INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE LENERGIE

EXPERIENCE WITH ENERGY EFFICIENCY REGULATIONS FOR ELECTRICAL EQUIPMENT

IEA INFORMATION PAPER

In support of the G8 Plan of Action

MR. MARK ELLIS INTERNATIONAL ENERGY AGENCY OECD/IEA, August 2007

Acknowledgements
The author wishes to thank the following for the information, comments and ideas they provided: Nigel Jollands, Richard Baron, Paul Waide and Richard Bradley of the IEA; Lloyd Harrington and Jack Brown of Energy Efficient Strategies; James McMahon and Alan Meier of Lawrence Berkeley National Laboratory, Kevin Lane of the UK Market Transformation Program and Leo Schrattenholzer of IIASA.

This paper reflects the views of the IEA Secretariat and may or may not reflect the views of the individual IEA Member countries..

INTERNATIONAL ENERGY AGENCY

The International Energy Agency (IEA) is an autonomous body which was established in November 1974 within the framework of the Organisation for Economic Co-operation and Development (OECD) to implement an international energy programme. It carries out a comprehensive programme of energy co-operation among twenty-six of the OECD thirty member countries. The basic aims of the IEA are: n To maintain and improve systems for coping with oil supply disruptions. n To promote rational energy policies in a global context through co-operative relations with non-member countries, industry and international organisations. n To operate a permanent information system on the international oil market. n To improve the worlds energy supply and demand structure by developing alternative energy sources and increasing the efciency of energy use. n To assist in the integration of environmental and energy policies. The IEA member countries are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Republic of Korea, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States. The Slovak Republic and Poland are likely to become member countries in 2007/2008. The European Commission also participates in the work of the IEA.

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

The OECD is a unique forum where the governments of thirty democracies work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Republic of Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States. The European Commission takes part in the work of the OECD.

OECD/IEA, 2007 International Energy Agency (IEA), Head of Communication and Information Ofce, 9 rue de la Fdration, 75739 Paris Cedex 15, France.

Please note that this publication is subject to specic restrictions that limit its use and distribution. The terms and conditions are available online at http://www.iea.org/Textbase/about/copyright.asp

Table of Contents
Acknowledgements................................................................................................................................ 1 List of Figures........................................................................................................................................ 6 Executive Summary .............................................................................................................................. 9 Coverage of existing and planned policies .......................................................................................... 9 Maximising efficiency and greenhouse gas savings.......................................................................... 12 The impact of energy efficiency regulations on equipment efficiency and prices ............................ 13 Further improvements to MEPS and labelling programmes ............................................................. 15 Recommendations ............................................................................................................................. 15 1 1.1 1.2 2 3 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 5 6 6.1 6.2 6.3 6.4 Introduction ................................................................................................................................ 17 Explanation of minimum energy performance standards and energy labelling programmes18 Cost effectiveness ................................................................................................................ 20 Residential Electricity Usage ..................................................................................................... 23 Electricity Consumption by End-Use Appliance ..................................................................... 26 National Standards and Labelling Policies .............................................................................. 29 Policy coverage.................................................................................................................... 29 Product coverage.................................................................................................................. 31 Commercial and industrial equipment ................................................................................. 34 Electricity consumption coverage........................................................................................ 35 Home entertainment and ICT .............................................................................................. 38 Standby Power Policies ....................................................................................................... 42 Summary of Findings (potential for expansion of mandatory programmes)....................... 46 The Impact of MEPS and Labels on costs of equipment ........................................................ 49 International Experience ........................................................................................................... 50 Residential refrigerators/freezers:........................................................................................ 50 Clothes Washers .................................................................................................................. 56 Clothes Dryers ..................................................................................................................... 59 Air conditioners ................................................................................................................... 60

6.5 Summary of Findings (impact of mandatory programmes on the efficiency and price of equipment) ......................................................................................................................................... 62 7 8 Comparison with forecasted costs/prices ................................................................................. 66 Whats going on? ........................................................................................................................ 68

8.1 8.2 8.3 8.4 9 9.1 9.2 9.3 9.4

Designing for energy efficiency........................................................................................... 68 Price of other commodities and Industry cost structure....................................................... 69 Pricing policies .................................................................................................................... 71 Summary.............................................................................................................................. 71 Improved methods of predicting costs...................................................................................... 73 Costs Curves ........................................................................................................................ 73 Engineering analysis ............................................................................................................ 74 Price/market comparisons.................................................................................................... 74 Time sequence analysis ....................................................................................................... 75

9.5 Learning by doing................................................................................................................ 75 9.5.1 Case study 1: US electronic ballasts................................................................................76 9.5.2 Case study 2: Compact fluorescent lamps.......................................................................76 9.5.3 Other examples................................................................................................................77 9.6 Experience curves and making markets............................................................................... 78 10 Conclusions ................................................................................................................................. 80 Programme Coverage .......................................................................................................... 80 Impact of MEPS and mandatory energy labels on equipment costs and appliances ........... 82 Alternative policy options.................................................................................................... 83

10.1 10.2 10.3

10.4 Increasing the impacts of MEPS and mandatory labelling programmes ............................. 84 10.4.1 Maintaining stringency....................................................................................................84 10.4.2 Effective Enforcement.....................................................................................................85 11 12 Recommendations....................................................................................................................... 87 References ................................................................................................................................... 88

Appendix 1: List of End-Use Equipment .......................................................................................... 92 Appendix 2: The role of information on costs and prices................................................................ 94 12.1 12.2 Policy analysis - Cost-benefit studies .................................................................................. 94 Energy and Greenhouse Reduction Modelling .................................................................... 95

Appendix 3: Information on the sources of data .............................................................................. 96 Appendix 4: Correlation between Equipment Energy Performance and Electricity Prices........ 99 Appendix 5: Correlation between price fluctuations and housing starts, US.............................. 102

List of Tables
Table 1: Estimated costs and effectiveness of US energy efficiency programs in 2000 (Gillingham et al, 2004).............................................................................................................................................. 21 Estimated impacts of Australian standards and labelling programmes, 2005-2020 (NAEEEP 2005) ....................................................................................................................................................... 21 Estimated impacts of US standards and labelling programmes, 1987-2015 (Meyers et al, 2005). 22 Major electrical appliance categories............................................................................................. 31 MEPS and Top Runner for commercial and industrial electrical equipment, 2007....................... 34 MEPS for commercial and industrial lighting equipment, 2007 (OECD/IEA, 2006a).................. 35 Forecast of ICT electricity consumption in Germany, 2001-2010 (CEPE & Fraunhofer, 2003)... 38 Forecast of ICT electricity consumption in Germany by mode, 2001-2010 (CEPE & Fraunhofer, 2003).............................................................................................................................................. 38 Summary of mandatory policies to tackle standby power consumption........................................ 42 Proposed MEPS for home entertainment products in Australia (E3, 2006b) ................................ 46 Comparison of average predicted results and actual prices (Dale et al, 2002). ............................. 66 Projected MEPS Impact on Purchase Price and Electricity Costs, Australia 1993-2007 (GWA, 1993), compared to observed prices in Australia (EES 2006a) ..................................................... 67 Annual % change in real prices (different implementation periods).............................................. 70 Estimated progress ratios for energy supply technologies (McDonald and Schrattenholzer, 2001) ....................................................................................................................................................... 77 Progress ratio for end-use technologies (McDonald and Schrattenholzer, 2003) .......................... 78 Opportunities for expansion of MEPS and mandatory labelling in IEA countries, by end-use application ..................................................................................................................................... 80 Existence of test methods and performance thresholds for residential end-use equipment ........... 81 Existence of test methods and performance thresholds for commercial & industrial end-use equipment ...................................................................................................................................... 82 Technology options for electric end-use applications.................................................................... 83 Results of simple linear regression between average appliance performance and electricity prices, various countries (model: Yappliance i price = constant + Xhousing starts) ............................................... 100 Results of simple linear regression between average appliance prices and new housing starts in the United States (model: Yappliance i price = constant + Xhousing starts) ..................................................... 102

Table 2:

Table 3: Table 4: Table 5: Table 6: Table 7: Table 8:

Table 9: Table 10: Table 11: Table 12:

Table 13: Table 14:

Table 15: Table 16:

Table 17: Table 18:

Table 19: Table 20:

Table 21:

List of Figures
Figure 1: Figure 2: Figure 3: Residential electricity consumption by region/country, 2004 (OECD/IEA, 2006b)...................... 23 Residential energy and electricity consumption by IEA country, 2003 (OECD/IEA, 2006c)....... 24 Residential energy and electricity consumption by major developing country, 2003 (OECD/IEA, 2006d)............................................................................................................................................ 24 Trends in residential electricity consumption, IEA countries, 1990-2004 (OECD/IEA, 2006b)... 25 Trends for electricity consumption by end-use application in Canada, 1990-2004 (NRCAN, 2006) ....................................................................................................................................................... 26 Electricity consumption trends by end-use application in Japan, 1980-2003 (ECCJ, 2006) ......... 26 Estimated electricity consumption by end-use, IEA countries, 2005. ........................................... 27 Estimated electricity consumption by end-use, major developing countries, 2005 ....................... 27 MEPS coverage by country, current and proposed, 2007.............................................................. 30 Mandatory energy labelling coverage by country, current and proposed, 2007 ............................ 31 MEPS coverage in IEA countries by appliance category, current and proposed, 2007 ................. 32 MEPS Developing Countries, 2007............................................................................................... 32 Labels IEA Countries, 2007........................................................................................................... 33 Labels Developing Countries, 2007............................................................................................... 33 Percentage of electricity consumption covered by mandatory policies, by country ...................... 36 Percentage of electricity consumption covered by mandatory policies, by end-use. IEA Countries, 2007. .............................................................................................................................................. 37 Percentage of electricity consumption covered by mandatory policies, by end-use. Major developing countries, 2007............................................................................................................ 37 Set-top box power consumption measurements in US (NRDC 2007)) ......................................... 39 Schematic of future home network (HTN 2007) ........................................................................... 41 Trends in standby power consumption, Japan 1999-2005 (METI, 2006)...................................... 44 Average energy consumption and prices, US refrigerators (Dale et al, 2002) .............................. 50 Relative average energy consumption and prices, US refrigerators (Dale et al, 2002) ................. 51 Relative average energy consumption and prices, Australian refrigerators (EES, 2006a)............. 52 Relative average energy consumption and prices, Australian freezers (EES, 2006a).................... 53 Average energy consumption, UK refrigerators & freezers (Schiellerup, 2001)........................... 53

Figure 4: Figure 5:

Figure 6: Figure 7: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12: Figure 13: Figure 14: Figure 15: Figure 16:

Figure 17:

Figure 18: Figure 19: Figure 20: Figure 21: Figure 22: Figure 23: Figure 24: Figure 25:

Figure 26: Figure 27: Figure 28: Figure 29:

Average prices, UK refrigerators & freezers (Schiellerup, 2001).................................................. 53 Relative average energy consumption, UK refrigerators & freezers (Schiellerup, 2001).............. 54 Relative average price, UK refrigerators & freezers (Schiellerup, 2001) ...................................... 54 Relative average energy consumption and price, UK refrigerators and chest freezers (Schiellerup, 2001).............................................................................................................................................. 55 Market share and price, EU cool equipment (Stockle, 2006) ........................................................ 55 Relative market share and price, EU cool equipment (Stockle, 2006)........................................... 56 Relative performance and price, Japanese refrigerators (ECCJ, 2006b)........................................ 56 Average energy consumption and prices, US clothes washers (Dale et al, 2002) ......................... 57 Relative average energy consumption and prices, Australian clothes washers (EES, 2006a) ....... 57 Levelised energy consumption, (kWh/kg), Australian clothes washers (EES, 2006b).................. 58 Levelised water consumption, (litres/kg), Australian clothes washers (EES, 2006b).................... 58 Sales of Clothes Washers by class in the Netherlands, and Average prices (Stockle 2006).......... 59 Relative average energy consumption and prices, Australian clothes dryers (EES, 2006a) .......... 59 Relative average energy consumption and prices, US room air conditioners (Dale et al, 2002)... 60 Relative Average Energy consumption and Prices, Japanese room air conditioners (ECCJ, 2006) ....................................................................................................................................................... 60 Relative Average Energy consumption, Japanese room air conditioners by size (ECCJ, 2006b) . 61 Relative Average Price, Japanese room air conditioners by size (ECCJ, 2006b) .......................... 61 Summary of efficiency and price trends for cold equipment (varying timescales)........................ 62 Summary of efficiency and price trends for clothes washers, clothes dryers and air conditioners (varying timescales)....................................................................................................................... 63 Real price of European cold equipment, 1994-1998 (Waide, 2001).............................................. 64 Price per unit volume by star rating, Australian class 5 refrigerators, 1993-2005 (EES, 2006b) .. 64 Price per unit volume by star rating, Australian class 5 refrigerators, 1993-2005 (EES, 2006b) .. 65 Comparison of predicted and actual prices (Dale et al, 2002) ....................................................... 66 National consumer price indexes (CPI), all goods and services .................................................... 69 Electrical equipment prices compared to prices for household goods and services, Australia ...... 70 Price impact of market growth for energy efficient technology .................................................... 72 Indicative equipment cost curve .................................................................................................... 73

Figure 30: Figure 31: Figure 32: Figure 33: Figure 34: Figure 35: Figure 36: Figure 37: Figure 38: Figure 39: Figure 40:

Figure 41: Figure 42: Figure 43: Figure 44:

Figure 45: Figure 46: Figure 47: Figure 48: Figure 49: Figure 50: Figure 51: Figure 52:

Figure 53: Figure 54: Figure 55: Figure 56: Figure 57: Figure 58: Figure 59: Figure 60: Figure 61: Figure 62:

Learning by doing (OECD/IEA, 2000a)........................................................................................ 75 Fluorescent lamp ballasts............................................................................................................... 76 Progress ratio for US electronic ballasts ........................................................................................ 76 Global CFL Sales (AGO, 2006) .................................................................................................... 77 Progress ratio for compact fluorescent lamps ................................................................................ 77 Residential electricity prices for selected countries, 1978 to 2005 ................................................ 99 Average price of US refrigerators and new housing starts, 1980 to 2001.................................... 102 Average price of US clothes washers and new housing starts, 1983 to 2001 .............................. 103 Average price of US room air conditioners and new housing starts, 1974 to 1993 ..................... 103 Average price of US central air conditioners and new housing starts, 1968 to 1987................... 103

Executive Summary
This paper has been produced as part of the work programme in support of the Gleneagles Plan of Action (GPOA), where the IEA was requested to undertake a study to review existing global appliance standards and codes. In accordance with the G8 request, this study investigates the coverage and impact of forms of minimum energy performance standards (MEPS) and comparative energy labelling programmes; which comprise the cornerstone of most IEA countries national energy efficiency strategy. This scope also reflects governments aspirations to achieve ambitious targets for reducing greenhouse gas emissions. As a result, this study does not address endorsement labelling and associated voluntary programs, although these are also important policy tools for national energy efficiency strategies. The purpose of this paper is to assist governments to identify opportunities for implementing national policies to stimulate the adoption of more energy efficient equipment and appliances. This applies to all mass-produced energy consuming end-use devices, although much of the focus of this paper is on electrical equipment used in the residential sector. Although this analysis is based on the activities of IEA and major developing countries, the conclusions have application in all countries. Around the world, end-use equipment and processes consume over 14,000 TWh of electricity, and is responsible for emissions of 10,600 Mt CO2. Motors currently account for approximately 40% of final electricity consumption, and lighting approximately 19%; the equivalent of 6,000 Mt CO2. Without further policy intervention, consumption in these two end-uses alone is estimated to grow to 13,000 TWh by 2030. However, through the use of existing technologies and policies implemented globally, energy savings of 25% (motors) and 38% (lighting) can be achieved. The energy and greenhouse gas savings in the area of residential equipment are similarly large. This sector currently consumes more than 3,400 TWh and will rise to at least 4,500 TWh by 2030 under a business as usual scenario. Global implementation of the kinds of policies discussed in this paper is estimated to reduce electricity consumption by 33% in 2030, yielding greenhouse gas savings of at least 770 Mt CO2.

Coverage of existing and planned policies

In order to address market barriers to energy efficiency most IEA countries have developed a solid foundation of MEPS and mandatory energy labels, however there is scope for expansion in key areas. In view of forecasts for growth in electricity consumption in the major developing countries, there is both the scope and need to increase the policy coverage in these countries.

Figure E1: Percentage of electricity consumption covered by mandatory policies, by country

100%

90%

Current MEPS & Labels

Proposed MEPS & Labels

80%

% Total electricity consumption

70%

60%

50%

40%

30%

20%

10%

0%
-E U Z il In di a at es pa n re a th er ad az ic o lia /N C hi Af ric C an IE A M ex R us Ko Ja -O St Br si a a na a So ut h

st ra

Au

In IEA countries, and additional to the expansion of these mandatory programmes which is already planned, there is still room for extending coverage, in particular within the areas of lighting, home entertainment and ICT equipment.
Figure E2: Percentage of electricity consumption covered by mandatory policies, by end-use. IEA Countries, 2007.
100%

U ni

te d

IE A

Proposed MEPS & Labels

90% 80% % Total electricity consumption 70% 60% 50% 40% 30% 20% 10% 0%

Current MEPS & Labels

ea tin g

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IC T

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In residential lighting further attention needs to be given to measures for luminaires, CFLs and in some markets, to tungsten halogen lighting and transformers. For traditional wet equipment, coverage could also be extended in many IEA countries to cover the standby power consumption within MEPS and mandatory labels for these types of equipment. There is considerable potential to introduce new mandatory measures in the home entertainment and ICT field, focussing on electronic products with substantial electricity consumption, and covering all modes of operation. Despite the growing electricity consumption from small electronic products entering households, no existing regulations cover the standby power consumption of the full range of these products. For water heating there are some opportunities to improve efficiency by introducing MEPS for electric water heaters where countries have not yet done so. However the most significant energy and greenhouse gas savings will result in shifts towards solar water heating and other more efficient technologies. Similar options exist to meet lighting, space heating and cooling, and some cooking demand through a co-ordinated mix of demand reduction policies and switching to alternative technologies. All the major developing countries have the legislative capacity to expand the scope of MEPS and labelling programs and there are widescale opportunities to do so. The example of countries with current programmes could be duplicated to expedite implementation, while also increasing harmonisation across economies and minimising the dumping of inefficient equipment.
Figure E3: Percentage of electricity consumption covered by mandatory policies, by end-use. Major developing countries, 2007.
100% 90% 80% % Total electricity consumption 70% 60% 50% 40% 30% 20% 10% 0%

Proposed MEPS & Labels Current MEPS & Labels

ea tin g

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IC T

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In the commercial and industrial sectors, there is a large potential to expand regulatory programmes in both IEA and the major developing countries. Programmes covering the following mass-produced

11

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equipment have already been developed in one or more economy and could therefore be readily duplicated: Motors Distribution transformers Commercial Refrigerated Cabinets Beverage Vending Machines Ice Makers & Ice Storage Bins Water Dispensers A/c & Chillers HID Lamps & Ballasts Street lighting Traffic signals

Maximising efficiency and greenhouse gas savings

With some exceptions, MEPS and mandatory labels are used to increase the efficiency of individual technologies, however MEPS can also be used to engineer a switch to more efficient technologies, where barriers prohibit consumers choosing the most economically efficient option. For example, in the case of lighting, switching from incandescent to compact fluorescent lamps, and mercury vapour to high pressure sodium or metal halide, is cost effective to the consumer. It also offers more potential energy savings than favouring the most efficient examples within each lamp type. Some governments have already signalled their intention to use policy instruments including MEPS to phase-out most incandescent lamps and recent international discussions demonstrate that the interests of governments and industry can be bought together to form a coherent strategy backed by sensible policy measures. MEPS and mandatory labels can play an important role in providing the instrument to remove inefficient technologies from the market in a controlled and premeditated way while also ensuring that the alternative technologies meet consumer expectations. Meeting future energy demand in some end-use applications will require a combination of policies to achieve demand reductions and switches to efficient equipment. This is most evident in space heating and cooling, water heating and lighting, as indicated in Table E1.

