Promoting energy efficiency by regulation

Not only the International Energy Agency highlights the importance of rationalising energy consumption both for economic and environmental reasons. The environmental reasons have been recognised by the international community with the conclusion of the Paris Agreement on Climate Change in 2015.

National regulators are therefore called upon to adopt rigorous regulations. To facilitate their work, we briefly enumerate international reference documents. We also present a range of national regulations and regulatory techniques which can serve as a reference.

I. International guidebooks and supra-national law

1. The United Nations Environment Programme (UNEP)

UNEP Handbook for Drafting Laws

The UNEP Handbook contains guidelines to draft laws both on the energy efficiency and renewable energy resources. The UNEP Handbook provides:

A combination of legislation that “pushes” the market towards more efficiency (e.g. minimum energy efficiency standards) and ones that “pulls” the top-end of the market towards increased efficiency (e.g. long-term goals in the form of voluntary agreements or policy goals) and supports innovation is an effective combination.”

2. Collaborative Labeling and Appliance Standards Program (CLASP)

CLASP Guidebook on energy efficiency labels and standards

The CLASP Guidebook should help regulators when designing, implementing, enforcing, monitoring and maintaining labeling and standard-setting programs.

It discusses the pros and cons of adapting energy-efficiency labels and standards and describes the data, facilities, and institutional and human resources needed for these programs. “

3. European Union (EU) Law

EU Directive on Energy Efficiency and the Proposal for an amending Directive

Under the EU Directive, all EU Member States are required to use energy more efficiently at all stages of the energy chain from its production to its final consumption. The European Commission has recently proposed to amend the current text, while adopting measures to achieve 30% energy efficiency target for 2030.

EU Energy labelling legislation comprises the EU Framework Directive on energy labelling and relevant Delegated Regulations.

II. National regulatory references

Jurisdictions around the world typically regulate the promotion of energy efficiency in a single act or law. More concrete rules on labelling of energy consuming products and minimum standards are embodied in their secondary legislation. Below, we present five models of regulatory frameworks that could serve as a reference when drafting new regulations on rationalisation of energy use. We highlight the most important regulatory techniques in bold.

1. The legislation of the Philippines can be qualified as a “light”. It contains measures and incentives to promote the energy efficiency. It contains a provision envisaging tax and duty advantages for pioneering energy efficient technologies, going up to the level of income tax holidays.

More generally, the law contains provisions on the competences of the energy authority, training and development of the energy service sector, i.e. engineers. The law also tries to boost the country’s energy security.

The law establishes obligations for “Designated Establishments”, i.e. private entities in industrial, commercial, transport and energy sectors consuming energy. One of their obligations is to reduce the average Specific Energy Consumption (SEC) by at least one percent (1 %) per year. Additionally, the Philippines have prescribed three types of energy audit, e.g. a walk-through audit, a preliminary audit and a detailed audit. Such an evaluation on the consumption and the cost of energy ought to identify means achieving energy savings. Enforcement provisions include on-site inspections of energy-consuming facilities and penal provisions. Finally, a provision on contingency powers rarely found in other jurisdictions aims at ensuring energy security:

In times of critical energy supply disruptions or imminent danger thereof, the President may direct the adoption of stringent energy conservation measures, including but not limited to power/fuel allocations or rationing; limiting the operating hours of commercial, industrial and similar establishments; restricting the use of government and private motor vehicles; staggering or limiting working hours in both public and private sectors; and the temporary closure of all energy intensive industries.”

2. Undoubtedly, we can commend the law of Canada as it devotes a big part of its provisions to the promotion of the energy efficiency. Nevertheless, the measures are not presented in a very detailed manner. Instead, Canada establishes a comprehensive and intelligent empowerment for its minister. Thus, for achieving an efficient use of energy, the minister may:

  1. conduct, or cooperate with persons conducting, research, development, tests, demonstrations and studies and publish information, research or test results;

  2. assist, cooperate with, consult and enter into agreements with any person, including any department or agency of the Government of Canada or of any province;

  3. make grants and contributions; and

  4. undertake such other projects, programs and activities that advance that purpose.

Every three years the Minister shall demonstrate the extent to which the energy efficiency standards prescribed under this law are as stringent as comparable standards established by any Canadian province, the United Mexican States, the United States of America (USA) or any state of the USA. This creates a regulatory improvement automatism – a regulatory tool worth being used in other sectors as well.

The rest of the Canadian law is allocated to the provisions on enforcement and energy-using products. The law prohibits to import products that do not comply with the energy efficiency standards. It creates rigid obligations for the persons involved in manufacturing, importing, selling or leasing an energy-using product. Namely, they should provide information on the products’ energy efficiency to the authorities – evidently in a prescribed time and manner. The person shall also make available these products for necessary examination and testing. In case of non-compliance, the sanction of seizure is foreseen. As other jurisdictions, Canada empowers inspections.

