Energy Star Program
Covert Testing Shows the Energy Star Program Certification Process Is Vulnerable to Fraud and Abuse Gao ID: GAO-10-470 March 5, 2010American consumers, businesses, and federal agencies rely on the Energy Star program to identify products that decrease greenhouse emissions and lower energy costs. In addition, the federal government and various states offer tax credits and other incentives to encourage the use of energy-efficient products including Energy Star products. Specifically, approximately $300 million from the American Recovery and Reinvestment Act will be used for state rebate programs on energy-efficient products. The Energy Star program, which began in 1992, is overseen jointly by the U.S. Department of Energy (DOE) and the U.S. Environmental Protection Agency (EPA). Given the millions of dollars allocated to encourage use of Energy Star products and concerns that the Energy Star program is vulnerable to fraud and abuse, GAO was asked to conduct proactive testing to (1) obtain Energy Star partnership status for bogus companies and (2) submit fictitious products for Energy Star certification. To perform this investigation, GAO used four bogus manufacturing firms and fictitious individuals to apply for Energy Star partnership and submitted 20 fictitious products with fake energy-savings claims for Energy Star certification. GAO also reviewed program documents and interviewed agency officials and officials from agency Inspector General (IG) offices.
GAO's investigation shows that Energy Star is for the most part a self-certification program vulnerable to fraud and abuse. GAO obtained Energy Star certifications for 15 bogus products, including a gas-powered alarm clock. Two bogus products were rejected by the program and 3 did not receive a response. In addition, two of the bogus Energy Star firms developed by GAO received requests from real companies to purchase products because the bogus firms were listed as Energy Star partners. This clearly shows how heavily American consumers rely on the Energy Star brand. The program is promoted through tax credits and appliance rebates, and federal agencies are required to purchase certain Energy Star certified products. In addition, companies use the Energy Star certification to market their products and consumers buy products relying on the certification by the government of reduced energy consumption and costs. For example, in 2008 Energy Star reported saving consumers $19 billion dollars on utility costs. The table below details several fictitious GAO products certified by Energy Star. GAO found that for our bogus products, certification controls were ineffective primarily because Energy Star does not verify energy-savings data reported by manufacturers. Energy Star required only 4 of the 20 products GAO submitted for certification to be verified by an independent third party. For 2 of these cases GAO found that controls were effective because the program required an independent verification by a specific firm chosen by Energy Star. However, in another case because Energy Star failed to verify information provided, GAO was able to circumvent this control by certifying that a product met a specific safety standard for ozone emission. At briefings on GAO's investigation, DOE and EPA officials agreed that the program is currently based on self-certifications by manufacturers. However, officials stated there are after-market tests and self-policing that ensure standards are maintained. GAO did not test or evaluate controls related to products that were already certified and available to the public. In addition, prior DOE IG, EPA IG, and GAO reports have found that current Energy Star controls do not ensure products meet efficiency guidelines.
GAO-10-470, Energy Star Program: Covert Testing Shows the Energy Star Program Certification Process Is Vulnerable to Fraud and Abuse
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Report to the Ranking Member, Committee on Homeland Security and
Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
March 2010:
Energy Star Program:
Covert Testing Shows the Energy Star Program Certification Process Is
Vulnerable to Fraud and Abuse:
GAO-10-470:
GAO Highlights:
Highlights of GAO-10-470, a report to the Ranking Member, Committee on
Homeland Security and Governmental Affairs, U.S. Senate.
Why GAO Did This Study:
American consumers, businesses, and federal agencies rely on the
Energy Star program to identify products that decrease greenhouse
emissions and lower energy costs. In addition, the federal government
and various states offer tax credits and other incentives to encourage
the use of energy-efficient products including Energy Star products.
Specifically, approximately $300 million from the American Recovery
and Reinvestment Act will be used for state rebate programs on energy-
efficient products. The Energy Star program, which began in 1992, is
overseen jointly by the U.S. Department of Energy (DOE) and the U.S.
Environmental Protection Agency (EPA). Given the millions of dollars
allocated to encourage use of Energy Star products and concerns that
the Energy Star program is vulnerable to fraud and abuse, GAO was
asked to conduct proactive testing to (1) obtain Energy Star
partnership status for bogus companies and (2) submit fictitious
products for Energy Star certification.
To perform this investigation, GAO used four bogus manufacturing firms
and fictitious individuals to apply for Energy Star partnership and
submitted 20 fictitious products with fake energy-savings claims for
Energy Star certification. GAO also reviewed program documents and
interviewed agency officials and officials from agency Inspector
General (IG) offices.
What GAO Found:
GAO‘s investigation shows that Energy Star is for the most part a self-
certification program vulnerable to fraud and abuse. GAO obtained
Energy Star certifications for 15 bogus products, including a gas-
powered alarm clock. Two bogus products were rejected by the program
and 3 did not receive a response. In addition, two of the bogus Energy
Star firms developed by GAO received requests from real companies to
purchase products because the bogus firms were listed as Energy Star
partners. This clearly shows how heavily American consumers rely on
the Energy Star brand. The program is promoted through tax credits and
appliance rebates, and federal agencies are required to purchase
certain Energy Star certified products. In addition, companies use the
Energy Star certification to market their products and consumers buy
products relying on the certification by the government of reduced
energy consumption and costs. For example, in 2008 Energy Star
reported saving consumers $19 billion dollars on utility costs. The
table below details several fictitious GAO products certified by
Energy Star.
Table:
Fictitious product: Gas-Powered Alarm Clock; Product and certification
details:
* Product description indicated the clock is the size of a small
generator and is powered by gasoline;
* Product was approved by Energy Star without a review of the company
Web site or questions of the claimed efficiencies.