12

Table E1: Technology options for electric end-use applications End-use Electric space cooling Technology options Reduced demand: improved building fabric and design elements Evaporative cooling (suitable in selected climates) Electric space heating Reduced demand: increased insulation levels, thermal mass Passive solar design Efficient heat pumps Efficient reverse cycle-air conditioners Efficient gas-fired space heating Electric ovens & cooktops Gas-fired cooking equipment Micowaves Electric water heating Reduce demand: Efficient showerheads, tap flow restrictors Solar water heaters Efficient gas-fired water heaters Lighting Reduced demand: increased natural daylight Higher efficiency lamps

It is apparent that industry is increasingly willing to engage in negotiation about the replacement of inefficient technologies, as shown by the lighting industrys progressive stance on the phase-out of incandescent lamps. However governments need to take the lead in developing policies which provide industry with the opportunity to adjust, and consumers with confidence that the necessary alternative technologies will be available. This kind of approach could be used with the other applications listed above to phase-out inefficient technologies in favour of existing alternatives. By identifying future targets, this would also provide considerable incentives to manufacturers to step-up the development of new technologies able to meet future requirements.

The impact of energy efficiency regulations on equipment efficiency and prices

MEPS and mandatory labels have been used by several economies increasingly since the 1980s on a range of residential equipment including refrigerators and freezers, clothes washer and driers, and air conditioners. This analysis of programmes in Europe, United Kingdom, United States, Australia and Japan shows that all products examined have experienced a decline in real prices of between 10% to 45%, while energy efficiency increased by 10% to 60% over the periods when data was collected. These gains have been made without sacrificing levels of service, since in all but one case the size or capacity of the equipment monitored has either remained the same or increased.

13

Figure E4: Summary of efficiency and price trends for cold equipment (varying timescales)

United States
0%

Australia (refrig) Australia (freezer)

UK (refrig)

UK (freezer)

Japan

-10% -18% -21% -20% -25% -27% -33% -30% -41% -40% -52% -43% -24% -25%

% change from base year

-20%

-50%

-63%

Change in Energy Consumption

-60%

Change in Price
-70%

This report shows that in the period and countries where energy efficiency regulations have been implemented there has not been sustained increases in real prices of regulated appliances. In a few instances the introduction of MEPS or similar programmes has coincided with temporary price rises, but this may be due to other factors and in all cases the downward trend is rapidly restored.
E5: Summary of efficiency and price trends for clothes washers, clothes dryers and air conditioners (varying timescales)

United States (clothes washers)

0%

Australia (clothes washers)

Australia (clothes dryers)

United States (a/c)

Japan (a/c)

-8%
-5%

-14% -12%
-10%

-12% -15%

% change from base year

-15%

-15%

-17%

-20%

-25%

-30%

-34%

-32%

-32%

-35%

Change in Energy Consumption Change in Price

-40%

14

These findings are consistent across a number of country markets, despite the fact that there are differences in the penetration and types of equipment, and in the requirements of government programmes. Comparison with CPI data shows that the fall in electrical equipment prices far exceeds the general trend. Although there appears no correlation between price and energy efficiency and the average price of appliances has been falling consistently, there is evidence that the most efficient products in some categories are more expensive than products which are less efficient. This appears to reflect the additional cost of features other than energy efficiency. More expensive appliances tend to differentiate themselves by appearance, quality of materials and higher levels of controls; all of which add to their price. Typically they brand themselves as high quality products, and low energy consumption may be used as a further indicator of quality. It should be noted that in all countries which implement MEPS there are considerable lead times builtin to the regulatory processes to enable the market to adjust to the specified requirements. Feedback from industry indicates that these lead times enable the market to minimise any cost implications from increased efficiency regulations by integrate design and manufacturing changes into normal industrial cycles.

Further improvements to MEPS and labelling programmes

Although the implementation of regulatory policies has been demonstrated to have been effective in reducing energy consumption, their continuing impact relies upon the maintenance of appropriate levels of stringency and compliance. For example, thresholds require periodic review in order to keep pace with technological changes and to keep improving product performance. Typically review cycles of 3-5 years are needed to maintain relevance and in some countries future thresholds are also determined well in advance. The benefit of this approach is that it provides a clear signal to industry of the target performance levels, and allows considerable notice for manufacturers and supplies to make the necessary preparations. Not only does the impact of regulatory programmes rely upon effective enforcement procedures, but these can also help determine the degree of support obtained by industry and other stakeholders. Considerable attention is needed to design comprehensive enforcement procedures which are able to monitor and detect non-compliance, and to apply appropriate penalties where necessary. Although there is now substantial experience in the design and implementation of enforcement mechanisms, it is evident that all countries could improve this aspect of their programmes. As programmes expand to cover a wider range of products, and thresholds become more stringent, it is of the utmost importance that priority is given to maintaining the credibility of these programmes through adequate enforcement. This will require increased resources beyond those currently allocated by governments and, in some cases changes to the legislative framework under which programmes operate.

Recommendations
This paper examines the coverage and impact of MEPS and mandatory labelling programmes on electrical consuming end-use equipment. In the light of the conclusions that these types of programmes have been highly effective in reducing energy consumption without causing an increase in costs to the consumer, the following recommendations are made: 15

Building on the investment made in energy efficiency regulations in IEA and the major developing countries, a far greater degree of attention should be given by governments to ensuring that performance requirements are maintained at appropriate levels, and are rigorously enforced. This is of the highest priority in order to realise the potential for energy and greenhouse gas savings, and to maintain credibility with industry and consumers. It will require governments to substantially increase their financial support for these types of programmes over forthcoming years; however this can be done with negligible impact on the cost-benefit of these programmes. In IEA countries, mandatory programmes should be expanded to the end-use equipment not currently covered. Priority should be given to the areas of lighting, home entertainment and ICT equipment, and to mass-produced commercial and industrial electrical equipment. In framing MEPS and mandatory labels for types of equipment which are responsible for significant electrical consumption, requirements should cover active mode and low-power modes where appropriate. In the major developing countries, there is a need to expand mandatory programmes to cover a range of end-use equipment in all sectors, using the existing examples elsewhere. Where opportunities exist for significant efficiency improvements or savings in greenhouse gas emissions, governments should use appropriate policy instruments such as MEPs to phase-out the least efficient technologies, in favour of a combination of demand reduction and alternative technologies. This will require that governments take the lead in developing a policy mix which provides industry with the opportunity to adjust, and consumers with confidence that the necessary alternative technologies will be available. Priorities for this approach include incandescent and mercury vapour lamps, electric space and water heating and some electric cooking equipment. Horizontal regulations should be used to tackle standby power consumption by consumer electronic devices not covered by other measures. Since these mainly comprise internationally traded goods, test methods and performance requirements need to be co-ordinated internationally. Governments need to consider what mechanisms are required to effectively undertake these co-ordination activities. Standby power regulations should include requirements for automatic switching to low-power modes. Governments should also recognise the importance of effective power management in digital home networks, and take necessary steps to ensure that industry-wide protocols are introduced for connected devices which enable low power modes to be accessed. To assist governments develop and track the impacts of policies for efficient equipment, countries need to assess energy consumption by end-use on a thorough, systematic and regular basis. This work should also include forecasts of consumption under business as usual and a range of policy scenarios.

16

1 Introduction
This paper has been produced as part of the work programme in support of the Gleneagles Plan of Action (GPOA), where G8 leaders agreed to encourage co-ordination of international policies on labelling, standard setting and testing procedures for energy efficient appliances (GPOA, 2005). In particular, this paper responds to a request in the GPOA for the IEA to undertake a study to review existing global appliance standards and codes, building on its existing capacity on energy efficiency in appliance. The purpose of this paper is to assist governments to identify opportunities for implementing national policies to stimulate the adoption of more energy efficient equipment and appliances. In this context equipment and appliances includes all mass-produced energy consuming end-use devices, although much of the focus of this paper is on electrical equipment used in the residential sector. In this paper the term equipment is used to mean all such devices. Although this analysis is based on the activities of IEA and major developing countries, the conclusions have application in all countries. In accordance with the G8 request, this study investigates the coverage and impact of existing mandatory policies, specifically forms of minimum energy performance standards (MEPS) and comparative energy labelling programmes. This scope also reflects the following points: Mandatory programs offer a degree of certainty of results which is consistent with government aspirations to achieve ambitious targets for reducing greenhouse gas emissions; Most IEA countries have regulatory programmes as the cornerstone of their national or regional energy efficiency strategy. While many other programme types exist, these tend to build on, and extend, the impacts of the regulatory programmes. The rising concern about climate change and the introduction of policies in response by governments has led to a planned expansion of these types of programmes in terms of both their geographical and product coverage. The reason for this is that they have proved to extremely costeffective in comparison to other programme types, to supply-side alternatives and as a means to reduce greenhouse emissions. The process of introducing regulations, and administering these programmes, generates considerable data on the performance of products and markets. This detailed information allows for a degree of scrutiny and analysis which is often not possible for other programme types. Since regulatory programmes are amongst the longest running energy efficiency policy instruments, they also provide time series information and the ability to track impacts over a time period. Mandatory programmes apply to all the relevant equipment within a market and therefore the various impacts attributable to the programme can be allocated more accurately than is the case for some other programme types.

The majority of existing mandatory programmes apply to residential electrical equipment, since electricity comprises a significant proportion of residential energy consumption and is relatively

17

greenhouse gas intensive in most countries relative to other fuel sources. The historic focus on electrical equipment also may reflect the type of legal instrument used for regulation in each country, since some are more readily applied to electrical equipment than other fuel types. However, in some countries, where gas or oil comprises a significant share of space heating or hot water applications, non-electric equipment may also be covered. There is also a growing trend for these policy measures to be applied to non-residential applications, such as motors, distribution transformers, vending machines, ice-makers and commercial refrigerated display cabinets. Because of the long history of energy regulations for equipment, it may be considered that there is little scope for expanding and enhancing these types of programmes. The purpose of this paper is answer the following four questions: 1. What is the current status of MEPS and mandatory energy labels, by country and end-use? 2. What has been the effect of these on energy performance and consumer prices? 3. Is there potential to expand the coverage of these policy measures? 4. If so, where is this potential? Sections 2 to 4 of this paper identify the geographical coverage of mandatory programmes currently implemented for electrical equipment, and the product categories which are covered, or which will be covered in the near future. By comparing the estimated electricity consumption by end-use and country with the types of products included in programmes, it is then possible to analyse where there may be opportunities for further mandatory programmes. Sections 5 to 9 of this paper examine the impact of mandatory MEPS and labelling programmes on the energy performance and prices of a range of residential equipment. This focuses on equipment that has been regulated for several years in a number of countries, in order to assess long-term trends. Conclusions and recommendations are included in sections 10 and 11.

1.1

Explanation of minimum energy performance standards and energy labelling programmes

MEPS are legally enforced thresholds for an individual product or group of products, set at a level to exclude a proportion of the worst performing products in the marketplace. Although the details of MEPS legislation vary amongst countries, the requirements typically apply to any product offered for sale within a jurisdiction, whether manufactured domestically or imported. MEPS threshold levels are usually reviewed periodically to assess whether they should be made more stringent to keep pace with technological advances. MEPS are designed to address market barriers and imperfections which lead to consumers making irrational economic decisions. For example, generally price signals do not adequately reflect the costeffectiveness of consumers purchasing more efficient equipment, compared to the costs of supply-side options. Whereas the cost of energy supply are amortised over a long period, consumers face competing demands on their financial resources and often do not understand or value future savings. (See IEA, 2007 for an in-depth discussion of market barriers to energy efficiency). The application of MEPS recognises that cost-effective energy efficiency is of public benefit, and by enforcing requirements for all, protects the investment made by the supply chain in higher energy performance

18

levels. Although MEPS place a restriction on the market, they do not prohibit fair competition within that market based on the normal range of attributes including price. One reason why MEPS are usually more effective than information or voluntary programmes is that they do not require consumers to be aware or compliant. However, MEPS are not designed to promote the best performing products, but can be combined with policy measures that do have this aim, such as information labels. Labels also aim to correct a market failure: the lack of information about the energy performance of the product. Historically, the energy performance of products has not been made visible to consumers at the point of sale and yet many products, such as refrigerators, air conditioners and lamps, have higher energy costs over their useful lifetime than their initial cost of purchase. The lack of visibility and a commonly agreed basis for defining product energy performance lead to some perverse market outcomes because it results in a negligible market reward for manufacturers that offered low energy consuming products compared with those that did not. In many markets the energy use of otherwise fully equivalent products can vary by up to a factor of eight, while the difference in incremental manufacturing costs are often trivial by comparison with the value of the associated energy bill savings (Waide, 2006). There are two broad categories of energy label, both of which aim to promote the better performing products: comparative energy labels. These labels provide information, often in the form of a ranking to compare the energy performance of an appliance with its peers, and are therefore usually mandatory (to ensure that the poorer performing products will also be labelled). endorsement labels. These are voluntary schemes where only the best performing products in the marketplace are identified.

In this paper, programmes designed to promote endorsement labels are not considered. The paper is intended as a review of regulations for energy efficiency, which is already a large subject difficult to cover adequately in a short paper. Since endorsement labels are voluntary, these fall outside the scope, however a thorough evaluation of the wide range of endorsement labelling and voluntary programmes based on them would be worthy of a separate paper. The most well-known endorsement label in the energy efficiency field is the Energy Star programme run by the Environmental Protection Agency and the Department of Energy in the United States, which has operated since 1992. Energy Star has built a profile over an extended period of time which is valued by consumers. It has also benefited substantially from the being tied to other policy measures, in particular state, local, utility and regional energy efficiency promotion programs, and mandatory purchasing requirements contained in two Executive Orders. A wide range of government and private programmes have used the Energy Star criteria as a basis for purchases, rebates, incentives, advertising and consumer education. These demand side programs have provided a major incentive for industry to participate. In some product categories, for example computers and related equipment, government contracts are so significant that industry considers Energy Star criteria a defacto minimum standard. Energy Star is also now being adopted in countries around the world. International agreements allowing the implementation of Energy Star for selected products are currently in place in Canada, the E.U., Japan, Taiwan, Australia, and New Zealand

19

There have been a relatively few other well developed endorsement labelling programs internationally. Notable successes include: 1) the Efficient Lighting Initiative (ELI) supported by the International Finance Corporation (IFC) and the Global Environment Facility (GEF); and 2) the Chinese endorsement labelling program implemented by the China Standards Certification (CSC) Center in Beijing (Schwengels et al 2006). Other endorsement programmes internationally have been less successful in making an impact on product markets. Clearly a successful endorsement labelling program requires significant resources and complementary programs as well as a consistent presence in markets over a long period of time to achieve the levels of impact seen in the regulatory programs. Comparative energy labelling programmes around the world exhibit a number of common features. Labels generally provide an estimate of the annual energy consumption of the appliance based on the tested energy consumption, which is often then summarised by use of a star-rating or numerical-rating system. Other information, such as typical running costs, may also be shown on the label. Like all consumer labels, the power of comparative energy labels relies upon consumer understanding and awareness of what the label means, and then using this information to make purchasing decisions. It is therefore extremely important that the criteria are adjusted periodically to ensure that products in the marketplace exhibit a spread of performances, thereby providing a range of ratings for consumers to choose from. Traditionally many countries that regulate MEPS also require energy-information labels to be displayed on the same products, illustrating the complimentary nature of the two types of programmes. The former removes the worst performing products, while the latter promotes the better ones. However, there are some product markets where labels are likely to be ineffective in tackling the barriers to cost-effective energy efficiency. These are generally where the purchaser does not stand to gain from reduced energy costs, for example when a landlord purchases capital equipment to be installed in rented property. In this case it is unlikely that the provision of information on appliance energy efficiency will determine the product purchased. A further scenario is when the consumer values other product features to such an extent that no amount of information about energy costs will be influential. External power supplies which are provided with another product, and some consumer electronics, are examples where labels may have limited value.

1.2

Cost effectiveness

Estimates of benefits and costs of mandatory standards and labelling programmes show them to be one of the most cost-effective options to meet energy demand and reduce emissions of greenhouse gases. The IEA World Energy Outlook 2006 states: The most effective way of encouraging investment in energy-efficiency improvements is the well-designed and well-enforced regulations on efficiency standards, coupled with appropriate energy-pricing policies. (WEO, 2006) While there continues to be a lack of detailed ex-ante analysis of all energy efficiency programmes, regulated standards and labelling programmes are usually subjected to considerable scrutiny as part of national legislative processes. In addition, some of the effects of mandatory programmes are more accurately estimated than voluntary programmes, simply because they remove many elements of industry and consumer discretion. Despite the difficulties associated with comparing different evaluation studies, Table 1 is provided to indicate an approximate comparison between programme types, as found by an independent review of

20

efficiency programme impacts in the US. It should be noted that many costs resulting from programmes other than standards have not been included in these estimates, as noted below the table.
Table 1: Estimated costs and effectiveness of US energy efficiency programs in 2000 (Gillingham et al, 2004) Program Energy Saving (quads) 1.20 a 0.62 <0.81 <0.93 <0.07 74 Energy Saving (PJ) Costs (US$2002 billion) 2.51 a 1.78 n/a 0.05 b 0.025
b

Cost-effectiveness (billion US$2002/quad) 3.28 a 2.89 (high 19.64) c n/a n/a n/a

Carbon Emission Savings (Mt CO2) 17.75 a 10.02 <12.04 <13.80 <0.99

Appliance Standards Utility DSM DOE Climate Challenge Energy Star Federal Energy Management Program
(a) (b) (c)

1266 654 855 981

costs and cost effectiveness for residential equipment only, while energy and carbon savings for commercial and residential only direct government administrative costs are included only utility costs are included

These conclusions are consistent with estimates for the impacts of regulatory programmes in Australia. The information shown in Table 2 is drawn from the detailed regulatory impact statements for each product category, and account for costs to governments, industry and consumers, with benefits accruing in the form of reduced energy expenditure. Collectively the financial benefits are calculated to be nearly twice the total costs and the programme yields carbon savings at negative cost of A$25 per tonne. The ex-ante evaluation of impacts on a product basis, as discussed later in this paper, suggest that these forward estimates may overestimate the costs of regulation. It should be noted that the costs to government of this Australian programme are currently approximately A$1.6m per annum (E3, 2006a). The government cost of the programme, at current funding levels, between 2005-2020 is expected to be less than 1% of the total projected costs; and could be substantially increased without impacting on the overall cost-benefit of the programme.
Table 2: Estimated impacts of Australian standards and labelling programmes, 2005-2020 (NAEEEP 2005) Cumulative delivered energy saving (PJ), 20052020 539.4 Cumulative Greenhouse gas saving (Mt CO2), 2005-2020 118 Net cost @ 10% discount (A$m) - 3,697 Cost/benefit ratio 1.8 Cost of CO2 saving (A$/tonne) - 25.2

Estimates of the impacts of US regulatory programmes, shown in Table 3, are based over a longer period and apply to a far larger market compared to the Australian programme. The saving estimates are consequently larger. The difference in estimated greenhouse gas emission savings reflects the national CO2 intensity of energy supply. Total government costs of running the programme are estimated to be approximately US$15 million per annum, which, as in the Australian instance, is a fraction of the total cost of the programme.

21

Table 3: Estimated impacts of US standards and labelling programmes, 1987-2015 (Meyers et al, 2005) Cumulative primary energy savings (PJ) 7,386 16,883 Cumulative Greenhouse gas saving (Mt CO2) 126 270 Net cost @ 7% discount (US$m) - 30,000 - 40,000 2.45 Cost/benefit ratio Cost of CO2 saving (US$/tonne) - 238 - 148

Period 1987-2005 2005-2015

These two examples both forecast substantial benefits to accrue from the respective national standards and labelling programs, without any inclusion of monetised externalities. While discussions continue about the methodology for making these estimates, the cost-benefit ratios are sufficiently positive to provide reassurance of their value. Energy efficiency labels and standards were first applied to electrical equipment in the 1980s and since then the scope of products covered, together with the number of economies using them, have expanded considerably. There is now many years practical experience in the implementation of mandatory energy performance requirements for equipment, including the development of test methods, market surveillance techniques, enforcement practices, consultation with industry and the setting of performance requirements. This has greatly increased the understanding, confidence and acceptability of mandatory policies by all stakeholders. It is therefore reasonable to explore the extent to which these policy tools can be further implemented as governments seek to maximise their potential for energy efficiency.

