Language included in today's last minute FY2012 omnibus appropriations bill temporarily blocking implementation of lighting efficiency standards is a negative headline for advanced lighting manufacturers like CREE (CREE-$22),since it suggests an inflection point in congressional support for energy efficiency lighting. However, we caution against overreaction.  The language only blocks the Department of Energy from enforcing these efficiency standards through September of 2012.  During this period, only the traditional 100W incandescent bulb would have been phased out. Therefore, repeated congressional action will be necessary to continue to block enforcement beyond next fall, and it is premature to opine on the likely outcome of these fights. We also note that the common 60W incandescent is not due for a phase-out until January 2014. Moreover, states, most notably trendsetting California, continue to press ahead with their own phase-out of inefficient incandescent bulbs.


Blocking these lighting efficiency standards is a hot-button political issue and was a key policy initiative for many Tea Party members in the last election. However, Senate Democrats have successfully pushed back on several previous attempts to repeal the efficiency standards altogether. With Senate Democrats forced to accept this compromise to avert a government shutdown, the funding language to be passed today in the House (and maybe not until tomorrow in the Senate) can be seen as a partial victory, and one that Republicans will seek to replicate in future appropriations bills. While language in appropriations bills often has a life of its own once inserted, investors can be certain that Senate Democrats are strongly opposed and will likely push back against another extension next year.Bulb makers like General Electric (GE-$17) and Sylvania (Siemens [SI-$93]), who have already modernized their facilities to produce more efficient lighting, are supportive of advancing standards, and will lobby to support them.


As mentioned, states are also empowered to enforce their own lighting efficiency standards.California actually began the phase-out of traditional incandescent bulbs ahead of the rest of the nation, and we expect that it will press forward with these efforts. Some states may well join in, realizing that energy efficiency is an effective way to reduce energy usage at a time when coal-fired generation is increasingly under pressure from various Environmental Protection Agency standards over the next few years. We note, however, that other states may seek to avoid adopting aggressive lighting standards given pushback from conservative groups who see them as an unwelcome intrusion on the market.