Good practice package for appliances in China

Policy roadmap for very efficient appliances
Every five years the Chinese government publishes a mid-term plan for China’s socio-economic development. The 11th FYP is considered to have been a turning point, because, as the World Bank states, China, for the first time, shifted its focus from quantitative growth (economic development) to a broader and more qualitative understanding of growth with all spheres of development (economic, social, environmental) being “intertwined” (World Bank 2008, iv). Both, the 11th and 12th FYP, enact binding energy intensity targets for all of China’s provinces (see the table below), which are considered to save 670 million tons of coal equivalent (Institute for Industrial Productivity 2012). As local governments are held accountable, it is likely that they feel inclined to also promote policies that increase the energy efficiency of refrigerators.

China has implemented nationwide policy but also gives responsibility to its 33 provinces by setting energy intensity reduction (and other) targets for provincial governments. The question of how these targets are to be met has to be answered by policy makers from within these respective provinces (see the next table below). While this may result in a very diverse range of policies at the provincial level, the central government may conclude which measures have really performed well under real-world conditions.
In 2004, the National Reform and Development Commission (NRDC) published the China Medium and Long-Term Energy Conservation Plan setting targets or guidelines for the industrial, transportation and building sectors. For 2010, it concluded among others for refrigerators: “energy efficiency of newly added major energy consuming equipment is expected to reach or approach an international advanced level, […] and household electric appliances are expected to reach the international leading level.” In particular, the plan also states that China “should promote household and office electrical appliances such as high-efficiency energy saving refrigerators, air conditioners, televisions, washing machines; reduce energy the consumption of stand-by modes; implement energy efficiency standards and labelling; and standardize the market of energy-saving products” (NRDC 2004).

Source: Institute for Industrial Productivity 2012

International co-operation
China, especially via the China Standard Certification Center (CSC), closely co-operates in energy efficiency labelling with the United States Environmental Protection Agency (EPA) and with the Energy Management Corporation of South Korea (Tienan 2006, 23). Also, a grant from GEF was received for the programme to support manufacturers between 2008 and 2010. Information on other energy-efficient co-operation agreements focusing on refrigerators was not available. For a more general overview of China’s co-operation in energy efficiency issues, refer to the Wilson Center (see references).

Government energy agencies and funding
The National Development and Reform Commission (NDRC) can be regarded as the central co-ordination body for the promotion of energy efficiency in appliances. In general, it has been given the task of designing and carrying out development plans such as the Medium and Long-Term Energy Conservation Plan (cf. www.bigee.net/s/v9qdzi). 

The Ministry of Finance is the key player in terms of funding. For example, it funds the new subsidy scheme, which gives grants of up to 400 yuan to purchasers of energy-saving refrigerators.
Additionally, the Ministry of Industry and Information Technology (MIIT) and its line departments at the local level have also played an important role in promoting the energy efficiency of appliances, for instance, by drafting the pre-approved energy efficient product and enterprise list, providing training, inspecting the manufacturers with regard to energy efficiency of their appliances and information they provide about energy performance of their products.

Energy/CO₂ taxation and emissions trading
While several environment and carbon exchanges have been in existence since 2008 (e.g. Tianjin Climate Exchange, China Beijing Environment Exchange, and Shanghai Environment and Energy Exchanges) China plans to gradually implement a carbon trading system from 2013 onwards with the goal of a nationwide system by 2015 or 2016. For the test phase, five large cities (Beijing, Tianjin, Shenzen, Shanghai and Chongqing) and two provinces (Guangdong, Hubei) have been identified. Experiences and best-practice identification drawn from these locations are extremely relevant for nationwide applicable carbon trading system (Lan Lan 2012).
If utilities are not exempted from such a carbon trading system (as discussed in: Reuters 2012), rising electricity prices might result in a change in consumer buying decisions. Under trading systems the industrial sectors need to pay for carbon allowances. In China, electricity generation relies on coal to a substantial amount. Compared to other energy resources (e.g. gas, renewables) coals set large amounts of greenhouse gases free for which utilities must pay for in a trading system. Thus, it can be expected that utilities turn to electricity production with a lower carbon intensity, which might result in higher electricity prices.