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2 Residential Electricity Usage

In order to evaluate the coverage of current policies in the residential sector, this section provides background information on residential energy consumption in IEA and the major developing countries. Total residential electricity consumption in 2004 is estimated to be 2,643 TWh in IEA countries and 656 TWh in the major developing countries (OECD/IEA, 2006b). The breakdown by region or country is shown in Figure 1.
Figure 1: Residential electricity consumption by region/country, 2004 (OECD/IEA, 2006b)
South Africa 1% Mexico 1% India 3% China 7% Brazil 2% Russia 4% Australia/NZ 2% Canada 4%

IEA EU 25%

Japan 8% Korea 1% Norway 1% Switzerland 1%

United States 39% Turkey 1%

Residential electrical equipment household appliances contribute 30% of all electricity consumed in OECD countries and produce 21% of all energy-related CO2 emissions. World purchases of major residential equipment: refrigerators, clothes washers, lighting, water heaters, air conditioners, computers, fax and photocopying machines increased by roughly 3.7% a year in the decade from 1992 to 2002 and were projected to grow at about 3.8% a year from 2002 to 2005. (Waide, 2006) As a result, by 2020 it is estimated that appliance electricity consumption will have grown by 25% compared to current levels (OECD/IEA, 2003). The proportion of electricity to other energy sources used in the residential sector varies considerably by country, as shown in Figure 2 and Figure 3. The major end-use of fuels other than electricity in IEA countries is space and water heating, and national demand for these applications is typically related to the climate of each country. Other factors which influence consumption for these applications include affordability (whether energy use is restricted by disposable incomes), the performance of the building stock, and the efficiency of end-use equipment.

23

Figure 2: Residential energy and electricity consumption by IEA country, 2003 (OECD/IEA, 2006c)
100%

90%

80%

Residential Energy Consum ption (% )

70%

60%

50%

40%

30%

20%

10%

0% IEA Australia Canada Denmark Germany Japan Korea UK USA

Other Energy

Electricity

Generally the proportion of electricity in developing countries (see Figure 3), is lower than for IEA countries. This is mainly due to high levels of biomass consumption for heating, water heating lighting and cooking. It also reflects the lower numbers of consumer equipment in households in developing countries, compared to IEA countries; something that may change in time.
Figure 3: Residential energy and electricity consumption by major developing country, 2003 (OECD/IEA, 2006d)
100%

90%

80%

Residential Energy Consum ption (% )

70%

60%

50%

40%

30%

20%

10%

0% Brazil China India Mexico Russia South Africa

Other Energy

Electricity

It should be noted that some residential electricity consumption in China and India is historically attributed to other sectors and is therefore higher than most published data. In China, consumption by industrial employees living in accommodation provided by the company is often included in industrial electricity consumption data; while in India some residential electricity consumption is included in the agricultural data, for similar reasons.

24

In the energy policy context, electricity consumption is particularly important because of the greenhouse gas intensity of many fuels used for electricity generation. Further, electricity demand in all sectors raises issues regarding the security of supplies, where countries are reliant upon imported primary fuels. Despite steady improvements to the performance of the housing stock in most IEA countries, residential electricity consumption is one of the fastest growing sources of greenhouse gas emissions. While traditional big equipment such as dishwashers and refrigerators dominated the growth to the early 1980s, much of the recent growth (shown in Figure 4) is due to the use of miscellaneous equipment eg. Home electronics and small kitchen gadgets. Policy measures, such as energy efficiency regulations, have successfully increased the efficiency of many types of household equipment; however these gains have been outstripped by large growth in ownership levels (OECD/IEA, 2004). As personal wealth increases in developing countries, there is already evidence that similar trends are emerging. In addition, the use of air conditioning is growing in many areas, pushing up electricity consumption and placing considerable demand on supply infrastructure.
Figure 4: Trends in residential electricity consumption, IEA countries, 1990-2004 (OECD/IEA, 2006b)
1990 100% 1992 1994 1996 1998 2000 2002 2004

IEA
80%

Australia Germany UK

Canada Japan USA

Denmark Korea

60%

% change

40%

20%

0%

-20%

General energy consumption trends are reported in other IEA publications, including individual country reports; however to understand the underlying drivers it is necessary to examine the trends for each area of end-use.

25

3 Electricity Consumption by End-Use Appliance

The systematic collection of data on appliance ownership levels, usage patterns and performance attributes is the best way to gain an accurate understanding of residential electricity consumption. Such bottom-up models also are a pre-requisite to targeting policies appropriately. The results of appliance models in Canada and Japan are shown in Figure 5 and Figure 6, and illustrate their value in highlighting the source of growth trends. The data used to generate these show whether increased consumption is due to higher ownership rates, or to more usage or to greater ownership levels. Where energy efficiency policies have been implemented, these models can also help to monitor and assess their policy impact over time.
Figure 5: Trends for electricity consumption by end-use application in Canada, 1990-2004 (NRCAN, 2006)
160

140

120

100

80

60

Water Heating Lighting Space cooling Space Heating Refrigeration Dishwasher Dryer Cooker Misc

PJ/year

40

20

0 1990

1992

1994

1996

1998

2000

2002

2004

Figure 6: Electricity consumption trends by end-use application in Japan, 1980-2003 (ECCJ, 2006)
90

80

1980
70 Electricity Consunsumption (TWh)

1990

2003

60

50

40

30

20

10

0 Refrigeration Lighting Space heating/cooling Washing machine Cooking Dishwasher Home entertainment Other

26

Figure 7 shows the estimated electricity consumption for IEA countries for the major end-use applications, based on available data. As noted previously, the allocation by end-use varieties considerably between countries. The quality of data collected by countries is also variable, despite the importance of this in policy development.
Figure 7: Estimated electricity consumption by end-use, IEA countries, 2005.
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

% Electricity Consumption

Co ol in g

ge ra tio n

Li gh tin g

ry

en t

ea tin g

oo ki ng

ea tin

La un d

en te rta in m

at er H

Sp ac e

Sp ac e

ef ri

End-Use

In the major developing countries, the availability and quality of end-use data is extremely poor, and therefore Figure 8 should be viewed as indicative only.
Figure 8: Estimated electricity consumption by end-use, major developing countries, 2005
25%

20%

% Electricity Consumption

15%

10%

5%

0%
La un dr y g in g io n g m en t H ea tin gh tin C oo ki C oo l H ea ra t O th er g ng IC T tin

om

Sp ac e

Sp a

W at er

End-Use

27

H om e

en te rta in

ef rig e

ce

Li

th er

IC T

One important observation from this data is the importance of electronic equipment in the home entertainment, information and communications categories. Together these now account for over 20% of electricity consumption in the IEA residential sector. While this proportion is 15% in the major developing countries, it is likely to grow rapidly due to increased ownership rates, without policy intervention to increase the energy efficiency of these types of equipment.

28

4 National Standards and Labelling Policies

The following sections show the distribution of mandatory MEPS and labelling programmes in IEA countries and the major developing countries of Brazil, China, India, Mexico, Russia and South Africa, based on data available in 2007. In addition to regulations which are currently in force (ie. implemented), where governments have regulations in place and have made public commitments to introduce specific mandatory measures for named equipment types in the near future, these are considered as proposed. Where countries have the legislative capacity to introduce mandatory measures, but have not yet brought forward definite proposals, these are not reported. While every attempt has been made to ensure the accuracy of this information, the scope and status of a some regulations remain unconfirmed. In a small number of cases, it is unclear whether regulations are being actively applied. These issues are discussed below.

4.1

Policy coverage

MEPS are used in a wide variety of IEA countries, and some of the major developing countries. In IEA countries there are a total of 82 MEPS in force and proposals underway to introduce a further 52. In the major developing countries there are 38 MEPS implemented, with a further 7 planned. While MEPS regulations in EU countries currently lag behind other IEA countries, the EcoDesign Directive1 intends to extend the coverage by at least a further 16 residential products types in the near future, bringing it in line with other regions and for some applications, such as standby, exceeding the scope elsewhere. Canada and the US, which both have long-standing MEPS programmes, are in the process of revising existing regulations and extending the scope to cover further products. In the past few years, the US has struggled to keep existing programmes up to date, partially as a result of resource constraints, but have recently announced an ambitious plan to update requirements and extend the programme coverage. During the intervening years, several States have pressed ahead with regulations for some equipment not covered by federal regulations (ASE, 2006). California has been particularly pro-active in this regard, and other States have tended to harmonise requirements with California. Australia and NZ also have existing programs for major residential equipment and are well advanced in their plans to introduce new regulations. Koreas programme has developed an impressive coverage in a relatively short period of time. Although Korea and Australasia have vastly different manufacturing profiles, their ability to maintain and expand programmes illustrates what can be done given sufficient political, industry and resource support. Both countries have also used the experiences of other countries to speed up development times for new programmes and made significant attempts to harmonise with major trading partners. Although it is not strictly a MEPS programme, Japans Top Runner is a regulated programme which applies to Japanese manufacturers, and it has therefore been included in this analysis. Top Runner establishes target levels for the sales-weighted average energy-efficiency for products, usually four to ten years after the target has been announced. A number of products have reached the end of their first target period, and new targets have been set.
1

Statements from the European Commission indicate that the EcoDesign directive will result in MEPS regulations for the 14 projects currently underway, although it is still possible that the current processes will result in voluntary programmes in addition or instead of MEPS.

29

Mexico has had a MEPS programme for many years, while Chinas has developed more recently, and continues to expand. In recognition of manufacturing capacity of China, it has received considerable international support for the development of its programme and therefore tends to harmonise with other programmes where feasible. Russia has MEPS for a wide range of products, the majority introduced between 1987-1990, and since these have not apparently been updated subsequently or enforced nationally, there is considerable doubt as to their effectiveness. India and South Africa both have introduced voluntary measures for some equipment in recent years, and have in place the legislative capacity to apply mandatory measures, but have not done so to date.
Figure 9: MEPS coverage by country, current and proposed, 2007
50

PROPOSED
45

CURRENT
40
Number product MEPS per country

35 30 25 20 15 10 5 0
A C us an ad tr al a ia /N Z IE A -E U Ja pa n K or ea U ni te d IE A St at es -O th er B ra zi l C hi na In di a M ex ic o So ut h A fr ic a R us si a

Source: IEA Secretariat based on various sources.

In IEA countries there are 80 products covered by mandatory energy labels, a similar number to those covered by MEPS programmes, which reflects the way that these two programme types are designed to be complementary. However there are far fewer energy labels proposed (one) compared to proposed MEPS products. There are 12 products covered by mandatory energy labelling in the major developing countries, and six planned. There are a number of possible explanations for this. The first is that comparative energy labelling may be considered to be less of a priority than MEPS in new programmes. For some products, labels may be considered inappropriate, such as where the majority of sales are not made directly to the consumer, or where the size of the product prohibits labels. External power supplies are a good example of where these factors may apply. For some equipment, such as electrical cooking appliances and electric room heaters, the lack of a performance range amongst products in the market may make labels ineffective.

30

Figure 10: Mandatory energy labelling coverage by country, current and proposed, 2007
50

PROPOSED
45

CURRENT
40
Number product energy labels per country

35 30 25 20 15 10 5 0
S ta te s A us tr al ia /N Z C an ad a IE A -E U -O th er A fr ic a M ex ic o R us si a Ja pa n K or ea C hi na B ra zi l In di a

U ni te d

Source: IEA Secretariat based on various sources.

4.2

Product coverage

Analysis has also been undertaken to examine the coverage of programmes by equipment type. The list of electrical equipment used in dwellings is long and expanding constantly, however for the purposes of this study we have considered 59 types equipment which fall into 10 end-use categories. The full list is provided in Appendix 1, and the major categories are shown in Table 4 below.
Table 4: Major electrical appliance categories Application 1 2 3 4 5 6 7 8 9 10 Space Heating Space Cooling Water Heating Refrigeration Lighting Cooking Laundry (incl. dishwashing) Home entertainment Information & Communication Technology (ICT) Other

Figure 11 to Figure 14 show the distribution of MEPS and Mandatory Labels by appliance category, differentiating between those current implemented and those proposed. These are represented as a percentage of the total number of listed products which could be covered by countries within each end-use area, since this approach facilitates an appreciation of the scope of current coverage. For example, if a country has MEPS applied to ballasts and linear fluorescent lamps these are counted as two-sevenths of the potential coverage in the lighting field. While this assumes that all countries have all of the products listed, and does not account for other products which occur in some countries, this representation is considered sufficiently accurate to make general assessments of product coverage. Further, it is considerable more accurate than alternative approaches which might consider that the entire lighting field is covered as a result of one or two programmes in this area.

31

S ou th

IE A

Figure 11 and Figure 12 show the MEPS coverage in IEA and major developing countries. In IEA countries, the major types of household equipment have the highest number of MEPS, although there appears considerable scope for further coverage even in these areas. In the home entertainment and ICT fields there are currently few MEPS, despite the growing significance of energy consumption in these applications. MEPS are proposed in most applications in IEA countries, particularly in lighting and home electronic applications.
Figure 11: MEPS coverage in IEA countries by appliance category, current and proposed, 2007
100%

90% Coverage of MEPS as % of total equipment types

Current

Proposed

80%

70%

60%

50%

40%

30%

20%

10%

0%
ef rig er at io n La un dr y g oo lin g Li gh tin g T ea tin g oo ki ng en te rta in m en t He at in O th er IC

W at er H

Sp ac e

Sp ac e

Source: IEA Secretariat based on various sources.

The situation in the major developing countries is similar, although the scale is much reduced, indicating a very large potential for expansion.
Figure 12: MEPS Developing Countries, 2007
100%

90% Coverage of MEPS as % of total equipment types

Current

om e

Proposed

80%

70%

60%

50%

40%

30%

20%

10%

0%
g La un dr y H ea tin g n Li gh tin g ta in m en t H ea tin g C oo lin C oo ki O th er ng at io IC T

W at er

ef ri g er

Sp ac

Sp ac

Source: IEA Secretariat based on various sources.

32

H om e

en te r

In IEA countries, mandatory labelling is most common for laundry equipment and refrigerators. Of the traditional equipment types, the proportion of space heating, cooking and water heating equipment which is labelled is low, which reflects the limited range of efficiency values amongst products in the market. This point is discussed later in this paper. Labelling of home entertainment and ICT equipment is also extremely low.
Figure 13: Labels IEA Countries, 2007
100%

90% Coverage of Labels as % of total equipment types

Current

Proposed

80%

70%

60%

50%

40%

30%

20%

10%

0%
en te rta in m en t H ea tin g C oo lin g H ea tin g R ef rig er at io n C oo ki ng La un dr y Li gh tin g O th er IC T

Sp ac e

S pa ce

W at er

Source: IEA Secretariat based on various sources.

In the major developing countries, there is little mandatory labelling, even for the major items of household equipment.
Figure 14: Labels Developing Countries, 2007
100%

90% Coverage of Labels as % of total equipment types

Current

H om e

Proposed

80%

70%

60%

50%

40%

30%

20%

10%

0%

lin g

tin g

io n

in g

in m en

tin

tin

dr

IC

at

oo k

er H ea

La un

C oo

Li gh

H ea

rig er

ce

ce

Sp a

Sp a

W at

R ef

Source: IEA Secretariat based on various sources.

33

om

en

te r

ta

th

er

4.3

Commercial and industrial equipment

Around the world, end-use equipment and processes consume over 14,000 TWh of electricity, and is responsible for emissions of 10,600 Mt CO2 (OECD/IEA 2006e). Motors currently account for approximately 40% of final electricity consumption, and lighting approximately 19%; the equivalent of 6,000 Mt CO2. Without further policy intervention, consumption in these two end-uses alone is estimated to grow to 13,000 TWh by 2030. However, through the use of existing technologies and policies implemented globally, energy savings of 25% (motors) and 38% (lighting) can be achieved (SEEM 2006, OECD/IEA 2006a). Although the focus of this study does not include commercial and industrial equipment, there are a growing number of MEPS programmes which are applied to mass-produced non-residential electrical equipment. Examples are shown in Table 5 and Table 6. For each these seven types of equipment, MEPS (including the Top Runner programme in Japan) are either in force or proposed in one or more countries, however coverage is low, particularly in the developing countries. Given the significant energy consumption represented by some of these enduses, there is considerable potential for program expansion in many countries.
Table 5: MEPS and Top Runner for commercial and industrial electrical equipment, 2007 Country/ Region Australia NZ Brazil Canada China IEA-EU IEA-Other India Japan Korea Mexico Russia South Africa USA M, p M, p p p M M Source: IEA Secretariat based on various sources. Key: M = MEPS in force; p = proposed MEPS; T = Top Runner (Japan) M M M T T & Motors Distribution transformers M Commercial Refrigerated Cabinets M Beverage Vending Machines p Ice Makers & Ice Storage Bins p Water Dispensers p A/c or Chillers

M p M M p

M M

34

Table 6: MEPS for commercial and industrial lighting equipment, 2007 (OECD/IEA, 2006a) Country/ Region Australia & NZ Brazil Canada China IEA-EU IEA-Other India Japan Korea Mexico Russia South Africa USA p M M Key: M = MEPS in force; p = proposed MEPS M M M HID Lamps p HID Ballasts P Traffic Signals & Exist signs Street Lighting p

4.4

Electricity consumption coverage

This section combines the information on currently implemented and planned mandatory energy efficiency policies with estimates of electricity consumption by end-use, in order to assess the proportion of residential electricity consumption which is covered by these policies. This analysis is designed to highlight the opportunities for expanding programmes to cover more geographical or product areas. It is important to note that this information does not indicate whether programmes are effectively implemented for the products which they cover, or whether greater impacts could be gained from increasing the stringency of thresholds. Figure 15 indicates the estimated coverage for IEA and major developing countries. While there are differences amongst IEA countries, the scope of existing and planned programme expansions will enable most countries to cover around 50%-70% of their residential electricity consumption. Amongst the major developing countries, China stands out with nearly 70% coverage already, while Mexico has approximately 30% of its electricity consumption covered. Although Russia MEPS cover end-use products responsible for 40% of electricity consumption, it is unlikely that these products are effectively regulated. The programmes planned in Brazil could extend coverage to 45%.

35

Figure 15: Percentage of electricity consumption covered by mandatory policies, by country

100%

90%

Current MEPS & Labels

Proposed MEPS & Labels

80%

% Total electricity consumption

70%

60%

50%

40%

30%

20%

10%

0%
AEU at es l In di a C an ad a Au st ra lia /N Z IE AO th er Ru ss ia Ja pa n Ko re a Ch in a co Br az i St Af ri So ut h ex i ca

IE

Source: IEA Secretariat based on various sources. Note: The coverage is not increased if a new policy is planned for an appliance already covered.

As shown in Figure 16, programmes are in place for the vast majority of electricity consumption in IEA countries attributed to the end-use applications of space cooling, refrigeration, and laundry equipment. Planned programmes for water heating equipment will also provide good coverage. Lighting is one area where improvements could be made, although this analysis has not included the impact of lighting requirements contained with building standards, which are implemented in several IEA countries. Existing coverage of electrical space heating and cooking technologies is currently poor in IEA countries, which is primarily due to the lack of potential for technical improvements in these applications. The majority of the unregulated electrical space heating load is met by electrical resistance room heaters which have limited capacity for improved efficiency, and therefore are not included in most regulatory programmes. A similar situation exists for many ovens and cooktops. However, in these cases, there is a large potential for reduced energy consumption and greenhouse gas emissions from alternative approaches to providing equivalent end-use energy services. Examples include switching to heat-pumps, and reducing the demand for space heating through improved building fabric and design. Where such opportunities exist, product policies designed to switch consumer purchasing to alternative technologies need to be considered, and are discussed later in this paper (section 10.3). Only 4% of the consumption of electronic equipment is currently covered in IEA countries, with regulations planned to extend coverage to around 30%. Although the range of these types of electronic equipment and their constant development cycle poses particular challenges for regulation (which are discussed in more detail below), the lack of attention to these end-uses in most countries is a major concern.

ni te d

36

Figure 16: Percentage of electricity consumption covered by mandatory policies, by end-use. IEA Countries, 2007.
100%

Proposed MEPS & Labels

90% 80% % Total electricity consumption 70% 60% 50% 40% 30% 20% 10% 0%

Current MEPS & Labels

ry

ht in g

ki ng

m en

ea tin

H ea

C oo

C oo

ge r

Li g

Sp a

at e

ac

ef ri

Sp

Source: IEA Secretariat based on various sources.