Fictitious product: Geothermal Heat Pump; Product and certification
details:
* Energy use data reported was more efficient than any product listed
as certified on the Energy Star Web site at the time of submission;
* High-energy efficiency data was not questioned by Energy Star;
* Product is eligible for federal tax credits and state rebate
programs.
Fictitious product: Computer Monitor; Product and certification
details:
* Product was approved by Energy Star within 30 minutes of submission;
* Private firms contacted GAO‘s fictitious firm to purchase products
based on participation in the Energy Star program.
Fictitious product: Refrigerator;
Product and certification details:
* Self-certified product was submitted, qualified, and listed on the
Energy Star Web site within 24 hours;
* Product is eligible for federal tax credits and state rebates.
Source: GAO.
[End of table]
GAO found that for our bogus products, certification controls were
ineffective primarily because Energy Star does not verify energy-
savings data reported by manufacturers. Energy Star required only 4 of
the 20 products GAO submitted for certification to be verified by an
independent third party. For 2 of these cases GAO found that controls
were effective because the program required an independent
verification by a specific firm chosen by Energy Star. However, in
another case because Energy Star failed to verify information
provided, GAO was able to circumvent this control by certifying that a
product met a specific safety standard for ozone emission.
At briefings on GAO‘s investigation, DOE and EPA officials agreed that
the program is currently based on self-certifications by
manufacturers. However, officials stated there are after-market tests
and self-policing that ensure standards are maintained. GAO did not
test or evaluate controls related to products that were already
certified and available to the public. In addition, prior DOE IG, EPA
IG, and GAO reports have found that current Energy Star controls do
not ensure products meet efficiency guidelines.
View [hyperlink, http://www.gao.gov/products/GAO-10-470] or key
components. For more information, contact Greg Kutz at (202) 512-6722
or kutzg@gao.gov.
[End of section]
Contents:
Letter:
Background:
Undercover Tests Result in 15 Products Gaining Bogus Energy Star
Certification:
Undercover Tests Expose Weaknesses in Fraud Prevention Controls:
Corrective Action Briefing:
Appendix I: Scope and Methodology:
Appendix II: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Bogus Products Submitted for Energy Star Qualification:
Figures:
Figure 1: Energy Star Partnership and Product Certification Logos:
Figure 2: Air Room Cleaner Certified by Energy Star:
Figure 3: Request for Certification of Gas-Powered Alarm Clock:
Abbreviations:
ARRA: American Recovery and Reinvestment Act:
CFL: Compact Fluorescent Light:
CIGIE: Council of Inspectors General on Integrity and Efficiency:
DLA: Defense Logistics Agency:
DOE: Department of Energy:
EF: Energy Factor:
EPA: Environmental Protection Agency:
FEMP: Federal Energy Management Program:
FTC: Federal Trade Commission:
GSA: General Services Administration:
HVAC: Heating, Ventilation and Air Conditioning:
HVI: Home Ventilating Institute:
MESA: My Energy Star Account:
NIST: National Institute of Standards and Technology:
NVLAP: National Voluntary Laboratory Accreditation Program:
OIG: Office of Inspector General:
OPS: Online Product Submittal:
QPI: Qualified Product Information:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
March 5, 2010:
The Honorable Susan M. Collins:
Ranking Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
Dear Senator Collins:
American consumers, businesses, and federal agencies rely on the
Energy Star program to identify products that decrease greenhouse
emissions and lower their energy costs. Energy Star, which is jointly
managed by the U.S. Environmental Protection Agency (EPA) and U.S.
Department of Energy (DOE), is a voluntary labeling program designed
to promote energy-efficient products. It touts itself as a trustworthy
means for letting consumers know which products deliver the same or
better performance as comparable models while using less energy
[Footnote 1] and saving money. The Energy Star program reported in
2008 that it helped Americans prevent 43 million metric tons of
greenhouse gas emissions and save more than $19 billion in utility
costs. Consumer interest in making households and buildings more
energy efficient has become heightened given the increase in energy
prices and expansion of federal tax credit and state rebate programs.
Energy Star was created in response to the Clean Air Act amendments of
1990[Footnote 2] and the Energy Policy Act of 1992.[Footnote 3] In
general, the program is designed to identify models for 60 categories
of household and commercial products that are the most energy
efficient (efficiency of up to 10 to 25 percent over the minimum
federal standards[Footnote 4]). Energy Star reported that in 2008
there were more than 40,000 qualified product models that are produced
by more than 2,400 manufacturers. These products claim to offer
consumers savings of as much as 75 percent relative to standard models.
This report responds to your request that we proactively test the
effectiveness of the current Energy Star partnership and product
certification process to determine whether manufacturers could obtain
Energy Star partnership and product certification for products not
meeting Energy Star efficiency requirements. To perform this
investigation, we developed four bogus manufacturing companies,
meaning that we conducted our work with fictitious names and contact
information that could not be traced back to GAO. We also established
a Web site related to each bogus company and rented domestic
commercial mailboxes to use as the company addresses. We designed
these proactive tests using publicly available information to assess
the fraud-prevention controls in place for partnership and product
certification. We submitted Energy Star Partnership Agreements for
each company and submitted fictitious products with energy-efficiency
specifications to the Energy Star program for product certification.
We developed these fictitious products to ensure that they met Energy
Star requirements and to ensure that most qualified under the
Department of Energy's Federal Energy Management Program[Footnote 5]
(FEMP). Federal buyers are required by the Energy Policy Act of 2005
[Footnote 6] to purchase products that are Energy Star-qualified or
FEMP-designated for energy efficiency.
We submitted products under selected categories such as appliances,
building products, computers and electronics, heating and cooling
products, and lighting. The products varied in levels of
sophistication and energy efficiency to test the level of scrutiny
throughout the Energy Star product certification process. Our
investigation was designed to test controls over the process for
becoming an Energy Star partner and controls over the product
certification process. Our work was not designed to test other
controls potentially in place over monitoring of Energy Star label use
on retail shelves or industry self-enforcement efforts including
energy-efficiency tests performed on products selected from actual
retail locations.
