ENERGY EFFICIENCY OF AIR CONDITIONERS IN DEVELOPING COUNTRIES AND THE ROLE OF CDM

Transcription

1 INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L ENERGIE ENERGY EFFICIENCY OF AIR CONDITIONERS IN DEVELOPING COUNTRIES AND THE ROLE OF CDM IEA INFORMATION PAPER SATORU KOIZUMI INTERNATIONAL ENERGY AGENCY OECD/IEA, November 27

2 INTERNATIONAL ENERGY AGENCY The International Energy Agency (IEA) is an autonomous body which was established in November 1974 within the framework of the Organisation for Economic Co-operation and Development (OECD) to implement an inter national energy programme. It carries out a comprehensive programme of energy co-operation among twenty-six of the OECD thirty member countries. The basic aims of the IEA are: To maintain and improve systems for coping with oil supply disruptions. To promote rational energy policies in a global context through co-operative relations with nonmember countries, industry and inter national organisations. To operate a permanent information system on the international oil market. To improve the world s energy supply and demand structure by developing alternative energy sources and increasing the efficiency of energy use. To promote international collaboration on energy technology. To assist in the integration of environmental and energy policies. The IEA member countries are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Republic of Korea, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States. The Slovak Republic and Poland are likely to become member countries in 27/28. The European Commission also participates in the work of the IEA. ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The OECD is a unique forum where the governments of thirty democracies work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Republic of Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States. The European Commission takes part in the work of the OECD. OECD/IEA, 27 International Energy Agency (IEA), Head of Communication and Information Office, 9 rue de la Fédération, Paris Cedex 15, France. Please note that this publication is subject to specific restrictions that limit its use and distribution. The terms and conditions are available online at

3 Abstract This paper seeks to identify the technical potential for energy efficiency improvement of air conditioning in developing countries brought about by the penetration of energy efficient appliances. The potential reduction of electricity consumption and CO 2 emission is estimated for China (warm provinces) and Ghana, which are selected as examples of developing countries which may or may not have their own manufacturing capacity. Barriers to penetration of energy efficient appliances and measures to lower these barriers are also studied to assess the feasibility of energy efficiency of home appliances in developing countries. Since barriers and possible measures are likely to be different depending on the existence of manufacturing capacity, studies are carried out for China (warm provinces) and Ghana. In identifying the barriers and possible measures, some of the energy efficiency projects implemented under the GEF (Global Environment Facility) are selected to be studied. Based on these analyses, this paper aims to clarify the effects and feasibility of measures to be undertaken as possible CDM projects with suggestions for a smooth implementation of CDM. The potential electricity consumption by cooling-only air conditioners would be reduced by 8% in Ghana through the proper enforcement of energy efficiency standards. In Chinese warm provinces accounting for about 3% of Chinese population, the maximum reduction of electricity consumption would amount to 38% which is equivalent to 26TWh if more advanced technologies available in developed countries were introduced. CO 2 emissions would be reduced correspondingly. However, energy efficient air conditioners may not penetrate the markets of developing countries due to various types of barriers. Efforts to overcome barriers by transforming markets have been made under the auspices of GEF since the 199s. It has been observed that the energy efficiency of appliances in developing countries has improved to some extent in each project. It should also be noted that the scales and effects of GEF projects have sometimes been insufficient due to the limits of funds allocated to each project by GEF. CDM could expand the coverage of GEF projects and promote the market transformation more deeply than existing GEF projects with its potentially larger funds generated through the sales of CERs (Certified Emission Reduction) on carbon markets.

