Top Runner Approach

The Top Runner Approach is designed to stimulate continuous technological improvements by the manufacturers of products towards an increased use-phase energy efficiency of selected product groups. It supports the diffusion of energy efficiency innovations.
Firstly, the government or a government-affiliated body identifies the Top Runner or best performers regarding energy efficiency. This energy-efficiency value is, then, set as a goal, which has to be reached by all other manufacturers within a certain point in time.

The Top Runner approach was designed in Japan and has so far only been implemented there.
In Japan the Top Runner Approach was implemented in 1998 on a national level. Due to the fact that the Top Runner Approach is similar to MEPS regulation it is most likely that this approach promises the highest success when implemented at a national or transnational level.

In principle, the sectoral focus is unlimited but this approach was primary developed for the residential and commercial and public service sectors. The Top Runner Approach can reduce the energy consumption of residential and commercial appliances significantly. An example for the success is the Japanese Top Runner Programme. The country implemented this approach in the residential, commercial and also the transportation sector.

Related sectors

• services: In principle the sectoral focus is unlimited.
• residential: In principle the sectoral focus is unlimited.

• Refrigerators and freezers
• Televisions, DVD recorders
• Washing machines
• Cooking stoves
• Copying machines, Printers
• Air conditioners
• Heated toilet seats
• Vending machines
• Microwave ovens
• Routers and switches
• Electric rice cookers
• Transformers- Gas & Oil appliances
• Computers

All in all, the programme targets 23 product groups in the residential, commercial and transport sectors.

Related target groups

• Manufacturer
• Wholesale company

Direct beneficiaries

• User

  Investors and users indirectly benefit from this type of policy. They are direct beneficiaries as highly efficient appliances penetrate the market gradually. They can save energy costs.

Indirect beneficiaries

• Manufacturer

  Manufacturers benefit indirectly. As soon as further countries apply energy efficiency standards, those manufacturers that have formally been subject to Top Runner regulation in other countries are highly competitive.

Relevant barriers

• Knowledge and information barriers: Manufacturers may be less inclined to invest in R&D for energy efficiency improvements. The Top Runner Approach makes this mandatory and, if implemented for the long-term (at best, with adequate additional policies), innovative energies are set free as manufacturers compete for the most efficient products.
• Economic and financial barriers: The Top Runner Approach can reduce market complexity and transaction costs for investors. Depending on the requirements set by the government it can be expected that the policy is cost-effective.
• The investor-user barrier: The investors may not be the ones who have the financial benefit (i.e. the user of an office is not the one who pays the energy bill). Therefore, there are little incentives for investors who do not directly benefit (e.g. through cost savings). The Top Runner Approach guarantees a high energy-efficiency level after a defined time period for all products on the market.

Relevant incentives

• Unique selling proposition for suppliers: Manufacturers selected as “top runner” or best performer may advertise their products with this qualitative characteristic.
• Saved energy costs: Purchasers of energy-efficient products will have lower energy costs. They may also regard this as an important characteristic favouring energy-efficient products over less efficient ones. After a period of time, the upfront costs, which are normally higher for energy-efficient products, are amortised due to lower running costs.

The policy works perfectly with additional instruments. For example, the Japanese government introduced the voluntary labelling scheme “e-Mark”. The label shows to what extent the appliance has achieved the energy efficiency level in comparison to the Top Runner. A green coloured label means that the standard is achieved; an orange label means that the standard is not yet achieved (Bunse et al. 2007).
An energy label is useful as consumers are rarely acquainted with all information relevant for appliance purchases.
Furthermore, financial incentives for energy efficient purchases by consumers may increase the acceptance of the Top Runner Approach as these are seen as political commitment from the manufacturer’s perspective.

Structural pre-conditions are an agency, a funding scheme and an independent test procedure.

Agencies or other actors responsible for implementation
A governmental or government-affiliated body with technical and methodological expertise is necessary to identify the top runner or best performer. Afterwards the agency is responsible for designing, implementing and monitoring the policy.

Funding
Funding needs to be safeguarded through government budgets of respective ministries. The budget has to include costs for the infrastructure (offices) and staff as well as for meetings with primary stakeholders (appliance manufacturers). Depending on the policy package, further costs (e.g. for a label, for an energy efficiency award) should be included.

Test procedure
A test procedure is necessary to calculate the standard energy consumption and to define the Top Runner energy efficiency target standards.
Testing is either done by the agency directly if sufficient technical expertise is available or may be outsourced to adequate laboratories.

The process starts with a preparatory study to analyse the technical potentials and to define the Top Runner standard. If there is hardly any product information available, the whole market (of a respective product group) needs scrutiny after it becomes clear how to measure the energy efficiency. Then, best performers or Top Runners should be identified.
From then on, respective ministries may choose an agency that is adequate in technological and methodological terms. Next will be the definition of standard test procedures for energy consumption and efficiency.
Thereafter, the government discusses the latest point in time when standards can and must be reached with manufacturers subject to future regulation. The timeframe should be challenging but not overburdening. Experts from impartial science centres should be consulted to give additional input for the feasibility.
Finally, possible sanctions for non-compliance should be discussed.
Before the policy is adopted, the agency should conduct an ex-ante impact assessment so that it is easy to keep track of successes and failures.
The policy can easily be modified. So an incentive to report failure in order to apply lessons learned (for the national policy and for foreign policy makers interested in the Top Runner approach) should be realised.