We conducted the work for this investigation from June 2009 through
March 2010 in accordance with the standards prescribed by the Council
of Inspectors General on Integrity and Efficiency (CIGIE). Additional
details on our scope and methodology are included in appendix I.
Background:
The Energy Star program was introduced by the U.S. Environmental
Protection Agency (EPA) in 1992, under the authority of the Clean Air
Act,[Footnote 7] as a voluntary labeling program designed to promote--
and allow consumers to identify--energy-efficient computers and
monitors. Through 1995, EPA expanded the label to additional office
equipment and residential heating, ventilation, and cooling (HVAC)
equipment, and partnered with the U.S. Department of Energy (DOE) in
1996. The Energy Star label is now found on over 60 product
categories, including major appliances, office equipment, lighting,
home electronics, new homes, and commercial and industrial buildings,
with a reported energy-efficiency savings of up to 10 to 25 percent
over the minimum federal standards. As of 2009, over 40,000 individual
product models were Energy Star-qualified by over 2,400 manufacturers.
Manufacturers who wish to use the Energy Star logo must enter into a
Partnership Agreement[Footnote 8] with either the EPA or DOE, under
which the manufacturer agrees to comply with Energy Star eligibility
criteria and identity guidelines.[Footnote 9] Manufacturers apply to
be a partner of the Energy Star program by identifying which product
category or categories under which the company seeks to qualify
products, completing a partnership agreement packet, certifying their
agreement to the general program requirements, and submitting the
packet to EPA or DOE contractors either online or via mail. The Energy
Star program provides approved partners with usernames and passwords
so that they may access logos and other marketing materials directly
from the Energy Star Web site. The use of the logo on products and
promotional materials must be consistent with the Energy Star identity
guidelines. Figure 1 below shows the Energy Star partnership and
product certification logos.
Figure 1: Energy Star Partnership and Product Certification Logos:
[Refer to PDF for image: illustration]
Source: Energy Star.
[End of figure]
Manufacturers who make products that meet Energy Star specifications
must then report each product's specifications by submitting Qualified
Product Information (QPI),[Footnote 10] using either the QPI forms
available on the Energy Star site, or for certain products (home
electronics and office equipment) by using the Online Product
Submittal (OPS) Tool. Certain product categories require third-party
independent testing results to be submitted in addition to the QPI
forms. The criteria for Energy Star product qualification vary
depending on the specific product category and whether the product is
for residential or commercial use. Generally, qualified Energy Star
products are 10 to 25 percent more efficient than required by the
federal minimum standard while providing top performance and
innovative features. For example, the Compact Fluorescent Light (CFL)
bulb requires manufacturers to provide third-party test results from
an accredited independent laboratory. In contrast, a refrigerator
requires manufacturers to submit a QPI form stating minimal energy
efficiency specifications without any third-party test results. Energy
Star requires manufacturers to certify in their application that the
product meets energy-efficiency specifications for the product type.
Energy Star, according to officials, largely relies on manufacturers
or others to identify and report products claiming to meet Energy Star
criteria that are violating the rules. In that regard, Energy Star
officials stated that some companies test products of competitors.
The federal government has placed significant emphasis and allocated
tax dollars to encourage the use of energy-efficient products.
Specifically, federal agencies must procure Energy Star-qualified or
DOE Federal Energy Management Program (FEMP)-designated products,
unless the head of the agency determines in writing that a statutory
exemption[Footnote 11] applies. The General Services Administration
(GSA) and Defense Logistics Agency (DLA) are also required, except in
narrow circumstances, to supply only Energy Star or FEMP-designated
products for all product categories covered by either program. In
addition, the American Recovery and Reinvestment Act (ARRA) of 2009
[Footnote 12] increased and extended the energy tax credits for
homeowners who make energy-efficient improvements to their existing
homes. The new law extended the tax credits in place for 2009 to 2010,
and increased the tax credit rate to 30 percent of the cost of all
qualifying products placed in service in 2009 and 2010, up to a
maximum aggregate credit limit of $1,500.[Footnote 13] The Act also
removed the cap on the tax credit, currently in place through 2016, of
30 percent of the cost of materials and installation for installing
geothermal heat pumps and other renewable technologies. DOE also
created a state rebate grant program, with nearly $300 million in
funding from the ARRA, for the purchase of new Energy Star-qualified
appliances. Under the program, eligible consumers can receive rebates
to purchase new energy-efficient appliances and are encouraged to
replace used, less efficient appliances. Each state and U.S. territory
was allowed to design its own rebate program and all 56 plans have
been approved by DOE.
While not part of the Energy Star program, manufacturers may also
receive federal tax credits for producing energy-efficient clothes
washers, dishwashers, or refrigerators. Efficiency requirements for
each particular product are statutorily defined and not reliant on
Energy Star standards.[Footnote 14] However, products meeting Energy
Star efficiency requirements frequently meet federal tax credit
requirements. The Energy Improvement and Extension Act of 2008
[Footnote 15] modified and extended the manufacturer's tax credit to
eligible models produced in the United States during calendar years
2008, 2009, and 2010. The amount of the credit per unit produced
varies according to the energy efficiency of the appliance, with
higher energy-efficient models being eligible for larger credits. The
aggregate amount of credit allowed with respect to a manufacturer for
any taxable year shall not exceed $75 million reduced by the amount of
the credit allowed to the taxpayer (or any predecessor) for all prior
taxable years beginning January 2008. Exempt from the $75 million
limit are the highest energy-efficient categories of refrigerators and
clothes washers eligible for the highest per unit tax credits. Based
on the Joint Committee on Taxation projections, billions of dollars in
energy-efficiency tax credits will be claimed by individuals and
corporations between 2009 and 2013.