4 1. Introduction Electricity consumption by the residential sector in developing countries is low compared to other sectors in developing countries, and same sectors in developed countries at present. However, it will increase drastically in the near future, since the adoption and capacity of each home appliance will rise due to the desire of people in developing countries to improve their standard of living. If China is taken as an example, the electricity consumption in the Chinese residential sector is about 1% of total electricity consumption at present which is quite low compared to the average figures in developed countries which is about 3%. As for the diffusion of home appliances, the adoption of air conditioners by urban residents had increased from 8% in 1995 to 7% in 24 and that for refrigerators from 66% to 9% respectively. The same trends are expected to continue for coming decades. Among home appliances, air conditioners, refrigerators and lighting fixtures are likely to be the three major electricity consuming appliances in developing countries. It is therefore most effective to concentrate on the energy efficiency improvement of these appliances in order to suppress the electricity consumption in developing countries. Though it is promising to suppress the electricity consumed by residential sectors in developing countries through energy efficiency of home appliances, it would appear that comprehensive measures to make this happen have not yet been taken. As a result, the energy efficiency of home appliances in developing countries remains low compared to that of developed countries, where efforts to improve the energy efficiency have been made since the oil crisis. If energy efficient products were to penetrate into developing countries together with proper standard settings and labelling programs, they could contribute to the energy efficiency improvement of home appliance stock in developing countries. This paper assesses the effects of energy efficiency improvement of air conditioners in China and Ghana used for cooling by technology diffusion from developed countries and/or proper enforcement of energy efficiency standards. It also estimates the possible reduction of CO 2 emissions caused by energy efficiency improvement, which could generate CER (certified Emission Reduction) to be sold in carbon markets. These are presented through a case study based on the comparison of energy efficiency of air conditioners in China and Japan and also expected energy efficiency improvement by CDM implementation proposed for Ghanaian air conditioners. The comparison between China and Japan is made in order to understand effects of energy efficiency improvement and potential barriers for air conditioners in developing countries with their own manufacturing capacity. The Ghana case study sheds light on the effects of energy efficiency projects implemented in developing countries without manufacturing capacity. Under the GEF (Global Environmental Facility) several projects on appliance energy efficiency have been implemented in developing countries. These projects could hint at possible barriers and countermeasures for the energy efficiency of appliances to be implemented by CDM since methodologies taken by GEF have been partly comparable to a programmatic approach of possible CDM projects, such as labelling programs and technology transfer from developed countries. For this case study, air conditioners used for cooling are selected since electricity consumption is expected to grow faster than other appliances such as refrigerators and lighting. In addition, the estimation of energy efficiency effects is easier since test procedures for these air conditioners are practically identical internationally.

5 2. Energy Efficiency of Air Conditioners In order to understand the situation concerning the energy efficiency of air conditioners, comparisons are made among three countries representing developed countries, developing countries with and without their own manufacturers respectively. Presently, in developed countries, energy efficiency of air conditioners has been rising due to the successful enforcement of energy efficiency standards with the endorsement of labelling programs. However, in developing countries, energy efficiency standards have not been enforced sufficiently and energy efficiency of air conditioners remains low at present. In particular, the situation in developing countries without their own manufacturers is more severe, since they have to import products which are sometimes expelled from other developing countries with their own manufacturers. 2.1 Energy efficiency of air conditioners in developing countries Energy efficiency of air conditioners in countries without their own manufacturers Ghana is taken as an example of a country without its own manufacturers. In Ghana, all air conditioners are imported from developed countries or developing countries owning their own manufacturers such as China. However, as is underlined in a Project Design Document of a proposed CDM project, current import patterns allow manufacturers to send their least efficient models to Ghana even though these models may be barred from more developed economies because they represent extremely inefficient technology. (Project Design Document of CDM on NM72: Mandatory Energy-Efficiency Standards for Room Air conditioners in Ghana) Therefore, the average energy efficiency of air conditioners sold in Ghana is relatively low compared to those in more developed countries. Minimum energy efficiency standards for air conditioners in Ghana already exist. However, labelling programs to inform retailers, wholesellers and custom officials of these standards have not yet been established due to the lack of resources such as a testing laboratory with properly trained staff and modern equipment.. As a result, the Energy Efficiency Rate () of air conditioners remains low, with the prospect of only a small improvement in future. Fig.1 indicates the development of average sold between 2 and 25. It had been improved year by year but the average yearly improvement is small, remaining at.7% during this period. Fig.1 Energy efficiency development of air conditioners sold in Ghana Year (UNFCCC 26)

