Voluntary Agreements with commercial or public organisations

Voluntary Agreements (VAs) on energy efficiency targets and actions can be concluded by the government with commercial or public organisations (e.g. developers, housing companies, local authorities). The organisations commit to reach energy efficiency targets and or to implement energy efficiency actions, e.g. retrofitting their building stocks or investing only in (very) energy-efficient new buildings.

Worldwide implementation status
Voluntary Agreements (VAs) on energy efficient buildings and appliances have already been implemented, especially in Europe and the USA.
For example, since 2005, the European Commission (EC) has started the GreenBuilding Programme (GBP), which aims to improve the energy efficiency of new and existing non-residential buildings in Europe by providing information and public recognition of companies that show actual commitment to adopting energy efficient measures. The GBP is implemented on a voluntary basis and is complementary to the EU Energy Performance of Buildings Directive (EPBD) (Valentová/ Bertoldi 2010). For results, please see the Policy impact section.
The GreenLight programme (GLP) was launched by the EC in 2000. It is a voluntary agreement to encourage non-residential electricity consumers (i.e. the Partners) to commit to installing energy-efficient lighting in their facilities. Similarly, the GLP provides the partners technical information support and public recognition (Ciugudeanu/ Bertoldi 2004).
In the USA, the Energy Star programme has extended its scope to low energy buildings. A builder signs a voluntary agreement with the Environmental Protection Agency (EPA), in which the builder agrees to construct buildings that meet the Energy Star requirement and the EPA provides technical support, assists in quality control, supports consumer outreach, etc. The buildings should be verified by an independent third party (Energy Star).
Between 2007 and 2013, the Danish Electricity Saving Trust introduced the Curve Breaker Agreement. 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 worked at the Danish Saving Trust (DEST).

Governance level
Voluntary Agreements (VAs) on energy efficiency can be formulated and implemented at trans-national, national, regional or local level.

Related sectors

• residential: Public and private housing companies
• services: For example, local authorities, universities, all kinds of companies
• industrial

• Low-Energy Buildings
• Ultra-Low-Energy Buildings
• nearly-Zero-Energy / Plus-Energy Buildings

• Thermal comfort
• Site
• Microclimate
• Building Form
• Building orientation
• Building envelope
• Shading
• Colour
• Passive cooling techniques
• Passive solar heating

• Mechanical ventilation
• Cooling
• Heating
• Domestic Hot Water
• Lighting
• Street Lighting/Traffic lights
• Building transportation
• Building integrated renewable energy systems

Behaviour and Management

• User Behaviour
• Building Energy Management
• Design Optimisation

Related target groups

• Property development company: A property development company can commit itself to only develop and sell energy-efficient buildings
• Investor: Housing companies or other landlords/landladies can commit to only invest in energy-efficient buildings meeting a certain standard and to improve the energy efficiency of their building stock by a certain percentage.
• Investor-occupier: The same type of VA can be also be concluded with investor-users such as local authorities, banks, or universities.
• Bank: Banks could commit to promote energy-efficient buildings in their lending.
• Equity funder: A VA could also commit such companies to demand energy-efficient buildings.
• Governmental actor: For example, local authorities or universities.

Supply-side actors and energy consultants may benefit from an increased demand in energy-efficient buildings and technologies, which may require more design and installation work and higher investment.

Direct beneficiaries

• Property development company

  These may earn higher revenues by developing and selling energy-efficient property.

• Investor

  First, investors receive credible information as well as technical or even financial support for taking up energy efficiency options.

• Investor-occupier

  Second, investor-occupiers or investor-users can save their energy costs and may work in a more comfortable environment. Third, companies or organisations who sign the voluntary agreement will receive public recognition as “green or environmental conscious” organisations.

Indirect beneficiaries

• Architect

• Installation contractor

• Manufacturer

• System supplier

• Bank

  Banks may be able to lend higher amounts of money due to the incremental investment in energy efficiency while benefitting from increased asset value and security provided by attractive and energy-efficient buildings.

• Energy consultant

• Energy Service Company

• Governmental actor

  Supranational, national, regional, and local governments can indirectly benefit from the policy or measure, because Voluntary Agreements (VAs) are more flexible and faster to be introduced and thus might accelerate the achievement of emission reduction targets (Bertoldi/ Rezessy 2010).