In the major developing countries there is clearly scope to extend programmes for all end-use applications as indicated in Figure 17, particularly where existing programmes in IEA countries offer opportunities for duplication.
Figure 17: Percentage of electricity consumption covered by mandatory policies, by end-use. Major developing countries, 2007.
100% 90% 80% % Total electricity consumption 70% 60% 50% 40% 30% 20% 10% 0%

om e

en

ry

te rta in

ce

rH

La

Proposed MEPS & Labels Current MEPS & Labels

ht in g

ki ng

m en

ea tin

H ea

C oo

C oo

ge r

Li g

Sp a

at e

ac

ef ri

Sp

Source: IEA Secretariat based on various sources.

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om e

en

te rta in

ce

rH

La

O th e

tin

lin

at io

un d

IC

O th e

tin

lin

at io

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IC

4.5

Home entertainment and ICT

Projections of household electricity use highlight the potential for these residential consumer electronics to overwhelm savings in other end-use applications. For example, projections for ICT electricity consumption in German households shown in Table 7 estimate an annual increase of 4% to 2010, with consumption due to TVs growing by 5.4% per annum, games consoles by 10% and infrastructure by 8.3% per annum. These estimates take into account the effects of current policies and autonomous technical improvements in German households.
Table 7: Forecast of ICT electricity consumption in Germany, 2001-2010 (CEPE & Fraunhofer, 2003) Electricity Consumption (GWh) Item Stationary Audio Portable audio TV Video Cameras Games Consoles Fixed Telephony Mobile Telephony PCs Monitors Printers Other Total Equipment Total Infrastructure 2001 4,666 151 8,249 1,179 43 57 1,035 313 1,434 852 616 520 19,115 3,402 2010 4,791 122 12,580 1,312 73 121 963 177 2,137 879 603 705 24,463 6,428 % Change 3% -19% 53% 11% 69% 111% -7% -43% 49% 3% -2% 36% 28% 89%

Note: Infrastructure includes items such as modems and set-top boxes

For some of these types of equipment, such as telephones, printers, scanner and copiers, standby power (ie. The power consumed by devices when not performing their primary function), represents the majority of energy consumption. However, Table 8 illustrates that most of the expected growth will come from increased electricity consumption in active mode.
Table 8: Forecast of ICT electricity consumption in Germany by mode, 2001-2010 (CEPE & Fraunhofer, 2003) Active 2001 2010 11,381 19,356 Standby 9,095 9,921 Off 2,041 1,615 Total 22,517 30,891

This is partially due to the increased active mode consumption of TVs, as larger screen sizes dominate the market. The largest impact, however, is due to set-top boxes and home networked products which seldom achieve a meaningful standby mode. Since power management has not yet become a significant issue for most product designers, the majority of set-top boxes do not minimise the power levels required to maintain connectivity and rapid start-up. As demonstrated in Figure 18, which shows the results of recent measurements of settop boxes in the US, there can be minimal difference between the power consumption of many set-top boxes different modes.

38

Figure 18: Set-top box power consumption measurements in US (NRDC 2007))

80 Standby Power Consumption (W) 70

Power Consumption (watts)

On Power Consumption (W) 60 50 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Standard Receiver with DVR

Standard Receiver

High Definition (HD) Receiver

HD Receiver with DVR

Typically set-top boxes are either specified or supplied directly by the TV service provider, and the service provider also determines the amount of programme content and information that is directly downloaded during a 24 hour period. Therefore, although it is the consumer who will pay for the energy consumed, it is the service provider who determines to a large extent the quantity of energy consumed. This situation provides no incentive to the service provider to minimise the energy consumed by the equipment, and is evidence of a market barrier which will require government intervention to correct. With the roll-out of digital TVs, the adoption of set-top box technologies is inevitable in many IEA countries. Indeed with the average number of TVs per house exceeding 2 in many countries, some households will have several set-top boxes. Based on the performance of current technologies, the consumption from these alone could easily be equivalent to that of major household equipment, such as refrigerators. As a subset of national strategies to increase energy efficiency, policies targeted at standby power are an important component, and are further discussed below. However, it is increasingly evident that the technical capability of reaching low standby power consumption in some equipment will not yield savings unless further measures are implemented that enable low-power modes to be accessed readily. Home networks, where several devices are joined within the home by a digital network (see Figure 19), often with one or more gateways to an external link via cable, satellite or IRD connection, are now emerging as a significant challenge. Home networks offer consumers substantial functionality through an increasing number of more sophisticated devices. Set-top boxes able to download and record programs simultaneously, entertainment PCs, voice-over-internet telephony, high definition TVs: these are all products entering homes today as devices joined in local networks.

39

Apart from the concerns about the individual consumption of these devices, the broader issue is how power management will work effectively within a network. Networks in themselves do offer the potential to manage the power consumption of a number of devices together, however this will require the development and agreement to industry-wide communication protocols which have not yet been developed. These protocols need to be developed and introduced into products currently being designed, however without strong government intervention this will not be achieved due to the competitive pressures facing the industry.

40

Figure 19: Schematic of future home network (HTN 2007)

41

4.6

Standby Power Policies

Understanding of standby power has been increasing steadily in most countries, both amongst policy makers and consumers, and this has been increasingly reflected in national policy statements. However, while progress has been made, policy implementation not yet matched these aspirations2. The majority of current policies designed to reduce standby power consumption are voluntary, such as the US Energy Star program and the EU Code of Conduct, although as noted previously, the US Executive Order on standby power has the effect of making Energy Star requirements mandatory for a significant market segment. As can be seen in Table 9, the EU is also considering moving to mandatory requirements for standby power under the EcoDesign directive, and a number of other countries have mandatory policies for a small number of products.
Table 9: Summary of mandatory policies to tackle standby power consumption Country/ Region Mandatory Program Standby component of mandatory label for: Clothes Washers Clothes Dryers Dishwashers Instantaneous gas water heaters MEPS for external power supplies Mandatory horizontal standard for home entertainment equipment: AV Receivers Portable Stereo Home Theatre Systems Audio Components Integrated Stereo Sub Woofers & Speakers Hard Disk Recorders DVD Players DVD Recorders VCRs Dishwasher test procedure revised to incorporate standby for display in energy use label (but not in MEPS). Minimum performance standards for: Compact audio Television DVD players/recorders DTA (set-top box) External power Supplies Minimum performance standards for: Telephony: answering machines & cordless phone Battery chargers Cable set-top box Eco-design Directive for: Standby Simple set-top boxes Complex set-top boxes Implementation Date Current

2008 2012

Australia & NZ

Current 2008

Canada

2010

EU

2008 + (under consideration)

In this paper the term Standby power is used to indicate any low power mode.

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Japan

Top-Runner Programme for: Television VCRs Copiers Electric Rice Cookers Microwave ovens DVD Recorders/Players Standby component of mandatory label for: Electric washing machines Drum washing machine Dishwashers Electric fans MEPS for external power supplies Mandatory warning label for: Personal computers and monitors Home entertainment Microwave oven, Cord/cordless phone, Door phone External power supplies Electric washing machine Drum washing machine Dishwasher Electric fans Bidet Mandatory government procurement: Executive Order 12845 o Computers o Monitors o Printers Executive Order 13221: Standby power 1-Watt o VCRs o DVDs o Microwave ovens o Printers o Copiers o MFDs o Scanners o Fax o Consumer audio Dishwasher test procedure revised to incorporate standby for display in energy use label (but not in standard). EPACT MEPS for: External power supplies Battery chargers MEPS for external power supplies

Current

Current

2008 2010

Korea

Current

USA

Current 2008 + (under consideration) 2008 2008+

China Proposed mandatory procurement Source: IEA Secretariat based on various sources.

The trend towards introducing mandatory measures to tackle standby power reflects increasing concern about the growth in electricity consumption by small residential equipment, often grouped as miscellaneous end-uses. Depending on how these are defined, such equipment now accounts for approximately 20% of residential electricity usage in IEA countries (in all modes). Since 1999, Japan has used a range of policy measures to tackle standby power. Several home entertainment, ICT and kitchen products covered by the Top Runner program have mandatory requirements which include limits to standby power consumption. In addition, voluntary agreements

43

have been made with relevant industry associations to meet a target of 1 Watt or lower for new products. Japan is the only country which has reported a reduction in standby power consumption in recent times (see Figure 20). Despite the average number of devices found to be in standby mode increasing from 19 per household in 1999 to 24 in 2005, the average household standby power consumption was estimated to have fallen from 398 kWh to 308 kWh over the same period. This fall in standby power consumption is explained by a combination of factors: a reduction in power consumption for many individual new appliances, and an increase in the hours where devices were switched off (by the householder).
Figure 20: Trends in standby power consumption, Japan 1999-2005 (METI, 2006)
120

1999
100

2002

2005

80

60

40

20

0
he at er s co m po ne nt s to ile ts ea t tio ne rs M ic ro w av e tu ne r Te le ph on e O th er s V C R TV s P C s

E le ct ric

S at el lit e

w at er

co nd i

In conclusion, the latest survey in Japan highlights the problems of networked devices, identifying it as a threat to future efforts to reduce standby consumption (METI, 2006): As a new trend, home appliances of high performance and multifunction are entering into households. These new equipment also tend to be incorporated into other appliances or networked with other appliances. Some of these appliances consume the same level of electricity as in operation modes while they standby in order to be ready for the operation. Therefore, it is necessary to reduce the standby power of networked appliances in ready for operation modes. The adoption of novel functions such as automatic switch-off of standby power and appliance status display will be essential in order to cope with this situation. Analysis of a variety of national estimates of standby power, including Japans, consistently point to the following observed trends: The penetration of electrical products within all households is increasing and, although many of these use only small amounts of electricity on their own, collectively their consumption is significant;

44

A ud io

G as

Ai r



Many new small electronic devices are entering the market and gaining market share rapidly; and their functionality is changing and developing quickly, defying easy product definition; A range of products, for example some set-top boxes and other components in a home network, may not be able to access the lowest-power modes (as described in the previous section), or require consumer interaction to enter standby mode. This means that an increasing number of products may spend longer periods of time in active mode, leading to higher overall consumption.

For example, a recent survey in Australia found that total standby power consumption had increased by 20.4% in the five year period from 2000 to 2005. The average Australian household was found to contain 67 devices running on mains electricity, and average standby power consumption was 92.2 Watts (or 807kWh) per household per annum3. The study conclusions note (EES, 2006a): While most products appear to be improving their standby power consumption attributes over time (new products have lower standby than older products for many product types), this is more than offset by the increase in the number of products connected to the mains in an average house. Reasons for the increase in standby power over the period may include: Increasing appliance ownership, especially for products with standby modes and with external power supplies; Increasing prevalence of smart appliances, with functions like fuzzy logic and favourite settings savers; Increasing computer ownership and subsequent increase in peripheral ownership; Increasing home entertainment appliance ownership, including more complex and higher power DVD recorders, set top boxes and home theatre components. Current policy measures have quite reasonably tended to focus on those equipment types which use the most energy, or where regulations already exist for other modes of operation. For example, a number of countries are proceeding with regulations for external power supplies in all modes of operation, and some countries have included standby power requirements into labelling or MEPS requirements for dishwashers, clothes washers, etc. By covering all modes of operation: the so-called vertical approach; these measures avoid creating an incentive for manufacturers to remove low-power modes in an attempt to get around requirements which only apply to the standby modes. However, the costs and administrative burdens of introducing vertical policy measures can only be justified for a minor proportion of the products which contribute to standby power consumption. In addition, this traditional approach appears unsuited to the rapidly evolving market for these products, where devices enter the market rapidly, evolve and in many cases merge functions with others. Such dynamic product designs and markets pose real problems in terms of defining products within policy measures. As a result, since 2003 the IEA has advocated a horizontal policy approach to tackling standby: a default standby requirement that would apply to all existing products and those entering the market. This approach creates the need only to define what is excluded from these requirements, which is administratively simpler than defining the large and changing number of products what are included.
3

The difference between the results of the Japanese and Australian surveys are significant. The IEA intends to undertake further work to compare these two studies in detail.

45

This takes account of the evolution and convergence of functionality, without stifling innovation. In order to maximise the opportunities for policy harmonisation amongst countries, the IEA has suggested that an international co-ordinating group should be established to oversee the exceptions, such as a new Implementing Agreement. In March 2007, a group of countries met and agreed to establish a new IEA Implementing Agreement with one Annex on Standby Power, with the aim of establishing a feasible framework for progressing horizontal approaches to standby policy (IEA, 2007). The first horizontal policy has been announced by the Australia Government, which will shortly introduce a horizontal MEPS for all devices within the home entertainment category (E3, 2006b) (see Table 10).
Table 10: Proposed MEPS for home entertainment products in Australia (E3, 2006b) Home Entertainment Products4 Stage 1 MEPS Passive standby Without video recording capabilities With video recording capabilities 4 watts 6 watts 2008 Off 0.3 watts 0.3 watts Stage 2 MEPS Passive standby 1 watt* 1 watt* 2012 Off 0.3 watts 0.3 watts

* Auto power down to passive standby after 30 minutes of no AV input or inactivity is also required

The European EcoDesign directive for Standby Power provides a further opportunity to introduce effective horizontal regulations, and a number of options are currently under consideration. These include an investigation into the feasibility of establishing horizontal standby power limits by function across a wide range of devices.

4.7

Summary of Findings (potential for expansion of mandatory programmes)

The previous sections of this paper examined the potential to increase MEPS and mandatory labels for electrical equipment in IEA and major developing countries. Investment in capacity building over a number of years in IEA countries has provided most with a solid foundation of MEPS and mandatory energy labels which comprise the cornerstone of national energy efficiency strategies. The planned expansion of these mandatory programmes needs to be vigorously pursued to ensure adequate coverage. While there are national or regional variations, there is still room for further expansion, with most potential in the areas of lighting, home entertainment and ICT equipment. In residential lighting, further attention needs to be given to measures for luminaires, and in some markets, to halogen lighting and transformers. Compact fluorescent lamps (CFLs) are a more efficient and cost-effective alternative to incandescent lighting, but there is a role for MEPS and labelling to improve their overall performance and enhance consumer satisfaction (OECD/IEA, 2006a). Although some lighting measures may be more appropriate to regulate through building regulations, particularly the minimisation of demand for artificial lighting, governments need to be aware that this approach will impact on a limited proportion of the market in the short term. Acting through appliance regulations is therefore likely to be quicker in the short to medium term.

This includes AV Receivers, Portable Stereo, DVD Players, Home Theatre Systems, Audio Components, DVD Recorders, Integrated Stereo, Sub Woofers & Speakers, Hard Disk Recorders and VCRs.

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For electronic products in the home entertainment and ICT field there is a need to introduce a mixture of policy measures designed to tackle energy consumption in all modes of operation. While standby power consumption continues to be an important area for energy policy, the complexity of modern devices requires that governments consider all low-power modes and active-mode collectively when determining policy. This approach will help to avoid increased overall consumption as a result of equipment spending more time in higher modes. Vertical regulations should be applied to all home entertainment and ICT equipment which is responsible for significant electrical consumption. Governments may need to consider horizontal or non-regulatory approaches to tackle active-mode consumption for electronic devices which are evolving faster than regulations can be put in place. For those products which have a small active mode component, horizontal standby regulations will be the most cost-effective option. In addition, since these mainly comprise internationally traded goods, test methods and performance requirements need to be co-ordinated internationally. Governments need to consider what mechanisms are required to effectively undertake these co-ordination activities. In framing policy for electronic equipment, requirements for automatic switching to low-power modes needs to incorporated. Governments should also recognise the importance of effective power management in digital home networks, and take necessary steps to ensure that industry-wide protocols are introduced for connected devices which enable low power modes to be accessed. In the areas of space heating, water heater and cooking, the most gains will be made though switching to alterative fuel sources combined with demand minimisation strategies. These are discussed in section 10.3. All major developing countries have the legislative capacity to expand the scope of their regulatory programs, and this is urgently required. This task would be made easier and quicker by drawing extensively on the experience in the IEA countries, in order to accelerate the development process and maximise the opportunities for harmonisation. IEA countries could play a key role in initiating this process by co-ordinating their support with efforts by international organisations such as GEF and the World Bank. In the commercial and industrial sectors, there is a large potential to expand regulatory programmes in both IEA and the major developing countries. Programmes covering the following mass-produced equipment have already been developed in one or more economy and could therefore be readily duplicated: Motors Distribution transformers Commercial Refrigerated Cabinets Beverage Vending Machines Ice Makers & Ice Storage Bins Water Dispensers A/c & Chillers HID Lamps & Ballasts Street lighting Traffic signals

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In undertaking this research, it is apparent that many countries have insufficient data on end-use energy consumption to make informed policy decisions. Nor is such data collected on a systematic or periodic basis to enable consumption trends or policy impacts to be monitored.

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5 The Impact of MEPS and Labels on costs of equipment

The cost implications of improving the energy efficiency of equipment is a consideration for those involved in developing sustainable energy policies. Understanding the extent to which demands for more efficient equipment will impact on costs and prices is important in determining the pace and stringency that policy measures are introduced, and fundamental in undertaking cost-benefit analysis (see Appendix 2 for further details on the use of cost-efficiency information). As noted elsewhere: The estimated costs of reducing carbon emissions to Kyoto commitment levels vary by a factor of five or more. Not surprisingly, this variation in cost estimates undermines support for mandatory policies to curb carbon emissions, as policy makers are generally reluctant to adopt a major program without an understanding of its true costs. (Fischer and Morgenstern, 2006) Given the interest in the relative cost of CO2 abatement measures, to date there has been only a moderate level of detailed analysis of appliance cost trends and efficiency. Estimates of the future cost and price of efficient technologies are used in most pre-implementation analysis of policy options. Generally these are derived from engineering assessments; a costing of the components required to improve efficiency in particular equipment. Almost always these use assumptions that more energy efficient technology will be more expensive than conventional technology. With hindsight, we have the opportunity to check these assumptions. Tracking appliance efficiency and price over a period of time provides the opportunity to measure trends and to understand the true cost of policy options. This will provide greater certainty of outcomes and will also enable efficiency targets to be optimised on a least lifecycle cost basis, for the benefit of policy-makers, manufacturers and consumers.

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6 International Experience
This section presents the trends in consumer prices and energy efficiency (or consumption in some cases) for different types of equipment in several countries. Unfortunately detailed long-term information on price and efficiency trends are not collected systematically for all products. In general, such information is restricted to products subject to national regulations for labelling or minimum energy performance standards, and therefore covers a limited set of appliances over the period of implementation. However, many of the major household appliances have been subject to regulations in the larger economies for a number of years, albeit that timescales vary between countries. This analysis therefore focuses on refrigerators, freezers and refrigerator-freezers; clothes washers, dryers and air conditioners in the following countries, where available: United States, Australia, United Kingdom, European Union and Japan. A summary of the content and collection methodology of the data from each country is provided in Appendix 3. Information is also provided on the timing of national efficiency regulations relevant to each appliance. In most cases any effects of regulations on energy efficiency and prices should be seen prior to the date when they come into force, as the market adjusts. However, where the data contains national averages there may be a residual impact beyond the implementation date if sufficient new efficient models are subsequently brought onto the market. The degree to which suppliers consider that governments will enforce regulations may also effect the speed at which non-compliant products are removed from the market.

