Labelling and efficiency performance standards

Based on a Discussion Webinar, Friday 25th April 2008

The EU directive on the labelling of household appliances is a success. Since its entry into force in 1992, efficiency of appliances has risen considerably. With directive currently under revision, there is an opportunity to take the next step.

Should this programme also be extended to other products such as industrial equipment, for example? Or even to entire systems such as buildings? But maybe there are already too many labels on the market, to the confusion of consumers? How can the accuracy of label attribution be monitored, and should labelling programmes be accompanied by Minimum Efficiency Performance Standards (MEPS)? Finally, should labelling promote the best products or phase out the most inefficient products from the market?

These and other questions were addressed in a Discussion Webinar on 25th April 2008. Below are a few of the highlights from that discussion.

The European labelling scheme

Refrigerators are an excellent example demonstrating the impact of the EU labelling directive. The majority of refrigerators sold have shifted from efficiency categories D and E in 1992 to A and B in 2003. The categories with lower efficiency, E, F and G - about 50% of the market share in 1992 - have almost disappeared.

However, the current directive has a few shortcomings. Unlike safety labels, efficiency labels are not compulsory for all classes of electrical equipment. Furthermore, only “cold appliances” (freezers and refrigerators) are subject to MEPS.

The Toprunner Programme in Japan

A completely different case of energy efficiency labelling is the Toprunner Programme in Japan. This programme concept is based on setting the standard at the most efficient model available on the market for a product category, to be attained within four to eight years. By the target year, each manufacturer must ensure that the average efficiency of its products in that category is at least equal to that of the ‘Toprunner model’. This approach allows for a natural phase-out of the less efficient appliances. The Toprunner standards are set by committees of representatives from the manufacturing industry, universities, trade unions, and consumer organisations. While establishing no legal obligations, the programme achieves good results. Its real power comes from engaging the brand image of companies, actively encouraging them to meet and exceed standards they have previously agreed.

Dynamic, open labelling

Labels and MEPS improve average energy efficiency. After a certain period, most products will belong to the highest efficiency category and the label is no longer effective. To overcome this issue, the Commission created A+ and A++ categories to distinguish higher efficiency equipment, but this is inevitably a temporary measure. A new open-ended labelling scheme, which can be dynamically updated to accommodate the continuous technological improvement of appliances, has recently been proposed. This scheme uses numbers and colours. While the numbers increase with efficiency improvements, the colours give the actual purchase advice by always keeping to the highest efficiency models available.

One participant in the webinar suggested adding the year of issuing to the label. Especially when products are exported to countries with a different labelling system (or no labelling system at all), the year gives more context on how to interpret the colours.

Extending labelling beyond appliances

The concept of labelling could be applied much broader. Cars are already being labelled in Denmark, the Netherlands and Belgium. Food products could receive a label reflecting the energy consumed during the life cycle. Building materials such as windows, insulation, boilers and pumps could also be given labels based on energy or environmental performance. In this case, one could ask if it would not be better to grant the energy label to the entire building. It does not make sense to use triple glazing if the rest of the shell is poorly insulated. The 'Energy Performance in Buildings Directive' is introducing such requirements, yet fails to establish a system for inspection and certification of those buildings across Europe. In Austria, the UK, Denmark and France, the energy efficiency of private homes is already being labelled. In France, schools receive an eco-label based on energy consumption, CO₂ emissions and water consumption. Renewable Energy (PV, biomass…) or district heating systems could also merit from a label.

Services could be given a label as well. Electricity supply, air travel, energy audits or service providers (installers and inspectors) could derive benefits from labelling.

Finally, labelling does not need to be restricted to energy efficiency or electrical safety. Power Quality for instance, is perfectly suitable for being labelled.

Avoiding competition between various labels

Virtually every product category and every product quality could be labelled, but one should evaluate if the labelling results in real added value. Firstly, because labelling programmes use resources from public budgets. Secondly, because too many labels on one product can be counterproductive by confusing the consumer.

One participant stressed the need for an integrated and comprehensive approach of labelling. It should be decided at which level the label should be applied. In the case of a new dwelling for instance: should the building products be labelled, the entire house, or the architect and the constructor? It should also be cleared who is responsible for phasing out the least efficient types: the consumer (by making his choice), the retailer, or the manufacturer? Finally, the product qualities that really require labelling (energy efficiency, safety, power quality, recyclability, EU conformity…?) should be defined. Energy efficiency will in many cases be a crucial quality because of its high environmental impact over the lifecycle of the product.

Monitoring the accuracy of label attribution

One participant in the discussion seminar remarked that enforcing labelling is meaningless if the accuracy of the label attribution is not monitored regularly. Labels are self-declarations by manufacturers, and there is currently no independent institute in charge of verifying their claims. Consumer organisations perform occasional testing, but there is a need to certify those testing centres and to harmonise their procedures. In this sense, a stronger infrastructure and legal framework for performance testing and labelling attribution would be appropriate.

Labels and MEPS

Most participants in the discussion agreed on the fact that labels should be coupled with MEPS, similarly to what was done for cold appliances. That raises the question at which level those MEPS should be set. One participant argued for going further than the economic optimum and setting the MEPS at ‘Efficient Advanced Technology’, since energy efficiency produces environmental benefits, i.e. the product has less “external costs”. This was contradicted by another participant who suggested setting the MEPS at a lower level than the economic optimum. Consumers need to be encouraged to exchange their old, very inefficient appliances for efficient ones, and the incentive to do so is missing if the purchasing cost of the new, highly efficient products is too great.

Financial incentives to stimulate efficient products

The former barrier could be overcome by granting financial incentives to stimulate efficient products in the market. One participant suggested that a fraction of the subsidy levels currently granted to alternative energy might be enough to encourage consumers purchasing ‘Efficient Advanced Technology’ in household appliances.

A system where white certificates or other incentives would be attributed to manufacturers or distributors/retailers who place only efficient appliances on the market may allow for lowering the price barrier. These certificates could be traded, provided that the revenues are in the benefit of the clients and energy efficiency.

A programme for efficient electric motors in Mexico demonstrated that financial incentives can in indeed remove the purchase price barrier for energy efficient products. The Mexican government granted rebates to motor manufacturers to lower the price of high-efficiency motors. As a result, market share of high-efficiency motors went from 15% to 85% in a period of three years. After this period, a MEPS was introduced to further raise the market share of the energy efficient models to 100%. A similar programme has been successfully executed by Hydro-Québec in Canada.