Technically speaking, the Canadian law is easily comprehensible, of a medium-length while covering all the essential aspects of the domain. It does not include the topic of energy labelling, which is covered by a separate regulatory act. Equally, the law envisages the adoption of more detailed regulatory acts to prescribe energy efficiency standards and classes of energy-using products.

3. Russia represents a model of a medium-complex legislation that aims at an efficient use of energy resources through all the phases, e.g. extraction, production, processing, transportation, storage and consumption of resources. The Russian law contains provisions regarding binding standards on energy efficiency (including indexes), compulsory certification of energy resources and energy consuming products, energy metering and mandatory energy audits.

Russia has set up certain economic and financial mechanisms to motivate energy producers, suppliers and consumers to use energy in an efficient way, e.g. by:

  • Privileges conferred to producers and consumers’ who undertake energy saving actions, which are above state standards;

  • Educational and professionals programmes and informational support, e.g. presenting the information on energy saving to energy consumers, discussions of federal and trans-regional energy saving programmes, and organisation of energy efficient equipment/technologies exhibitions;

  • Introducing seasonal prices for natural gas and seasonal tariffs for electric and heat energy, as well as differential daily tariffs for electricity.

Moreover, international cooperation on the exchange of energy efficient technologies and mutual acknowledgment of certification results are envisaged. Finally, a liability clause and inspections are foreseen as part of the enforcement provisions.

4. The legislation of Japan on the rational use of energy is of higher complexity and envisages seven measures to achieve its objective, namely the:

  1. Rationalisation of fuel combustion.

  2. Rationalisation of heating, cooling and heat transfer.

  3. Prevention of heat loss by radiation, conduction, etc.

  4. Recovery of waste heat.

  5. Rationalisation of heat conversion into power, etc.

  6. Prevention of electricity loss by resistance, etc.

  7. Rationalisation of conversion of electricity into power, heat, etc.

Japan differs among measures designed for the industry sector, buildings or machinery or equipment. In addition to inspections and penal provisions “public shaming” is used as an enforcement tool.

The regulation creates the institution of a “Designated Heat Management Factory”. Such factories can be run by any industry. They are designated by the minister. They must have an “Energy manager” at their disposal. Energy managers are responsible for improving and supervising the energy consumption. In addition, the factories are required to annually formulate a medium to long term plan to achieve rational use of energy and to submit it to the executive. If the plan is insufficient, the minister can impose further measures.

The law has also set up a product labeling system on the efficient energy consumption of machinery and equipment and foresees budgetary, financial and tax measures. Lastly, the law requires the promotion of science and public awareness regarding the rational use of energy.

5. South Korea requests suppliers and manufactures of energy-using products, energy users and citizens to make a more rational and efficient use of energy and to reduce environmental damages caused by energy consumption. The law of South Korea governs a broad range of measures in this respect. It envisages tax incentives and financial subsidies, e.g. for investments into energy efficient facilities and preferential treatment of small and medium-sized enterprises in this regard. Equally, it is foreseen to support enterprises concluding a “voluntary agreement” (i.e. plan concerning objectives of reducing the emission of greenhouse gases by saving energy and using energy in a rational way) with the government. Moreover, an enterprise can register as an “Energy Saving Enterprise” and submit its records of “Reduction of Greenhouse Gases”, which might also lead to an improved reputation of the company.

Moreover, South Korea requires that energy suppliers (prescribed by Presidential Decree) formulate and implement annual plans on their demand management and related investment. These plans shall improve the efficiency of their production, conversion, transport, storage or use of the relevant energy. Energy suppliers shall also promote the reduction of energy demand and of the emission of greenhouse gases. In addition, the government may conduct education and training, including to industrial workers and provide support for specialised graduate schools for climate change.

It also introduces an “energy examination” of efficient energy use for all excessively consuming companies. In this respect, the executive may determine necessary standards and enforce them, e.g. fines for negligence are envisaged. When the minister deems it necessary, s(he) might designate any public building as a “heating and cooling temperature restriction building” by determining restrictions on heating or cooling temperatures.

As other jurisdictions, South Korea governs standards for minimum / target energy efficiency, relevant indications and measurement methods in its secondary legislation.

III. Specific aspects

1. Similar to the just mentioned South Korean law, the Turkish law that prescribes very specific measures covering public awareness, for ex.:

Television and radio channels making national and/or regional broadcast shall broadcast training programs, contests, short films and/or cartoons prepared or procured to prepare by the General Directorate between 07.00 and 23.00 hours not to be less than thirty minutes in total in a month.”

2. As to setting up of a national competent authority on energy efficiency, the law of India could serve as a regulatory reference. It contains inter alia provisions regarding its members, its functions, its financing and its liabilities.