6.1

Residential refrigerators/freezers:

Government programmes designed to improve the efficiency of residential refrigerators and freezers are some of the longest running and best monitored in many countries. In the United States, the average energy consumption of refrigerators and freezers decreased by 60% between 1980 and 2001, while at the same time real consumer prices have fallen by 40% (Figure 21) (Dale et al, 2002).
Figure 21: Average energy consumption and prices, US refrigerators (Dale et al, 2002)
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 0%

-10%

% Change since 1980

-20%

-30% -40% Price (US$2001)

-50%

Energy Performance

-60%

-70%

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Minimum energy performance standards (MEPS) for residential refrigerators and freezers in the United States were first introduced in 1990, and subsequently updated in 1993 and 2001. Figure 22 shows that around the time when the 1993 and 2001 MEPS requirements were introduced, the average energy consumption dropped by approximately 20% on each occasion. This strongly suggests that the majority of efficiency gains have been driven by the introduction of regulatory policies.
Figure 22: Relative average energy consumption and prices, US refrigerators (Dale et al, 2002)
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 0%

-10%

% Change since 1980

-20%

-30%
Price (US$2001) Energy Performance MEPS 1990 MEPS 1993 MEPS 2001

-40%

-50%

-60%

-70%

There is a noticeable fall in average prices between 1987 and 1992 although the data points around 1990 are too infrequent to draw conclusions about the impact of the 1990 MEPS 1. Subsequently there is a correction upwards between 1992 and 1994 and, while it is possible that this is related to the 1993 regulations, the downward price trend is re-established in 1994 after only one year. In 2000, when energy efficiency improvements are seen prior to the MEPS 3 level in 2001, the decline in the average price levels off, but does not rise. Although MEPS 2 and MEPS 3 induced similar levels of improvement in energy efficiency, fluctuations in price at the time of their introduction are significantly different, which suggests that some of the price movements may be related to other commercial issues rather than technological improvements to improve energy efficiency. In Australia, tracking of the refrigerator market since 1993 indicates that energy consumption in the average refrigerator has decreased by over 40%, while prices have risen by just over 10%. (EES, 2006) In real terms, the price paid by consumers has actually fallen by nearly 20%, while the average size of freezer compartments in Australian refrigerators has increase by 20%.

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Figure 23: Relative average energy consumption and prices, Australian refrigerators (EES, 2006a)
1993 1995 1997 1999 2001 2003 2005 30% 20% 10% 0% -10%

% Change since 1993

kWh/litre adjusted Freezer Volume (litres) Av Price per Unit (A$2005) MEPS 1999 MEPS 2005

-20% -30% -40% -50%

MEPS was introduced in Australia 1999 for refrigerators and freezers, and updated in 2005. While there is a noticeable reduction in energy consumption immediately prior to these dates, it is less noticeable than in the United States, and there is no apparent correlation with changes in prices. This may be due to the effect of comparative energy labelling, which was introduced for refrigerators and refrigerator-freezers in 1986, and updated in 2000. This programme has gained significant presence in the marketplace amongst consumers, and the trend prior to 1999 suggests it has provided a sustained incentive for manufacturers to introduce more of efficient equipment. Labelling may therefore have helped to prepare the market prior to the introduction of MEPS and resulted in fewer price fluctuations than seen in the United States. Figure 24, which shows the change in key indices for freezers in Australia shows that energy consumption has reduced by over 30% while prices in real terms have fallen by 25% between 1993 and 2005. Moves way from individual freezers, towards larger volume refrigerator-freezers have led to a reducing in average freezer sizes in 2004 and 2005. In the period around 1999 and 2005, MEPS on freezers had a more noticeable effect on energy consumption than for refrigerators. Unlike refrigerators, freezers have not been subject to mandatory labelling prior to the introduction of MEPS, which further suggests that labelling has the ability to prepare the market. In the freezer market, efficiency improvements are noticeable from 1998 and real prices fell slightly before the introduction of MEPS in 1999. Since this time real prices and have followed a steady downward trend, including the period before implementation of new MEPS levels in 2005. This occurred despite considerable improvements in energy efficiency from 2004. Although the average freezer volume has decreased by 10% between 1993 and 2005, volumes actually increased from 1994 to 2003. The close correlation between falling prices and average volume from 2003-2005 suggests that the price of the freezer is more closely related to volume than energy performance.

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Figure 24: Relative average energy consumption and prices, Australian freezers (EES, 2006a)
1993 1995 1997 1999 2001 2003 2005 15% 10% 5% % Change since 1993 0% -5% -10% -15%

kWh/litre adjusted Freezer Volume (litres) Av Price per Unit (A$2005) MEPS 1999 MEPS 2005
-35% -20% -25% -30%

In the United Kingdom, the energy consumption of refrigerators and freezers declined by 20%-25% between 1989 and 2000 (Figure 25 and Figure 27), while the real average prices of these types of equipment also fell by between 24% and 29% (Figure 26 and Figure 28) (Schiellerup, 2001).
Figure 25: Average energy consumption, UK refrigerators & freezers (Schiellerup, 2001)
1989 700 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

600 Energy consumption (kWh/l)

500

400

300

200

Refrigerators Fridge-Freeezers Chest freezers Upright freezers

100

Figure 26: Average prices, UK refrigerators & freezers (Schiellerup, 2001)

1995 600 1996 1997 1998 1999 2000

500 Price (GBP 2001)

400

300

200

Refrigerators Fridge-Freeezers Chest freezers Upright freezers

100

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Figure 27: Relative average energy consumption, UK refrigerators & freezers (Schiellerup, 2001)
1989 1991 1993 1995 1997 1999 20% 15% 10% % Change since 1989 5% 0% -5% -10%

Refrigerators Fridge-Freeezers Chest freezers Upright freezers Energy Label 1995 MEPS late 1999

-15% -20% -25% -30%

Figure 28: Relative average price, UK refrigerators & freezers (Schiellerup, 2001)
1995 1996 1997 1998 1999 2000 15% 10% 5% 0% -5% -10% % Change since 1995

Refrigerators Fridge-Freeezers Chest freezers Upright freezers Energy Label 1995 MEPS late 1999

-15% -20% -25% -30%

The UK introduced an energy label for refrigerators and freezers in 1995, and it is evident from Figure 27 that the energy consumption of both chest freezers and fridge-freezers dropped immediately prior to this date. While refrigerator and freezer energy consumption also fell up to 1995, this did not exceed the overall trend. Price information is shown in figure 8, but is not available prior to 1995, so it is not possible to comment on the price impact from the introduction of labels. However for the period from 1995 to 2000 it is noticeable that there are substantial fluctuations in the quarterly prices for most products. In the 3rd quarter of 1999 MEPS were introduced in the UK. As shown in Figure 29, the energy consumption of both refrigerators and freezers fell markedly around this date. The real average price of these types of equipment also declined substantially, apparently unaffected by the introduction of MEPS.

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Figure 29: Relative average energy consumption and price, UK refrigerators and chest freezers (Schiellerup, 2001)
1995 1996 1997 1998 1999 2000 15% 10% 5% 0% -5% -10% % Change since 1995

Refrigerator Price Refrigerator Energy Chest Fz Price Chest Fz Energy Energy Label 1995 MEPS late 1999
-15% -20% -25% -30%

Data on the penetration and average prices of cool equipment in Europe5 presented in Figure 30 and Figure 31 show the increased penetration of the more efficient A class of equipment, and the gradual decrease in the market share of B class products after 2002 (Stockle, 2006). This coincides with the introduction and increasing penetration of A+ products. At the same time, the real price of these types of equipment has fallen by 23% in the case of A class products, and 38% for B class products. Interestingly, the price of A and B class products converges until the market share of B class equipment begins to decrease, at which point the price of B class products falls more quickly. This may indicate a strategy of discounting prices to slow the loss of market share.
Figure 30: Market share and price, EU cool equipment (Stockle, 2006)
1995 700 650 600 Price (Euro 2005) 550 40 500 30 450 400 350 300 20 10 0 Sales (%) 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 70 60 50

Price A

Price B

Sales A

Sales B

In this case data is presented from the following 8 Western European countries: AT, BE, De, ES, FR, GB, IT, NL

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Figure 31: Relative market share and price, EU cool equipment (Stockle, 2006)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 70%

50% % Change since 1995

30%

10%

-10%

-30%

-50%

Price: Class A Sales: Class A

Price: Class B Sales: Class B

In Japan, refrigerators and freezers are covered by the Top Runner programme, introduced in 1999. This sets performance targets for the sales weighted average of these types of cool equipment to be achieved by 2004 (ECCJ, 2006b). As shown in Figure 32, monitoring of average performance and price between 2001 and 2005 shows that performance has increased by over 50% while the real average price has fallen by nearly 20%.
Figure 32: Relative performance and price, Japanese refrigerators (ECCJ, 2006b)
2001 2003 2005 60% 50% 40% % Change since 2001 30% 20% 10% 0% -10% -20% -30% Energy Consumption (kWh/l) Price (real)

6.2

Clothes Washers

In the United States, the results of monitoring between 1993 and 2001 shows that the energy consumption of the average clothes washer in the United States has fallen by 15%, while the real price has also reduced by 35% (see Figure 33) (Dale et al, 2002). MEPS for clothes washers were first introduced in 1994 in the United States, and were updated in 2004. Prices fell substantially prior to 1994, and have risen slowly to 2001, while energy consumption

56

has continued to trend downwards. Average energy consumption fell substantially between 1991 and 1992 suggesting that the market was preparing for the introduction of MEPS, but the effect may be exaggerated due to an unusual peak in 1991. The correlation between the rise in prices and increased consumption of clothes washers in 1991 and 2000 suggests factors other than MEPS or efficiency have been influential, such as the influx of larger volume machines or changes in design.
Figure 33: Average energy consumption and prices, US clothes washers (Dale et al, 2002)
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 40% 30% 20% % Change since 1983 10% 0% -10% -20% -30%

Price (US$2001)
-40%

kWh/ft3
-50%

MEPS 1994

Unfortunately data is not available for 2004, to show the impacts of the revised MEPS levels.

Figure 34 shows the key trends for clothes washers in Australia for the period 1993-2005. Overall the average energy consumption reduced by 15% during this period, although consumption rose in the period 1999-2001. Over the period prices have fallen by 8%, or over 30% in real terms, while the capacity of the average machine has increased by 25% (see Figure 12) (EES, 2006a). Australia introduced comparative energy labelling in 1989/90 for clothes washers, which was updated in 2000. It is noticeable that energy consumption actually rose immediately prior to 2000, while prices dropped.
Figure 34: Relative average energy consumption and prices, Australian clothes washers (EES, 2006a)
1993 1995 1997 1999 2001 2003 2005 30%

20%

0%

-10%

-20%

-30%

-40%

Energy

Capacity

Price (A$2005)

MEPS 2000

57

% Change since 1993

10%

As shown in Figure 35, the growth in energy consumption in 2000 is driven by top-loader washing machines (the most popular type) and can be partially explained by the increased size of machines (see Figure 34). It may be may be that manufacturers efforts to reduce water consumption at that time led to increased energy consumption. Figure 35, which shows the water consumption per unit capacity of machines, indicates that water consumption reduced quite considerably immediately prior to 2000.
Figure 35: Levelised energy consumption, (kWh/kg), Australian clothes washers (EES, 2006b)
150 Average Energy per unit capacitty (kWh/kg) 130 Front Top T/tub

110

90

70

50

30 1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Figure 36: Levelised water consumption, (litres/kg), Australian clothes washers (EES, 2006b)
30

25 Water consumption (litres/kg)

20

15

10

Average
5

Top T/Tub

Front

0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Data on clothes washers in the Netherlands, shown in Figure 37, indicate a substantial increase in market share of Class A products between 1999 and 2001, partly due to the provision of financial incentives to 2003 (Stockle 2006). Not only have clothes washers become more efficient, but the average (unsubsidised) real price fell by more than 20% between 2001 and 2004.

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Figure 37: Sales of Clothes Washers by class in the Netherlands, and Average prices (Stockle 2006)
600 800

500

400 Sales ('000s) 600 300 500 200 400

100

0 1999 2000 2001 2002 2003 2004 2005

300

Class A

Other

Price

6.3

Clothes Dryers

Figure 38 shows the key trends for clothes dryers in Australia for the period 1993-2005. The average energy consumption reduced steadily by 8% during this period. Although prices have risen by 20% (with notable peaks in 1997, 2001 and 2005), in real terms the price of clothes dryers fell by 12% between 1993-2005 (EES, 2006a). The capacity of the average machine has remained steady. Australia introduced comparative energy labelling in 1989/90 for clothes washers, which was updated in 2000. It is noticeable that while the 2000 label did not appear to have a significant impact on energy consumption (except perhaps to maintain the steady decline), there was a price drop in the period leading up to the new label.
Figure 38: Relative average energy consumption and prices, Australian clothes dryers (EES, 2006a)
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 10%

5%

Average Price (Euro 2005)

% Change since 1993

700

0%

-5%

-10%

-15%

-20%

Energy

Capacity

Price (A$2000)

Label 2000

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6.4

Air conditioners

Data from the United States for room air conditioners, for the period 1974-1993, and central air conditioners, for the period 1968-1983, are shown in Figure 39. The energy efficiency index (EER) of room air conditions increased by more than 30% over the period monitored, while the real price fell by around 10% (Dale et al, 2002). Although MEPS were announced for room air conditioners in 1992, to become effective in 1995, in fact this was not implemented until 2000 (outside the measurement period). Efficiency increased substantially between 1983 and 1988; and then remained stable until 1991. It is possible that the subsequent rise in efficiency occurred in preparation for the implementation of MEPS.
Figure 39: Relative average energy consumption and prices, US room air conditioners (Dale et al, 2002)
40%

Price (US$2001)
30%

EER
% Change since 1974

20%

10%

0%

-10%

-20%

-30% 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993

More recent data from Japan, collected between 2001 and 2005, shows that the efficiency of room air conditioners has increased by 15% during this period, while the real average price has decreased by 17% (see Figure 40) (ECCJ, 2006).
Figure 40: Relative Average Energy consumption and Prices, Japanese room air conditioners (ECCJ, 2006)
2001 2003 2005 20.0% 15.0% % Change since 2001 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0%

EER

Price (real)

A closer examination of air conditioners by size shows that the more popular models (2.2-2.8 kW) increased efficiency by between 22% and 27%.

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Figure 41: Relative Average Energy consumption, Japanese room air conditioners by size (ECCJ, 2006b)
2001 2003

2.2 2.5 2.8 3.6

% Change since 2001

2005 30%

25%

4 4.1 Average

20%

15%

10%

5%

0%

-5%

-10%

Although the average real price of all room air conditioners in Japan did not change between 2003 and 2005, Figure 42 shows that prices did vary for different sized models. The larger models, which are less popular and experienced the lowest increases in efficiency, also experienced the largest price reductions; while the smaller models actually increased in price between 2003 and 2005, although they still cost less in 2005 than in 2001. Under the Top Runner programme, the smaller units (less than 4kW) were required to meet their average efficiency target by 2004, which may explain the particular emphasis on improvements in the smaller but higher volume products. The accompanying small increase in price is not inconsistent with the longer term trends in other countries and products, however the prices for all models needs to be observed in subsequent years to determine whether the reduced price trend is re-established.
Figure 42: Relative Average Price, Japanese room air conditioners by size (ECCJ, 2006b)
2001 2003 2005 0%

-5%

% Change since 2001

-10%

2.2 2.5 2.8 3.6 4 4.1 Average

-15%

-20%

-25%

-30%

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6.5

Summary of Findings (impact of mandatory programmes on the efficiency and price of equipment)

Most policy makers legitimately ask: Are consumers going to have to pay more for energy efficient equipment? This analysis of residential equipment provides evidence that the capital cost of more efficient equipment are consistently costing consumers less now in real terms than they have at any time over the past ten to fifteen years. At the same time, these types of equipment have become very much more efficient (see Figure 43 and Figure 44). Figure 43: Summary of efficiency and price trends for cold equipment (varying timescales)

United States
0%

Australia (refrig) Australia (freezer)

UK (refrig)

UK (freezer)

Japan

-10% -18% -21% -20% -25% -27% -33% -30% -41% -40% -52% -43% -24% -25%

% change from base year

-20%

-50%

-63%

Change in Energy Consumption

-60%

Change in Price
-70%

Analysis is restricted to types of equipment where there is long-term data available, often collected to evaluate government regulations for labelling or minimum energy performance standards. This report shows that in the period and countries where energy efficiency regulations have been implemented there has not been sustained increases in real prices of regulated appliances. In a few instances the introduction of MEPS or similar programmes has coincided with temporary price rises, but this may be due to other factors and in all cases the downward trend is rapidly restored. A comparison between the performance of equipment studied here and national residential energy prices (see Appendix 4), provides no evidence of a correlation other than a circumstantial similarity in trends for a few products. An investigation of the link between equipment prices and fluctuations in demand produced by new housing development (see Appendix 5) also suggest no strong correlation. All the equipment studied has experienced a decline in real prices of between 10% to 45%, while energy efficiency increased by 10% to 60% over the periods when data was collected. These gains have been made without sacrificing levels of service, since in all but one case the size or capacity of the equipment monitored has either remained the same or increased.

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Figure 44: Summary of efficiency and price trends for clothes washers, clothes dryers and air conditioners (varying timescales)

United States (clothes washers)

0%

Australia (clothes washers)

Australia (clothes dryers)

United States (a/c)

Japan (a/c)

-8%
-5%

-14% -12%
-10%

-12% -15%

% change from base year

-15%

-15%

-17%

-20%

-25%

-30%

-34%

-32%

-32%

-35%

Change in Energy Consumption Change in Price

-40%

These findings appear remarkably consistent across a number of country markets, despite the fact that there are differences in the penetration and types of equipment, and in the requirements of government programmes. It should be noted that in all countries which implement MEPS there are considerable lead times builtin to the regulatory processes to enable the market to adjust to the specified requirements. Typically, formal notice is given some 2-5 years in advance of implementation, which may be extended by longer periods of industry consultation or other informal processes. Feedback from industry indicates that these lead times enable the market to minimise any cost implications from increased efficiency regulations by integrate design and manufacturing changes into normal industrial cycles. Further, there is some evidence to suggest that where energy performance labels have already been introduced, the short-term impact of MEPS on prices is reduced. This may be due to the fact that the market is already prepared to some extent (at the very least, manufacturers already know the relative performance of their models). If this data shows that average prices have fallen, generally unabated by regulations for efficiency, what has happened to the price of the highest efficiency products in relation to the price of similar products? Figure 45 shows the real price of European cold equipment by category of energy label between 1994 and 1998. It is evident that almost all prices reduced between 1994 and 1998, however equipment labelled A (the most efficient) continue to be more expensive than the other categories. It is noticeable that the price differential between categories B to G is small and not apparently explained by the large span of energy performances.

63

Figure 45: Real price of European cold equipment, 1994-1998 (Waide, 2001)
700

1994
600

1995

1996

1997

1998

500 Price (1998 Euro)

400

300

200

100

0 A B C D E F G All

Similarly, there appears no correlation between price and energy efficiency in the Australian refrigerator market, except for the very highest efficiency models when they enter the market. As seen in Figure 46 and Figure 47 the 3 star products, are often cheaper than the less efficient 1 or 2 star products, and the 4 star products are less expensive than the 1 star models.
Figure 46: Price per unit volume by star rating, Australian class 5 refrigerators6, 1993-2005 (EES, 2006b)

3.50

1
3.30

1.5

2.5

3.5

4.5

3.10 Price per unit volume (A$/litre)

2.90

2.70

2.50

2.30

2.10

1.90

1.70 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Class 5 refrigerators represent over 50% of the Australian market. 64

Figure 47: Price per unit volume by star rating, Australian class 5 refrigerators, 1993-2005 (EES, 2006b)

3.50

3.30

3.10 Price per unit volume (A$/litre)

2.90

2.70

2.50

2.30

2.10

1.5

2.5

1.90

3.5

4.5

1.70 1993

1995

1997

1999

2001

2003

2005

If making products more efficient appears to have no correlation with price, market observations and discussion held with manufacturers have helped to understand why the most efficient products on the market appear to also be the most expensive. The higher cost of these types of equipment appears to reflect the additional cost of features other than energy efficiency. More expensive appliances tend to differentiate themselves by appearance, quality of materials and higher levels of controls; all of which add to their price. Typically they brand themselves as high quality products, and low energy consumption may be used as a further indicator of quality. Further discussion of the reasons why these considerable improvements in performance have been achieved without causing increased prices are discussed in later sections of this paper.

