later, I learned that the difference was based on California Air Resources Board (CARB) mandates permitting a dramatically lower amount of harmful emissions than allowed in most other states; the laws passed in 1966 were the first of many implemented over the past half-century.  As such, cars sold in California were always a little bit more expensive—the “California car tax” meant that your car would spew less noxious emissions into the air, but at a (literal) cost.

For the first couple of decades after CARB was formed in 1967, cars sold in California weren’t necessarily engineered to have any special pollution-reducing capabilities; rather, bolt-on controls led to fewer emissions, but a higher sticker price.  Gradually, automobile manufacturers simply baked the higher emission standards into their designs, enabling cars to be sold with “50 state emissions”.  By approaching the emissions problem holistically, and by spreading the research and development cost of solving that problem across the entire vehicle lineup, manufacturers not only achieved a much better emissions cost per vehicle, but they streamlined their supply chain by not having to build a model specifically for a given state.

According to CARB, today’s new cars pollute 99% less than new cars did 30 years ago.  Now that’s pretty impressive.

Which brings me to my point.

I had someone who shall remain nameless tell me that the CEC’s regulations were ridiculous, and that manufacturers are going to always make the most energy efficient TVs they can.  Well, wrong.  Manufacturers are going to produce the product which delivers the highest volume and best margin they can, energy efficiency be damned.  Don’t think that this is an indictment of TV manufacturers—I’d leave all the lights on in the house and leave the water running while brushing my teeth, if there were no monetary or environmental cost in doing so.

But, there is a cost in doing so.  At home, the cost of leaving the lights on or the water running is a higher electric bill, a higher water bill.  For a TV manufacturer, the cost of delivering a more energy efficient TV is more research, more use of bleeding edge materials, more margin pressure, and maybe even a higher return rate if mean time between failure ends up falling due to a rushed design or an unproven manufacturing methodology.

But ya gotta start somewhere.  The California Energy Commission has decided that “somewhere” is California, and that zero-hour is 1/1/2011.  I’m not a manufacturer, nor am I an environmental stakeholder, nor a retailer.  I’m simply an interested party who’s very deeply involved in this matter, one who’s fortunate to have seen (I think) all sides of the argument.  While I think that CEC’s implementation deadline is too early by six to nine months, I also think that consumers should thank CEC, not vilify them.  Just as consumers ended up being the ultimate winners in the vehicle pollution equation, consumers will end up as the ultimate winners in the television equation, too.  2011 might well and truly suck for those manufacturers who are unable to meet the CEC’s mandates by 1/1/11, but where there’s a will, there’s a way—markets always figure out an efficiency mechanism.  Vendor A might not have efficient enough TVs to meet the mandates on 1/1/11, but that could simply mean a better deal through an online retailer not headquartered in California.  Remember, the CEC’s mandate prevents non-compliant TVs from being sold in California—there’s nothing preventing non-compliant TVs from being bought in California.

So, while the CEC’s mandate may have upset the apple cart for many TV manufacturers, short-term pain should lead to long-term gain, for consumers, retailers, and yes, manufacturers.  I’m not aware of any automobile manufacturers who went out of business because California passed gradually stronger emissions controls.  I doubt we’re going to lose any TV manufacturers just because California passed a strong energy consumption control.

Manufacturers can view this mandate as a threat or as an opportunity.  Those who view it as an opportunity are likely those who’ll be ready with CEC-compliant TVs for the 2010 holiday season.  Toyota was ahead of the game with the Prius; everyone else is still playing catch-up.

Who’s your pick for the Toyota and Prius of the 2011 television landscape?