Numerous investigations and reports have recently identified Energy
Star program successes and weaknesses. As noted by the Consortium for
Energy Efficiency,[Footnote 16] the EPA Office of the Inspector
General (OIG)[Footnote 17], Consumer Reports,[Footnote 18] DOE OIG,
[Footnote 19] and a prior GAO report[Footnote 20] there is currently
no requirement for independent third-party verification of energy
performance reporting for most product categories prior to gaining
access to Energy Star logos and promotional materials. Specifically,
in 2007 the EPA OIG stated that there was no evidence that the self-
certification process was effective and noted that the Energy Star
program lacked in both quality assurance and sufficient oversight.
Moreover, the EPA OIG identified that there was no methodology in
place to verify manufacturers' claims of energy efficiency and that
products may be labeled with the Energy Star logo and sold prior to
submitting certification results to the agency. In addition, an
October 2008 issue of Consumer Reports detailed further problems,
including lax qualifying standards, federal testing procedures that
were outpaced by current technology, and reliance on industry self-
policing--manufacturers testing competitors' appliances and reporting
misconduct--without evidence of the effectiveness of that approach.
The GAO report mentioned above found that products may qualify for
Energy Star status based on criteria other than the estimated total
energy consumption. In addition, Consumer Reports and DOE OIG
officials found that manufacturers may use computer controls to
manipulate energy consumption testing results, and for some categories
Energy Star no longer highlighted only the most energy-efficient
products in those categories.
A recent settlement between DOE and an Energy Star partner has
highlighted the potential for noncompliance of products in the
program. In January 2010, DOE and Haier America entered into a Consent
Decree over an investigation into whether Haier violated DOE's energy-
efficiency standards and Energy Star program requirements for certain
freezers. DOE's investigation led Haier to determine that a parts
defect might have caused four standalone upright freezer models to
consume more energy than the manufacturer had reported. Additionally,
following complaints raised by competitors, LG Electronics and DOE
entered into an agreement in 2008 to clarify appropriate energy-
efficiency testing methods for certain LG refrigerators. The agreement
has led to litigation in federal district court over whether both
parties are complying with its terms regarding testing methods.
Undercover Tests Result in 15 Products Gaining Bogus Energy Star
Certification:
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. Based on our investigative
results, we found that the current process for becoming an Energy Star
partner and certifying specific products as Energy Star compliant
provides little assurance that products with the Energy Star label are
some of the most efficient on the market. Control weaknesses
associated with the general lack of upfront validation of manufacturer
self reported data allowed all of our bogus firms to become Energy
Star partners, and allowed most of our products to be certified as
Energy Star compliant.
Using four bogus manufacturing companies and fictitious identities, we
obtained Energy Star partnership, facilitating the submission of bogus
products for qualification. We conducted tests of the program by
submitting qualified product information (QPI) forms and efficiency
information via the Online Product Submittal (OPS) tool for 20 bogus
products. Of the products submitted, 15 were approved, 2 were denied
Energy Star qualification, and 3 products were voluntarily removed by
GAO because we had not received an official qualification
determination by the time our investigation was completed. 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. Table
1 below summarizes the certification details of bogus products
submitted for Energy Star qualification during the course of our
investigation.
Table 1: Bogus Products Submitted for Energy Star Qualification:
Approved:
Product type--overseeing agency: Boiler--EPA;
Product and certification details:
* Consumers who purchase product would be eligible for federal tax
credit and some state rebate programs;
* Product qualified by Energy Star within 1 business day of
submission. Product was also listed on Energy Star Web site.
Product type--overseeing agency: Clothes Washer--DOE;
Product and certification details:
* Consumers who purchase product would be eligible for some state
rebate programs;
* Product would be eligible for manufacturer federal tax credits for
production of energy-efficient models;
* Qualified by Energy Star the same day as submission of QPI form and
listed on the Energy Star Web site.
Product type--overseeing agency: Computer Monitor--EPA;
Product and certification details:
* Energy Star requested expedited submission of product information if
product was to appear on Qualified Product list before 2009 holiday
season;
* Product was approved within 30 minutes of submission of QPI form and
was listed on Energy Star Web site.
Product type--overseeing agency: Dehumidifier--EPA;
Product and certification details:
* Consumers who purchase product would be eligible for some state
rebate programs;
* Product energy-efficiency data exceeded the most efficient similar
product approved by Energy Star by 20 percent;
* Energy Star approved product accepting a follow-up e-mail
confirmation from bogus manufacturer confirming efficiency data were
correct and listed product on the Energy Star Web site.
Product type--overseeing agency: Dishwasher--DOE;
Product and certification details:
* Consumers who purchase product would be eligible for some state
rebate programs;
* Product would be eligible for manufacturer federal tax credits for
production of energy-efficient models;
* Qualified by Energy Star within 1 day of QPI submission and listed
on the Energy Star Web site.
Product type--overseeing agency: External Power Supply Adapter--EPA;
Product and certification details:
* Product listed on Energy Star Web site and the bogus company
received purchase inquiries from private firms stating they located
the firm on the Energy Star Web site.
Product type--overseeing agency: Furnace--EPA;
Product and certification details:
* Consumers who purchase product would be eligible for federal tax
credit and some state rebate programs;
* Product approved within week of QPI submission after five submission
attempts and listed on the Energy Star Web site.
Product type--overseeing agency: Gas-Powered Alarm Clock--EPA;
Product and certification details:
* Product description indicated that item is the size of a small
generator and is powered by gasoline;
* Product approved by Energy Star without questioning product
description.
Product type--overseeing agency: Geothermal Heat Pump--EPA;
Product and certification details:
* Consumers who purchase product would be eligible for federal tax
credit and some state rebate programs;
* QPI form indicated that product was at least 20 percent more
efficient than similar qualified products and high energy-efficiency
data were not questioned by Energy Star.
