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.

What kind of expertise is needed for low energy construction

The construction industry is responsible for 40% of European Union (EU) end-use emissions but addressing this is problematic, as evident from the performance gap between design intention and on-site energy performance. There is a lack of the expertise needed for low energy construction (LEC) in the UK as the complex work processes involved require ‘energy literacy’ of all construction occupations, high qualification levels, broad occupational profiles, integrated teamworking, and good communication . This research identifies the obstacles to meeting these requirements, the nature of the expertise needed to break down occupational divisions and bridge those interfaces where the main heat losses occur, and the transition pathway implied. Obstacles include a decline in the level, breadth and quality of construction vocational education and training (VET), the lack of a learning infrastructure on sites, and a fragmented employment structure. To overcome these and develop enhanced understanding of LEC requires a transformation of the existing structure of VET provision and construction employment and a new curriculum based on a broader concept of agency and backed by rigorous enforcement of standards. This can be achieved through a radical transition pathway rather than market-based solutions to a low carbon future for the construction sector.