Top Runner Program

Japan’s final energy consumption has continuously risen due to its economic development. In the 2000 fiscal year, Japan’s energy consumption was about 9 times larger than in 1955 (METI 2010, p3). This is very relevant because Japan has almost no domestic energy resources of its own and relies on energy imports. The turmoil caused by the first and second oil crisis in the 1970s convinced Japan’s decision makers to perform a policy shift towards energy supply source diversification.
In 1979, Japan enacted the “Law concerning the Rational Use of Energy” (Energy Conservation Law), which provided the legal basis to push on with energy conservation activities. While the final energy consumption of the industrial sector decreased due to efforts by the companies, the consumption by the residential, commercial and transportation sectors kept on rising except in the time during the oil crisis. This trend was mainly caused by the public’s pursuit of richer lifestyles following economic growth (METI 2010, p.5).
The Energy Conservation Law set energy efficiency standards for machinery and equipment, but these were limited to only three items (electric refrigerators, air conditioners, passenger vehicles). The standards were set so as to stimulate manufacturers and importers to achieve the standards through the company’s voluntary efforts. In 1999, following Japan’s commitments related to greenhouse gas reduction made at Kyoto, the Energy Conservation Law was revised in order to strengthen energy conservation measures. The Top Runner programme and other policies were introduced to tackle the challenge of reducing final energy consumption by advancing energy efficiency. After the earthquake in 2011 and the resulting accident at Fukushima nuclear power plants, the role of energy efficiency became even more relevant.

The Top Runner programme 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.

It is a national policy.

The Top Runner programme was introduced to tackle the challenge of reducing final energy consumption by advancing energy efficiency for machinery and equipment used in the residential, commercial and transportation sector.
Due to the limitations of bigEE the residential sector (and partly the commercial and public sector) is considered in this section.

Relevant sectors

• Services
• Residential
• Industrial

• Refrigerators and freezers
• (Gas) Cooking stoves
• Televisions
• Air conditioners
• Electric rice cookers
• Microwave ovens
• Lighting equipment 
• Electric toilet seats
• Video cassette recorders
• DVD recorders
• Computers
• Magnetic disk units
• Copying machines
• Space heaters
• Gas water heaters
• Oil water heaters
• Vending machines
• Transformers
• Routers
• Switching units

The Top Runner mainly targets the design phase of energy-using products in order to reduce energy consumption during the use phase of a product.
The programme defines mandatory energy efficiency standards for all product groups in focus. Standards are mainly based on the most energy-efficient product (Top Runner) in the respective product group. The most efficient products set the standard for all products to meet in the next target year.
Additionally, standards setting takes into account expected potentials of technological innovation, diffusion, and the product price. This means that very expensive products will not be used to set the standard. The standards are also not set by patented technologies (Siderius & Nakagami 2012, p. 2).
Once defined, standards become legally binding from a defined target year and manufacturers have to make sure that their products meet them in corporate average. The fixed requirements of the Top Runner programme differ depending on product specific characteristics across and within product groups. The standard can also be set above the value of the best product (as was done for DVD players) (Siderius & Nakagami 2012, p. 3).
Besides targeting the actions of manufacturers, an additional mechanism in the framework of the Top Runner programme is concerned with the purchasing decisions of end users. A supplemental labelling scheme, the so called voluntary e-Mark scheme, enables end-users to draw informed purchasing decisions by showing how far a certain product has achieved the energy consumption efficiency standard of the Top Runner programme (see the next figure).

Relevant target groups

• Wholesale company

Direct beneficiaries

• User

  The direct beneficiaries of the Top Runner programme are the users, who can enjoy less energy consuming products.

Indirect beneficiaries

• Manufacturer

  Targeted manufacturers benefit indirectly. Although pressures to improve their products seem to be disadvantageous at first sight, it turns out that it improves the competitiveness of Japanese products on global markets and thereby benefits targeted manufacturers (Naturvårdsverket 2005, p. 45). As soon as other countries apply energy efficiency standards, those manufacturers that have formally been subject to Top Runner regulation in other countries are highly competitive. Retailers of appliances will also benefit to the extent that sales prices and margins for energy-efficient appliances are higher.

