Rebate scheme for energy-efficient appliances and other actions (EPR)

Energy efficiency policy is part of an environmental policy with a tradition of 25 years in the Netherlands. In 1990 voluntary agreements were established between the distribution companies and the government. Another focus were eco taxes to take into consideration economical and ecological interests.
The distribution companies had to draft plans that were compiled to form the Environmental Action Plan (MAP) for the energy distribution sector. The distribution companies were allowed to recover the costs of energy efficiency activities through a charge on the electricity price. The upper limit for this charge was 2.1% of the revenues. Between 1991 and 1997, and following an expenditure of €600 million, 42.9 TWh of energy and 14.3 million tons of CO₂ were saved. The MAP scheme ended in 2000.
Furthermore, a tax on the CO₂ emissions from energy use for households and small and medium sized enterprises (SME) was created in 1997 for an average household (ap. 330 kWh/year this tax amounts to €230/year). In association with this tax, a new mechanism was created to reduce CO₂ emissions. 15% of the tax was used for energy efficiency improvements.
The next table illustrates the market share of A-labelled appliances in the Netherlands in 1999 in comparison to the European Union. Before the implementation of the EPR, the Dutch market share of efficient appliances was already higher than EU average due to the MAP scheme. In 1999, 26% of the refrigerator market was A labelled (in comparison: market share in the EU: 12%).
The EPR was introduced in 2000, against these political and economic backgrounds.

Source: Belastingdienst 2002, adapted from GfK data

The programme aimed at achieving a permanent market transformation of the market and to create favourable conditions for investors to buy an energy-efficient product. Through financial measures, grants for the purchase of the energy efficient appliance can be given, lowering the cost of the product to the consumer and making consumers aware that it is cost-effective for them to select energy-efficient appliances when they buy one.

It is a national policy implemented in co-operation with energy companies

Relevant sectors

• Residential: The sectoral focus is the residential sector.

Both buildings and appliances were covered by the EPR, with a focus on appliances.
The list of the technologies addressed includes for example: refrigerators and freezers, dishwashers, washing and drying machines (e.g. in 2002: €50 for each appliance with an energy label class A, €100 for super efficient appliances: Energy+ fridges and freezers and AAA class washing machines, €160 to 205 for tumbler dryers); LCD monitors and TV; floor ground or wall insulation (from €2.5 to 12 per square metre); heat reflecting glass (from €20 to 30per square metre); high efficiency condensing boilers; low temperature heating systems; lighting systems control

• 1999-2001: circa 45 Euro for A labelled appliances
• 2002: 100 Euro for A+/A++ and 50 Euro for A labelled appliances
• 2003: 100 Euro for A++ and 50 Euro for A+ labelled appliances

Relevant target groups

• User Primary target groups are end-users, as buyers of appliances and manufacturers on the supply side.
• Manufacturer Target groups are also investors who do not use the technology.

Direct beneficiaries

• User

  End-users and investors directly benefit from the policy by offering grants for the purchase of energy-efficient appliances.

Indirect beneficiaries

• Manufacturer

  Manufacturers and retailers indirectly benefit from the policy. They can offer highly-efficient appliances with reduced purchase price.

Relevant barriers

• Knowledge and information barriers: The energy premium scheme addressed the information barrier by using the European energy label. The investors can easily decide which products receive a rebate.
• Economic and financial barriers: A main barrier not to invest in energy efficient equipment are the higher purchase prices. A central interest of the Energiepremieregeling was the provision of financial support for very efficient products
• Lack of interest and motivation in energy efficiency-improvement: For the vast majority of actors, the costs of energy are so small compared to their total (production or consumption) costs that energy-efficiency improvement is not even taken into consideration. Furthermore, there is a tendency that companies, organisations and households focus on their core activities only.