Minimum energy performance standards (MEPS)
Today, China has a programme for mandatory minimum efficiency standards (MEPS). These programmes have been taken up due to the quick increase of electric household appliances like refrigerators with an annual growth rate of 14% on average between 1980 and 2005. The first MEPS, refrigerators included, came into effect in 1990 in order to eliminate very inefficient models from the market. The China National Institute of Standardization (CNIS) is responsible for setting standards. The standards are mandatory, but compliance is still a big issue and needs to be targeted (Zhou, Nan, p6447: 2010). The “primary focus has been on the technical requirements for efficiency performance. Less attention has been paid to monitoring and enforcement with a minimal commitment of resources and little expansion of administrative capacity in this area.” (Zhou, Nan: Status of China’s Energy Efficiency Standards and Labels for Appliances and International Collaboration, Ernest Orlando Lawrence Berkeley National Laboratory, p1: 2008). “The absolute level of the refrigerator standard is far lower than more stringent international standards in effect in the US, Australia, or Japan“ (Zhou 2010, p6450). The standard of 2003 for a 268 l refrigerator was 1.49 kWh/day, which is 544 kWh/yr. (Fridley et al. 2008, p5). In the 2008 standard, the calculation is much more complicated. The new standard considers various parameters.

Mandatory comparative labelling scheme
The mandatory comparative China Energy Labelling System (CELS), applicable to refrigerators as well as to air conditioners, clothes washers and 20 other product groups was launched in 2005 and is based on the coloured arrows design of the European Union’s appliance energy label. However, it uses numbers 1 to 5 instead of characters A to G. It is managed by CNIS. The rating goes from grade 1, which counts for refrigerators having an energy consumption of at most 55% of the MEPS and goes over grade 2: 55-65%, grade 3: 65-80%, grade 4: 80-90%, to grade 5: 90-100%. The mandatory label uses the MEPS as a reference point for the thresholds. Refrigerators not meeting the MEPS will not be labelled, nor even produced (Fridley 2008, p. 6 f). Based on a survey the Chinese consumers “recognise the energy label and have some knowledge about it (Zeng et al. 2011)”.
The Lawrence Berkeley National Laboratory estimated that due to the label 16.4 TWh of electricity, 67.5 tonnes of CO₂ emissions, 263,000 tonnes of NOx emissions and 1.6 million tonnes of particulate matter could be saved altogether by 2020. Based on these projections, refrigerator owners “would save a modest RMB¥700 million by 2012, rising to nearly RMB¥10 billion by 2020” (Fridley 2008, 31).

Voluntary endorsement labelling scheme
China established a voluntary energy-efficiency endorsement label, which since 1998 co-operates with the US ENERGY STAR programme. The programme is administered by the China Standard Certification Center (CSC) and it “requires manufacturers to submit to an on-site audit of production facilities and undertake third-party testing in certified laboratories” (Zhou, p6448: 2010). Today refrigerators that consume less than 65% of MEPS (information label grade 2) are qualified for an application for the endorsement label (Fridley 2008, p8).

Provision of information
China established several information campaigns as one part of the national strategic plan, e.g. the 12th Five Year Plan for energy conservation and emission reduction.
Information campaigns are also integrated in the “EE information week” that takes place annually. This information week has been in place since 1990 with different themes every year.
The consumer education programme has focused on awareness raising towards energy efficient refrigerator advantages and the willingness of purchasing them. In November 2003 an advertising campaign was introduced in newspapers, magazines, TV, outdoor-advertising etc. to connect environmental protection and money saving in order to attract consumers. Companies funded by the GEF project had to spend 10% of their advertising budget in the promotion of energy efficient products (UN, p. 11).
The international organisation, TOP10 China (www.topten.cn), establishes an internet-based platform to provide independent and up-to-date information on the best available energy efficient products in the Chinese market.

Financial incentives for very energy-efficient appliances
In June 2012, the Chinese Ministry of Finance (MoF) announced plans to provide financial incentives for the purchase of “energy-saving water heaters, refrigerators and washing machines” using “explicit fiscal subsidies” of 70-400 Yuan per appliance. Consumers receive the subsidies immediately at the retailers. Funding, which totals 26.5 billion yuan (~€3.3 billion), has been provided for the period from June 2012 until May 2013. This policy is not only supposed to restrict growing electricity consumption in China, but also to boost domestic sales figures “stimulating concerns about the impact from Europe’s debt crisis” (Bloomberg News 2012).