6 2.1.2 Energy efficiency of air conditioners in countries with their own manufacturers China is taken as an example of countries with their own manufacturing capacity. Chinese energy efficiency initiatives started in 1989 when the former State Quality and Technical Supervision Bureau (QTSB) issued the first set of standards on the energy efficiency of appliances including air conditioners. China has developed its standards program since then, where efforts have been made to cover more product categories and raise the performance levels of each product. Responding to the requirements for the accession to the WTO, China consolidated the two overlapping institutions which were the State Administration for Entry- Exit Inspection and Quarantine (CIQ) and QTSB into the General Administration for Quality Supervision, Inspection and Quarantine (AQSIQ) as the standard setting agency. In April 21, the AQSIQ formed the Standardisation Administration of China (SAC), the body which is currently charged with establishing and monitoring national standards in China and also the official Chinese representation to ISO and IEC. This organisation controls the China National Institute of Standardisation (CNIS) which is the main standards research institute. (Chaoyi Zhao and John M. Graham, 26) In 25, China launched an energy efficiency labelling program which classifies appliances in 5 grades in order to provide more detailed information to consumers. At the same time, the minimum energy efficiency requirements (MEPS) for air conditioners were raised from 2.37 stipulated in 199 energy efficiency standards (APEC 1999) to 2.6 in 25 (CNIS 25) in terms of, which is equivalent to an annual rise of.62%. For an integrated assessment of energy policy in China, please see WEO 27 Sales weighted average of Chinese air conditioners can be calculated based on a composition of sales of air conditioners shown in Fig.2 and their energy efficiency requirements also shown in Fig.2. (CNIS 25) The energy efficiency of most of air conditioners was in the lowest of the 5 grades. Consequently, the sales weighted average was 2.8 in 25, slightly above the MEPS for air conditioners. Fig.2 Composition of sales of registered air conditioners by energy efficiency in Chinese markets Distribution of in Chinese AC markets Grade 1 Grade 2 3% 5% Grade 3 4% Grade 4 17% Grade 5 71% Grade Requirement > > > > 2.6 (CNIS 25) As a future outlook of the MEPS development of Chinese air conditioners, it is projected to increase to 3.2 in terms of in 29 from 2.6 set by the MEPS in 25, which corresponds to 5.3 % of annual improvement. (Jiang Lin 26) 2.2 Energy efficiency of air conditioners in developed countries In order to see the past trend of energy efficiency improvements of air conditioners in Japan, the transition of distribution for Japanese reversible air conditioners with cooling capacity of 2.8kW is depicted in Fig.3. The energy efficiency of Japanese air conditioners has been

7 improved since the Top Runner Program 1 started in 1999 which required the energy efficiency target to be met by 27. Air conditioners with 2.8kW cooling capacity were chosen since they are the most popular in Japan, and also, seemingly, among the most popular air conditioners in other developing countries. Fig.3 Evolution in Distribution of Energy Efficiency for Japanese Air Conditioners Purchase Prices (euros) July in July in July in 25 (ECCJ 26b) Enrgy Efficiency Index (%) Energy Efficiency Index (%) Energy Efficiency Index (%) A relationship between energy efficiency and the price of air conditioners sold from 21 to 25 in Japan is depicted in the graph on a biannual basis, where the horizontal axis expresses the energy efficiency achievement to the target in percentages and the vertical axis indicates the price of each product in euros. These graphs show that the energy efficiency performance of each air conditioner (indicated by diamonds) has improved in these five years. By 25, almost all the air conditioners in the Japanese markets had met the criteria set by the Top Runner Program and some air conditioners went ahead further. The energy efficiency of these air conditioners went beyond the target spontaneously as more energy efficient products were profitable in Japan in terms of Life Cycle Costs (LCC), which has not occurred in the markets of developing countries. The price information and energy efficiency information used here were obtained through the POS (point of sales) system which covered 35-4% of air conditioner sales in Japan for each year (ECCJ 26b). Fig.4, the trend of the sales weighted average for Japanese air conditioners from 1997 to 25 depicts. The of air conditioners has increased from 3.17 in 1997 to 5.27 in 25, with an annual average improvement of 6.6%. As for the projection of the future of Japanese air conditioners, this would increase to 6.32 with a 2% improvement by the year of 21 (METI 26), due to the revision of the Energy Efficient Law in Japan. This improvement corresponds to 3.7 % annual improvement between 25 and 21. In order to compare energy efficiency performances quantitatively, test methods of appliances need to be equivalent. The Chinese domestic test procedure for heat pumps, GB/T is not equivalent to ISO (E). However, the cooling capacity tests are conducted at the ISO (E) T1 test conditions. The Japanese air conditioners are tested by JIS B which is technically equivalent to the test procedure in the ISO 5151 T1. (APEC 1999) Since the test procedures and conditions for air conditioners of China and Japan with regard to energy efficiency performance are identical, these two countries can be compared directly. As for air 1 The Japanese government launched the Top Runner Program based on the amended Energy Conservation Law in 1999, under which the standards are set based on the efficiency level of the most efficient product commercially available in a given category. For each manufacturer and importer, the Top Runner Program requires that the weighted average efficiency of all units shipped within the same category meet the standards for that category by the target year decided for each category. Target products of the Top Runner Program are ones designated as machinery and equipment which are commercially used in large quantities in Japan, consume significant amounts of energy on use and satisfy energy consumption efficiency requirements. (ECCJ 26a)

8 conditioners in Ghana, is also used for the estimation of energy efficiency of air conditioners. Fig. 4 Past trend of for Japanese air conditioners with cooling capacity of 2.8kW Year (ECCJ 26c) 2.3 Comparison of the situation between developed countries and developing countries Energy efficiency of air conditioners in developing countries is currently low compared to that in developed countries. This is caused by the past sluggish improvement of energy efficiency performance of air conditioners in developing countries. In Ghana, the annual average improvement of had been.7 % between 2 and 25. For Chinese air conditioners, explicit historical development of EED is not available. However it is likely that it has not been high given the development of MEPS in that country, which is only.62% between 199 and 25 on an annual basis. In the future, expected MEPS development suggests that energy efficiency of Chinese air conditioners would rise more rapidly than in the past. However, the speed of improvement which is 5.3% on annually is comparable with that in Japan which is 3.7% on an annual basis. Therefore, it is not likely that the gap in energy efficiency between these two countries will close in the near future.

