Energy Star

Before introduction of the ENERGY STAR label, consumers interested in buying an energy-using product in the USA were not able to quickly identify, which were the most energy-efficient models on offer for a given category of appliance, not even if it was covered by the Energy Guide energy efficiency label.

ENERGY STAR aims to guide consumers’ purchasing decisions, create opportunities for monetary savings by switching to energy efficient products, and protect the environment. The demand pull created in this way also incites manufacturers to produce more energy-efficient appliances.

Is it a national policy.

Primarily, ENERGY STAR focuses on the residential sector. However, the industrial, commercial, and public sectors are targeted as well.

Relevant sectors

• Residential
• Services
• Industrial

ENERGY STAR focuses on products, buildings, homes, and industrial facilities. However, only appliances will be scrutinised in this article. Examples for these discussed product groups are clothes washers, dishwashers, refrigerators, boilers, ovens, computers, imaging equipment, televisions, set-top boxes, fans, etc.
The label qualifies products in more than 65 categories: 

• Clothes Washers
• Dishwashers
• Refrigerators and Freezers

• Boilers
• Central AC and air-source heat pumps 
• Furnaces
• Geothermal Heat Pumps
• Light Commercial HVAC
• Room air cleaners and Purifiers
• Room air conditioners
• Water Heaters
• Dehumidifiers

• Commercial dishwashers
• Commercial fryers
• Commercial griddles
• Commercial hot food holding cabinets
• Commercial ice machines
• Commercial ovens
• Commercial refrigerators and freezers
• Commercial steam cookers

• Audio/ Video equipment
• Battery charging systems
• Computers
• Displays enterprise servers
• Imaging equipment
• Set-top boxes
• Telephony
• Television

• Ceiling fans
• Compact florescent lamps
• Decorative light strings
• LED light bulbs
• Luminaires
• Residential light fixtures
• Ventilating fans

• Roof products 
• Windows, doors, skylights

• Vending machines
• Water coolers

The ENERGY STAR label has a major role in pulling the market towards more energy-efficient products. The label identifies the best available products on the market and makes them visible to consumers. The government regularly tightens product specifications so that manufacturers are induced to develop and manufacture more and more efficient products – they are only allowed to display the ENERGY STAR label on their products if the products can meet the energy efficiency requirements set forth in ENERGY STAR product specifications.. Requirements with product-specific specifications were published to define methods for every product characteristics.

Relevant target groups

• User The primary target group are end-users (who receive information) .
• Manufacturer Another target group are manufacturers (who can provide the label with each appliance to emphasise the low energy consumption in comparison to other products).

Direct beneficiaries

• User

  Investors and end-users directly benefit from the ENERGY STAR label. The label allows consumers to more easily identify energy efficient products and compare the energy consumption with other products.

Indirect beneficiaries

• Manufacturer

  Manufacturers, retailers, and wholesalers indirectly benefit from the label. The labelling scheme provides a level playing field for manufacturers to position their products in terms of energy efficiency in their marketing and design activities in a predictable way. It can be a powerful marketing tool.

• Retail company

• Wholesale company

• Governmental actor

  Furthermore, public authorities can benefit when setting up information, financial incentives, or rebate schemes for the most energy-efficient appliances.

Relevant barriers

• Knowledge and information barriers: Sometimes actors may not be informed about possibilities for energy-efficient improvements. Therefore the main barriers addressed by the voluntary labelling scheme are information asymmetries that result from high transaction costs for consumers to obtain relevant information on product characteristics. Without a label, consumers can often not tell whether a product is more environmentally friendly and whether a product is more energy-efficient during its use phase than another. The label is easily recognisable and, thus, provides investors directly with important information, i.e. which product is superior in terms of energy efficiency compared to other products.
• Lack of interest and motivation in energy efficiency-improvement: There is a tendency that companies, organisations and households focus on their core activities only. The ENERGY STAR label can have a significant influence on the consumer. Is he or she willing to invest in ENERGY STAR labelled products this market power could be a motivation for manufacturers to invest in energy efficiency improvements.