Source: MITT 2012

Voluntary agreements with manufacturers
In 1999, the Global Environment Facility (GEF) introduced the China Energy-Efficient (EE) refrigerator project, which was implemented by UNDP. Because of the rapid growth of the appliance market, especially for refrigerators in China, a market transformation project was initiated in order to promote energy efficient refrigerators. At that time China’s refrigerators had a higher energy consumption than European or US models (up to 2.5 kWh/yr per litre of volume compared to 1.5 kWh/yr in Europe) (Case Study, p1). In order to make the project successful, a large number of stakeholders were integrated. The most important goal of the project was “to reduce energy consumption through promotion of improved refrigerator energy efficiency. Contributing to protection of the global environment by reducing carbon dioxide and other greenhouse gas (GHG) emissions caused by household refrigerator energy use in China” (Case Study, p3).
A lot of measures have been taken to achieve the set goals. On the one hand, compressor and refrigerator manufacturers were encouraged to improve the energy performance of their products through many measures summarized as “technology push” (Case Study, p5). The quantity of energy-efficient refrigerators produced in China rose from 1 million in 1999 to over 14 million in 2005, and the production of very efficient refrigerators consuming less than 60% of what is allowed by standard rose to 3.3 million in 2005 compared to 400 in 1999 (Case Study, p7). In 2008, the market share of Grade 1 and 2 refrigerators was close to 26% (see the figure below). In 2010, the refrigerator-freezers with grade 1 alone had a market share of 76.9%. The share of those with grade 1 and 2 together amounted to 97.8%.
This dramatic increase has been achieved through a technical assistance programme, where “engineers from 8 Chinese compressor manufacturers participated in design training workshops, study tours, and expert technical assistance” (UN, p8).

Education and training
Assistance was granted to engineers from refrigerator manufacturers who received training in international technology options, modelling of energy efficiency measures, and in depth international design training. A “demand pull” was achieved through “consumer acceptance of energy efficient refrigerators.” Therefore, consumers and retail staff were educated in the benefits of EE refrigerators (Case Study, p5).

Public Procurement
In 2006 the legal requirement “Energy Efficient Products For Government Procurement” came into force, obligating public organizations (on national and provincial level) to purchase, when needed, energy-efficient appliances. Therefore, a series of energy efficiency appliance lists have been submitted by the Ministry of Finance and the National Development and Reform Commission (NDRC), where all appliances covered by that scheme are listed. The products should fulfil the following criteria: (1) The product is certified by authorised organisations, (2) It is a mature and reliable technology, (3) The product has a comprehensive supply chain and the manufacturer provides good services, (4) The product fulfils the procurement requirements (State Council Office 2007).
This measure is made to complement implementation of the “State Council Office Notice on the Carrying Out of Resource Conservation activities” (State Council Office Notice [2004] 30), the “Energy Conservation Law of the People’s Republic of China” and the “Government Procurement Law of the People’s Republic of China” (IEA). According to Article 1 in the Conservation Law: “This Law is formulated with a view to promoting energy conservation by all sectors of the society, increasing energy use efficiency, protecting and improving the environment and boosting all-round, co-ordinated and sustained economic and social development.”

Competition and awards
In 2003, GEF introduced a Refrigerator Manufacturer Incentive Program with a basic award of US$60,000 or $120,000 to the 16 participating manufacturers and a “principal award” of US$ 1 million to the manufacturer achieving greatest total energy savings over a 12 month period for a single new energy efficient refrigerator. The basic award covers incremental costs of project participation for these manufacturers, including (1) “all training and technical transfer programs, (2) increasing average energy efficiency at least 10%, (3) development of at least one, new top rated energy efficient product, and (4) investing at least 10% of the refrigerator advertising budget in energy efficient products” (UN, p. 11). Kelon won the “principal award” for manufacturing a refrigerator using 0.42 kWh/day (153 kWh/yr) and selling 1 million of units this model in 12 months.
Additionally, in 2002, GEF initiated the “Compressor Manufacturer Incentive Programme” consisting of two awards of $400,000 and $100,000 respectively to the manufacturer winners that committed to the development and commercialization of the most energy efficient compressor technologies (Case study, p12). Three winners were selected and committed to develop highly efficient compressors.
In 2004, GEF started the Retailer Incentive Program Contest award stores and individual salespersons for exceptional promotion of EE refrigerators on a competitive basis to a total amount of over $250,000. Participating stores and salespeople achieved sales of over 35,000 highly energy efficient refrigerators. The incentive cost per refrigerator of this Contest was approximately $7, which was significantly lower than that in comparable rebate programs in other countries (Case Study, p13).