Product type--overseeing agency: Light Commercial HVAC--EPA;
Product and certification details:
* Product approved within approximately 1 week of submission and
listed on the Energy Star Web site.
Product type--overseeing agency: Metal Roof Panel--EPA;
Product and certification details:
* Consumers who purchase product would be eligible for federal tax
credit;
* Bogus manufacturer test results submitted were accepted by Energy
Star;
* Product was approved in about a month and listed on the Energy Star
Web site.
Product type--overseeing agency: Printer--EPA;
Product and certification details:
* Product information submitted via the OPS tool without Energy Star
required product literature;
* Product approved by Energy Star 1 month after submission.
Product type--overseeing agency: Refrigerator--DOE;
Product and certification details:
* Consumers who purchase product would be eligible for some state
rebate programs;
* Product would be eligible for manufacturer federal tax credits for
production of energy-efficient models;
* Product submitted, qualified, and listed on Energy Star Web site
within 24 hours.
Product type--overseeing agency: Room Air Cleaner--EPA;
Product and certification details:
* Consumers who purchase product would be eligible for some state
rebate programs;
* Product was not submitted with required UL safety standard file
number;
* Web site did not include required product disclaimer;
* Product image on Web site was a space heater with a feather duster
and fly strips attached;
* Product was approved in 11 days and listed on the Energy Star Web
site.
Product type--overseeing agency: Water Cooler--EPA;
Product and certification details:
* Manufacturer Web site made no reference to product line during
Energy Star qualification process;
* Product was approved by Energy Star within 4 days and listed on the
Energy Star Web site.
Rejected:
Product type--overseeing agency: Compact Fluorescent Light Bulb--DOE;
Product and certification details:
* Product rejected due to third-party verification process requiring
certification by designated laboratory.
Product type--overseeing agency: Ventilating Fan--EPA;
Product and certification details:
* Product rejected because it did not appear on trade association
registry assuring compliance with Energy Star standards.
No Determination Made:
Product type--overseeing agency: Battery Charging System--EPA;
Product and certification details:
* Submitted bogus manufacturing testing results;
* Did not receive a response from Energy Star during investigation.
Product type--overseeing agency: Decorative Light String --EPA;
Product and certification details:
* Submitted fictitious test results from a bogus accredited laboratory;
* Did not receive a response from Energy Star during investigation.
Product type--overseeing agency: End-Use Product--EPA;
Product and certification details: Product was described as "electric
office hammer";
Did not receive a response from Energy Star during investigation.
Source: GAO.
[End of table]
Energy Star Partnership Agreements:
We found that companies can easily become an Energy Star manufacturing
partner, and subsequently have unlimited access to Energy Star logos
and other promotional resources. Using fictitious information, we were
able to attain Energy Star partnership for four bogus manufacturing
firms, using only Web sites, commercial mailboxes, and cell phones to
serve as a backstop corporate presence. To become an Energy Star
partner, we submitted an Energy Star partnership commitment form for
each bogus company listing basic contact information, a fictitious
point of contact, and pertinent manufacturing categories. All four
bogus companies were granted Energy Star partnership by EPA and/or DOE
within 2 weeks. The bogus companies were granted access to digital
logo templates and other marketing materials, without first having any
qualifying products. For two of the companies, Energy Star
administrators did not review the Web site prior to granting Energy
Star manufacturing partner status. For all cases, Energy Star did not
call our bogus firms or visit our firm's addresses. Further, our bogus
manufacturing companies received product and service solicitations
stemming from partner listing on the Energy Star Web site. For
example, one company received requests for large recurring orders of
an external power supply adapter, based on the company being listed on
the Energy Star Web site. These solicitations are an example of the
value placed on being an Energy Star partner, and emphasize why
rigorous screening is necessary.
Energy Star Product Certifications:
We successfully obtained Energy Star qualification for 15 bogus
products, including a gas-powered alarm clock and a room cleaner
represented by a photograph of a feather duster adhered to a space
heater on our manufacturer's Web site. Twenty products were created
for proactive testing. Each product submitted met Energy Star
guidelines and was selected based on FEMP designation, tax credit
eligibility, and the presence of potential preventative controls. The
EPA was the overseeing entity for 16 of the products submitted for
Energy Star qualification, and the DOE was the overseeing agency for
the other 4 products. Of the products submitted to the EPA, 12 were
approved, 1 was rejected, and 3 never received a final determination
from Energy Star. DOE qualified 3 bogus appliances and rejected a
(CFL) bulb due to failure to provide third-party test results from an
accredited independent laboratory. Figure 2 below is a photograph
displayed on one of our bogus company's Web site depicting the air
room cleaner certified by the energy star program.
Figure 2: Air Room Cleaner Certified by Energy Star:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
We found that the level and depth of administrative oversight varied
by product category. Qualification response time, scrutiny of product
information, and mode of submission of qualifying data varied across
products. The product qualification response time from Energy Star
varied from minutes to months. For example, a computer monitor
submitted for qualification was approved within 30 minutes of
submission, whereas the bogus battery charging system and end-use
product did not receive a response from officials by the conclusion of
our investigative work, a period of over 3 months. Several other
products, including a refrigerator, dishwasher, and clothes washer
received Energy Star certification within 1 day of submission. We also
attained qualification for products with exaggerated efficiency claims
submitted via the QPI form with little scrutiny. For example, Energy
Star officials approved a dehumidifier, geothermal heat pump, and room
air cleaner that were each at least 20 percent of more efficient than
all other similar products listed on the Energy Star Web site. We
received a request for confirmation that the reported Energy Factor
(EF) for our dehumidifier was accurate because it seemed excessive.
However, after confirming the EF factor via e-mail without providing
additional support, the dehumidifier was qualified. In addition, we
were not contacted by Energy Star with questions regarding efficiency
performance of the geothermal heat pump and the room air cleaner.
