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Voluntary Agreements (VAs) on energy efficiency targets and procurement of energy-efficient appliances can be concluded by the government with commercial or public organisations (e.g. banks, insurance companies, supermarkets, local authorities). The organisations commit to reach energy efficiency targets and/or to implement energy efficiency actions. In addition to energy efficiency in buildings, such VAs should also include purchasing only (very) energy-efficient appliances. VAs can thus be a complement to regulations, e.g. for by promoting much more energy-efficient appliances than mandated by law. Support for implementing VA schemes, such as tools for public purchasers, benchmarking, monitoring, information dissemination and financial incentives, plays an important role. In order to make such agreements effective, they must include rules for independent monitoring and impose effective penalties in case of non-compliance. For the public sector, however, mandatory rules for public procurement to buy only energy-efficient appliances are even better than voluntary agreements.
Voluntary Agreements (VAs) on energy efficiency targets and actions can be concluded by the government with commercial or public organisations (e.g. banks, insurance companies, supermarkets, local authorities). In the VA, the participating organisations commit to reach energy efficiency targets and/or to implement energy efficiency actions. In addition to energy efficiency in buildings, such VAs should also include purchasing only (very) energy-efficient appliances. VAs can thus be a complement to regulations, e.g. for by promoting much more energy-efficient appliances than mandated by law. A VA works best when it is integrated into a policy package that contains, for example, reduction of or even exemption from energy/CO2 taxation in return for demonstrated action or target achievement, energy audits that also include appliances in use, or government’s promise of relief from future regulation. Support for implementing VA schemes, such as tools for public purchasers, benchmarking, monitoring, information dissemination and financial incentives, also plays an important role (IEA 2010).
VAs on energy efficient appliances have already been implemented in the last decade, such as the “Federal Energy Management Program (FEMP),” The “Energy Star Quantity Quotes Programme“ or the “Curve Breaker Agreement” in Denmark. These programmes have achieved significant energy savings. In the Danish Curve Breaker Agreement (CBA) programme, between 2007 and 2010, 177 agreements were concluded. By 2011, signatories had achieved an average 7.5 % of electricity demand reductions.
The U.S. “Energy Star Quantity Quotes Program” was implemented in 2006 to increase the market volume of Energy Star labelled products by convincing a group of large buyers to stimulate the production. The responsible actors assume potential annual savings of 200 million kWh of electricity and $21 million savings in utility bill savings in 2008 (Reeves et al. 2008).
The energy savings of Voluntary Agreements (VAs) can be substantial. However, it depends on the targets set in the agreement, the commitment of the participating organisations, the time scale, the size of the organisation etc. If properly designed, VAs are highly cost-effective both for the government and society, given their low public budget requirements (if they do not heavily rely on subsidies and tax exemptions). The are also attractive for commercial organisations or local authorities, because of the clear profitability of the energy efficiency technologies the governmental authority aims to promote, and the benefit they gain from the increased public recognition as a “green” organisation.
NOTE: A government can also conclude a VA with manufacturers of appliances, in which the manufacturers commit to improve the energy efficiency of their products. This type of VA is analysed in another bigEE file, which can be found under the category “Capacity building & networking“.
Voluntary Agreements (VAs) on energy efficiency targets and actions can be concluded by the government with commercial or public organisations. The organisations commit to reach energy efficiency targets and/or to implement energy efficiency actions, e.g. investing only in (very) energy-efficient appliances.
Worldwide implementation status
Voluntary Agreements (VAs) on energy efficient appliances have already been implemented, especially in Europe and the USA.
In the USA, the FEMP programme and the Energy Star programme were introduced to increase the energy efficiency of appliances. To earn the Energy Star, an appliance must meet strict guidelines set by the U.S. Environmental Protection Agency (EPA). The EPA provides technical support, assists in quality control, supports consumer outreach, etc. (Energy Star).
From 2007 to 2013, the Danish Electricity Saving Trust introduced the Curve Breaker Agreement (CBA) (Klima-, Energi- og Bygningsministeriet 2013). The Agreement set binding targets for reducing electricity consumption to voluntary signatories. The targets typically ranged between three and 15 per cent of demand reduction over a period of three to five years. Target groups were municipalities, regions, ministries and agencies but also non-governmental actors .The defined targets were negotiated with CBA coaches who work at the Danish Energy Saving Trust (DEST). Read more in the bigEE good practice policy file on the CBA.
Voluntary Agreements (VAs) on energy efficiency can be formulated and implemented at trans-national, national, regional or local level.
The following pre-conditions are necessary to implement voluntary agreements:
Agencies or other actors responsible for implementation
A public authority with appropriate statutory powers and expertise in energy efficiency should be in place to design, implement, and evaluate VAs (Bertoldi & Rezessy 2010).
Ideally, independent third parties who are responsible for verifying energy savings of the participating organisation can be involved to enhance their compliance with the agreements (Bertoldi & Rezessy 2010).
Funding is needed for providing investors with information or technical assistance and/or an energy audit.