Relevant incentives

• Saved energy costs: After a period of time, the upfront costs, which are normally higher for energy-efficient products compared to their less-efficient counterparts, are amortised due to lower running costs. The ENERGY STAR is a well-known label that informs customers about the environmental and cost benefits.
• Unique selling proposition for suppliers: The unique selling proposition is a strategic benefit. It can lead to competitive advantages or even market leadership and ultimately contributes to increased profits, too. ENERGY STAR can be used visibly on a product’s surface so that consumers can easily give preference to energy-efficient products over less efficient ones. If consumers started comparing individual products with each other, they would need a lot of time.
• Improved reputation: End-users and the environment benefit from energy-efficient solutions. Offering such solution (e.g. by using the ENERGY STAR label) underpins a company’s CSR (Corporate Social Responsibility) goals. This may lead to competitive advantages.

An important aspect for the functioning of the ENERGY STAR label are synergy complementarities and possible overlaps with other instruments. ENERGY STAR helps other programmes to identify energy-efficient appliances. For example within the FEMP public procurement programme. Other measures are the Energy Guide label, the Energy Efficiency Appliance Rebate Program and local initiatives.
Energy efficient appliances can display the ENERGY STAR within the Energy Guide label (see the next figure). The Energy Guide label shows the annual electricity use (in kWh) and the operating costs (in US$). So consumers can easily identify the expenses, although calculations are based on average energy prices. If the ENERGY STAR logo is included in the Energy Guide label, consumers know that the appliance is energy efficient compared to other ones of the same product category.

The Energy Efficiency Appliance Rebate Program (SEEARP) aims to encourage the replacement of out-dated, inefficient home appliances with new ENERGY STAR qualified appliances. Each State and territory is given the opportunity to develop and deliver its own rebate programme (Lani MacRae & Ely Jacobsen 2010).
Another example are several initiatives on the local or state level as well as many energy companies under state energy efficiency obligations, which subsidise the purchase of energy efficient products (a comprehensive list can be found here: www.bigee.net/s/d5jq24). The City of Buffalo pays to its residents around US$ 2 for every Compact Fluorescent Light bulb bought if it complies with ENERGY STAR criteria (City of Buffalo 2011, p.1). The State of Vermont support purchases of ENERGY STAR-labelled refrigerators with US$ 50 (Efficiency Vermont 2011). 

Another important aspect when talking about policy packages are information campaigns to educate consumers. In the case of the ENERGY STAR label an example is the “Change the World, Start with ENERGY STAR” campaign, which helps consumers to identify energy efficient products and raise awareness of the label.

The P&M includes innovative elements by providing an award, which highlights the best practice partners, by presenting information campaigns and training and by offering an exchange of information with manufacturers. ENERGY STAR can be regarded as a pillar for other measures. Thus, if a scheme like ENERGY STAR is implemented properly, it can jumpstart other measures that, first of all, need a standard or label guiding them.

In addition to the “classical” labelling programme, ENERGY STAR also awards producers with the “Partner of the Year Award” which is given to best-practice partners. For example, as stated in the “Profiles in Leadership” report, Bosch Home Appliances received the award for “the only U.S. appliance manufacturer with entire product lines of ENERGY STAR qualified dishwashers, washers, and refrigeration” (EPA 2011, p.28).
Furthermore, the EPA launched a campaign called “Change the World, Start with ENERGY STAR.” It consists of several innovative elements that raise awareness for the label. For example, people can send in videos or e-mails showing how they saved energy successfully; in other words, participants can envision themselves as ”energy stars.” The logic behind is the campaign is two-fold. On the one hand, people are given a platform to show their energy saving efforts. On the other hand, as the campaign raises awareness for and, thus, strengthens the significance of the label, more manufacturers are inclined to comply with ENERGY STAR requirements in order to engage a target group that appreciates energy savings.
Moreover, the “ENERGY STAR Products Partner Meetings” gives manufacturers the opportunity to exchange information and strategies about energy savings. This networking opportunity is interesting for developing business ties with other manufacturers (cf. ENERGY STAR 2011). Manufacturers can also find specific training on why a company should make use of ENERGY STAR for its products (cf. ENERGY STAR g).