Our fictitious products were submitted two ways, via the OPS tool and
e-mailed QPI forms to Energy Star administrative contractors. We found
that the Energy Star OPS tool expedited the certification of bogus
products. EPA officials confirmed that the OPS tool is an automated
system designed to reduce administrative costs and a specific review
only occurs if outlier data triggers programmed flags in the system.
For example, we submitted and qualified a gas-powered alarm clock
under the newly formed audio-video product category via the OPS tool.
Although the efficiency information met Energy Star criteria, the
product description section on the form clearly indicated that the
clock radio was gas-powered, the dimensions were similar to those of a
small portable generator, and the product model name was "Black-Gold".
EPA officials confirmed that because the energy-efficiency information
was plausible, it was likely that no one read the product description
information. Figure 3 below shows the information we submitted via the
OPS tool.
Figure 3: Request for Certification of Gas-Powered Alarm Clock:
[Refer to PDF for image: illustration]
Product: Clock Radio.
Model Number: Black Gold.
Spec Version: Audio Video Version 2.0 (Current).
Effective Dates: 11/16/2008 through Present.
Product Eligible for Qualification? Yes.
Spec Details: Product meets all requirements.
Product Type: Clock Radio.
Product Marketing Description: Gas-powered clock radio is
sleek,durable, easy on your electric bill, and surprisingly quiet.
Height: 18.00 inches.
Width: 15.00 inches.
Depth: 10.00 inches.
Source: Energy Star OPS Tool.
[End of figure]
Our investigation determined that when officials required independent
third-party testing of products prior to certification, that control
sometimes prevented our fictitious products from becoming certified.
Specifically, for our ventilation fan, when submitting our product for
certification, we indicated that we had tested our product with the
specific third-party testing company designated by Energy Star.
However, when officials reviewing the application attempted to
validate that information with the third party, they found that the
Home Ventilating Institute (HVI) had not tested our product. This
control resulted in the fan being rejected. A similar control
prevented our bogus firm from having its CFL bulb certified. However,
our investigation found that Energy Star officials did not always
verify testing results with third parties. Specifically, on the
product application for our room air cleaner, we stated that we met
the specific safety standard for ozone emission set forth by
Underwriters Laboratories, an actual independent third-party
laboratory designated by Energy Star. However, while Energy Star
officials asked if we met this standard, they never verified our
certification with the Underwriters Laboratories or requested the
specific testing file as required on the QPI form.
Undercover Tests Expose Weaknesses in Fraud Prevention Controls:
We found that for most of the bogus products we submitted, the Energy
Star program preventive controls were ineffective, rendering the
program vulnerable to fraud and abuse. Our work was not designed to
systematically test all controls within the Energy Star program, but
approval of 15 fictitious products submitted with bogus energy-
efficiency data shows weaknesses in the programs preventative
controls. A lack of controls over the access to Energy Star product
certification labels exposes the program to unauthorized use.
Ineffective and nonexistent controls over validation of claimed energy
efficiencies could also allow firms to fraudulently overstate product
efficiencies. In addition, the overreliance on manufacturer integrity,
industry self-policing, and after-market product testing ignores the
potential for products to be put on the market and sold to consumers
before fraudulent activity is identified. Despite the lack of up-front
controls, there have been a few recent examples of successful
identifications of fraudulent or inaccurate energy-efficiency claims
by manufacturer's competitors that resulted in action from DOE.
Controls over Access to Energy Star Labels:
Preventing unauthorized access to promotional material for the Energy
Star program is the first step in maintaining consumer confidence in
the label. However, our undercover tests showed that ineffective
controls could allow firms to utilize Energy Star logo without ever
having a product certified. Specifically, all four bogus manufacturing
companies received user account information soon after achieving
partnership. Account information is needed to access My Energy Star
Account (MESA), a secure section of the Energy Star site containing
all of the program labels, including product certification labels, for
download and application by approved partners. Program protocols state
that account information granting access to MESA should be restricted
until a partner has successfully qualified a product designated in the
Partnership Agreement package by submitting energy use data. However,
we gained access to MESA prior to having any products approved by
Energy Star. Additionally, we found that some Energy Star labels were
publicly accessible. For example, the Energy Star linking label was
found unrestricted on the QPI forms for three appliance products--the
clothes washer, dishwasher, and refrigerator models--we submitted.
Consequently, label access, a cornerstone in protecting the integrity
of the Energy Star label, was found susceptible to fraud and misuse.
Product Certification Controls:
The primary purpose of the Energy Star program is to help consumers
identify the most energy-efficient products on the shelf. Therefore,
controls that verify product energy-efficiency claims are key to the
integrity of the overall program. However, we found that controls over
specific product certifications were not effective in preventing firms
from submitting bogus energy-efficiency data. We found that Energy
Star is for the most part an online self-certification program. Only 4
of 20 products we tested required independent verification of energy
use and other industry standards by a third party. This control was
effective in two cases because Energy Star officials verified our test
results with the third party instead of trusting our self-
certification. For example, the ventilating fan product category
required registry listing by the Home Ventilating Institute (HVI)--the
industry-recognized independent laboratory for residential ventilating
products sold in North America, and the CFL product category required
certification by a designated laboratory accredited under the
Department of Commerce National Institute of Standards and Technology
(NIST) National Voluntary Laboratory Accreditation Program (NVLAP).
The result was that both the fictitious ventilating fan and CFL bulb
were effectively rejected due to follow-up on designated third-party
verification requirements. However, for a third product, a room air
cleaner, Energy Star officials failed to verify that our product met
specific industry standards. We left the section requiring a UL file
number blank on the QPI form, and when questioned by Energy Star
officials we confirmed by e-mail that we met the standard, which was
accepted as sufficient evidence and the product was approved. We did
not receive a response from Energy Star by the end of our
investigation for the fourth product, a decorative light string, and
were unable to make any determination as to the effectiveness of the
third-party verification related to this specific product.
