Building codes and appliance standards require buildings or appliances to meet minimum energy efficiency criteria and are considered the most direct way to reduce building and appliance energy use. Because manufacturers have no incentive to drive energy savings beyond a legally required standard, it is important that efficiency standards continuously improve and increase in stringency. Requiring regular and predictable improvements drives further savings and encourages manufacturers to spend money on R&D as they can forecast the timing and requirements of the next update.

Standards should also include strong programs for measurement, evaluation, and future adjustment that will allow the policy to improve or repair over time. Because manufacturers will have the best information on what level of technological improvement is most feasible, efficiency standards should also have a transparent standards-making process with significant stakeholder involvement, which will facilitate private sector investment and innovation. Efficiency standards should also influence investments in new infrastructure, by either requiring or incentivizing prescribed levels of efficiency.

There are two approaches to building codes: prescriptive standards and performance-based standards. Prescriptive standards require the installation of specific features or the use of specific construction techniques that are designed to improve energy efficiency. Performance-based standards establish a maximum energy use or minimum efficiency level that buildings must achieve, but do not require specific technologies. Performance-based standards require continuous monitoring or periodic audits and re-commissioning to verify continued compliance. Prescriptive standards are best for generic or common buildings, for low-cost buildings, and for environments where builders are not especially sophisticated. Performance-based standards are preferred for more complex and modern buildings because they allow for compliance through a variety of different building technologies and designs and they require building owners to maintain systems and equipment that may otherwise degrade over time, resulting in increased energy use.

Efficiency standards for appliances are designed as product standards or class-average standards. Product standards set minimum performance criteria that every product must meet. Alternatively, class-average standards specify performance criteria for an appliance type, but allow manufacturers to meet this standard based on the weighted average efficiency across all their models. Efficiency standards may also require appliances to meet an emissions standard, as in the case of chlorofluorocarbons.

Product standards are the preferred option for appliances because they require every model to meet a minimum efficiency level. These kinds of appliance standards can also build in continuous improvement by requiring periodic updates based on best-in-class performance. For example, a top runner program periodically (e.g., every five years) resets the minimum standard at a certain top-performing percentage (e.g., the top quartile or quintile). A quantitative efficiency standard guarantees that all manufacturers adhere to the same rules and production criteria, ensuring fair market competition.