Quantified target
An agency should keep track of energy saving potentials realised in respective product groups. Then, the policy can and should have a quantified target. Targets should be the energy savings per year and the impacts on innovations.

Co-operation of countries
So far only Japan have introduced the Top Runner Approach but nevertheless co-operation is possible with other countries, which plan the introduction of this policy type. Advantages and disadvantages can be exchanged to make it easier to transfer the policy in accordance with national circumstances.

Monitoring
Market monitoring should look for market penetration of energy-efficient products meeting the standard and, as well, for the penetration dynamics in order to tighten up or lessen future restrictions regarding the time a standard needs to be achieved by others. Energy agencies or research institutes can carry out monitoring activities.
Compliance monitoring is essential for the instrument to function. If a large number of products, which are not compliant with the Top Runner Standard, remain on the market, this will undermine the effectiveness of the instrument.

Evaluation
An evaluation system should also be established. Key information sources are the changes in product range suppliers, number, variety and (additional) costs of energy saving measures and the development of the market. Therefore it is essential to calculate energy but also cost savings and to evaluate barriers and incentives for future policies.

Relevant individual dynamics and side-effects

• Dynamic market transformation and/or innovation: The Top Runner Approach mainly aims at dynamic market transformation, but also supports technological innovations. The market transformation is achieved by the dynamic standard setting and associated generation of incentives. Technological innovations are also strengthened, as expected potentials for technological innovations and market diffusion are included at the time of setting the Top Runner Standards. Expected technical innovations and market diffusion are determined for each product group by the regulator in co-operation with the companies concerned.
• Avoiding lost opportunities: By defining at least the best available technology as the standard it forces manufacturers to improve less efficient technology within the given period and finally excludes them from the market. In this way, energy efficiency at the time of purchasing the appliances is improved and lost opportunities are avoided.
• Minimising rebound effects: To minimise rebound effects, it is essential to combine the regulations with educational and information campaigns.
• Minimising snap-back effects: As soon as the defined standards are legally binding (e.g. from the target year onwards), snap-back effects are avoided.
• Minimising free-rider effects: The Top Runner Programme addresses all suppliers for the distinctive product group simultaneously. Therefore, free-riding of single manufacturers is not possible. Free-riding of appliance buyers is not very relevant either, although some of them would have purchased highly energy-efficient models even without the Top Runner programme.
• Creating Spill-over effects: The design of the Top Runner programme supports spill-over effects. Positive externalities emerge on a large scale due to technology innovation and market diffusion caused by the shift in products produced by manufacturers. On the one hand, these spill-over effects occur with regard to other countries, as the Top Runner Programme has an impact both on imported products as well as exported products. On the other hand, they can also be expected to occur with other product groups. For example, knowledge and successful practices generated through the development of energy efficient products within the framework of the Top Runner Programme are likely to be used for other product groups if feasible due to additional benefits for the producing company.

Co-benefits related to the Top Runner Programme are solely of an indirect nature. The growing share of more energy efficient devices reduces energy demands of households and thereby makes more funding available in real terms. In addition, the emissions caused by power generation and the impact of these on climate change, is reduced similar to other environmental damages. In theory, the level of benefits for the environment are controlled by the regulator as he or she can decide whether to set strict standards or less strict ones (Naturvardsverket 2005, p. 55).

In addition, the Top Runner Programme strengthens the international competitiveness of companies involved due to their improvements in terms of technology and reputation in comparison with their competitors.

An implementation barrier, which is possible during the implementation, is non-compliance by manufacturers. Therefore the goals need to be feasible in terms of technological progress within a given period of time. Additionally, sanctions for non-compliance and incentives for best performers may increase the compliance rate.

Energy savings depend on governmental ambition including sanctions and incentives for manufactures and the overall policy package. Financial incentives for consumers may increase the purchase rate of energy efficient products.
In Japan there is a broad agreement that the Top Runner Programme has been effective and exceeded the initial expectations.
The most recent publication of METI (METI 2010a) indicates that initial energy efficiency improvements for 13 product groups (including transportation) were expected to reach 35 per cent in the period from the base year to the target year (5-10 years). The effective achievements for the same period and products equated to 48 per cent and thereby outplayed estimations indicated by the Top Runner Programme (METI 2010, p. 9). (see the next table).

Source: METI 2010a, p.9; Siderius & Nakagami 2012, p.6

Regarding the budget, there is no reliable data available. However, the core policy will hardly affect the governmental budget. Note that financial incentives for purchases can massively affect this budget.
Further costs for investments in R&D will be passed on from manufacturers to consumers. However, lower energy bills will amortise higher upfront costs.

It can be expected, therefore, that the Top Runner Approach is cost-effective for end-users, policy operators and for society and can ensure low-cost energy savings. Similarly, energy resource dependent countries like Japan will benefit from fewer payments for resource imports.
Manufacturers will be more competitive in international markets, at least, if MEPS or similar Top Runner Approaches are applied elsewhere.