There are possible actions to optimise the P&M itself:

Requirements and market surveillance
The instrument could be improved with tighter tolerances in test standards and reinforced market surveillance

The Problem of Categorisation
Some categories like refrigerators are divided into further subcategories. For example, there is a category for refrigerators with freezers on the top (“top-level freezers”) and another category for refrigerators and freezers side by side. The best products, those having an ENERGY STAR label, of the first category consume between 171 kWh and 312 kWh annually (cf. ENERGY STAR h). The best ones of the latter category need even more energy, i.e. the best ones need 448 kWh and the worse 544 kWh, and still earn the ENERGY STAR (ENERGY STAR i). As both have the same functions, basically, they should be assessed with each other in order to make consumer aware of the fact that (normally much bigger) side-by-side refrigerators consume a lot more energy in absolute terms when compared to other ones, such as top-level refrigerators.
One way to solve this problem could be the development of a mechanism that displays differences between products of a category. ENERGY STAR Most Efficient is a pilot initiative launched by EPA and DOE in May 2011 to accelerate the pace at which more energy efficient products enter the market, by recognizing select most energy efficient products among ENERGY STAR qualified products. Products earning this recognition demonstrate efficiency performance that is truly exceptional, inspirational, or leading edge—consistent with the interests of environmentally-motivated consumers and early adopters. As of March 2012, recognized products are offered by 41 manufacturing partners across all eligible categories.

Supervising Certification Bodies/Principle-Agent Problem
In 2011, is has become mandatory for manufacturers wishing to display the ENERGY STAR on one or more of their products to seek approval with so-called Certification Bodies (CB). These CBs test and verify whether the product is allowed to use the ENERGY STAR label and manufacturers pay for this procedure. Although making it mandatory for manufacturers to bear the full costs of this operation saves taxpayer money, it can be called into question whether a testing body can remain fully independent if a buyer-seller relationship exists between manufacturer and CB. In order to not let the relationship corrupt the testing scheme and “compromise the CB’s independence” (ENERGY STAR j), EPA and DOE could establish a federal funded certification body that, at least, makes spot checks of labelled products. This would minimise CBs giving in to pressure from principles.

The policy package can be optimised, too.
The combination of the Energy Guide label and the ENERGY STAR label should be pursued regarding more product categories. The more concrete the data with respect to the energy consumption of a product, the more they are inclined to purchase the more energy-efficient product.

Pre-conditions are agencies, a funding scheme and independent test procedures.

Agencies or other actors responsible for implementation
The United States Environmental Protection Agency (EPA) and the United States Department of Energy jointly operate the programme.

Funding
In 2010, the ENERGY STAR programmes (including appliances, residential, commercial and public buildings) was funded with US$ 52,606 million. U.S.-President Barack Obama requested US$ 55,628 million for 2011 (Environmental and Energy Study Institute 2011, 6f). However, the budget stagnated between 2002 (US$ 50.5 million) and 2009 (US$ 50 million) and was only raised in 2010. One also has to keep in mind, that the ENERGY STAR budget does not only have to cover appliances but buildings as well (ASE).
Product testing with Certification Bodies is to be paid by manufacturers.

