Subsidy program for energy conservation products

In China, with the fast urbanization and the development of electric appliances, the share of residential electricity consumption over total electricity consumption went up from 3,5% in 1980 to 12,5% in 2012. Given the continuing trend in middle class growth, the residential electricity consumption in China will remain high in the next years.
Furthermore, the sales figures of household appliances are increasing in recent year in China, but the market penetration of high energy efficiency products only accounts for 5% to 15% of the market share. Taking fixed speed air conditioner for example, the high efficient air conditioner had a market share of only 5% before the policy came into force.
This policy tries to improve the energy efficiency of household appliances and boost the MEPS to new level.

The overall aim of this policy is to minimize the price gap between efficient and non-efficient products by awarding subsidies, which lead consumers to purchase high efficient appliances.
Another goal is to stimulate the domestic demand for energy efficient products and to drive the market towards higher energy efficiency levels.

It is a national policy.

Relevant sectors

• Residential: Household appliances
• Industrial: Industrial appliances

Active Options

• Cooling
• Heating
• Domestic Hot Water
• Lighting

Appliances

• Refrigerators and freezers
• Clothes Washers
• Television
• Computer

Industrial equipment like electric motors and air compressors are also addressed by the policy. However, the industry sector and the transport sector are outside the scope of bigEE (for policies and measures).

There are different energy efficiency requirements for each product group. One example is refrigerators. The detailed subsidy scheme is shown in the next table:

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It is designed according to the Energy Efficiency Index (EEI) that is calculated as the ratio of the measured energy consumption of the unit during the test to the baseline value (maximum allowable value was proportionally set to the baseline value) of energy consumption.

Relevant target groups

• Manufacturer Manufacturers need to produce high efficient products eligible for the financial incentive.
• Retail company Retailers can sell more high efficient products and guide the consumers to buy these products when purchasing.
• Investor Investors get financial incentives when purchasing an energy-efficient product. Through financial incentives, consumers are more likely to buy an energy-efficient product.
• User Users can reduce the running costs of their appliances.

Direct beneficiaries

• Investor

  Investors benefit from financial incentives when purchasing an energy efficient appliances. They save energy and costs due to the higher energy efficiency of the product.

• User

  For users the purchase price of high efficient products and the energy bills are lower.

Indirect beneficiaries

• Manufacturer

  Manufacturers benefit as the sales of high efficient products increase drastically.

• Retail company

  Retailers benefit from financial incentives because they can sell more energy-efficient appliances.

Relevant barriers

• Economic and financial barriers: The policy addresses the financial barrier because more energy efficient appliances are often more expensive than other models. The purchase of new appliances if often not made until the old (less energy efficient) appliance is broken. The policy aims to help consumers to save money and reduce the energy consumption by replacing old, inefficient appliances.
• Knowledge and information barriers: Financial incentives are a good instrument to create awareness of energy-efficient products.
• Lack of interest and motivation in energy efficiency-improvement: For the vast majority of consumers, the costs of energy are so small compared to their total costs that energy-efficiency improvement is not even taken into consideration.

Relevant incentives

• Saved energy costs: High energy efficient appliances can save energy for households. The future energy costs will be significantly lower.
• Directly increasing earnings or profits for actors on the supply side: Financial incentive programmes will increase profits for suppliers of energy-efficient technologies. The more market actors buy energy-efficient goods, the more manufacturers invest in energy-efficient production resulting in dropping prices.

China has established an energy efficiency standard, labelling and certification system. MEPS eliminate the most inefficient models from the market. Labelling schemes create market transparency and help consumers to choose the energy efficient product. The label also encourages manufacturers to produce more high efficient appliances and to develop innovative technologies. The top 15 – 20% products are defined as energy efficient products. The most inefficient 10% - 15% products are eliminated with minimum standards and the rest is in the middle and continuously pushed to reach a higher level of energy efficiency. Based on the MEPS and the labelling schemes, the subsidy programme was established. The policy aims to support the products that are defined as energy efficient products.
The implementation of subsidy program increases the market share of energy efficient products and helps to define the next steps of the minimum energy performance standards.

The interaction between the MEPS, the voluntary label, the mandatory label and the subsidy scheme is innovative.

The subsidy program is not a long term policy as the government cannot allocate huge financial support for long time. This time limit could be improved to increase the effectiveness of the policy.
Another barrier are the minimum requirements to receive funding. E.g. more than 70% of all refrigerators have a high energy efficiency rating and are eligible for the subsidy scheme. This shows that the scheme could be more stringent.
In addition, some low energy efficiency technologies such as plasma TV should be kicked out of the program. The subsidy program should also set size cap to prevent the purchase of over-sized products. The bigger the size the more energy is used. The over-sized products should not be subsidized.
An exemplary 80 inched LCD TV has the price of 69,999 RMB. However, it still can get the subsidy of 400 RMB. The efficiency of this TV might be sufficient for the subsidy program, but the absolute power is very high. Not only efficiency, but also sufficiency should be considered in the policy.