Recent Examples of Self-Policing:
A recent case of inaccurate energy-efficiency claims being identified
by competitors shows that there is potential for noncompliance within
the program. DOE recently entered into a Consent Decree with Haier
America on January 7, 2010, resolving an investigation into Haier's
adherence to DOE's energy-efficiency standards and Energy Star program
requirements for four freezer models. Among other obligations outlined
in the decree, Haier agreed to conduct on-site unit repairs at no cost
to consumers and submit a report to DOE by July 9, 2010, summarizing
efforts made toward fulfilling its obligations. The Haier Decree was
the first entered into by DOE to enforce federal efficiency standards.
LG Electronics and DOE entered into an agreement in November 2008 to
resolve matters arising from DOE concerns regarding testing procedures
for measuring energy consumption levels for purposes of LG's
certification with the Energy Star program. Subsequently, DOE ordered
LG to remove the "Energy Star" energy-efficiency label from some of
its refrigerators by January 20, 2010. DOE is currently involved in
litigation in federal district court with LG Electronics over a
dispute as to the methods that may be employed in testing for energy
efficiency of some of its LG refrigerators.
Corrective Action Briefing:
We briefed officials from DOE and EPA on the results of our
investigation and control weaknesses identified based on our testing.
Officials acknowledged that currently the Energy Star program relies
on self-policing, manufacturer integrity, and after-market testing for
high volume products in cases where there is not a third-party testing
requirement for certification. Our ability to obtain product
certifications with unverified test results illustrates the need for,
at a minimum, some level of third-party testing for the program to be
one of certification versus self-certification. Officials stated that
based on a new Memorandum of Understanding between DOE and EPA, the
program will be shifting toward a more rigorous up-front screening
process. Specifically, according to EPA's Enhanced Program Plan for
Energy Star Products issued in December 2009, Energy Star is in the
process of identifying and certifying testing labs and industry trade
organizations that will begin to independently test products in most
product categories prior to certification. It is important to note
that the Energy Star program has been in place certifying products
such as computer monitors since 1992. However, 18 years later we were
able to obtain product certification for a computer monitor since
third-party verification of manufacturer efficiency data had not been
implemented by Energy Star. We support DOE and EPA plans to enhance
testing prior to certification.
Officials also stated during our briefings that the program has a
variety of other controls in place to prevent and detect fraudulent
energy-efficiency claims and label misuse after a product is put onto
retail shelves and Web sites. Specifically, officials cited recent
cases of industry self-policing, annual after-market product
verification testing, and semiannual product shelf inventory of label
guideline compliance as substantive controls. Because all of these
controls occur after a product has been certified by Energy Star and
placed on the market, we were not able to test their effectiveness and
did not validate agency representations. However, in our briefing, we
reiterated the importance of preventing fraud before a product is on
the shelf and before consumers are placed at risk. In addition, recent
IG reports have found that there is not a robust process in place at
either DOE[Footnote 21] or EPA[Footnote 22] to proactively test Energy
Star products on the market. In our briefings, EPA officials
acknowledged that after-market product verification testing was not
conducted for all product categories, but rather was limited to "high-
volume" products. EPA officials stated that limited resources and
other EPA priorities necessitated a select review of products for
compliance. Furthermore, while EPA officials discussed their Web site
follow-up as part of their efforts to ensure Energy Star labels are
used appropriately, the officials agreed that in at least one case--
the room air cleaner model depicted by a feather duster attached to a
space heater on the manufacturer's Web site--the Web site review was
either ineffective or not performed.
Finally, during our briefings, EPA and DOE officials stated that they
felt there was some deterrent value to their citation of United States
Code Title 18, Section 1001--False Statement Act[Footnote 23]--listed
on Energy Star QPI forms and the OPS tools. Officials stated that the
potential legal costs associated with violations of the Act would
deter manufacturers from submitting false energy-efficiency claims.
However, in our corrective action briefing we noted the exact text on
the certification documents during our investigation read "I
understand that intentionally submitting false information to the U.S.
government is a criminal violation of the False Statements Act, Title
19 U.S.C. section 1001." We pointed out that the citation to Title 19,
as noted, is inaccurate, is not found on Partnership Agreement forms,
and is only found on some QPI forms. We suggested that the citation be
updated to reflect the appropriate legal authority and consistently
applied to all partnership documentation. Officials acknowledged the
above issues associated with use of the incorrect citation, and agreed
that documentation be updated to reflect the proper legal citation.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the date of this letter. We will then send copies of this report
to interested congressional committees, the Administrator of EPA, the
Secretary of DOE, the Chairman of FTC, and other interested parties.
The report will also be available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
If you or your staff members have any questions about this report,
please contact me at (202) 512-6722 or kutzg@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix II.
Sincerely yours,
Signed by:
Gregory D. Kutz:
Managing Director:
Forensic Audits and Special Investigations:
[End of section]
Appendix I: Scope and Methodology:
To perform the undercover test of attaining Energy Star partnership
and earning Energy Star qualification for fictitious products, we
consulted publicly available audit reports by federal agencies and
consumer advocacy publications to identify program vulnerabilities to
inform our methodology. Using publicly available information, we
designed proactive tests to assess the partnership and product
certification controls in place to prevent fraud and ensure the
integrity of the Energy Star label. The Energy Policy Act of 2005
mandates that federal buyers purchase products that are Energy Star
qualified or otherwise designated by the Federal Energy Management
Program (FEMP) as energy efficient. We used FEMP guidelines and the
General Services Administration (GSA) schedule of federally designated
products to select 20 Energy Star products for testing. Our
investigation was designed to test controls over the process for
becoming an Energy Star partner to certify products and acquire access
to Energy Star product certification labels. Our work was not designed
to test other potential controls in place for monitoring use of the
Energy Star label on retail products or verifying energy efficiency
through shelf tests of products selected from retail locations.