Relevant barriers

• Knowledge and information barriers: With regard to the supply side, the Top Runner programme targets any lack of information and motivation of the manufacturers in improving the energy consumption efficiency of their products by its regulatory measures. Thus, first of all it provides energy-efficient products and strengthens the competitiveness of its manufacturers. Furthermore, the complementing e-Mark scheme provides information about a product’s energy efficiency for purchasers and thereby reduces information and search costs.
• Economic and financial barriers: The Top Runner programme can reduce market complexity and transaction costs for investors. The increased demand, in turn, reduces manufacturers’ risk in development and commercialisation, and retailers’ risk of sale for the more energy-efficient appliances.

Relevant incentives

• Unique selling proposition for suppliers: Improvements in energy efficiency results in increased profits on the supply side as increased quality of products and better reputation strengthens comparative advantages especially on the international markets.
• Saved energy costs: Consumers do not solely benefit from reduced transaction costs during their purchase but more specifically from energy savings during the use-phase, which result in larger real household budgets.

The Top Runner programme is an integrative part of the Energy Conservation Law. There are several areas of intersection with other policies. For instance, the e-Mark programme is a voluntary labelling scheme, which informs purchasers about the percentage achievements with regard to the defined Top Runner standard of an individual product. Another example is the Green Procurement Law, which incorporates targets defined by the Top Runner programme into purchasing decisions by public institutions (Nordqvist 2006, p.13-15). Another policy interacting with the Top Runner programme is Tokyo’s energy rating label. This local energy label adopted by Tokyo’s municipal administration uses Top Runner related criteria in its design (see the figure below).
Furthermore, Japan introduced an annual energy-efficiency award scheme and the e-Shop commendation scheme. The latter targets household appliance retailers of a certain size and invite them to compete for prizes and the privilege to name themselves an e-Shop. The scheme awards only such shops which are specialised on energy efficient devices and which can provide outstanding service concerning their distribution (Berghammer 2010, p57).
Since 2008, the eco-action points system awards consumers for energy-saving measures. Consumers receive eco-action points when they purchase energy-saving appliances or take energy-saving actions. The eco-action points can be exchanged for energy-saving goods or other actions (e.g. private railways, restaurants and other stores) at participating shops and thereby further promote environmental awareness (Nordqvist 2006, p. 14). For more information about the Japanese policy package and the interaction of single policies and measures go to our detailed description.

Whereas MEPS are often comparable to other product standards from other countries, the Japanese Top Runner has some unique features (Siderius & Nakagami 2011, p. 2). Therefore, the programme includes some innovative elements

The Top Runner programme is innovative in the sense that it uses the highest current energy efficiency rate for products instead of a defining minimum energy performance standard (MEPS). These standards are constantly increased based on the best performance when the defined target year is reached. Due to the fulfilment of standards by individual companies, the Top Runner programme provides more incentives and motivation for product design changes than an industry-wide mandate (Bunse et al. 2007, p.6). Another innovative element of the Top Runner programme is its use of energy consumption efficiency in corporate average as central measurement for evaluation (“average standard value system”). Hence, individual products are not asked to meet the Top Runner standards but the performance of all products sold by an individual manufacturer in the target year (Kimura 2010, p3). With regard to impacts on energy consumption this feature may be criticised as it could undermine the set standards when individual products are concerned.
Another innovative element is the integration of additional policies and measures like labels, awards and incentives to a comprehensive policy package.