The following pre-conditions are necessary to implement the Subsidy program for energy conservation products
Agencies or other actors responsible for implementation
Operating agents are the National Development and Reform Commission (NDRC) and the Finance department (Ministry of Finance (MOF)

Funding
Funding comes from the government. From June 2012, 26.5 billion RMB public funding was budgeted for this subsidy program. The foci of the program are TVs, air conditioners, refrigerators, washing machines and water heaters.

Test procedures
National standards are used for this program.

Other pre-conditions
The energy label is needed for the policy as well as a functioning supervision mechanism.

The subsidies are given to the retailers by the central government. The participating actors have to be registered and have to accept the implementing rules.
The retailer pays customers cash first (except cars) and they can only get the subsidy back from the government when specific requirements are fulfilled: A certain amount of registered models were sold, all procedures are proper and they pass the monitoring inspections.
The energy efficient appliances are defined in national standards which are also the minimum requirements for the voluntary endorsement label. Furthermore, the products eligible for the subsidy also have an energy efficiency ranking of 1 or 2 within the mandatory energy label.

Actors responsible for design
The NDRC and the MOF are responsible for the design of the policy.

Actors responsible for implementation
The NDRC is also responsible for the implementation.

Monitoring
MOF conducts a regular monitoring of the policy.

Evaluation
An official evaluation of the policy is not available.

• Minimising rebound effects: Rebound effects are very likely with the design of the policy. The policy does not prevent the purchase of over-sized products. The 80 inch LCD TV can get a subsidy of 400 RMB.
• Minimising snap-back effects: There does not appear to be any effective attempt to minimise snap-back effects. The policy has time limits. The sale rates of very energy efficient appliances might decline after the completion of the policy.
• Minimising free-rider effects: Free-riders are possible, as the policy does not rule out that households that would have invested in new equipment anyway, are excluded by the policy. However, it is unlikely that a large amount of households would have invested in purchasing new appliances.
• Dynamic market transformation and/or innovation: The policy aims at a market transformation by facilitating market penetration for energy-efficient products. It indirectly motivates companies to develop more energy efficient appliances. Financial incentives can be very effective in making markets move dynamically towards higher energy efficiency levels. Air conditioner’s MEPS was boosted to tier 2 when the subsidy was finished in 2011. The flat panel TV’s MEPS was boosted to tier 1 when the subsidy was finished in 2013.
• Avoiding lost opportunities: The policy avoids lost opportunities by preventing investors from buying long-lasting low-efficiency appliances.

The following barriers have been experienced during the implementation of the policy
The subsidy program is not a long-term policy as the government cannot allocate huge financial support for long time.
The effectiveness of the policy could be improved. Subsidies should only be given to the top-efficient products (following the rules of efficiency and sufficiency); i.e. no wrong signal should be given to consumers to get the maximum subsidy. Subsidies should go to small and medium sized products.
Furthermore, some products are made artificially expensive to profit from affluent consumers. Subsidies should not be given to retailers but to end-users directly.
Enforcement and monitoring activities should be strengthened.

There is no comprehensive energy saving evaluation.
Until the end of 2010, 34 million fixed speed air conditioner, more than 1 million cars and 360 million compact fluorescent lamps were subsidized. The estimated energy saving is 22.5 TWh/year and 14 million tons of CO₂.
From June to December 2009, 4.2 million fixed speed air conditioners were subsidized. The 6 month sales was 3 times as high as the sales of the whole year 2008 (the market share was increased from 5% to 70% by the end of 2010). It was estimated that those air conditioners could reach the energy saving of 1 TWh/year.

According to a consumer survey conducted by CLASP in May 2013, 62% of 15,002 interviewees knew this subsidy scheme. However, in the 2,630 full samples, 10% of all knew all the subsidized product categories, 38% of all knew the subsidy criteria of one product and 39% did not know the subsidy criteria at all. 75% of all full samples purchased household appliances in past 6 months and the rest had the plan to buy appliances in next 3 months. Among the 75% buyers (1968), 76% of them got the subsidy. This survey showed that this subsidy program has very wide coverage in urban area. This survey also disclosed that the subsidy amount plays important role in affecting the purchasing decision, which is also a key in policy development.

From June 2012, 25.5 billion public funding was budgeted for this subsidy program.

After the subsidy for fixed-speed air conditioner between 2009 and 2011, the average energy efficiency was improved by 24%. The MEPS was boosted from tier 5 to tier 2. The average price of fixed-speed air conditioner was also reduced significantly, it was estimated that this subsidy program saved 30 billion RMB for consumers.