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. So after this initial period, such appliances even reduce the costs for participants of the EPR.
• Directly increasing earnings or profits for actors on the supply side: The more market actors buy energy-efficient goods, the more manufacturers invest in energy-efficient production resulting in dropping prices. As soon as appliance manufacturers realise that there is a demand for energy efficient products, they start reaching out to this target group. Due to the economics of scale this will gradually reduce the manufacturing costs, which, in turn, will reduce the sales price.

Firstly, the EPR was supported by a wide scale information campaign including national campaigns on television and in national newspapers, advertisements in shops, promotions targeting installers, and websites such as www.energielabel.nl. The programme covered buildings too (in addition to the appliance specific measures). The EPR implemented inter alia grants for investment and an energy audit for buildings (especially on heating issues). These measures were also financed by the EPR.
Furthermore, the programme was in accordance with the EU Energy labelling scheme and the Energy+ campaign. If a customer decided to buy an efficient appliance, the energy label provided information, as to whether funding was possible or not. The same mechanism was offered by the Energy+ campaign for refrigerators and freezers. The Energy+ labelled appliance offered information about the financial options. Energy+ was an initiative by the European Commission, national energy agencies, and scientific institutes in Europe to promote the development and use of highly energy-efficient appliances (www.energy-plus.org). To participate in the Energy+ scheme e.g. refrigerators and freezers had to be at least 25 percent more efficient than basic energy class A models.

This interaction of the EPR with the EU energy label and Energy+ was a planned interaction. The EU energy label classes were an easy means to define eligibility for the grants and hence for appliance buyers to recognize the energy-efficient models eligible for the rebate. The Energy+ requirements were seen as preparation of the new label classes A+ and A++ and the EPR was thus used to support an early market offer and demand of A+ and A++ models through linking its grants to Energy+ requirements.

1. the co-operation with energy companies, who paid out the rebates and did the marketing for the programme; 
2. the dynamic energy efficiency requirements, getting stronger each year particularly for the refrigerators and freezers.

• Programmes based on taxes are always at risk, being linked to political decisions. Funding them through market-related instruments (e.g. obligations for energy suppliers or network companies, possibly with a scheme of tradable certificates of energy savings) or a special levy could provide better stability and longer duration.
• Policies should aim at the permanent transformation of the market, not being episodic programmes. The EPR lasted four years, which is longer than most programmes, but a few years longer might have furthered and more durably increased the market share of A+ and A++ refrigerators and freezers.

The well-known EU energy labelling scheme was an important pre-condition for the implementation of the EPR.

Agencies or other actors responsible for implementation
The energy companies were in charge of implementing the programme: paying out the grants, doing the communication, collecting the documents etc.
An independent state body monitored the programme. This body checked accounts in detail, visited some actual customers who had signed a paper on having received grants etc.

Funding
The policy was based on a dedicated funding scheme. The tax was channelled back to consumers who bought energy-efficient appliances.

Funds came from the Regulating Energy Tax (REB – Regulerende Energie Belasting), which is paid by consumers to the state and collected by energy companies. This tax was channelled back to the consumer through the utility companies i.e. electricity distribution companies, which are close to the consumers. They were requested to handle every application by the consumer within six weeks and provide immediate feedback. The customers had the possibility to get a rebate paid out by the energy companies for specific energy efficiency measures. The companies were allowed to recover the administrative, advertisement and other related costs by deducting "overheads", planned to be typically 5 to 10% of the costs, but actually more like 20 %. The energy efficiency technologies and requirements targets were defined by NOVEM and discussed with the industry and other market parties, before being proposed to the government for approval. An independent authority reviewed the operations (accounting, visiting customers). The criteria for calculating the rebates were based on a monetization of the avoided greenhouse gas emissions at €45 /ton of CO₂. In order to avoid too high administrative costs, the minimum rebate was €45.
An ex-post evaluation was carried out by an independent group, hired for the purpose.
The next figure illustrates the EPR process.

Co-operation of countries
The EPR benefitted from the EU Energy label: the label classification made it easy for consumers to identify the A-labelled appliances that were eligible for the rebate. The EPR later also created synergies with the European campaign Energy+ to categorise the products with an even higher energy efficiency than A.

