Scaling Up Energy Efficiency: The Problem of Market Access

1 May 2007

Energy consumption from end-use electric and electrical appliances account for a significant portion of emissions of carbon dioxide.

The International Energy Agency estimates that were governments to implement the carbon reducing energy policies they are seriously considering, global CO2 emissions would be stabilised by 2030 and would be 16 percent lower than under the reference case. Some 78 percent of these savings would come from accelerated energy efficiency improvements. Given that the vast majority of energy-using equipment and consumer products are traded globally, an important question is how can markets work better for the scaling up of energy efficiency? A global trade-led market transformation effort would require expanding markets for more advanced technologies while eliminating outdated equipment.

Expanding Markets for More Advanced Technologies

At the WTO, discussions on the accelerated liberalisation of environmental goods and services have focused largely on traditional environmental goods such as those directly related to air pollution control, waste waster treatment, or cleaning up oil spills. However, since they generate environmental benefits at some point during their production process, usage or disposal, energy-efficient products have made their way in the trade negotiations under the banner of environmentally-preferable products. Indeed, several proposals submitted by WTO Members (including Cuba, the EU, Japan and Switzerland) have included products based on their energy performance characteristics.

These submissions have referred to the potential of reducing emissions from the use of consumer goods by relying on the most energy-efficient products. It is also considered that tariff liberalisation, if selectively applied to efficient products, could provide opportunities for emerging developing countries to rapidly penetrate a large portion of the market with highefficiency equipment.

There are, however, a number of technical and procedural obstacles that must be overcome for a co-ordinated trade liberalisation effort to succeed. In addition, trade negotiations would have to respond to the concerns and scepticism of many developing countries about the potential benefits of liberalisation.

Technical and Procedural Obstacles

First, for some of the products concerned, there is no appropriate code under the Harmonised System Codes (HS Code), which is used in the WTO. While some of these products can be located through the six-digit HS code, for most it would have to work at eight or ten digits and may require new classes to be devised. In a few cases visual inspection might suffice to identify a relatively efficient good: e.g. compact fluorescent lamps or LCD monitors, etc. But generally an energy-efficient electrical appliance can only be identified through testing and comparison according to test procedures, product categories and efficiency metrics, which often differ by country. For energy-efficient goods to be included in tariff-reduction or -elimination initiatives, there would have to be agreement on a standard set of product descriptions, reference testing standards and efficiency thresholds, etc. This implies a major effort towards harmonisation. An alternative would be to set lower/zero tariffs on goods that meet some percentage of improved performance compared to existing national energy efficiency thresholds.

Developing Country Concerns

Certain developing countries are reluctant to accelerate the liberalisation of consumer goods on the basis of their energy performance due to fears that such liberalisation would primarily benefit advanced industrialised countries. India, for instance, has raised concerns that preferential tariff treatment (including zero tariffs) for dual-use goods, such as energy-efficient refrigerators, would have significant ramifications for industrial sectors, particularly in developing and least-developed countries where industry is largely dominated by small- and medium-size enterprises.

Replacing Outdated Equipment

Mandatory minimum energy performance standards (MEPS), used in many countries, aim to push up the efficiency level of new products entering the market. But governments can take these a step further by phasing out older technologies and products that use more energy and produce more emissions of greenhouse gases. Examples include replacing incandescent light bulbs with more energy-efficient compact fluorescent lamps, which use only about 20 percent of the power to produce the same amount of light and last longer.

Consumer information that can influence purchasing decisions is an essential component of market transformation. Mandatory energy-information labels are required by all OECD and EU Member countries, and by a growing number (at least 14) of non- OECD countries. In addition, voluntary seal-of-approval labels can be selectively awarded to products that meet relatively strict environmental requirements.

But standards and labels raise a different set of problems. In practical terms, they represent non-tariff measures and, as such, are potential obstacles to market entry. The WTO Agreement on Technical Barriers to Trade is the main instrument that deals with standards, technical regulations and labelling. These should be non-discriminatory, should not cause unnecessary obstacles to trade, and should be applied in a transparent manner and notified to the WTO. In addition, standards and technical regulations should be based on international standards where they exist. In the area of energy efficiency, international initiatives have just started to take off and have a long way to go.

Paul Waide is Senior Policy Analyst – Energy Efficiency and Environment Division at the International Energy Agency in Paris. Moustapha Kamal Gueye is Senior Programme Manager – Environment Cluster at ICTSD in Geneva.

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