65

7 Comparison with forecasted costs/prices

Not only are prices of energy efficient equipment falling in real terms, but where studies have made predictions about future costs, actual prices are consistently lower than those forecasted. For example, Figure 48 and Table 11 show a comparison of predicted and actual prices for three appliance types, used in technical analysis for the US Department of Energy to assess the impact of MEPS at different times (ie. they span only one round of regulations). In each case the forecasted prices exceed those observed in practice after implementation of regulations. A comparison between the forecasted percentage price changes due to the implementation of regulations in Australia, and the observed percentage price changes, also shows that the predicted price rises did not in fact occur (see Table 12).
Figure 48: Comparison of predicted and actual prices (Dale et al, 2002)
$5,000 $4,500 $4,000 $3,500 Price (US$2001) $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Central Air Conditioner (small) Central Air Conditioner (large) Refrigerator (1989) Refrigerator (1995) Clothes Washer (2.6 cu.ft.) Forecast Actual

Table 11: Comparison of average predicted results and actual prices (Dale et al, 2002)7. Forecasted Price Central Air Conditioner Small Large Refrigerator (top mounted auto defrost) Clothes Washer (2.6 cu.ft.) $2,791 (1989 TSD) $4,402 (1989 TSD) $915 (1989 TSD) $1,023 (1995 TSD) $689 (1990 TSD) $2,075 (1982-1988 Data) $2,694 (1982-1988 Data) $799 (1989-1994 Data) $795 (1995 TSD) $567 (1991-2001 Data) -26% -39% -13% -22% -18% Actual Price Difference (%)

Work by Van Buskirk and Malie suggests that previously used modelling of supply chain and markup costs may also have been overestimated (Van Buskirk and Malie 2001).

66

Table 12: Projected MEPS Impact on Purchase Price and Electricity Costs, Australia 1993-2007 (GWA, 1993), compared to observed prices in Australia (EES 2006a) Predicted % Change, 1993-2007 Real Price Refrigerator/Freezer Dishwasher Clothes Dryer Air conditioner Water heater All Appliances MEPS core group + 2.0 +10.4 + 1.6 + 1.4 + 8.2 + 4.2 + 3.1 Energy Cost - 4.5 - 4.2 - 1.8 - 0.4 - 26.5 - 5.7 -5.1 Life Cycle Cost - 2.6 + 4.4 - 1.1 - 0.2 - 10.6 - 2.2 - 3.4 Actual % Change, 1993-2005 Real Price - 20.0 - 26% - 12% Not recorded Not recorded Not recorded Not recorded

These comparisons raise a series of questions about the methods that are used in the difficult process of forecasting the future cost of energy efficiency improvements, and the accuracy of these methods. Improving our understanding of these issues is important in order to determine which policies will achieve effective energy and greenhouse savings at least cost.

67

8 Whats going on?

This paper shows that the price of appliances has been falling consistently over the past few years while at the same time become very much more energy efficient. Furthermore, while the most expensive appliances appear to also be more energy efficient, in general there appears little correlation between price and efficiency. This is contrary to conventional forecasts which tend to assume that improvements in appliance efficiency will cause prices to increase. In order to explain these findings, we have highlighted issues relevant to the appliance industry in more detail.

8.1

Designing for energy efficiency

Electrical equipment goes through a continual design process, either at the platform or model level. For whitegoods the platform will typically be redesigned every 3-5 years while changes to models will occur more frequently. At the platform level, major technical changes are made but cosmetic alterations can be incorporated model upgrades. The design of a new platform incorporates all major requirements including any relevant energy performance levels. Therefore energy performance is only one of many design criteria which must be met. It is the task to the designers to find a solution which meets these criteria at least cost. Discussions with several of the leading whitegoods manufacturers confirm that in past years it has been feasible to meet energy performance requirements at little or no additional cost. This is due to the following reasons:

There has been sufficient advanced notice to meet the requirements through normal re-design processes; Manufacturers have been innovative in the ways in which energy performance has been improved. The costs of some components have fallen considerably. For example, electronic timeclocks and controls have become very much more available and cheaper.

Anecdotal evidence also suggests that the price of many manufactured goods, including equipment, have fallen over the past several years. Discussions with industry reveal that while there are many factors which contribute to this, a major reason is that the manufacturing costs have been reduced. This has been achieved by a combination of switching to lower cost manufacturing centres, increased automation and competitive sourcing of components. It is clear that changes in the market for components is one factor which could not have been predicted by engineering type analysis, yet has greatly reduced the cost of efficiency improvements. This example also shows the ability of design processes to provide innovative solutions to overall performance targets, taking into account current market conditions. Where more prescriptive type requirements are used, there is a danger of impeding innovation and losing some of the cost benefits.

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8.2

Price of other commodities and Industry cost structure

A further measure of the whether the implementation of regulatory programmes have had an adverse impact on equipment prices is by comparison with the general movement of prices within an economy. The consumer price index (CPI) is used by most countries to measure inflation by tracking prices for a basket of goods and services, albeit that the contents of each basket varies from one country to the next. Figure 49 shows the CPI for several major economies, indicating that all but Japan have seen rising prices, in the order of 2% to 3% per annum over the period studied. In Japan, the rise has been 0.5% per annum.
Figure 49: National consumer price indexes (CPI), all goods and services
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

UK Only EU (15 countries) USA Japan Australia

180 200

160

140

120

100

Source: National CPI data.

Table 13 shows the average annual percentage change in appliance prices, after correction for inflation, for the various countries and products examined. These summarise the findings in previous sections of this paper, and therefore reflect differing time periods and programme performance requirements. In general however, they all indicate a considerable fall in prices over the implementation period.

69

Table 13: Annual % change in real prices (different implementation periods). Fridges Australia Japan US UK EU -1.8% -6.8% -2.7% -7.8% -1.7% -0.9% -3.3% Freezers -2.7% Dishwashers -2.7% Clothes Dryers -1.2% Washing Machine -3.5% -2.5% -6.4% -6% -0.8 Air Conditioners

A/A+ A B

In general, these figures indicate that nominal prices of equipment have risen less that other goods and services, suggesting that MEPS have had no discernable influence on equipment prices. A more precise measure is to compare prices with goods of a more similar nature to electrical equipments, and Figure 50 shows the price trend for only household goods and services (which have risen less than for the full CPI over the same period). A comparison with the nominal price trends of Australian electrical equipment suggests that prices for these products have risen less than the other selected goods and services in this economy. It is likely that the price of other goods and services will have risen more that indicated by the CPI in Figure 50, since the latter includes the data for electrical equipment.
Figure 50: Electrical equipment prices compared to prices for household goods and services, Australia
140

130

120

110 Index 100

90

80

Dishwashers Clothes Dryers Refrigerators Freezers Clothes Washers CPI CPI household G & S
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

70 1993

Source: National CPI data.

70

8.3

Pricing policies

Although price is the major issue for consumers, it does not necessarily reflect changes in the cost of producing and distributing an appliance. This is because suppliers may apply different margins to equipment in their range, they may change these amounts over time and one manufacturer may apply a different pricing structure to a competitor. In the particular case of energy efficient products, which often enter as a niche-market product, the low volume of sales may require a higher than average mark-up for the company to make a profit. As an efficient product gains market share, the margin may be reduced in order to become more competitive. Alternatively, a company that is aggressively seeking to enter a new market, or to establish energy efficient brand recognition, may choose consistently lower margins for a period of time, (see Hinnells, 2005 for further discussion). The commercially sensitive nature of pricing policies, together with the complexity of separating out pure efficiency costs from other appliance features, makes it difficult for an outside observer to understand how prices relate to the costs of manufacture. In a typical engineering analysis however, some assumptions must be made about margins in order to determine the effect on consumer prices. These are generally based on industry-wide mark-ups. The results yielded by this type of analysis can therefore only reflect average impacts and will not capture the shorter-term impacts of various pricing strategies pursued by manufacturers in the marketplace.

8.4

Summary

Based on this analysis, it appears that the observed fall in prices of energy efficient equipment over the past years is mainly due to:

Increased volumes of production; Innovative design solutions; and Decreased cost of production.

Government regulations for energy efficiency have helped to move energy efficient products out of niche markets and into the mainstream. As volumes of manufacture have increased, the cost per unit of manufacture has fallen and this has generally been reflected in the price of products to consumers. In addition, there have been further production efficiencies which come from familiarity with new processes and technology, and the development of innovation. The most likely explanation for the difference between the predicted and observed prices is depicted in Figure 51. At the time of an engineering analysis, energy efficient products have a low market share and command a high price premium compared to the conventional technology. By the time that further evaluation is undertaken, often after five or more years, the market for energy efficient products has grown considerably and the price reduced converging with that of the conventional technology.

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Figure 51: Price impact of market growth for energy efficient technology
120
Low market % Increased market %

100

80

Assumed price premium

New technology

Price

60
Mature technology

40

Observed price premium

20

Engineering

Time

Evaluation

At the same time, equipment prices generally have fallen, but this has not been as pronounced; so that the price differential between a conventional and energy efficient product has decreased.

72

9 Improved methods of predicting costs

In practice a number of methods, and combination of methods, are used to estimate the relationship between cost and efficiency for appliances. Each have their benefits and short-comings, as described below.

9.1

Costs Curves

Future technology costs are often shown on a cost curve. In the following figure, a theoretical cost curve (dotted line) for a typical appliance shows an increasing cost for marginal energy improvements. This means that it is less costly to save the first 25% of energy, than for the next 25%. However, the curve is more usually a series of steps, as illustrated by the pink line, where each step indicates the capital investment needed for technology improvements. This may reflect re-tooling costs, different materials or processes, or other changes in design which impact on the equipments efficiency.
Figure 52: Indicative equipment cost curve
35 30 25 Additional Cost 20 15 10 5 0 0% 10% 20% 30% 40% 50% Efficiency Improvement Theoretical cost curve Realistic cost curve 15% improvement 25% improvement 35% improvement 45% improvement

The relationship between cost and efficiency will not be homogenous for all equipment, since the incremental savings and costs for each improvement step will depend upon the technologies involved. In some cases the next improvement step may involve a change to a new technology, as occurs for example in some lighting sectors. While the initial 5%-10% improvement in commonly used lamps can be gained through improvements to incandescent lamps, such as the use of Krypton gas (Calwell, 2005), further significant savings necessitate a switch to compact fluorescent lamps. Another example includes the shift from linear power supplies to more efficient switch mode supplies. It is important to recognise that a cost curve does not include a time element it is a snapshot. However, the cost of energy efficiency technology is dependent upon sales volume which varies with time according factors such as policy decisions. The following methodologies are used to examine the relationship between equipment efficiency and cost (or price) under differing policy scenarios.

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9.2

Engineering analysis

One method is to identify the technological changes required to make improvements to energy performance, and to cost these items. This engineering analysis approach includes identifying design options or new technologies and their resultant energy savings. The cost of these options is often estimated based on input from manufacturers, taking into account assumptions about volume and implementation dates (McMahon, 2004). Manufacturers may also provide information on the relationship between costs and prices, used to model the impact on consumers. This process has the advantage of being able to isolate the cost of energy improvements from other types of design changes, however comparisons between engineering assessments made prior to the implementation of programmes and actual observed prices show that there is a consistent tendency to over-estimate the cost of energy efficiency (see Table 11 and Figure 48). There are a number of potential explanations for this, including:

Insufficient cost benefits attributed to economies of scale and learning-by-doing; Incorrect assumptions regarding the margins for equipment; Existing manufacturers may provide high estimates in order to deter governments from undertaking intervention activities; Modellers may themselves be conservative in order to present the worst case scenario and prevent any future shocks.

9.3

Price/market comparisons

In some cases, projected prices are estimated from an examination of the current market, based on the price of the most efficient models (in the target or other countries), or a statistical analysis of the spread of products. In this instance the distribution of price and efficiency for the range of current models available in a market are analysed to determine a correlation. Alternatively the cost of the most efficient models may be used as a proxy for future costs. This type of analysis uses the market price, and where necessary makes assumptions regarding the mark-ups in the supply chain to estimate costs of production. However the range of equipment in a market may have many varying characteristics in addition to energy performance. For example, models may also differ in size, design, level of control or materials, and all of these characteristics will have an influence on the cost of the product. It is therefore difficult to find products which are comparable in every respect except energy performance, in order to make reasonable assumptions regarding the relationship between price and performance. In addition pricing policies are usually complex, commercially sensitive and change over time. Thus the forecasting of future prices based on current prices introduces many potential inaccuracies. Further, basing future prices on the price of high efficiency products with low market share in todays market will ignore the economies of scale which occur when their market share expands.

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9.4

Time sequence analysis

A further method is to study the relationship between efficiency and price over time (as in section 6), and use this to determine a price/efficiency path. Where information is available, the tracking of prices and efficiency of equipment can provide a good indication of how prices change as the market share of more efficient equipment grows. However, this type of retrospective analysis can only be undertaken where products have been in the marketplace for a number of years and the data is comprehensive. Where products change frequently, a new technology is introduced, or where other product features change (volume, style, etc), it is difficult to use this method effectively.

9.5

Learning by doing

The observations regarding the prices of energy efficient equipment shown in this paper are not dissimilar to effects found in other industries, where the combination of these economies is often termed learning by doing. Importantly, learning by doing relates the cost of a technology to sales volume through the progress ratio which is the ratio of costs for every doubling of sales. Although the price of a commodity may not necessarily reflect the cost, however Figure 53 illustrates a typical cost and price path for many technologies; showing a reduction in both costs and prices with cumulative sales.
Figure 53: Learning by doing (OECD/IEA, 2000a)

Surveys amongst a substantial number of industries have found considerable similarities in the values of the progress ratio amongst different manufacturing processes OECD/IEA, 2000a). These surveys show that on average the unit cost is reduced to 0.82 of its previous level after a doubling of cumulative sales (ie each doubling of sales reduced the price by 18%). It should be noted that this effect is finite, once a technology is fully mature and has benefited from substantial market share. Unfortunately, because most of the available data available records prices, and therefore includes many elements not specifically relating to energy efficiency, it is difficult to use this to calculate historical progress ratios. It is clearer to see the relationship with new energy efficiency technologies, as shown in the following examples.

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9.5.1

Case study 1: US electronic ballasts

In the mid to late 1980s electronic ballasts for fluorescent lamps commanded a very low market share, despite being 40% more efficient than conventional technologies, and yielding excellent financial returns. In 1991, the US Government launched the Green Light programme to encourage the uptake of electronic ballasts by commercial building owners, and by 1997 these products had 35% of all new ballast sales in the US. As a consequence, prices dropped from US$40 to US$12 (see Figure 54) (Duke and Kammen, 1999).
Figure 54: Fluorescent lamp ballasts
45 40 35 30 Price (1997$) 25 25 20 15 10 5 0 1986 10 5 0 1997 20 15 Sales (mil) Actual price Sales (mil) 40 35 30

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

Source: derived from Duke and Kammen, 1999

The progress ratio for electronic ballasts in the US is plotted in Figure 55, showing a progress ratio of 91%, or a 9% price reduction for every doubling of output.
Figure 55: Progress ratio for US electronic ballasts
100

Unit Price (US1977$) 10 0.1 1.0 10.0 100.0 Cumulative Sales (millions)

Source: derived from Duke and Kammen, 1999

9.5.2

Case study 2: Compact fluorescent lamps

Also in lighting, there has been considerable growth in the market for compact fluorescent lamps as a more efficient replacement for incandescent lamps, as shown in Figure 56 (AGO, 2006). In this case the international market has grown from approximately 80 million lamps to 1400 million between 1990 and 2004, led by over 20 national labelling and MEPS programmes. At the same time, prices have dropped dramatically, from approximately $30 per lamp to $5 or less (Calwell et al, 2002, EcoNorthwest, 2002, 2004).

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Assuming that the margins remained similar over this period, Figure 57 suggests a progress ratio of approximately 10%. This contrasts with a value of 20.1% found in a 2000 study, but which was based on higher estimates of global CFL sales (Iwafune, 2000).

Figure 56: Global CFL Sales (AGO, 2006)

1,600 1,400 Cumulative Sales (millions) 1,200 1,000 800 600 400 200 0 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Figure 57: Progress ratio for compact fluorescent lamps

$100

Unit Price (US$2004)

$10

$1 10 100 1,000 10,000 Cumulative Sales (millions)

Source: derived from Du Pont, 2005

9.5.3

Other examples

Although there has been a number of studies of into learning by doing rates for energy systems including renewable energy technologies (see Table 14), little analysis has been undertaken to date on progress ratios for end-use energy efficiency technology.
Table 14: Estimated progress ratios for energy supply technologies (McDonald and Schrattenholzer, 2001) Product Nuclear Power plants Hydropower plants Coal Power plants Wind Power plants Solar PV Modules Progress ratio 5.8% 1.4% 7.6% 17% 20%

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Recently, McDonald and Schrattenholzer have cited values for some end-use technologies, presented in Table 15. Although diodes and ac/dc converters are not in themselves energy efficient technologies, they are significant components in many types of modern electronic equipment, and it is reasonable to assume that their progress ratios are indicative cost reductions in electronic components.
Table 15: Progress ratio for end-use technologies (McDonald and Schrattenholzer, 2003) Product Japanese air conditioners Laser diodes Ac/Dc Converters Progress ratio 10%-17% 23% 37%

9.6

Experience curves and making markets

Learning by doing suggests that the future cost of energy efficient equipment will be reduced by an increase in the volume of sales. Since the rate of naturally occurring energy efficiency in equipment is slow due to the presence of significant market barriers (Sathaye and Murtishaw, 2004), intervention is required to establish markets large enough to see reduce costs. As shown in previously, government policies such as MEPS, labelling and procurement are highly effective in enabling the most efficient technologies to gain market share. Learning by doing says that measures which increase the market size for technology will in themselves bring about cost reductions. This may be contrary to some opinions that regulatory intervention to promote energy efficient technologies lead to increased costs to the consumers. This analysis shows that the opposite is true experience has shown that where governments have taken action to promote energy efficient equipment, costs have fallen. Such intervention not only will advantage consumers as a result of lower appliance prices, but are likely to offer some of the lowest options in reducing greenhouse emissions. Learning by doing also suggests that there are added benefits from uniform appliance standards amongst trading countries, since these allow suppliers to access larger markets. Therefore the harmonisation of energy efficiency policies amongst nations may provide consumers with even larger price reductions for internationally traded energy efficient products. This is contrary to the view that the use of energy efficiency regulations reduces consumer choice by inhibiting international trade. It suggests that harmonisation of regulations, codes and other government measures to stimulate markets for energy efficient products will improve the availability of lower cost products. Learning by doing provides a good explanation for the general reduction in energy efficient appliance prices that have been observed over the past few years in most markets. As expected, some anomalies will exist as a result of the pricing policies pursued by individual companies, which mean that prices do not always track the underlying cost structure. Nevertheless, the limited number of examples cited show that progress ratios for end-use technologies are not dissimilar from emerging energy supply technologies.

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Applied to engineering type analysis, leaning by doing techniques could provide a more accurate method of predicting the future costs of energy efficient equipment. However, further data collection and analysis will be required in order to determine progress ratios that can be used with confidence in this way.

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10 Conclusions
10.1 Programme Coverage
Investment in capacity building over a number of years in IEA countries has provided most with a solid foundation of MEPS and mandatory energy labels, which comprise the cornerstone of national energy efficiency strategies. In addition to the expansion of these mandatory programmes which is already planned there is still room for extending coverage, in particular within the areas of lighting, home entertainment and ICT equipment. The areas where there are most opportunities for expansion are shown in Table 16 and discussed below.
Table 16: Opportunities for expansion of MEPS and mandatory labelling in IEA countries, by end-use application IEA Countries Application 1 2 3 4 5 6 7 8 9 10 Space Heating Space Cooling Water Heating Refrigeration Lighting Cooking Laundry (incl. dishwashing) Home entertainment Information & Communication Technology (ICT) Other

Major Developing Countries

In residential lighting, while most IEA countries have MEPS for linear fluorescent lamps, ballasts, further attention needs to be given to measures for luminaires, CFLs and in some markets, to tungsten halogen lighting and transformers. For traditional wet equipment, coverage could also be extended in many IEA countries to cover the standby power consumption within MEPS and mandatory labels for these types of equipment. There is considerable potential to introduce new mandatory measures in the home entertainment and ICT field, focussing on electronic products with substantial electricity consumption, and covering all modes of operation. Despite the growing electricity consumption from small electronic products entering households, no existing regulations cover the standby power consumption of the full range of these products. For water heating there are some opportunities to improve efficiency by introducing MEPS for electric water heaters where countries have not yet done so. However the most significant energy and greenhouse gas savings will result in shifts towards solar water heating and other more efficient technologies. Similar options exist to meet lighting, space heating and cooling, and some cooking demand through a co-ordinated mix of demand reduction policies and switching to alternative technologies. These are discussed in section 10.3 below.