Test procedures
Assessing whether a product belongs to the most energy-efficient 25 per cent of its category requires an official standard test procedure to measure absolute and often specific energy consumption and to calculate energy efficiency. For many products, such procedures have been created in the U.S. in the context of introducing minimum energy performance requirements. For the other product categories, ENERGY STAR test procedures were defined. A flow diagram which summarises the ENERGY STAR process can be found here: www.bigee.net/s/uum55q
Independent testing has been required since 2011. The EPA published a list with 191 EPA-recognized Certification Bodies (see: www.bigee.net/s/sdv1ki). Only those are allowed to test products and verify their compliance with ENERGY STAR. Though the programme has operated without third-party testing before 2011, it is now much more trustworthy.

• Number of products sold nationwide and widespread availability 
• Market growth rates 
• Amount of energy used by product in various power modes as appropriate (e.g., active, sleep, and standby/off power modes) 
• The product’s typical usage pattern (i.e., amount of time spent in each of the various modes of operation)
• Amount of energy that may be saved through the application of different technologies, operating procedures, or design practices 
• Product lifetimes
• Applicable standards and legislation that may affect a product’s energy consumption and availability
•  Extent to which potential energy savings may be impacted by installation practices or system interactions” (ENERGY STAR 2003, p.3 et seq.).

After that, EPA and DOE set standards which must be met by a product to earn the label. In general, the top 25 per cent in terms of energy efficiency of a product category can reach these standards (NRP 2009). The specific standards vary from category to category. Acquiring the ENERGY STAR label is voluntary. However, if a manufacturer wants to have a label on a specific product, a sample of the product has to prove its energy performance. Since 2011, new products have to be certified by an EPA-recognized certification body (CB). CBs test and verify that products meet the requirements set forth for the respective product category (ENERGY STAR e). The DOE and EPA together develop product testing requirements, the basis for CBs.If the product succeeds, the manufacturer can use the label. “When a specification is revised, manufacturers will need to have existing models certified to the new specification, however, certification bodies (CBs) may accept existing test data, so long as the testing requirements have not changed and the test data is from an EPA-recognized lab” (ENERGY STAR 2011 a).A flow diagram which summarises the ENERGY STAR process can be found here: www.bigee.net/s/uum55q

• Environmental Protection Agency (EPA) (Agency with some sort of ministerial/departmental status as EPA administrator is nominated by the US President and approved by congress)
• Department of Energy (DOE) (Ministry/Department)

• The EPA and the DOE jointly operate the programme

Monitoring
U.S. EPA Office of Inspector General (OIG) evaluates how effectively EPA is managing the ENERGY STAR Product Labelling Program. The OIG evaluates effectiveness of the EPA in managing the ENERGY STAR Program and provides recommendations. The scope of the evaluation is only limited to monitoring whether the EPA is performing following acts effectively (Officer of Inspector General 2007).
An indirect monitoring is realised with the certification body. After the appliance was tested by a third-party Certification Body, the manufacturer can display the ENERGY STAR logo, as long as DOE’s and EPA’s energy efficiency requirements for the respective product are not subject to change.
Furthermore “most ENERGY STAR manufacturing partners are required to report annually their qualified product unit shipment data. EPA collects unit shipment data to determine the market penetration of ENERGY STAR products and evaluate the overall performance of the program” (ENERGY STAR e).

Evaluation
Sanchez, Marla et al (2008): Savings estimates for the United States Environmental Protection Agency’s ENERGY STAR voluntary product labelling program, in: www.bigee.net/s/3husfm, also in: Energy Policy, vol. 36, no. 6, pp. 2098 - 2108.
Furthermore the US EPA Office of Inspector General evaluates how effectively EPA is managing the ENERGY STAR programme.
To some extend economic benefits and costs have been evaluated, too. A reference is:
Sanchez, Marla et al (2008): Savings estimates for the United States Environmental Protection Agency’s ENERGY STAR voluntary product labeling program, in: www.bigee.net/s/3husfm, also in: Energy Policy, vol. 36, no. 6, pp. 2098 - 2108.