Several potential improvements are mentioned in the literature about the Top Runner programme:
Massive over-compliance has occurred with some product groups possibly resulting in potentials to set effective incentives being spoiled. In these cases, the standard-setting procedures should be revised and improved to ensure optimal incentives for the companies to guide the processes of product innovation and market diffusion in an effective way (Nordqvist 2006, p. 29).
Another possible improvement is related to the information base of the instrument, which is not sufficient to properly picture positive environmental impacts of the programme. As it is supplier-oriented, set targets are related to product performance and not defined in terms of energy savings. Therefore, they do not allow estimations about net energy saving impacts. Markets in Japan are informed through updated product catalogues, relating to available models in terms of their Top Runner performance, published twice a year. However, data about individual sales by manufacturers are confidential and although the regulator must collect such data, as they are needed for their evaluation, this data is not publicly accessible (Nordqvist 2006, p.20). Provision and synthesising information could improve evaluation of the programme and thereby lead to improvements (Nordqvist 2006, p.16).
A further possible improvement could be to strengthen the involvement of consumers in order to ensure extending the programme’s impact to the use-phase of appliances (Naturvårdsverket 2005, p. 57). This includes actions to further improve the popularity of the e-Mark scheme as well as the provision of guides, which explain how users can use appliances in an energy-efficient way.

Structural preconditions of the Top Runner programme are mainly related to the capacity of the government to implement all relevant actions. On the one hand, an agency or another institution is necessary to conduct required measuring and evaluation/monitoring activities (including an independent test procedure). On the other hand, the availability of governmental budget for all programme activities needs to be ensured.

Agencies or other actors responsible for implementation
As the Top Runner programme is a dynamic instrument that needs revision on a regular basis, an agency is needed which is in charge of this task and comes with appropriated capacities. In Japan, the Agency for Natural Resources and Energy establishes, submits, revises standards and determines their coverage with regard to product groups (Nordqvist 2006, p9-10).

Funding
The programme is funded by the government. Information to calculate the overall costs of the Top Runner programme is not available. In general, costs are expected to be rather low. However, costs resulting from linked activities such as labelling, green procurement and tax relief programmes need to be considered as they add to the success of the Top Runner programme (Nordqvist 2006, p.9 and 24).

Test procedure
A test procedure is necessary to calculate the standard energy consumption and to define the Top Runner energy efficiency target standards.

• First, a legal framework needs to be designed and established as the basis for the programme’s implementation. 
• Second, the regulator determines product categories, whereas product committees negotiate and suggest appropriate conditions - for instance - by presenting different methods for measurement. The selection of product groups follow three basic criteria (Naturvardsverket 2005, p.28): 
  • products that are used in large quantities in Japan
  • products that consume a considerable amount of energy in the use phase
  • products for which there is considered to be a special need for energy efficiency improvement
• Third, determined standards and target years are officially published in order to allow public discussion and review, before being officially enacted by the regulator.
• Fourth, manufacturers take measures to comply with the standards. 
• Fifth, when the target year is reached the defined standards become legally binding and individual manufacturers need to ensure and prove that their corporate average meets them.
• Finally, the whole process is revised and evaluated in order to refit methods and standards for the next regulating Top Runner cycle.

Quantified targets
The Top Runner programme defines quantitative measures, which are set as standards and need to be achieved by individual manufacturers in a certain time period. Quantifications of targets depend on the character of the appliance in focus, the best available technology in the market in the respective product group and the potential innovation process and diffusion expected in the market. No quantified targets are defined for number of participants or total annual energy savings (Nordqvist 2006, p.7). For example; the energy efficiency of microwave ovens was expected to improve by about 8.5% from the fiscal year 2004 to 2008 (METI 2010, p.44). For other product groups please see the next table:

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

Actors responsible for design
The Agency for Natural Resources and Energy (governmental agency) is the regulator of the programme on behalf of the Japanese Ministry of Economy, Trade and Industry (METI) (ministry).
For the development of top runner standards, a committee (the Energy Efficiency Standards Subcommittee) get together with academic, industry, consumer and government representatives.

Actors responsible for implementation
The regulator of the programme is the Agency for Natural Resources and Energy (governmental agency).

