Impact of energy-using product policies

Energy-using products (EuPs), such as domestic appliances, audio-visual and ICT equipment contribute significantly to CO2 emissions, both in the domestic and non-domestic sectors. Policies that encourage the use of more energy efficient products can therefore generate significant reductions in overall energy consumption and hence, CO2 emissions. To the extent that these policies cause an increase the average production cost of EuPs, they may impose economic costs on producers, or on consumers, or on both. In this theoretical paper, an adaptation of a simple vertical product differentiation model – in which products are characterised in terms of their quality and their energy consumption – is used to analyse the impact of the different EuP polices on product innovation and to assess the resultant economic impacts on producers and consumers. It is shown that whereas the imposition of a binding product standard for energy efficiency unambiguously reduces aggregate profit and increases the average market price in the absence of any learning effects, the introduction or strengthening of demand-side measures (such as energy labelling) may reduce, or increase, aggregate profit. Even in the case where the overall impact is unambiguously negative, the effects of product innovation and learning can be in either direction.

Product innovation and the costs of energy-using product policies

Energy-using Products (EuPs) contribute significantly to the United Kingdom’s CO2 emissions, both in the domestic and non-domestic sectors. Policies that encourage the use of more energy efficient products (such as minimum performance standards, energy labelling, enhanced capital allowances, etc.) can therefore generate significant reductions in overall energy consumption and hence, CO2 emissions. While these policies can impose costs on the producers and consumers of these products in the short run, the process of product innovation may reduce the magnitude of these costs over time. If this is the case, then it is important that the impacts of innovation are taken into account in policy impact assessments. Previous studies have found considerable evidence of experience curve effects for EuP categories (e.g. refrigerators, televisions, etc.), with learning rates of around 20% for both average unit costs and average prices; similar to those found for energy supply technologies. Moreover, the decline in production costs has been accompanied by a significant improvement in the energy efficiency of EuPs. Building on these findings and the results of an empirical analysis of UK sales data for a range of product categories, this paper sets out an analytic framework for assessing the impact of EuP policy interventions on consumers and producers which takes explicit account of the product innovation process. The impact of the product innovation process can be seen in the continuous evolution of the energy class profiles of EuP categories over time; with higher energy classes (e.g. A, A+, etc.) entering the market and increasing their market share, while lower classes (e.g. E, F, etc.) lose share and then leave the market. Furthermore, the average prices of individual energy classes have declined over their respective lives, while new classes have typically entered the market at successively lower “launch prices”. Based on two underlying assumptions regarding the shapes of the “lifecycle profiles” for the relative sales and the relative average mark-ups of individual energy classes, a simple simulation model is developed that can replicate the observed market dynamics in terms of the evolution of market shares and average prices. The model is used to assess the effect of two alternative EuP policy interventions – a minimum energy performance standard and an energy-labelling scheme – on the average unit cost trajectory and the average price trajectory of a typical EuP category, and hence the financial impacts on producers and consumers.

How Much Greater Than the Sum of Its Parts? Evaluating Interactions Between Complex Policies

This presentation focuses on methods for the evaluation of complex policies. In particular, it focuses on evaluating interactions between policies and the extent to which two or more interacting policies mutually reinforce or hinder one another, in the area of environmental sustainability. Environmental sustainability is increasingly gaining recognition as a complex policy area, requiring a more systemic perspective and approach (e.g. European Commission, 2011). Current trends in human levels of resource consumption are unsustainable, and single solutions which target isolated issues independently of the broader context have so far fallen short. Instead there is a growing call among both academics and policy practitioners for systemic change which acknowledges and engages with the complex interactions, barriers and opportunities across the different actors, sectors, and drivers of production and consumption. Policy mixes, and the combination and ordering of policies within, therefore become an important focus for those aspiring to design and manage transitions to sustainability. To this end, we need a better understanding of the interactions, synergies and conflicts between policies (Cunningham et al., 2013; Geels, 2014). As a contribution to this emerging field of research and to inform its next steps, I present a review on what methods are available to try to quantify the impacts of complex policy interactions, since there is no established method among practitioners, and I explore the merits or value of such attempts. The presentation builds on key works in the field of complexity science (e.g. Anderson, 1972), revisiting and combining these with more recent contributions in the emerging field of policy and complex systems, and evaluation (e.g. Johnstone et al., 2010). With a coalition of UK Government departments, agencies and Research Councils soon to announce the launch of a new internationally-leading centre to pioneer, test and promote innovative and inclusive methods for policy evaluation across the energy-environment-food nexus, the contribution is particularly timely.

The role of paradigm analysis in the development of policies for a resource efficient economy

Policy makers are often called upon to navigate between scientists’ urgent calls for long-term concerted action to reduce the environmental impacts due to resource use, and the public’s concerns over policies that threaten lifestyles or jobs. Against these political challenges, resource efficiency policy making is often a changeable and even chaotic process, which has fallen short of the political ambitions set by democratically elected governments. This article examines the importance of paradigms in understanding how the public collectively responds to new policy proposals, such as those developed within the project DYNAmic policy MiXes for absolute decoupling of environmental impact of EU resource use from economic growth (DYNAMIX). The resulting proposed approach provides a framework to understand how different concerns and worldviews converge within public discourse, potentially resulting in paradigm change. Thus an alternative perspective on how resource efficiency policy can be development is proposed, which envisages early policies to lay the ground for future far-reaching policies, by altering the underlying paradigm context in which the public receive and respond to policy. The article concludes by arguing that paradigm change is more likely if the policy is conceived, framed, designed, analyzed, presented, and evaluated from the worldview or paradigm pathway that it seeks to create (i.e. the destination paradigm).

Between adaptability and the urge to control: making long-term water policies in the Netherlands

Triggered by recent flood catastrophes and increasing concerns about climate change, scientists as well as policy makers increasingly call for making long-term water policies to enable a transformation towards flood resilience. A key question is how to make these long-term policies adaptive so that they are able to deal with uncertainties and changing circumstances. The paper proposes three conditions for making long-term water policies adaptive, which are then used to evaluate a new Dutch water policy approach called ‘Adaptive Delta Management’. Analysing this national policy approach and its translation to the Rotterdam region reveals that Dutch policymakers are torn between adaptability and the urge to control. Reflecting on this dilemma, the paper suggests a stronger focus on monitoring and learning to strengthen the adaptability of long-term water policies. Moreover, increasing the adaptive capacity of society also requires a stronger engagement with local stakeholders including citizens and businesses.