A smaller amount of mainly staff costs is also required for the overall administration of the VA scheme. Communicating the scheme will also require some funds.
An easy-to-monitor and consistent set of calculation methods for the verification of energy savings needs to be in place. If these methods are not part of energy efficiency regulations or energy labels, they need to be developed.
Voluntary Agreements (VAs) can be more effective if quantified targets, e.g. amount of energy saved per year or a certain share of energy-efficient appliances in the organisation’s purchases – of course, a share of 100% is best –, are specified at the beginning.
International co-operations that share best practices of the design and implementation of Voluntary Agreements (VAs) can help policy-makers at trans-national, national, regional/local level to improve their design and implementation of VAs.
For energy savings, participating organisations self-report their saving achievements regularly. For a target on procurement of energy-efficient appliances, the organisaton will monitor and report the number and type of appliances purchased. The simplest way of measurement and verification for appliances is to stipulate deemed saving assumptions (Neme & Cowart 2012). This can be done through the authority operating the VA scheme on behalf of the government.
For evaluating economic benefits and costs, the implementing governmental authority needs to provide their costs incurred, separately for the preparation, administration, communication and evaluation costs and for any financial incentives provided by the government. Participating organisations need to provide information about the expenditures that they would have paid for the energy or power they saved and incremental costs to invest in energy efficiency measures. A standard reporting form can be provided to participating organisations for that purpose (Ciugudeanu & Bertoldi 2004).
Confidentiality needs to be guaranteed for all data provided.
The common approaches of evaluating the effectiveness of Voluntary Agreements (VAs) on overall energy savings targets are (1) to measure the energy consumption of the participating organisation and then compare it to a typical non-participating organisation; (2) to compare energy consumption of the participating organisations before and after taking up energy efficiency options (Gupta et al. 2007; Ciugudeanu & Bertoldi 2004). For a target on procurement of energy-efficient appliances, the number of appliances purchased needs to be multiplied by the energy savings compared to inefficient new appliances, with the latter possibly determined through a deemed savings approach. In addition to the data directly monitored for the energy efficiency programmes, evaluation of net energy savings compared to baseline trends should address side-effects such as rebound, multiplier, and free-rider effects, and the ‘lifetime’ and potential deterioration of energy savings.
In order to have a credible evaluation, it should, ideally, be conducted by an independent third party with reports made public (Bertoldi & Rezessy 2010).
However, evaluating the effectiveness of VAs is difficult because: (1) VAs are often combined with other instruments and some studies have claimed that improvements have been largely triggered by other instruments, e.g. regulatory instruments (Chidiak 2002, Johannsen 2002 and Helby 2002 in Gupta et al. 2007); (2) when comparing the participating organisations and non-participating ones there is the possibility of a selection bias, i.e. it is often the “greenest” organisations entering into VAs (Gupta et al. 2007). Studies neglecting these issues may result in an over-estimation of the VA’s effectiveness.
For evaluating the economic benefits for the society, standard values for the incremental energy supply costs that will be avoided in the long run for a kWh of energy or a kW of load should be developed by the government.
Design for sustainability aspects
Other sustainability aspects, such as resource efficiency, health aspects etc., can and should be integrated into Voluntary Agreements (VAs).
An increasing demand for energy efficiency products driven by the implementation of Voluntary Agreements (VAs) can create job opportunities in these fields.
The cost of Voluntary Agreements (VAs) for policy or measure depends on the support the government provides (e.g. information and technical assistances), the size of the VAs, the size of incentives (e.g. tax exemptions), etc. The costs for participating organisations vary among individual projects, depending on the energy efficiency measures they implement.
In the Danish Curve Breaker Agreement (CBA) programme, the Danish Energy Saving Trust (DEST) offered various tools to promote electricity demand reductions (e.g. training courses, behavioural campaign materials, energy efficient procurement guidelines and tools). Costs of the CBA programme are not known to us but are likely to be quite small. DEST’s work, with many more programmes in addition to the CBA, was financed by an extra charge of 0.06 Eurocent/kWh on the electricity bills of private households and public institutions.
With proper design and implementation, Voluntary Agreements (VAs) can be highly cost-effective for society and policy or measure operators given their high energy saving potentials and the fact that they require much less of public budgets in comparison with other instruments, such as financial incentive programmes or also regulations.
For participating organisations, the expected net benefit can be high. On one hand, such a programme aims to trigger investment on proven energy efficiency technologies that are clearly profitable. On the other hand, the organisations also benefit from the increased public recognition as a “green” organisation.
In Denmark, the tailor-made solutions (investment in energy-efficient technology and building energy management) elaborated with the assistance of the Danish Energy Saving Trust and implemented by the Curve Breaker Agreement signatories will normally be cost-effective. The Energy Star Quantity Quote programme calculated savings of $21 million in utility bill savings (in 2008), equivalent to the annual energy bills of 11,000 average households (Reeves et al. 2008).
Curve Breaker Agreement
Type: Voluntary Agreements with commercial or public organisations