Energy Efficiency Policies around the World: Review and Evaluation

3.3 Regulations

Regulation is usually introduced when it is recognised that market failures would not allow economic instruments alone to reach the objective of the energy or environmental policy. In general, regulations impose minimum efficiency standards by law and/or governmental decree, or introduce energy efficient practices (technical and behavioural/managerial), as well as providing systematic information to consumers (e.g. energy audits, labels).

Regulations can be set at the national level, at the level of a group of countries (e.g. the case of Directives in the EU), or at the level of a sub-national region inside a federal country (e.g. US). There are also other regulations which are not specifically targeted at energy efficiency, but which can nonetheless influence (e.g. speed limits, maximum weight of trucks).

3.3.1 Regulations for Buildings

Most European countries have set up mandatory energy efficiency standards for new dwellings and service sector buildings. A new Directive on the energy performance of buildings introduce now in all EU countries harmonised standards for new buildings and make mandatory buildings certificates for the sale or rent of dwellings .

In half of the other OECD countries in Asia and America, there are mandatory and in the other half voluntary standards (Figure 3.4). Some non-OECD countries outside Europe have recently established mandatory or voluntary standards for service buildings: Singapore and the Philippines were among the first, followed by Algeria, Malaysia, Egypt and Syria for instance. In most countries, standards exist for both dwellings and service sector buildings, except in Africa and in Asia where most often standards only apply to non-residential buildings . 

The situation in these two regions is explained by the fact that commercial buildings account for the largest share of energy consumption. Altogether, about 50% of the countries surveyed had mandatory or voluntary standards for new non-residential buildings.

Thermal building codes have been changing over time from simple standards on building components to more complex standards, including for the most advanced countries energy performance standard. These performance standards consider the whole building as a system and also include building equipment such as heating and air conditioning systems, ventilation, water heaters, and in some countries even pumps and elevators (maximum energy consumption per m3 or m2/year). Most building codes now are performance based (e.g. present standards in California, Germany and France, or the EU building Directive). These types of standards can be implemented jointly with standards on specific equipment or materials (insulation, windows, boilers), in order to ensure the use of the most efficient equipment in the retrofitting of existing buildings (e.g. France).

Revisions in thermal building codes have become increasingly regular. For instance, over the past 30 years, standards have been reinforced three or four times in most EU-15 countries, including some very recent revisions, and independent from the oil price level. The effort is not finished yet, as most EU countries have improved their standards since the year 2000. In addition, the new EU building directive has for the first time provided for a mandatory revision every five years.

The cumulative energy savings achieved for new dwellings, compared to dwellings built before the first oil shock, is about 60% on average in the EU . The additional savings that are targeted with future revisions in the standards are also impressive, at 20-30%.

Relatively few countries have carried out evaluations of their building codes. According to the few studies available, it seems that the actual energy performance of new buildings is below what could be expected from the building regulations. This can be explained by behavioural factors (such as higher indoor temperatures, more rooms heated, or longer heating period over the year) and by a non-compliance with the building regulation.

Only a few countries have estimated the additional costs that each round of new building codes has caused. Nevertheless, from the few results available, the additional costs are limited to a few percentage points, if any at all.

Measures on buildings focused so far on new buildings. As new buildings represent a small share of the existing stock , building standards can only have a slow impact on the short term, which however becomes significant in the long-term. A more recent trend is to extend regulations to existing buildings and impose the introduction of energy efficiency certificates for existing buildings; each time there is a change of tenant or a sale. Such a measure was introduced in Denmark some years ago (1999) and extended recently to all EU countries with the Directive on Buildings (generally in 2006 or 2007). These certificates enable the buyer to obtain information about the energy consumption of the dwelling they are going to buy or rent.

3.3.2 Labelling and Efficiency Standards for Household Electrical Appliances

To slow down or even reverse the trend in the electricity consumption of households, many countries have introduced labelling programmes and minimum energy performance standards for a selection of electrical appliances.  Most countries first focused on refrigerators, along with air conditioners in certain countries, since they account for a large part of the household electricity consumption (in Europe, 20 30% depending on the country). Now these measures cover a greater number of equipment: lighting, washing machines, dryers, dishwashers and water heaters.

Labelling programmes are designed to provide consumers with information, which enables them to compare the energy efficiency of the different appliances on sale. They aim at modifying the selection criteria of consumers by drawing their attention to the energy consumption of household appliances. Labelling programmes however cannot sufficiently transform the market and are usually completed by minimum performance standards in the great majority of countries.

The aim of performance standards is to improve the energy efficiency of new appliances either by imposing a minimum energy efficiency rating to remove the least efficient products from the market, Minimum Energy Performance Standards (MEPS), or by requiring sales-weighted average energy efficiency improvements as "target values" e.g. "Top Runner Programme" in Japan. Target values are more flexible as they allow the sale of less efficient equipment provided other models with a higher efficiency rating are also offered for sale.