Relevant barriers

• Knowledge and information barriers: Knowledge and information barrier for investors: particularly, unavailability of information and information and search costs. In VAs, the governmental authority provides credible information and/or technical assistances to investors, which reduces or overcomes these barriers.
• The investor-user barrier: VAs with housing companies or property developers may be able to overcome this barrier.
• Lack of interest and motivation in energy efficiency-improvement: Especially, transaction costs or hassle/inconvenience (in combination with) time constraints, focus on core activities. (VA)s make it easier and more profitable for investors to implement energy-efficient technologies.

Relevant incentives

• Saved energy costs: For investors who are meanwhile users of the buildings and appliances, an additional incentive is the saving of energy costs.
• Improved reputation: May be an important motivation for an organisation to enter a VA.
• Contribution to protection of the environment:
• Increased (re-sale) value of the property:
• Unique selling proposition for suppliers: In case of a VA with a property development company

• (Partial or full) Exemption from energy/CO₂ taxation: the participation rate of VAs is higher when participating organisations can be partially or fully exempt from energy/CO₂ taxation and should repay the exemption in case of non-compliance (Bertoldi/ Rezessy 2010)
• Regulations: organizations are more willing to enter into the VA if there is higher threat of future regulations and government’s promise to relieve them from these regulations (UNEP 2007).
• Energy audit: in order to fully explore the energy saving potentials of the participating organizations, energy audits need to be conducted before the implementation of energy efficiency measures. The energy audit can be freely provided by the governmental authorities or subsidized by the government (Bertoldi/ Rezessy 2010).

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 organization can be involved to enhance their compliance with the agreements (Bertoldi/ Rezessy 2010).

Funding
Funding is needed for providing investors with information or technical assistance and/or 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.

Test procedures
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 building energy efficiency regulations, they need to be developed.

• The governmental authority prepares targets, a baseline scenario, and implementation rules (parties’ obligations, monitoring, verification, and reporting, sanction, etc.). Sometimes, the design process may involve negotiation between the governmental authority and participating organisations;
• Organisations apply for becoming partners of the VA by submitting their action plans, ideally, based on an energy audit;
• The governmental authority approves the application and signs the VA with participating organisations;
• Participating organisations self-report their energy saving achievements regularly. Ideally, verification is conducted by the governmental authority or an independent third party;
• To ensure the compliance, either formal or informal sanction measures are conducted by the governmental authority.

Quantified target
Voluntary Agreements (VAs) can be more effective if quantified targets, e.g. amount of energy saved per year, are specified at the beginning.

International co-operations
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.

Monitoring
For energy savings, participating organisations self-report their saving achievements regularly. The simplest way of measurement and verification is to stipulate deemed saving assumptions for certain energy efficiency options before their installation (Neme/ Cowart 2012). This can be done through an energy audit of the buildings that may be needed anyway to identify the energy efficiency options that are reasonable to implement.
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.

Evaluation
The common approaches of evaluating the effectiveness of Voluntary Agreements (VAs) is (1) to measure the energy consumption of the participating organization 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). The “International Performance Measurement and Verification Protocol” (IPMVP) provides an overview of best practice examples for verifying savings from both traditionally- and third-party-financed projects (EU-greenlight). 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 organizations and non-participating ones there is the possibility of a selection bias, i.e. it is often the “greenest” organizations 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.