• Dynamic market transformation and/or innovation: First, it signals to consumers that a product is energy efficient, saving them money and reducing the environmental impact. Thus, it complements the product prices. In principle, the US ENERGY STAR will stimulate innovation within the appliance industry. However, if not enough incentives are provided for a fast market transformation, manufacturers cannot recover their R&D- investments timely enough to invest in still more efficient devices (CECED 2006). Therefore, market transformation can be accelerated by combining the energy label with public procurement, technology procurement, financial incentives, training of retail sales staff, and by educating consumers. Policy must then follow this dynamic by regularly updating the label classes.
• Avoiding lost opportunities: By promoting the most energy-efficient appliances, but also showing the appliances with a high energy consumption (namely those without an ENERGY STAR label), the programme tries to avoid that consumers buy energy-wasting appliances (which would be a lost opportunity for saving energy).
• Minimising rebound effects: ENERGY STAR is not explicitly designed to minimise rebound effects but went along with information campaigns. The “Change the World, Start with ENERGY STAR” campaign can be regarded as a complementary measure to the ENERGY STAR programme. The campaign “encourages individuals to take simple actions that can make a big difference in saving energy, such as: Maintaining home heating and cooling systems to improve efficiency [or] [e]nabling power management features on home computers and monitors” (EPA 2009, p.13 et seq.). Nevertheless the risk of rebound effects with ENERGY STAR Appliances cannot be ruled out completely. Consumers may, e.g., be induced to buy larger TV sets or refrigerators that bear an ENERGY STAR label and are perceived to be energy-efficient. ENERGY STAR deals with this issue for TV sets by setting requirements for larger screen sizes based on absolute consumption rather than consumption specific by size.
• Minimising free-rider effects: Until 2011, it was easily possible to free-ride because manufacturers only had to submit self-made reports stating that products meet the respective standards. From January 2011 on, third-party auditing is mandatory (ENERGY STAR c). This minimises the risk of free-riding. On the consumer side, some may have purchased energy-efficient appliances even without them having a label. However, if the whole market is moved to higher energy efficiency, such effects will vanish, because in the counterfactual situation such highly energy-efficient appliances just would not have existed.
• Creating Spill-over effects: Appliances labelled with the ENERGY STAR can be regarded as role-models to other producers of appliances that belong to the same product category. As soon as labelled appliances sell better compared to non-labelled ones, manufacturers are incentivised to improve the energy efficiency of their products. If consumers massively turn to purchasing ENERGY STAR-labelled products other sectors may be influenced by this change in consumer behaviour. For example, manufacturers are influenced to push R&D in energy-efficient technology because consumers appear to be willing to include energy efficiency as a factor of their buying decision. Furthermore, the scope of ENERGY STAR was extended to buildings. Moreover, the benefits and the impact of the label go well beyond the borders of the United States and spill over to other countries.

The label covers sustainability aspects. For example, ENERGY STAR labelled clothes washers are 50% more energy AND water efficient than standard commercial units. Moreover, ENERGY STAR includes campaigns to improve the environmental behaviour of consumers. For example the “Change the world, Start with ENERGY STAR” campaign can be regarded as a complementary measure to the ENERGY STAR programme. The campaign encourages individuals to take simple actions that can make a big difference.
Therefore, ENERGY STAR covers not only energy but also other environmental aspects and includes the social dimension and the economic dimension (ENERGY STAR products are usually cost-effective for consumers).

The following barriers came to light during the implementation of the policy:
Since the Agency guidance states that the specification is set to recognize the top 25 per cent of energy performing models on the market, the structural precondition is to have a system in place to identify and determine top 25 % of energy efficient models in the market. However, the Office of Inspector General (OIG) found that “the Agency does not track the ratio of ENERGY STAR models to non-ENERGY STAR models available on the market, which would allow for determining this percentage (Office of Inspector General 2007).
Furthermore third-party product testing has become mandatory only in 2011. Basically, there are two problems if there is no independent body that proves whether a product meets the expectations of labels. First, this distorts results. If many manufacturers fake their data, the assessment of energy savings is worthless. Second of all, other manufacturers do not have an incentive to invest in energy-efficient technology because those, who fool the system, get the same advantage (i.e. the label) as those who really invest in energy efficiency.