As an alternative to the regulatory process, make use of agreements with appliance manufacturers (voluntary or negotiated), which also improve the energy efficiency of appliances (e.g. agreements with CECED for washing machines in the EU ). Some countries even moved from unsuccessful voluntary agreements to MEPS (e.g. Brazil). Voluntary agreements can be an effective alternative to minimum energy efficiency standards.

Since they have the support of manufacturers, they can be implemented more rapidly than regulations. Nevertheless, their effectiveness is still dependent on the precise requirements corresponding to genuine additional efforts from industry.

Standards are necessary to remove certain inefficient but inexpensive products from the market, which labelling programmes alone cannot do. They are also needed in areas where the selection criteria of consumers totally exclude energy efficiency (television sets for example), or when the economic stakes for the consumer are very limited. Basically, labelling stimulates technological innovation and the introduction of new more efficient products, while standards effect the gradual removal from the market of the least energy efficient appliances.
Mandatory labelling for several electrical appliances exists in all EU countries based on the same regulations (EU Directives). They include refrigerators and freezers, washing machines, dishwashers and lamps. In OECD Asia and America, about 70% of the countries studied have implemented labels for refrigerators (Figure 3.5). In Africa, the Middle East and non-OECD Asia, labels are not widespread: they exist for refrigerators in less than 20% of the surveyed countries. Unlike Europe, labels are not always mandatory; however, regulations have proven more effective since they require manufacturers to put labels on all appliances and not just on the most energy efficient ones. Depending on climatic conditions, labelling programmes also concern air conditioners, which are often among the first appliances to be labelled.   In most developing countries, second hand appliances account for a large market share of the appliances sold, which reduces the impact of labelling normally restricted to new appliances.

In Europe, about 60% of the countries have standards for refrigerators , which is about the same order of magnitude as in Asia. In OECD America and Asia, a higher proportion of the countries surveyed have such standards (over 80%); in addition, MEPS are imposed on a larger number of appliances (about 12 different types of appliances on average and up to 30 in Canada) .

Labelling programmes introduced in developing countries are based on the experience of OECD countries and use models that have already been proven: the European label has been used as a model in Brazil, Tunisia, China and Iran, while labels introduced in Thailand and Korea are based on the Australian model (Figure 3.6).

Labelling programmes and performance standards are effective instruments, which enable authorities to benefit from low-cost energy savings, consumers to spend less on electricity, and manufacturers to improve their products and become more competitive against imported, less efficient products. As shown by various studies, the increased use of more efficient appliances did not result in a price increase for the consumers, as producers were able to adapt and to benefit from the increased sales ("learning effect").

In Europe, about 60% of the countries have standards for refrigerators , which is about the same order of magnitude as in Asia. In OECD America and Asia, a higher proportion of the countries surveyed have such standards (over 80%); in addition, MEPS are imposed on a larger number of appliances (about 12 different types of appliances on average and up to 30 in Canada) .

Labelling programmes introduced in developing countries are based on the experience of OECD countries and use models that have already been proven: the European label has been used as a model in Brazil, Tunisia, China and Iran, while labels introduced in Thailand and Korea are based on the Australian model (Figure 3.6).

The European and Australian programmes are considered successful. In the EU for instance, there was a rapid increase in the market share of the most energy efficient appliances.  Sales of refrigerators in Class A increased from less than 5% of total sales in 1995 to 23 % in 2000 and 61% in 2005; in addition, 19% of refrigerators sold in 2005 were in the two new more efficient classes (A+ and A++).  For washing machines, the progress was even more rapid (1% in 1996, 38% in 2000 and 90% in 2005). Labelling has resulted in market transformation that can be attributed both to the increased interest of consumers in energy efficiency and to changes in the models made available by manufacturers, as well as to other accompanying measures (rebates, information campaigns ). The effect of labelling was reinforced by the progressive introduction of MEPS for refrigerators and by the agreement with CECED for washing machines. In anticipation of standards, manufacturers withdrew their less efficient models that had become hard to sell and introduced new more efficient designs to meet new demand and to differentiate themselves from their competitors. The average energy consumption of refrigerators fell from 370 kWh/year in 1990 to around 300 kWh/yr. 

In the US, minimum performance standards for the energy efficiency of household appliances also had a large impact . For instance, the average consumption for cold appliances has decreased from 1726 kWh/year in 1972 to 490 kWh today, although this decline has not followed a steady curve. The periods during which energy efficiency ratings improved correspond most to periods when new or reinforced standards were introduced while little or no improvement was observed for the periods in between.