Quantified target
The programme had no concrete quantified target but the government specified an overall target for energy savings.
Between 1998 and 2000, the Dutch government aimed at reducing energy consumption by 2%/year.
The EPR is also part of the activities under the Kyoto Protocol to reduce CO₂ emissions, especially in the residential sector. The aim was to avoid annual emissions of 2.3 million tons of CO₂ by 2010.

Actors responsible for design
Ministries in charge of environment, economic affairs, finance (Central Administration): decision makers
NOVEM (energy agency, organized as subordinated public entity): responsible for proposals for concrete measures

Actors responsible for implementation
Ministries in charge of environment, economic affairs, finance (Central Administration): supervision
Energy companies: inform end-users and investors, disburse the bonus

Monitoring
Energy companies received 5-10% of the sum for advertisement and administrative costs. In return, they had to document the implementation and the costs. An independent authority reviewed the operations (checks on accounts in detail, visiting some actual customers who had signed a paper on having received grants etc.)

Evaluation
Ex-post evaluations are available:
Kemna, René (2002): Evaluation of the Netherlands energy efficiency subsidy scheme EPR, Belastingdienst-Centrum voor process- en productonwikkeling.
Joosen, Suzanne, Harmeling, Mirjam, Blok, Kornelis (Ecofys): Evaluatie van het Klimaatbeleid in de Gebouwde Omgeving 1995-2002, 2004.
Economic benefits were calculated as well.

• Dynamic market transformation and/or innovation: The aim of the programme was the market transformation and the promotion of technology innovations. The duration of the programme (4 years) was sufficient for a dynamic adaptation for the refrigerators and freezers (which happened almost each year), but too short for a dynamic adaptation for washing machines and other types of appliances.
• Avoiding lost opportunities: By promoting the most energy-efficient appliances the programme tried to avoid that consumers bought energy-wasting appliances (which would have been a lost opportunity for saving energy).
• Minimising rebound effects: The programme went along with information campaigns and social marketing mechanisms to avoid rebound effects.
• Minimising snap-back effects: The programme was effective for only a few years. After this period no supports were offered anymore but the increase in sales had also produced a decrease in the prices of A-labelled white goods. Market shares of A+ and A++ refrigerators and freezers remained at a significantly higher level than before and in other EU Member States.
• Minimising free-rider effects: It was a target of the government to design the EPR in a way that many households benefitted from the programme and received a partial return of their eco-tax payments. That is why there were large, intentionally accepted free-rider effects, which in principle are avoidable,. According to the study by ECN (2000): “The EPR system is not very effective in terms of reduction of CO₂-emissions per guilder (former Dutch currency) of grant allowed. One reason for this is the high number of free riders, sometimes more than two-thirds of the total number of grants. This is only partially problematic, because the grant system is also meant as a refund of the regulatory energy tax.”
• Creating Spill-over effects: The duration of several years enabled markets to adapt, as is shown by the high shares of A-rated appliances achieved in the third year. The dynamic requirements for cold appliances (higher rebate for A+ in 2002; only A+ and A++ eligible in 2003) also increased the market shares of very energy-efficient appliances much quicker than they would have done without the programme and produced an effect that lasted after the programme ended.

A positive effect on the overall economics of the country is the state unemployment payments avoided in the appliance retail sector, which suffered from overcapacity.

In 2003, the budget for the EPR was €76 million but the investors received €175 million for new appliances. The necessary budget was underestimated due to the great demand that no-one expected. That is why the programme ended in 2003 without a recast.

In November 2001, almost two years after the start of the EPR, one third of Dutch households had applied for the EPR rebates. Of this, around two thirds concerned domestic appliances. The introduction of the EPR has led to an enormous growth of the supply of A-labelled appliances. 