We used bogus front companies, using rented domestic personal
mailboxes for business listings, and fictitious identities when
submitting documentation to Energy Star, meaning that we conducted our
work with fictitious names and contact information that could not be
traced back to GAO. We developed Web sites for each of the four bogus
manufacturing firms to establish an internet presence. Undercover cell
phones used as company telephone numbers and out-of-service numbers
used as fax numbers were listed as contact information on each of the
four bogus manufacturer Web sites and Energy Star program
documentation.
We submitted Energy Star Partnership Agreements for each of the four
bogus manufacturing firms and fictitious product energy-efficiency
specifications via e-mail to the Energy Star program to obtain
partnership and certify products. After attaining Energy Star
partnership status, we submitted a total of 20 products under selected
categories, including appliances, home envelope products, computers
and electronics, heating and cooling products, and lighting. The
product specifications varied in sophistication and energy efficiency
to test the level of scrutiny at each stage of the Energy Star product
certification process. For example, at the beginning of testing,
products mirroring efficiency standards of listed Energy Star products
were submitted, whereas in the later stages of the proactive testing
phase of this investigation, we submitted an implausible product for
Energy Star certification. We briefed program officials with the
Department of Energy, Environmental Protection Agency (EPA) and EPA
OIG as well as attorneys with the Consumer Protection division of the
Federal Trade Commission (FTC) on the results of our work, and
incorporated their comments concerning controls in place to protect
the Energy Star label from fraud and abuse.
[End of section]
Appendix II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Gregory D. Kutz, Managing Director, 202-512-6722, kutzg@gao.gov:
Acknowledgments:
In addition to the individual named above, the following individuals
made major contributions to this report: Julia DiPonio, Robert
Fletcher, John Ledford, Barbara Lewis, Vicki McClure, Jonathan Meyer,
James Murphy, Andrew O'Connell, Timothy Persons, April Van Cleef, Abby
Volk, and John Wilbur.
[End of section]
Footnotes:
[1] The energy savings obtained from Energy Star products vary
depending on the specific product's energy efficiency specifications
in comparison to a non-Energy Star qualified product with similar
performance.
[2] Clean Air Act Amendments of 1990, Pub. L. No. 101-549, 104 Stat.
2399 (1990).
[3] Energy Policy Act of 1992, Pub. L. No. 102-486, 106 Stat. 2776
(1992).
[4] Minimum federal standards for energy efficiency were established
by Congress in the Energy Policy and Conservation Act (EPCA) Pub. L.
94-163 (1975). The standards have been updated many times since being
established, most recently by the Energy Policy Act of 2005 Pub. L.
109-58 (2005). These laws establish schedules for DOE to review and
revise these minimum federal standards.
[5] The FEMP provides energy-efficiency requirements, guidance, and
cost calculators that help federal agencies offset energy consumption
costs through energy-efficient product implementations. Federal buyers
are required to purchase products that are Energy Star qualified or
FEMP designated for energy efficiency and low standby power. These
products are in the upper 25 percent of energy efficiency in their
category.
[6] Energy Policy Act of 2005, Pub. L. No. 109-58, § 104(a), 119 Stat.
594, 609 (2005) (codified as amended at 42 U.S.C. § 8295b).
[7] Clean Air Act Amendments of 1990, Pub. L. No. 101-549, § 901(c),
104 Stat. 2399, 2703 (1990) (codified as amended at 42 U.S.C. §
7403(g)).
[8] The Partnership Agreement is a voluntary agreement between
businesses and organizations and the federal government. As part of
this partnership, businesses, and organizations can use the Energy
Star name and marks, registered marks owned by the U.S. government, as
part of their energy efficiency and environmental activities.
[9] The Energy Star guidelines outline how to use the Energy Star
marks across a wide range of activities and applications. The
guidelines provide specific information on the use of the mark in each
category and recommendations for what words to use when writing or
talking about the Energy Star program including how to reference the
government source of authority.
[10] QPI information is specific energy-efficiency specifications
related to a product based on the product design and operation.
[11] 42 U.S.C. § 8259b.
[12] American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-
5, 123 Stat. 115 (2009) (codified at 26 U.S.C. § 25C).
[13] 26 U.S.C. §§ 25C - 25D.
[14] 26 U.S.C. § 45M.
[15] Energy Improvement and Extension Act of 2008, Pub. L. No. 110-
343, Division B § 305 (2008).
[16] The Consortium for Energy Efficiency (CEE) is a nonprofit public
benefits corporation that develops initiatives for its North American
members to promote the manufacture and purchase of energy-efficient
products and services. CEE members include utilities, statewide and
regional market transformation administrators, environmental groups,
research organizations, and state energy offices in the United States
and Canada. Also contributing to the process are CEE partners--
manufacturers, retailers and government agencies. DOE and EPA both
provide support through active participation as well as funding.
[17] EPA OIG Report No. 2007-P-00028 (Aug. 1, 2007), 09-P-0061 (Dec.
17, 2008), and 10-P-0040 (Nov. 30, 2009).
[18] Consumer Reports Magazine (Oct. 2008).
[19] DOE OIG Report No. DOE/IG-0827 (Oct. 14, 2009).
[20] See GAO, Energy Efficiency: Opportunities Exist for Federal
Agencies to Better Inform Household Consumers, [hyperlink,
http://www.gao.gov/products/GAO-07-1162] (Washington, D.C.: Sept. 26,
2007).
[21] DOE OIG, Report No. DOE/IG-0827 (Oct. 14, 2009).
[22] EPA OIG, Report No. 10-P-0040 (Nov. 30, 2009).
[23] 18 U.S.C. § 1001.
[End of section]
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