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All the major developing countries have the legislative capacity to expand the scope of MEPS and labelling programs and there are widescale opportunities to do so. The example of countries with current programmes, as shown in Table 17, could be duplicated to expedite implementation, while also increasing harmonisation across economies and minimising the dumping of inefficient equipment.
Table 17: Existence of test methods and performance thresholds for residential end-use equipment Product Ducted heaters/furnaces Central heaters/boilers Room heaters Heat pumps Window & single split a/c Mini-split a/c Ducted air-conditioners Portable air-conditioners Evaporative coolers Ceiling Fans Storage water heater Storage tanks & cylinders (insulation) Instantaneous water heater Refrigerators Refrigerator-Freezers Freezers Water cooler Incandescent (GLS) Incandescent Reflector Lamps Linear Fluorescent Lamps CFLs Halogen Lamps Ballasts Halogen transformers Luminaires Ovens Cooktops Microwaves Rice Cookers Dishwashers Test method

Performance threshold

Test method Clothes washers Clothes dryers Washer-dryers TV VCRs DVD players DVD Recorders PVR recorders Set-top box Stationary Audio equipment Portable Audio Equipment Home theatre Camcorder Game console External Power Supplies, incl mobile phones Desktop Computer Laptop Monitor Copiers Printers MFDs Scanners Faxes Modem Portable Telephones Answer machines Battery Chargers Vacuum cleaners Misc

Performance threshold

In the commercial and industrial sectors, there is a large potential to expand regulatory programmes in both IEA and the major developing countries. Programmes covering the mass-produced equipment shown in Table 18 have already been developed in one or more economy and could therefore be readily duplicated.

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Table 18: Existence of test methods and performance thresholds for commercial & industrial end-use equipment Product 1 2 3 4 5 6 7 8 9 10 Motors Distribution transformers Commercial Refrigerated Cabinets Beverage Vending Machines Ice Makers & Ice Storage Bins Water Dispensers A/c & Chillers HID Lamps & Ballasts Street lighting Traffic signals Test method

Performance threshold

10.2 Impact of MEPS and mandatory energy labels on equipment costs and appliances
Understanding the future cost of energy savings from equipment is an important input for the type of energy and economic impact modelling used to inform policy makers. Without accurate forecasts of demand side costs some of the lowest cost options for greenhouse mitigation may be overlooked. Results spanning a range of equipment in the US, European countries, Japan and Australia demonstrate that these are much more energy efficient and less expensive now than 10 years ago, and their price continues to fall each year. Most of the types of equipment tracked are included in government programmes designed to promote energy efficiency, such as MEPS or labelling schemes. This study demonstrates that the implementation of regulatory policies has not increased consumer prices. Interviews with representatives of the appliance industry confirm that 3-5 years advanced notice has allowed them to integrate energy performance requirements within their conventional design processes and minimise costs. It is also apparent that actual market prices for energy efficient equipment are considerably less than had been predicted prior to the implementations of measures to stimulate growth in the market for efficient technologies. The most likely explanation is that costs have reduced as the market share has grown, and companies have found innovative means to reduced energy consumption. Since most appliance features are continually improving it is difficult to isolate the impact of energy efficiency improvements by observing prices only. Engineering analysis provides the most effective means to predict future manufacturing costs, but the results should be used with care as they are likely to under-estimate future changes in the underlying cost-structure and the role of innovation in the design process. Learning by doing provides a good explanation for the general reduction in energy efficient appliance prices that have been observed over the past few years, and the limited number of examples cited show that progress ratios for end-use technologies are not dissimilar from emerging energy supply technologies. Applied to engineering type analysis, leaning by doing techniques could therefore provide a more accurate method of predicting the future costs of energy efficient equipment. Rather than increasing appliance prices, this study shows that the government policies designed to increase the market share of energy efficient equipment are a highly effective means of reducing consumer prices, while at the same time cutting greenhouse gas emissions.

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Residential electrical equipment household appliances contribute 30% of all electricity consumed in OECD countries and produce 21% of all energy-related CO2 emissions. In this context it is extremely important that the relationship between the price and efficiency of equipment is better understood. This will require considerably more resources than is commonly allocated for the collection of data on costs, prices and efficiency; engineering type analyses and the development of predictive tools such as learning by doing curves.

10.3 Alternative policy options

MEPS and mandatory labels have been effective in increasing the efficiency of many individual types of equipment, however in some cases there are limits to potential energy savings which can be gained, either because of the impact of policies or where the range of efficiency of equipment in the market is restricted. This explains why there are few examples of policy measures directed towards electric room heaters, cooktops and ovens. However there are options for switches of technology which would result in either energy or greenhouse gas emissions savings for such applications. The need for space heaters can be effectively minimised through improvements to building fabric and building design; while efficient heat pumps are a more efficient means of providing the same heating service. While the use of MEPS on electric water heaters have reduced heat losses quite considerably, resulting in substantial energy savings, there are limits to the potential extent of further savings. Far larger reductions in electricity consumption can be gained through switching to increased use of solar water heaters. Meeting future energy demand in some end-use applications will require a combination of policies to achieve demand reductions and switches to efficient equipment. This is most evident in space heating and cooling, water heating and lighting, as indicated in Table 19.
Table 19: Technology options for electric end-use applications End-use Electric space cooling Technology options Reduced demand: improved building fabric and design elements Evaporative cooling (suitable in selected climates) Electric space heating Reduced demand: increased insulation levels, thermal mass Passive solar design Efficient heat pumps Efficient reverse cycle-air conditioners Efficient gas-fired space heating Electric ovens & cooktops Electric water heating Gas-fired cooking equipment Reduce demand: Efficient showerheads, tap flow restrictors Solar water heaters Efficient gas-fired water heaters Lighting Reduced demand: increased natural daylight Higher efficiency lamps

In the case of lighting, there are ranges of lamps which offer far higher efficacy than some lamp types in common use. For example, switching incandescent to compact fluorescent lamps, and mercury 83

vapour to high pressure sodium or metal halide, both offer more potential energy savings than favouring the most efficient examples within each lamp type. Some governments have already signalled their intention to use MEPS to phase-out the most inefficient incandescent lamps in response to calls by the lighting industry. Recent international discussions demonstrate that the interests of governments and industry can be bought together to form a coherent strategy backed by sensible policy measures (IEA, 2007). MEPS and mandatory labels can play an important role in providing the instrument to remove inefficient technologies from the market in a controlled and premeditated way while also ensuring that the alternative technologies meet consumer expectations. For example, in the case of residential lighting, governments could set tiers of MEPS thresholds to come into force progressively over time, starting with a requirement that lamps must meet the requirement of 15 lumens/watt, for example. This would effectively phase-out the most inefficient incandescent lamp technologies, while providing lamp manufacturers with the option of producing more efficient incandescent lamps or focussing on CFLs or other high efficacy alternatives. While it is apparent that industry is increasingly willing to engage in negotiation about the replacement of inefficient technologies, governments need to take the lead in developing policies which provide industry with the opportunity to adjust, and consumers with confidence that the necessary alternative technologies will be available. This kind of approach could be used with the other applications listed above to phase-out inefficient technologies in favour of existing alternatives. By identifying future targets, this would also provide considerable incentives to manufacturers to step-up the development of new technologies able to meet future requirements.

10.4 Increasing the impacts of MEPS and mandatory labelling programmes

Earlier in this paper data was included which showed how effective MEPS programmes have been in reducing the energy consumption of certain equipment where they had been applied over a number of years. However there are a range of other factors which impact on the on-going effectiveness of mandatory programmes, and these are discussed below. 10.4.1 Maintaining stringency Thresholds for regulatory programmes require periodic review in order to keep pace with technological changes and to keep improving product performance. Typically review cycles of 3-5 years are needed to maintain relevance although this may vary for different products and markets. Monitoring of the spread of product performances in the market can be used to indicate when comparative labels should be re-scaled in order to provide consumer choice, and when new MEPS levels are required. In China and Australia, regulations usually specify at least two performance levels for each product category. These indicate the (lower) MEPS level to be introduced, and a high efficiency or reach threshold. Not only can the latter be used immediately as the basis for an endorsement label or procurement, but they also illustrate the likely MEPS level to be adopted in the future. The benefit of this approach is that it provides a clear signal to industry of the target performance levels, and allows considerable notice for manufacturers and supplies to make the necessary preparations. As discussed

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earlier in this paper, the amount of warning given to industry in advance of regulations is a key factor in their ability to reduce any cost impact. 10.4.2 Effective Enforcement Not only does the impact of regulatory programmes rely upon effective enforcement procedures, but these can also help determine the degree of support obtained by industry and other stakeholders. Over recent years we have seen Industry Associations come out in support of regulatory energy efficiency requirements in Australia and Europe (EES 2006c, CECED 2007, EICTA 2006), due to the fact that such programmes are established to provide a fair and level playing field for all. Enforcement of regulations is therefore important to ensure that energy efficiency opportunities are maximised and that compliant manufacturers are not disadvantaged in competition with those that are allowed to avoid requirements.

The legislative framework supporting MEPS and labels differ amongst countries and this is also reflected in the diversity of enforcement procedures. Considerable attention is needed to design a comprehensive system which is able to monitor and detect non-compliance, and to apply appropriate penalties where necessary. An effective enforcement regime has a number of components which include the use of accurate test methods to measure performance, the availability of technically competent testing facilities, market notification and surveillance. Further information on these aspects is included in a number of publications, for example the CLASP guidebook on Energy Efficiency Labels and Standards (Clasp, 2005), Energy Labels and Standards (OECD/IEA, 2000b), Cool Appliances (OECD/IEA, 2003) and Lights Labours Lost (OECD/IEA, 2006a). Although there is now substantial experience in the design and implementation of enforcement mechanisms, it is evident that all countries could improve this aspect of their programmes. In recent years there have been a number of examples of independent tests undertaken by trade groups, and energy efficiency advocates which have demonstrated non-compliance to an extent which is unexplained by normal product variations (CELMA 2007). For example, a review of enforcement activities undertaken by nine European Union Member States in relation to the EU Energy Labelling Directive found that five of the States did not follow up on compliance issues despite evidence that only 60-80% of products displayed labels. Only two Members undertook regular check tests on products in any significant quantity; and no enforcement actions were reported in seven of the nine Member States. The report also found that no compliance assessment has been undertaken across the EU (ANEC 2007). As programmes expand to cover a wider range of products, and thresholds become more stringent, it is of the utmost importance that priority is given to maintaining the credibility of these programmes through adequate enforcement. This will require increased resources beyond those currently allocated by governments and, in some cases changes to the legislative framework under which programmes operate. While penalties are only one component of any enforcement system, they need to be scaleable to match the offence, but ultimately sufficient to deter non-compliant behaviour. As regulations affect the market for large, often global, businesses, financial penalties may need to be considerable to be effective. For example, in 2006 one manufacturer was required to return up to A$3.1 million to 85

customers for supplying air-conditioners which had incorrect information on the energy efficiency label; which is believed to be the largest action taken in the world for non-compliance with energy regulations (ACCC 2006). On the other hand, in many cases the threat of public identification may be sufficient sanction for well-known brands. These are only some of the options which form an effective deterrent, and illustrate the need for a comprehensive system to be put in place to ensure the investments made by manufacturers.

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11 Recommendations
This paper examines the coverage and impact of MEPS and mandatory labelling programmes on electrical end-use equipment. In the light of the conclusions that these types of programmes have been highly effective in reducing energy consumption without causing an increase in costs to the consumer, the following recommendations are made: Building on the investment made in energy efficiency regulations in IEA and the major developing countries, a far greater degree of attention should be given by governments to ensuring that performance requirements are maintained at appropriate levels to keep pace with technological developments, and rigorously enforced. This is of the highest priority in order to realise the potential for energy and greenhouse gas savings, and to maintain credibility with industry and consumers. It will require governments to substantially increase their financial support for these types of programmes over forthcoming years, however this can be done with negligible impact on the cost-benefit of these programmes. In IEA countries, mandatory programmes should be expanded to the end-use equipment not currently covered. Priority should be given to the areas of lighting, home entertainment and ICT equipment, and to mass-produced commercial and industrial electrical equipment. In framing MEPS and mandatory labels for types of equipment which are responsible for significant electrical consumption, requirements should cover active mode and low-power modes where appropriate. In the major developing countries, there is a need to expand mandatory programmes to cover a range of end-use equipment in all sectors, using the existing examples elswhere. Where opportunities exist for significant efficiency improvements or savings in greenhouse gas emissions, governments should use appropriate policy instruments such as MEPs appropriate policy instruments such as MEPs to phase-out the least efficient technologies, in favour of a combination of demand reduction and alternative technologies. This will require that governments take the lead in developing a policy mix which provides industry with the opportunity to adjust, and consumers with confidence that the necessary alternative technologies will be available. Priorities for this approach include incandescent and mercury vapour lamps, electric space and water heating and some electric cooking equipment. Horizontal regulations should be used to tackle standby power consumption by consumer electronic devices not covered by other measures. Since these mainly comprise internationally traded goods, test methods and performance requirements need to be co-ordinated internationally. Governments need to consider what mechanisms are required to effectively undertake these co-ordination activities. Standby power regulations should include requirements for automatic switching to low-power modes. Governments should also recognise the importance of effective power management in digital home networks, and take necessary steps to ensure that industry-wide protocols are introduced for connected devices which enable low power modes to be accessed. To assist governments to develop and track the impacts of policies for efficient equipment, countries need to assess energy consumption by end-use on a thorough, systematic and regular basis. This work should also include forecasts of consumption under business as usual and a range of policy scenarios.

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12 References
ACCC (2006), New Release: LG Compensates Consumers Over Misleading Energy Ratings, Australian Competition & Consumer Commission, 28 September 2006. AGO (2006), International CFL Market Review: A Study of Seven Asia-Pacific Economies, prepared for the Australian Government in support of the International CFL Harmonisation Initiative. ANEC (2007), A Review of the range of activity throughout Member States related to compliance with the EU Energy Label regulations in those countries. Commissioned by ANEC and UK Market Transformation Program, January 2007. ASE (2006), see www.ase.org for update on State Appliance Standards. Bergland, C. and Soderhom, P. (2006), Modeling technical change in energy system analysis: analysing the introduction of learning-by-doing in bottom-up energy models, published in Energy Policy 34 (2006) pp1344-1356. Calwell, C. (2005), Background on Proposed Tier 2 Efficiency Standards for General Service Incandescent Lamps, Ecos Consulting, presented on behalf of PG&E, July 18, 2005 Sacramento, California, USA. Calwell, C. Zugel, J. Banwell P. and Reed, W. (2002), 2001A CFL Odyssey: What Went Right?, presented at ACEEE Summer Study, 2002, California, USA. CECED (2007), Top Executives Discontinue Voluntary Energy Efficiency Agreements for Large Appliances, press release 21 March 2007. CELMA (2007) Press Release: CELMA Market Surveillance Forum at Light + Building. CEPE & Fraunhofer (2003), Energy Consumption of Information and Communication Technology (ICT) in Germany up to 2010, Summary to the German Federal Ministry of Economics and Labour, Project number 28/01, Fraunhofer Institute for Systems and Innovation Research (Fraunhofer ISI) and Centre for Energy Policy and Economics (CEPE).. CLASP (2005), Energy Efficiency Labels and Standards: A Guidebook for Appliances, Equipment and Lighting, Collaborative Labelling and Appliances Standards Program (CLASP), Washington DC, February 2005. Dale, L. Antinori, C. McNeil, M. and McMahon, J. (2002) Retrospective Evaluation of Declining Price for Energy Efficient Appliances. Lawrence Berkeley National Laboratory, paper 9.55 presented at ACEEE 2002. DOE (Department of Energy) (1995), Technical support document: Energy efficient standards for consumer products: refrigerators, refrigerator-freezers and freezers, report No. DOE/EE-0064 prepared by Lawrence Berkeley Laboratory, July 1995.

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DOE (Department of Energy) (2005), Technical report: Analysis of Amended Energy Conservation Standards for Residential Refrigerator-Freezers, Washington DC, October 2005. Duke, R. and Kammen, D. (1999), The economics of Energy Market Transformation Programs, published in the International Association for Energy Economics Vol. 20 (4) pp 15-64. E3 (2006a), Achievements 2005, Equipment Energy Efficiency Program, Australian Government, August 2006. E3 (2006b), Draft Proposal for Minimum Energy Performance Standards, Report 2006/13, Australian Government, November 2006. EcoNorthwest (2001) Energy Star Residential Lighting Program Market Progress Evaluation Report, prepared for the Northwest Energy Efficiency Appliance, report No. E02-101, June 20, 2002, Oregon, USA. EcoNorthwest (2004), Energy Star Residential Lighting Program Market Progress Evaluation Report, prepared for the Northwest Energy Efficiency Appliance, report No. E04-130, August 16, 2004, Oregon, USA. ECCJ (2006a), Japan Energy Conservation Handbook 2005/6. ECCJ (2006b), Survey and analysis of sales and prices for energy saving products, Energy Conservation Centre Japan, January 2006. EES (Energy Efficient Strategies) (2006a), Greening Whitegoods: A report into the energy efficiency trends of Major Household Appliances in Australia From 1993 to 2005, report 2006/06 for Equipment Energy Efficiency (E3) Committee. EES (Energy Efficient Strategies) (2006b), pers com. EES (Energy Efficient Strategies) (2006c), Standby Power Current Status, Report No. 2006/10 prepared for the Equipment Energy Efficiency (E3) Committee. EICTA (2006), EICTA position on Green Paper on Energy Efficiency, COM 265 final, 30 March 2006. Fischer, C and Morgenstern, R. 2006. Carbon Abatement Costs: Why the wide range of Estimates? Energy Journal 27 (2), 2006, pp 73-86. Gillingham, K. Newell, R. and Palmer, K. (2004), Retrospective Examination of Demand-Side Energy Efficiency Policies, Discussion Paper published by Resources of the Future, September 2004 GPOA (2005), Gleneagles Plan of Action, statement from G8 leaders Summit, Gleneagles, Scotland. GWA (1993), Benefits and Costs of Implementing Minimum Energy Performance Standards for Household Electrical Appliances in Australia, prepared for Demand Side Unit, State Electricity Commission of Victoria, George Wilkenfeld and Associates Pty Ltd, Sydney, July 1993.