The market share of A-labelled washing machines grew from 40 to 88% over the 1999-2001 period. For refrigerators this was from 26 to 67%. The proportion of A labelled appliances doubled. Prices decreased (up to 25%). The increase in appliances is most likely due to the EPR and has led to a situation where retailers very often advise their customers to buy an A-labelled appliance as the best on offer.
The table below illustrates the achieved market shares of A-rated appliances in comparison to the average for the EU.
According to estimates by Wuppertal Institute, energy savings for household appliances of 300 GWh/year plus 500 GWh/year in heating energy for buildings and 0.3 million tons of CO₂ were realized with the EPR programme (including the market transformation effect and other side effects).
Joosen et al. calculated a CO₂ reduction from 2000 until 2002 of about 0.2 million tons and primary energy savings of 3-4 PJ in 2002 (differences are caused by different side effect calculations e.g. free-rider and market transformation effects).

Source: Belastingdienst 2002, adapted from GfK data

In total, about 15% of the ecotax was used for the energy credit scheme. The amount of funds available to the citizens for 2000 and 2001 were €158 million of which 97% was actually spent. The additional implementation costs (including information and awareness campaigns) by the utility companies were 20% of this expenditure (ca. €41 million). 42% was used to increase the demand for energy-efficient domestic appliances.

The 1999-2000 sales of A-labelled refrigerators, freezers, washing machines and dishwashers increased by 116%, 95%, 95% and 117% respectively. In the second year (2000-2001) sales increases, of a then already larger number, were 22%, 35%, 28% and 32%. The increase in sales has also produced a decrease in the prices of white goods. This effect is illustrated in the table below.

• Extra company profit Tax: €1.9 million/year 
• Extra VAT: €6.6 million/year 
• Jobs created/not lost: 152/year. 

With an estimated unemployment payment of €15000 per year, these yields avoided unemployment payments of ca. €2.3 million. It should be noted that elsewhere in the EU, where the machines are manufactured, further jobs have been secured.

Between 2000 and 2002, the total budget was €416 million, Of this, €86 million were used for administration by energy companies.
Joosen et al. (2004) estimated a cost of conserved energy of between 4 and 8 Eurocent/kWh for the programme costs (rebates plus administration). Due to the rebates, the actions were on average cost-effective for the consumers who took action. However, by including the investment instead of the rebates, the EPR was not totally cost-effective for society according to these results. This average, however, also includes costly solar thermal and photovoltaic installations. Furthermore, it is partly due to the fact that a high number of beneficiaries and also free-riders were intended by policymakers in order to return some of the energy tax back to consumers. However, the evaluation study (Joosen et al., 2004) may have assumed too high free-rider shares by taking the market share levels that were achieved by 2001/2002 as an effect of the programme, or at least partly, as the baseline (and hence as free riders) (Thomas 2007).

In November 2001, almost two years after the start of the EPR, one third of Dutch households had applied for the EPR rebates. Of this, around two thirds concerned domestic appliances. The introduction of the EPR has led to an enormous growth of the supply of A-labelled appliances.
The market share of A-labelled washing machines grew from 40 to 88% over the 1999-2001 period. For refrigerators this was from 26 to 67%. The proportion of A labelled appliances doubled. Prices decreased (up to 25%). The increase in appliances is most likely due to the EPR and has led to a situation where retailers very often advise their customers to buy an A-labelled appliance as the best on offer.
The table below illustrates the achieved market shares of A-rated appliances in comparison to the average for the EU.
According to estimates by Wuppertal Institute, energy savings for household appliances of 300 GWh/year plus 500 GWh/year in heating energy for buildings and 0.3 million tons of CO₂ were realized with the EPR programme (including the market transformation effect and other side effects).
Joosen et al. calculated a CO₂ reduction from 2000 until 2002 of about 0.2 million tons and primary energy savings of 3-4 PJ in 2002 (differences are caused by different side effect calculations e.g. free-rider and market transformation effects).

Source: Belastingdienst 2002, adapted from GfK data