Relevant individual dynamics and side-effects

• Dynamic market transformation and/or innovation: Voluntary Agreements (VAs) drive the demand for energy efficient appliances and building systems and thus foster the market transformation of energy efficient products and services.
• Avoiding lost opportunities: A Voluntary Agreement (VA) is often complementary to regulatory measures, e.g. the EU GreenBuilding Programme being complementary to the EU Energy Performance of Buildings Directive (EPBD), and thus stimulates additional energy savings that could not have been achieved by the enforcement of the regulation alone and therefore avoids lost opportunities. In addition, VAs should also aim to avoid lost opportunities by trying to maximise both participation rates and energy savings per participant or maximise performance of the energy-efficient technologies and solutions promoted.
• Minimising rebound effects: VAs can be designed to minimise rebound effects, for example, by requiring absolute limits on the energy consumption of energy-efficient appliances or buildings promoted, by providing users/occupants with information on energy-efficient use of buildings and equipment, and by promoting building energy management schemes.
• Minimising snap-back effects: Public recognition gained by the participating organisations through Voluntary Agreements (VAs) needs to be renewed or evaluated regularly. For example, in the Energy Star Home programme the partners should build at least one ENERGY STAR certified home annually to maintain their partnership (Energy Star). In this way, snap-back effects can be minimised.
• Minimising free-rider effects: The programmes should also be designed to minimise free-rider effects, e.g., by promoting only technologies and solutions with high energy efficiency levels while maximising uptake of these at the expense of low-efficiency solutions.
• Creating Spill-over effects: Voluntary Agreements (VAs) can have spill-over effects. The participating organisations receive information about good practice on energy efficiency improvements as well as them sharing their innovations through different channels provided by the government. , In addition, the large and influential organisations may be able to influence other organisations in the same sector in their decision to enter into VAs or to take up energy efficiency measures. These in turn advance the market transformation of energy efficiency measures.

Design for sustainability aspects
Other sustainability aspects, such as resource efficiency, health aspects etc., can be integrated into Voluntary Agreements (VAs).

Co-benefits
An increasing demand for energy efficiency products and services driven by the implementation of Voluntary Agreements (VAs) creates job opportunities in these fields.

• Reporting & monitoring that relies on self-reporting by the participating organisations is regarded to be the weakest point of existing VAs (Bertoldi/ Rezessy 2010); 
• The targets set by the government sometimes do not go beyond that in the business-as-usual level of energy performance (Bertoldi/ Rezessy 2010);
• Targets set in the VAs may not be assured, i.e. non-compliance of the participating organizations (Bertoldi/ Rezessy 2010);
• Governmental authorities may lack capacity to design, implement, and evaluate VAs (Bertoldi/ Rezessy 2010);
• Organisations, especially, those lacking good energy management and knowledge of their energy saving potentials, may tend to adopt a “wait and see” position (Ciugudeanu/ Bertoldi 2004).

The following measures can be undertaken to overcome the barriers

• Reporting & monitoring issues can be addressed by engaging independent third parties for monitoring and verification of energy savings with reports made public (Bertoldi/ Rezessy 2010);
• To avoid non-compliance there should be either penalties or a regulatory threat in case of non-compliance, e.g. withdrawal of a rebate on an energy tax; 
• Ambitious but realistic targets higher than business-as-usual case are set and backed up by legislation. The process of negotiating and setting the targets and rules needs to be transparent (Bertoldi/ Rezessy 2010);
• Capacity building related to VA design, implementation, and evaluation needs to be provided within governmental authorities (Bertoldi/ Rezessy 2010).

Energy savings of Voluntary Agreements (VAs) depend on the targets set in the agreement, the commitment of the participating organisations, the size of the organisation, etc.
In the EU GreenBuilding Programme, for example, builders of new non-residential buildings need to prove at least a cutback of 25% below the building code after implementing energy efficiency measures. Between 2006 and end 2009, 167 partners joined the Programme with almost 300 buildings. The total savings of the GBP between 2006 and 2009 amounted to 304 GWh/year (Valentová/ Bertoldi 2010).
In the EU GreenLight Programme, different companies in different countries exhibited various savings. For instance, in Belgium, GreenLight Partner Beerse Metaalwerken saved 24,919 kWh/year by replacing the standard high pressure mercury lamps of their workshop with 26-mm diameter fluorescent lamps. In Portugal, GreenLight Partner Sonae Imobiliária claimed to have saved 400,838 kWh/year by substituting the magnetic ballasts with electronic ones in the car park (Ciugudeanu/ Bertoldi 2004).
In the Danish Curve Breaker Agreement (CBA) programme, between 2007 and 2010, 177 curver breaker agreements were concluded. By 2011, signatories had achieved an average 7.5 % of electricity demand reductions.

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. In terms of preparation, VAs imply much lower costs, in comparison with issuing legislations (Bertoldi/ Rezessy 2010). The costs for participating organizations 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 could be considered to be quite small. DEST’s work, with many more programmes in addition to the CBA, is 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 regulations.
For participating organizations, the expected net benefit can be high. On one hand, for example, the EU GreenBuilding 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 were normally be cost-effective.