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Hinnells, M. and McMahon, J. (1997), Stakeholders And Market Transformation: An Integrated Analysis Of Costs And Benefits, presented at the 1997 ECEEE Summer Study by Mark Hinnells of the Environmental Change Unit, University of Oxford, and James E. McMahon Lawrence Berkeley National Laboratory, California. Hinnells, M. (2005), The cost of a 60% cut in CO2 emissions from homes: what do experience curves tell us?, presented at the BIEEE conference, Oxford, September 2005. HTN (2007), Home Theatre Network: http://www.hometheaternetwork.com/ IEA (2007), see http://www.iea.org/Textbase/work/workshopdetail.asp?WS_ID=288 Iwafune, Y. (2000), Technology Progress Dynamics of Compact Fluorescent Lamps, International Institute for Applied Systems Analysis (IIASA), Interim Report IR-00-009. Meyers, S. McMahon, J. and McNeil, M. (2005), Realized and Prospective Impacts of US Energy Efficiency Standards for Residential Appliances: 2004 Update, Report LBNL-56417, Environmental Energy Technologies Division, Lawrence Berkeley National Laboratory, California, May 2006. McDonald, A. and Shrattenholzer, L. (2001), Learning rates for energy technologies, printed in Energy Policy 29, 2001, pp255-261. McDonald, A. and Shrattenholzer, L. (2003), Learning curves and technology assessment, reprinted from International Journal of Technology Management 23 (7/8): 718-745 (2002). McMahon, J. (2004), Comparison of Australian and US Cost-Benefit Approaches to MEPS, report No. 2004/20, Lawrence Berkeley National Laboratory, California, April, 2004. METI (2006), 2005 Survey of Standby Power, published by Agency for Natural Resources and Energy (METI), and ECCJ, March 2006. NAEEEP (2005), When you keep measuring it, you know even more about it! Projected Impacts 2005-2020, Report No. 2005/05 Commonwealth of Australia. NRDC (2007), NRDC Study of Set Top Box and Game Console Power Use, results provided by Natural Resources Defense Council based on research by ECOS Consulting, May 2007. NRCAN (2006), Energy Use Data Handbook 1990 and 1998 to 2004, Office of Energy Efficiency, Natural Resources Canada. OECD/IEA (2000a), Experience Curves for Energy Technology Policy, OECD/IEA, Paris, France OECD/IEA (2000b), Energy Labels & Standards, Paris, France. OECD/IEA (2003), Cool Appliances: Policy Strategies for Energy-Efficient Homes. Paris, France. OECD/IEA (2004), 30 years of energy use in IEA countries: oil crises & climate challenges, Paris, France. OECD/IEA (2006a), Lights Labours Lost: Policies for Energy-Efficient Lighting, Paris, France

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OECD/IEA (2006b), Electricity Information, Paris France OECD/IEA (2006c), Energy balances of OECD Countries 2003-4, Paris France. OECD/IEA (2006d), Energy balances of non-OECD Countries 2003-4, Paris France. OECD/IEA (2006e), World Energy Outlook 2006, Paris France. OECD/IEA (2007), Mind the Gap, to be published September 2007, Paris France. Sathaye, J. Murtishaw, S (2004), Market failures, consumer preferences and transaction costs in energy efficient purchase decisions, report CEC-500-2005-020, prepared for the California Energy Commission Public Interest Energy Research Program, California USA. Schiellerup, P. (2001), An examination of the effectiveness of the EU minimum standard on cold appliances: the British case, presented at the ACEEE 2001 Summer Study by Pernille Schiellerup, Environmental Change Institute, Oxford, UK. Schwengels, P. Fridley, D. Li, T. du Pont, P. (2006), Endorsement Labelling in Developing and Transition countries: Results and Prospects., paper 142 presented at EEDAL 2006, London. SEEM (2006), Market Transformation to Promote Efficient Motor Systems, Standards for Energy Efficiency of Electric Motors, presented 20th June 2006, London. Stockle, F. (2006), Trends of major domestic appliance sales in the various phases of energy efficiency legislation in Europe, presented at EEDAL 2006, London, June 2006. Van Buskirk, R. and Malie, C, (2001), Incremental Distribution chain costs and markups for energy efficient consumer products, presented at the ACEEE 2001 Summer Study by Robert Van Buskirk, Lawrence Berkeley National Laboratory and Chlo Mali, Institut National des Sciences Appliques de Lyon. Waide, P. (2001), Monitoring of energy efficiency trends for refrigerators, freezers, washing machines, washer-dryers and household lamps sold in the EU, Final Report v.0, produced for Agence de lEnvironnement et le Matrise de lnergie under Save Contract No. XVII/4.1031/Z/99-216. Waide, P. (2006), Energy and Climate Standards Benchmarking and Options for Harmonisation, ICTSD project on making the multilateral trading system supportive of the transition to a sustainable energy future fostering new and innovative solutions.

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Appendix 1: List of End-Use Equipment

Product 1 Ducted heaters/furnaces 2 Central heaters/boilers 3 Room heaters 4 Heat pumps 5 Window & single split a/c 6 Mini-split a/c 7 Ducted air-conditioners 8 Portable air-conditioners 9 Evaporative coolers 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Ceiling Fans Storage water heater Storage tanks & cylinders (insulation) Instantaneous water heater Refrigerators Refrigerator-Freezers Freezers Water cooler Incandescent (GLS) Incandescent Reflector Lamps Linear Fluorescent Lamps CFLs Halogen Lamps Ballasts Halogen transformers Luminaires Ovens Cooktops Microwaves Rice Cookers Dishwashers Clothes washers Clothes dryers Washer-dryers TV VCRs DVD players DVD Recorders PVR recorders Set-top box Stationary Audio equipment Portable Audio Equipment Home theatre Camcorder Game console External Power Supplies, incl mobile phones Desktop Computer Laptop Monitor Application Space Heating Space Heating Space Heating Space Heating Space Cooling Space Cooling Space Cooling Space Cooling Space Cooling Space Cooling Water Heating Water Heating Water Heating Refrigeration Refrigeration Refrigeration Refrigeration Lighting Lighting Lighting Lighting Lighting Lighting Lighting Lighting Cooking Cooking Cooking Cooking Dishwashing Clothes Washing Clothes Drying Clothes Washing Home entertainment Home entertainment Home entertainment Home entertainment Home entertainment Home entertainment Home entertainment Home entertainment Home entertainment Home entertainment Home entertainment ICT ICT ICT ICT

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49 50 51 52 53 54 55 56 57 58 59

Copiers Printers MFDs Scanners Faxes Modem Portable Telephones Answer machines Battery Chargers Vacuum cleaners Misc

ICT ICT ICT ICT ICT ICT ICT ICT ICT Other Other

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Appendix 2: The role of information on costs and prices

12.1 Policy analysis - Cost-benefit studies
Most government programmes designed to stimulate greater energy efficiency in end-use equipment are required to analyse the cost implications. Often this takes the form of a cost-benefit study which estimates the monetary net benefit from the programme and the predicted extent of energy and/or CO2 savings8. The scope of these studies and the range of assumptions used vary considerably, however the relationship between the cost and efficiency of equipment always plays a central role in the modelling of programme impacts. Ex ante analyses of programmes are by definition forward looking: they establish a projection of the market and technology over a given period (eg.10-20 years) and estimate a benchmark against which the impact of the programme can be measured.9 This is often referred to as the business as usual scenario. A series of alternative projections are then made, to assess the relative impact of the programme. Factors typically taken into consideration include, but are not limited to:

The market penetration of technologies; Changes in the energy efficiency of a technology cause by factors other than the programme; Changes in the energy efficiency of a technology cause by the programme; The rate of implementation of the programme; Fuel prices; Appliance prices.

In simple terms, cost-benefit studies assume that any increase in the cost of manufacturing more efficient equipment is reflected in higher prices to consumers. Where these increases are caused directly by the programme, these are considered to contribute to the net cost. In this instance, consumers will also experience reduced energy consumption costs due to the uptake of more efficient equipment. The resultant reduction in energy costs is considered to contribute to the net benefits of the programme. In some cases, consumers may choose to translate monetary savings in energy costs into increased levels of service, such as greater levels of heating or cooling: a practice known as the rebound effect. Modelling generally assumes that the value of this benefit to consumers is equal to the foregone monetary benefit. Improvements to the environment, for example a reduction in CO2 emissions, or increases in energy security, are often key outcomes from energy efficiency improvements and the driver for government policy. However, impacts such as these which are referred to as externalities are seldom included in cost-benefit models. This may change in the future as market-based carbon trading schemes provide an indication of the financial value of reduced carbon emissions. These types of cost-benefit studies may be used in one of two ways, or both. They may assess the impact of different levels of stringency (ie. Energy performance thresholds), in order to recommend

8
9

Examples include the US DOE and the Australian Greenhouse Office Sometimes more than one benchmark may be used, reflecting uncertainties in some of the key features of the market, or the technology in the future.

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an optimised level for adoption as policy. Alternatively they may be used to demonstrate that the recommended policy provides a net benefit for the community. In either case, the assumptions regarding the future cost of efficient equipment play an important role.

12.2 Energy and Greenhouse Reduction Modelling

As governments attempt to make a policy response to the need to reduce greenhouse gas emissions and energy consumption, models which predict the economic, energy and environmental impacts of policy have become increasingly important sources of information. There are two basic types of model: The top-down approach which considers the energy system as a subsector of the entire economy; and the bottom-up approach where the energy sector is examined in greater depth (Bergland and Soderhom, 2006). Typically, bottom-up type models are used to determine the least-cost means of achieving specified energy and greenhouse outcomes, and have been more effective in integrating the impact of energy efficiency improvements in end-use technologies. Both types of model use assumptions regarding the future cost of energy, or energy efficiency, as an important input. It is worth noting that the resource costs for energy efficiency are not quite that same as the marginal cost of improving the efficiency of an appliance, as discussed in section 2. In general terms, the cost of saving energy includes all costs required to have the appliance installed and working in a residence. In additional to the cost of a more efficient appliance, this might include any costs related to marketing, regulations, or financial incentives. For end-use energy efficiency the resource cost is usually the technology and implementation costs included in within a programme. From previous discussions in this paper it is evident that our ability to forecast technology costs could be improved. In addition, information is lacking on the total implementation costs of many types of potential large-scale demand-side programmes. This contrasts with the energy supply-side, where it is relatively easy to gain reliable costings for the supply of additional resources. This is in part due to the maturity of some of the supply-side technologies, but also because substantial efforts have been made to gaining a better understanding of future costs through, for example, the development of predictive tools for the cost of solar PV, wind and other developing technologies Many studies from different countries have indicated the availability of substantial resources for energy efficiency at low cost compared to other options. This has maybe reduced the apparent need to provide more in-depth assessments of resource costs, however the lack of comprehensive and accurate information in this area seriously undermines the credibility of claims made for end-use energy efficiency.

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Appendix 3: Information on the sources of data

The following section includes information relating to the type of data used in this paper. In most cases, the explanations are extracted from relevant reports referenced in the text.

United States
The following explanation of the data presented in this report is taken from: Retrospective Evaluation of Declining Prices for Energy Efficient Equipment, Larry Dale, Camille Antinori, Michael McNeil and James E. McMahon. Lawrence Berkeley National Laboratory. Further information is available from the DOE Website http://www.eere.energy.gov/buildings/appliance_standards/residential_products.html

Between 1980 and 2000, DOE announced and implemented minimum efficiency standards for a variety of residential equipment, including room air conditioners (RAC), central air conditioners (CAC), refrigerators and clothes washers. Accompanying each announcement, DOE issued a Technical Support Document (TSD) for the rulemaking. As part of these studies, DOE contractors forecasted the retail price increases that would result in a market of more energy efficient, and, presumably, more costly equipment. This estimate was generally performed using an engineering approach, that is, by assessing the materials and labor costs to manufacturers associated with implementing energy efficiency technology. Inflation adjusted prices were assumed constant over time, and uniform retail markups were applied. The TSD price estimates are integral in assessing the cost impact to the consumer, the payback period and the national impacts of higher appliance standards. Life cycle cost and payback period are calculated based on estimates of incremental costs related to efficiency improvement. Standards are set at the highest cost-effective level. Therefore, the likely effect of an overestimation in cost increases is implementation of a standard that is not as stringent as it might be. Federal appliance minimum efficiency standards remove models below a certain baseline from the market. Generally, DOE conducts an engineering-economic study to assess the current appliance market and the existing efficiency technologies. Economic analysis includes consumer life cycle cost and national net present value estimates of several possible efficiency levels. The results of this study are published as a Technical Support Document (TSD) that accompanies the Notice of Proposed Rulemaking (NOPR) and the Notice of Final Rulemaking (NOFR) prescribing the standard level. Manufacturers generally have several years between the NOFR and the standard implementation date and can begin test marketing high efficiency products well before the implementation date of the standard. Upon implementation, the manufacture of less efficient designs is prohibited. Efficiency Data: In the case of both room and central air conditioners, efficiency ratings were listed directly in the Sears catalog for every model. The efficiency metric for RAC is the Energy Efficiency Ratio (EER), measured in Btu/hr/W which represents the cooling capacity output for a given power input. EER ranges from about 5 to about 10.5 in the RAC data. The efficiency

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indicator for CAC is SEER. SEER is defined similarly to EER but based on seasonally adjusted cooling loads. The efficiency range in the CAC data is from about 5.5 to 11.5 SEER. Since refrigerators operate year round, they can be rated simply in terms of total annual energy consumption, in kilowatt-hours. Federal efficiency standards are volume dependent1, allowing larger capacity refrigerators to use more energy than smaller ones. Efficiency in our sample ranges from .015 to .05 (ft3/kWh) -1. Capacity and consumption data were taken from the AHAM certified directory where available2 (AHAM 1978-2001). Clothes washer efficiency data were not available from Consumer Reports. Total energy consumption per cycle, including water heating energy was taken from manufacturer reports collected by Natural Resources Canada and the Federal Trade Commission, and ranges from 0.2 to 1.6 (kWh/cycle)-1

Australia
The following explanation of the data presented in this report is taken from: Greening Whitegoods, a report into the energy efficiency trends of Major Household Appliances in Australia From 1993 to 2005. Report by Energy Efficient Strategies for the Equipment Energy Efficiency (E3) Committee, June 2006. The data shown is based on the EES analysis of the product list provided by GfK. For the thirteen years analysed, a clear trend for most performance characteristics generally emerged, although, even at the detailed level, there is some variation in the results from year to year. Some caution is required in the interpretation of these results. Shifts in the various parameters from year to year may be due to a combination of actual sales weighted trends in equipment sold together with some effect from the actual mix of models for which GfK have provided sales data. It is hoped these variations will be minimised in future when full data sets are used to track trends from 2001. While the data in this report and the associated detailed output tables provides a good basis for analysing trends, it needs to be noted that the values reported are as registered for energy labelling, which are based on the relevant Australian Standards for determination of performance and energy consumption. While these provide good indicators of trends in performance of different models, users need to have a good understanding of the definitions and requirements within these standards before drawing any conclusions with respect to actual energy consumption in households. Under Australian Standards products are generally tested at rated capacity and for a specified number of cycles per year under defined conditions. Actual use will vary for different consumers. For example, many consumers are known to run machines at lower than rated capacity for many cycles, many clothes loads are washed in cool or cold water compared to the Australian Standard specification, and so forth. More information on this issue is provided in Annex A. Since 2001, GfK have supplied a full data set for each appliance (excluding exclusive models which generally make up less than 1% of total sales for most product types). In past years, data for approximately 75% to 90% of total sales for each of the appliance groups was provided.

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European Union
Data presented in this report was taken from a presentation made at EEDAL 2006 by Friedemann Stckle of GfK Marketing Services GmbH & Co. KG, entitled Trends of Major Domestic Appliances Sales in the Various Phases of Energy Efficiency Legislation in Europe. Data presented was sourced by GfK and is confidential.

United Kingdom
Data presented in this report was taken from a presentation made at the ACEEE 2001 Summer Study by Pernille Schiellerup of the Environmental Change Institute, Oxford, entitled An examination of the effectiveness of the EU minimum standard on cold appliances: the British case. This paper includes the following explanation: This section examines the development in energy efficiency and energy consumption of cold equipment on the UK. The analysis is based on sales data from the market Research company GfK. The sales data covers branded sales on the British market that is to say sales which are not sold under the retailers own brand. Past analysis has suggested that the unbranded market tends to be less energy efficient than the branded market. When the energy labelling of cold equipment came into effect in 1995, information on net volume, energy consumption and other model characteristics necessary for this analysis became more readily available on a regular basis. Data from 1995 onwards is therefore mainly used. The latest quarterly data to be available is quarter three 2000, i.e. four quarters worth of data subsequent to the introduction of the minimum standard are now available.

Japan
The data for Japan is sourced from work undertaken by ECCJ (Energy Conservation Center Japan) in 2006 to determine compliance with the Top Runner programme. The price and energy efficiency information used here were obtained through the POS (point of sales) system which covered 30-35% of product sales in Japan for each year.

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Appendix 4: Correlation between Equipment Energy Performance and Electricity Prices

In this paper, consideration has been given to whether consumer electricity prices have been an influential factor in determining the energy performance of residential equipment. As can be seen in Figure 58, over the period between 1978 and 2005 although there is a slight trend for rising prices, there are considerable fluctuations in some countries and no discernable pattern.
Figure 58: Residential electricity prices for selected countries, 1978 to 2005
0.3

0.25 nominal residential electricity price (US$/kWh)

0.2

0.15

0.1

0.05

0 1978

1983

1988

1993

1998

2003

Australia

Japan

United Kingdom

United States

OECD Europe

Source: IEA Statisitics

To further test the potential correlation between electricity prices and the energy performance of electrical equipment, correlations were undertaken between the national performance data used for this paper, and national electricity prices. The results are shown in Table 20, and indicate some relationship between the equipment performance and electricity prices for: Australian clothes washers, US refrigerators, US air conditioners. All of the remaining products analysed showed no statistically significant relationship between performance and electricity prices. The fact that some products show a correlation while others in the same economy do not, suggests that it is not appropriate to draw a generic conclusions that energy prices and product performance are linked. It is difficult to see why, for example, the performance of Australian clothes washers should be particularly linked to electricity prices, while other equipment in Australia is not similarly influenced.

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In the cases of products in the United States, it is interesting to note that electricity prices here have been amongst the least volatile. The presence of some correlation may therefore only indicate that electricity prices have steadily increased over time, at the same time that performance has also improved consistently. This indicates similar trends but does not confirm any causality.
Table 20: Results of simple linear regression between average appliance performance and electricity prices, various countries (model: Yappliance i price = constant + Xhousing starts) Equipment energy performance Refrigerators Freezers Clothes washers Dishwashers United States Refrigerators Clothes washers Central air conditioners Room air conditioners United Kingdom Refrigerators Freezers Linear regression results Correlation -0.03 0.34 -0.78 -0.03 -0.79 -0.47 0.69 0.69 0.34 0.53 R Squared 0.001 0.114 0.610 0.001 0.629 0.223 0.469 0.469 0.113 0.277 F stat 0.923 1.416 15.637 0.012 13.572 3.443 12.385 12.385 1.269 3.824 t stat -0.099 1.190 -3.954 -0.108 -3.684 -1.855 3.519 3.519 1.127 1.956

Country Australia

The diversity of these results provides no clear indication of a correlation between the energy performance of the types of residential equipment in this study, and electricity prices. To the extent that some examples of a correlation are found, these appear to be largely circumstantial.

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Appendix 5: Correlation between price fluctuations and housing starts, US

There appears no evidence of a direct correlation between the introduction of energy efficiency regulations and the price fluctuations of equipment studied in this paper. It has been suggested that changes in some residential equipment prices in the United States can be explained by rising demand caused by new housing developments. To test whether supply and demand market dynamics are a substantial cause of price fluctuations in these types of residential equipment, a statistical correlation has been undertaken and results presented below. Analysis of the available data suggests that there is little correlation between housing starts and the price of refrigerators and air conditioners. However, there are stronger signs of a correlation for clothes washers, as shown in Table 21.
Table 21: Results of simple linear regression between average appliance prices and new housing starts in the United States (model: Yappliance i price = constant + Xhousing starts) Equipment (Yi) Refrigerators Clothes washers Central air conditioners Room air conditioners Pearson Correlation 0.06 0.62 0.01 0.19 R Squared 0.003 0.385 0.000 0.034 F stat 0.069 10.622 0.001 0.640 t stat 0.263 3.259 0.033 0.800

The data used is also presented in Figure 59 to Figure 62, and from these it can be seen that in some cases fluctuations in the price of equipment does seem to follow changes in house starts, although these instances may be short-lived and not always repeated. Overall, the results do not appear to be conclusive; and examination of more data would be required to better understand dynamics of these markets.
Figure 59: Average price of US refrigerators and new housing starts, 1980 to 2001
1300 2,000 1,800 1200 1,600 1,400 1,200 1,000 900 800 600 Housing Starts ('000s) 1100 Price (US$2001)

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800

700

Price Housing stars

400 200 0

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19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01

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Figure 60: Average price of US clothes washers and new housing starts, 1983 to 2001
1000 2,000 1,800 900 1,600 1,400 1,200 700 1,000 800 600 600 Price Housing starts 400
19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01

Price (US$2001)

800

500

400 200 0

Figure 61: Average price of US room air conditioners and new housing starts, 1974 to 1993
700 2,200.00

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1,700.00 House starts ('000s)

Price (US$2001)

600 1,200.00 550 700.00 500 200.00

450

Price House starts

-300.00

400
19 74 19 75 19 76 19 77 19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93

Figure 62: Average price of US central air conditioners and new housing starts, 1968 to 1987
3000 2,500.00

2800

2,000.00 House starts ('000s)

Price (US$2001)

2600 1,500.00 2400 1,000.00 2200 500.00

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Price House starts

0.00

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