The following measures were undertaken to overcome the barriers:
The government changed the programme to overcome the existing barriers. With the integration of an independent testing body, free-riding has been minimised since 2011.

Estimates argue that between 2007 and 2015 12.8 EJ of primary energy will be saved due to the ENERGY STAR appliance label (Sanchez et al. 2008, p.24). This is due to the fact that the ENERGY STAR label has been a big success, which resulted in increased market share of energy efficient appliances.
The calculations were made for the period 2007-2015.
The next table gives an overview of potential savings for the various product categories.

The report by Sanchez et al. (2008) estimates that ENERGY STAR appliances were successful in saving 4.8 EJ that is around 1334.4 TWh until 2006 (Sanchez et al. 2008, p.24).
The evaluation year was 2008. The report covered the years 1992 to 2006.
The next table gives an overview of achieved savings for each product category.

There is no information as to which part of the total potential for improving energy efficiency in appliances has already been tapped by the ENERGY STAR programme and label. An indicator of the programme’s high effectiveness is the market penetration of appliances with an ENERGY STAR label.
Market penetration varies from product category to category. For example, both, office and residential scanners fulfilling ENERGY STAR requirements have a market penetration of 97%, for cordless telephones it is estimated to be at 69%. Bearing in mind that the goal is to label only the top most energy-efficient 25 % of products, this could either indicate that there are no further potentials to improve energy efficiency for these product types – so complete effectiveness of ENERGY STAR, or that their ENERGY STAR requirements are in need of revision. On the other hand, ENERGY STAR-labelled commercial fryers penetrate the market only with 12% (ENERGY STAR 2009).
Other indicators of the programme’s effectiveness are:
1,600 manufacturers use the label on more than 40,000 product models that belong to over 65 product categories.
200 million ENERGY STAR labelled products were bought in 2010.
Between 2000 and 2010, 3.5 billion labelled products were sold.
Furthermore carbon emissions could be avoided for each sector. See the next figure:

Since 2000, the ENERGY STAR programme was funded with US$ 50 million to US$ 55. Thus, it is likely that funding will remain at the same or a similar level in the next years.

The ENERGY STAR programmes have been funded by the U.S. government with US$ 50 million to US$ 55 million per year.
Since 2011, every manufacturer wishing to display the ENERGY STAR label on its products has to consult an independent third-party certification body which checks whether a product meets the requirements of the respective product category. The manufacturer has to pay for these costs.

Sanchez et al. (2008) estimate that, from 2007 to 2015, the ENERGY STAR for appliances will achieve US$90 billion in discounted lifetime savings for U.S. consumers and businesses (4% discount rate) (Sanchez et al. 2008, 20).

Sanchez et al. (2008) calculated that ENERGY STAR’s appliance branch saved U.S. consumers and businesses US$ 47 billion of discounted lifetime savings until 2006 (Sanchez et al. 2008, 18).
EPA (2010) estimates that, in 2010, all the ENERGY STAR programmes saved US$ 18 billion of discounted lifetime savings (EPA 2010, 1).

According to the expected costs savings for energy consumers calculated by Sanchez et al (2008) of US$ 90 billion for the period between 2007 and 2015, i.e. one billion US$ of annual energy savings per programme year, the measure is highly cost-effective for the government, given that the budget remains at around US$55 million/yr. Even when accounting for eventual extra costs to manufacture more energy-efficient products, it probably still is cost-effective for society.

Since 2000 the various ENERGY STAR programmes were funded with approximately US$50 million per year. With the calculations by Sanchez et al (2008), which say that the programme saved US$ 47 billion, the programme is quite cost effective for the government.