To be effective, labelling programmes and performance standards must be open-ended, i.e. regularly revised and upgraded. In the US, changes in the energy efficiency of cold appliances clearly show that energy efficiency improves as a result of new standards but then stabilizes. Faced with new standards, manufacturers adapt the appliances available so that they meet the new minimum requirements, but there are no incentives for them to go beyond what is required if no stricter standards have been planned for the future. For these types of programme, where labels play a secondary role, it is essential to reinforce standards at regular intervals as a way of stimulating technical progress and ensuring a steady improvement in energy efficiency.

In the case of the European and Australian programmes, the balance between energy labels and standards has played a vital role. The requirements are not as strict as they are in the US, but labelling acts as an incentive for manufacturers to differentiate themselves from their competitors and stimulates the introduction of new, more efficient models.  However, there is no longer any incentive to innovate when all the models are in the best efficiency classes (Australian experience) or when most of the models on the market have been endorsed with a label (Energy Star programme in the US). 

In this respect, the "Top Runner" programme has the particular advantage of making the definition of new targets easier. As the most efficient appliances on the market at a given time are used to set the future standards, there is no need for extensive market or techno-economic analysis to set the minimum energy efficiency standards. With this type of approach, the preparatory work can be shortened and the negotiations between manufacturers and public authorities facilitated as the target corresponds to existing appliances that are already available on the market. Presently, the Top-Runner programme covers 18 energy intensive products, including main household appliances and passenger cars. The savings achieved are impressive: for instance 68% for air conditioners, 55% for refrigerators (between 1997 and 2003), and 26% for TV.

Generally speaking, manufacturers are opposed to anything that can disrupt market operation, which means efficiency standards in particular, but also labelling systems in certain contexts. Among the arguments frequently advanced by manufacturers is the risk of higher production costs in a context where the possibilities of increasing prices are limited by fierce competition, innovation focused on areas of little importance to consumers, and a less diverse range of products.

Experience has shown that such fears are largely unfounded: the turnover and profit levels of manufacturers are not adversely affected by the introduction of standards, nor do the standards compel them to eliminate certain functions to reduce energy consumption. The process of negotiating the introduction of new standards or reinforcing existing ones remains nevertheless conflicting and uncertain.

3.3.3 Other regulations

Other regulations implemented in some countries are mandatory energy consumption reporting, mandatory energy managers, mandatory energy saving plans, mandatory maintenance and obligation of energy savings imposed on utilities. Mandatory audits in industry, as well as energy savings obligations are analysed in detail in another section of the report.  Other regulations, not directly linked to energy efficiency, but having significant impact on the energy use (e.g. speed limit), are not included in this review.

Energy consumption reporting

Some countries have set up regulations requiring designated or large consumers to report their energy consumption, either directly to the government or in their annual report. This measure is seen as an incentive to companies to monitor closely their energy performance.

Such measures exist in about 30% of the surveyed countries and are more frequent in OECD countries than in the other regions (Figure 3.7).

More recently, these measures have also been extended to CO2 emissions .

In India, for example, companies in selected energy intensive sectors in their annual reports to company shareholders provide data on their overall consumption and on the specific energy consumption of manufactured products (e.g. cement, pulp, sugar). They also have to provide information on energy saving actions undertaken over the previous year. In some countries, this measure also applies to the building of large public enterprises (e.g. Switzerland).

Mandatory energy managers

In some countries, there is a regulation requiring the nomination of an energy manager in companies above a certain size. This concerns about 20% of the countries covered by the survey (Figure 3.7). This measure usually applies to large consumers in industry (13 countries) and in the service sector (8 countries) (e.g. in Denmark for the public sector). In some countries, transport companies are also included (e.g. Italy, Portugal, Romania).

Mandatory energy saving or DSM plans

Around 20% of the surveyed countries have set up regulations on the preparation of energy savings plans for consumers, generally in industry (30% in OECD and 10% for non-OECD countries). This measure exists for several sectors, including municipalities in some countries (e.g. Portugal, Italy, Poland, Romania, Russia, Japan, Korea, Thailand, Turkey, Algeria, Tunisia, and Iran ).

Maintenance

Maintenance of energy-consuming equipment is another important field of regulation. The major concern is that without proper maintenance of energy consuming equipment (e.g. boilers, vehicles), efficiency will decrease over time: the objective of any regulation is to maintain the initial efficiency of the equipment for as long as possible.

This measure on appliances is mainly in Europe. With the new Directive on buildings, the maintenance of heating boilers will become now mandatory in all EU countries. This measure already existed in Denmark, Italy and Germany. In a few countries (Italy, Romania), regulations on maintenance exist for the transport sector.

The mandatory MOT for cars that exist in many countries may to some extent contribute to saving energy, depending on the aspects to be controlled.