Monitoring
Prior to the target year no formal monitoring is conducted, although the publication of statistics on the energy efficiency of individual products is required. The Agency of Natural Resources and Energy collects data on achievements from manufacturers of each product group (Naturvardsverket 2005, p36). However, monitoring issues do not seem to be very transparent. It is known that monitoring activities for internal purposes do occur within industrial sector organisations, but the communication of timing and findings is restricted (Swedish Environmental Protection Agency 2005).

Evaluation
Evaluation of the Top Runner standards is conducted when the target year arrives. Information, which was collected during the compliance phase, is cross-checked with the Top Runner standards defined at the beginning. This information helps to evaluate and revise the programme’s outcomes and to identify necessary refits (Naturvadsverket 2005, p.36).
Two evaluations by Nordqvist (2006) and Swedish Environmental Protection Agency 2005 (2005) were published. Another evaluation by METI (2010) illustrates some specific details of the Top Runner Target Product Standards.
For further information see references.

• Dynamic market transformation and/or innovation: The Top Runner programme 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 setting of 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.

Sustainability aspects
Furthermore, the Top Runner programme strengthens the international competitiveness of companies involved due to their improvements in terms of technology and reputation compared to their competitors.
Other sustainability effects are not covered by the Top Runner programme.

Co-benefits
Co-benefits related to the Top Runner programme are solely of an indirect nature. The growing share of more energy efficient devices reduces the energy demands of households and thereby makes more budget available in real terms. In addition, the emissions caused by power generation and impacts on climate change is reduced similar to other environmental damages (Naturvardsverket 2005, p.55).

In Japan co-operation between regulator and industry is traditionally far-reaching. This is why the Top Runner programme enjoyed high acceptance among manufacturers and barriers related to competing interests have been very limited (Nordqvist 2006, p17). However, the high involvement of companies in the setting of the Top Runner standards can also be perceived as a barrier to implementation as it can be one reason for the effective over-compliance, which was identified as one of the weaknesses of the programme and indicates that standards may have been set too low and therefore too easy to meet. Another reason for over-compliance could have resulted from the government lacking knowledge about the potential of technological innovations and market diffusion, which led to insufficient standards and thus to wasted potentials of the instrument.

Ex ante estimates of energy savings from the Top Runner programme are scarce. Nordqvist calculated savings of over 200 PJ (55 TWh) by 2010 for the residential sector. Nordqvist has doubts about these figures, as the baseline for them is not clear (Nordqvist 2006). 

Target year
Target fiscal years are set for every single product group depending on market and product specifications of the product group.

Since its introduction, the Top Runner programme has steadily realized advantageous effects with regard to improvement in energy efficiency. The energy efficiency improvements made have exceeded initial expectations in each product category on which the standard was based.(METI 2010, p. 8-9).
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 amounted to 48 per cent and thereby outplayed estimations indicated by the Top Runner programme (METI 2010, p.9). See the next table for a summary overview. The improvements are based on market data as supplied by manufacturers and importers.
Siderius & Nakagami calculated energy savings based on available evaluations (Swedish Environmental Protection Agency 2005; METI 2010). They used the METI data (see the next table) and calculated savings for 2009 “where all products in the stock have been replaced by more efficient products in accordance with the Top Runner standards. These savings are conservative estimate […]” (see the table in the summary section) (Siderius & Nakagami 2012). “In total , the savings contribute between one sixth and one fourth of the national energy efficiency saving target (Siderius & Nakagami 2012)”.
An example for this calculation is the product group “refrigerators”: “The sales-weighted average energy consumption in 2005 was 572 kWh/year and the average energy consumption in 2010 was 452 kWh, assuming that the distribution of sales over the various categories will not change, resulting in an improvement of (572-452)/x100%=21%” (Siderius & Nakagami 2012, p.4).

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

Costs are expected to be rather low. However, costs resulting from linked activities such as labelling, green procurement and tax relief programmes need to be considered as they add to the success of the Top Runner programme (Nordqvist 2006, pp.9 and 24).

Depending on the requirements set by the Japanese government it can be expected that the policy is cost-effective.