3. Whilst industry and transport dominate the energy consumption, the housing sector amounts to almost 40% of the energy consumption in the prosperous countries. There is a trend to invest ever more in insulation technology, up to the level where houses become “passive houses”, houses that consume no energy. These “passive houses” are known as “nature friendly” and “energy saving”. Thus, they fulfill the objective of every energy efficiency / climate preservation regulation. However, if we take the energy needed for the insulation into account, the picture might be less bright. In particular it can be energy-wise disproportionate or counterproductive, to request certain facade retro-fitting for older houses. Generally speaking, energy efficiency measures should not themselves demand immoderate energy use for their accomplishment. This principle has been reflected in the US law on improving energy efficiency in buildings. It has defined a ”cost-effective energy efficiency measure” as follows:

Any building product, material, equipment, or service, and the installing, implementing, or operating thereof, that provides energy savings in an amount that is not less than the cost of such installing, implementing, or operating”

Furthermore, the US encourages building owners and tenants to collaborate to invest in energy efficiency measures with the following incentives and measures:

  • Recognition of tenants in commercial buildings that voluntarily achieve high levels of energy efficiency, by establishing building occupancy categories eligible for Tenant Star recognition and other forms of public recognition;

  • Creation of Model Commercial Leasing Provisions;

  • Measurement and verification internet platforms demonstrating actual energy consumption after implementation of high-performance energy efficiency measures;

  • Case studies reporting economic and energy saving returns in the design and construction of separate building spaces.

4. Australia has adopted a well elaborated Greenhouse and Energy Minimum Standards (GEMS) Act covering the GEMS determination and register, labelling requirements, monitoring and investigation powers and the enforcement provisions. Thailand envisages to introduce both mandatory Minimum Energy Performance Standards (MEPS) and voluntary High Energy Performance Standards (HEPS).

5. Similar to Russia (presented above), Morocco has introduced an annual energy audit that is obligatory for all natural persons and companies consuming over a certain fixed amount of energy (which differs by sector).
6. Regarding labelling, China requires that a product with energy efficiency label is marked with the following information:

        1. Name or its shortened form of the manufacturer of the product;

        2. Product model;

        3. Energy efficiency level of the product;

        4. Energy consumption of the product;

        5. Code of the national standard applied.

Additionally, China has foreseen labelling for “ultra-high efficiency products”, i.e. products that have higher energy efficiency and high-ranked energy efficiency indexes when compared with other products of the same type. The third-party institution responsible for accurate testing of the energy-efficiency indexes of “ultra-high efficiency products” shall be objective and impartial. Moreover, the national authority shall promptly make public the corresponding energy label registration information and promote said products.

Regarding specific aspects of labelling, we commend further regulation:

a) Vehicle fuel economy labelling is regulated by New Zealand in its secondary legislation. Equally, the requirements in relation to labelling, e.g. duties of manufacturers and list of product classes subject to minimum energy performance standards (MEPS) and list of applicable standards are well elaborated at the level of regulations.

b) For the household sector, energy labelling and minimum performance standards for registrable goods (i.e. TVs, refrigerators, air-conditioners, lamps) are governed in Singapore in its secondary legislation. The schedule of registrable goods sets up product quality requirements.

Hong Kong has adopted a very detailed and highly technical Code of Practice on the energy labelling of air-conditioners, lamps and washing machines.

IV. Public consultations

Currently, several jurisdictions (South Africa, New Zealand, Hong Kong and UK) have initiated public consultations on the future framework of their national strategies and regulatory acts in order to achieve a smarter energy use. The public consultations and the publication of the results of the public consultations might help regulators to identify new trends in the regulatory sector. Hence we commend studying them and highlight some of their key elements.

South Africa

  • Post – 2015 National Energy Efficiency Strategy

South Africa has foreseen many fiscal and financial incentives:

  1. Tax incentive scheme;

  2. Scrapping scheme;

  3. Direct grants for lower income groups, partial grants, low-interest loans, or rebates for thermal improvements in the housing sector;

  4. Obtaining the mandatory Energy Performance Certificate (EPC) which aims to influence the property market through a price premium on more energy efficient homes through a small rebate, or making the EPC obligatory upon the transfer of a property.

Hong Kong

  • Code of Practice on Energy Labelling of Products 2017

UK

  • Heat in Buildings; The Future of Heat: Domestic Buildings

New Zealand

  • Energy Efficiency and Conservation Strategy

Technologies such as heat pumps, energy efficient lighting, smart metering and intelligent energy management systems (e.g. internet-connected appliances and devices) are envisaged.

  • Energy efficiency standards for lighting products

V. Further links

http://www.lexadin.nl/wlg/legis/nofr/legis.php

http://faolex.fao.org/docs/pdf/kor100508.pdf

http://www.unep.org/pdf/dtie/UNEP_Energy_Handbook.pdf

For further incentives and enforcement mechanisms, see also the Handbook “How to regulate?” available on this website.

This article has been written by Ajda Mihelčič, M.A.S., on behalf of the Regulatory Institute, Brussels.

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