9 3. Estimation on Reduction of Electricity Generation and CO 2 Emission by Energy Efficiency Improvement of Air Conditioners The reduction of electricity generation and CO 2 emissions by the improving energy efficiency of air conditioners is evaluated both for China and Ghana. For China, the evaluating of possible electricity reduction and CO 2 emissions has not yet been performed. Therefore, this evaluation uses a model based on actual data of Chinese air conditioners. For Ghana, the evaluation performed in the Project Design Document (PDD) Form of CDM project for energy efficiency improvement of air conditioners in Ghana can be used in this study. 3.1 Estimation of reduction of electricity generation and CO 2 emissions in Ghana Outline of CDM project in Ghana For the energy efficiency improvement of Ghanaian air conditioners, a new methodology of CDM using a programmatic approach was proposed to the UNFCCC. This methodology had been assessed by the Methodology Panel but was disapproved of on the grounds of the weakness of available reliable data and/or scientific surveys, which make the baseline and the monitoring methodology rely on statistical sampling rather than the performance of every appliance in the market. It also pointed out that little precedence with approved methodologies and necessary long term activity involving plural actors are a potential weakness of the project. (UNFCCC 27) Even though the project was disapproved, the outlook of CO 2 reduction by energy efficiency of air conditioners and proposed possible measures are still useful in studying the effects of energy efficiency of air conditioners and possible measures to be taken in countries without their own manufacturers. The project was supposed to cover all room air conditioners used in Ghana. The boundary for this project was expected to be all consumers connected to the grid in Ghana, which covers most of the territory. In Ghana, the most expensive and presumably least efficient electricity based on operational costs comes from fossil-fuel based generators that emit CO 2. By implementing a room air conditioner standard, suppliers in Ghana would be forced to take the most inefficient units off the market and consumers would be forced to purchase on average more efficient models than they would do otherwise. Developing a national level appliance standard has traditionally required a tremendous investment of time and resources. Project developers would need to work jointly with key government, industry and NGO groups to move projects forward. Ghana has been trying for a long time to try to implement appliance standards and is one of the most advanced African countries in its efforts. No other African country except South Africa has made comparable efforts to implement an appliance standard. In spite of the effort towards appliance standards in Ghana, program costs, financial investment, political will and other key barriers remain that CDM would be directly responsible for overcoming. For example, no mandatory standard could come into effect without the creation of a local appliance testing lab facility, with sensitive and expensive equipment available only in developed countries. The lab needs both start up and annual operational budgets, funding that the government currently lacks. The CDM revenue would be used to directly overcome this currently insurmountable barrier. (UNFCCC 26, Project Design Document of CDM) Ghana has a very hot and humid climate. In the capital city of Accra, for example, the high temperature averages above 3 C, and humidity levels reach 8% June through September. Air conditioners are a common consumer purchase as in any country with a similar climate and a growing consumer class. In Ghana, more than 1, room air conditioners are currently

10 sold each year with the number expected to grow by about 8% each year. (UNFCCC 26) The program proposed does not have any significant impact on air conditioner stock, but rather it aims at reducing the negative impacts from air conditioners newly sold by ensuring that they meet a minimum efficiency performance (=2.8) and that consumers have the life-cycle cost information needed to select air conditioner with even higher levels of efficiency. Fig. 5 Map of Ghana The boundaries and names shown and the designations used on maps included in this publication do not imply official endorsement or acceptance by the IEA. (UNFCCC 26) Estimates of reduction in electricity generation and CO 2 emission The duration of the project is set to be seven years in the PDD, starting from 25. Distribution loss is not considered in the estimation. Therefore, total electricity generation caused by air conditioners are equivalent to electricity consumption by air conditioners. Total electricity generated air conditioners between 25 and 211 is the sum of annual electricity consumption in each year. The annual electricity consumption in year N, AEC(N) is the sum of electricity consumption caused by air conditioners entering stock between 25 and year N as shown below. N 1 AEC(N) = EAS(N) K + EAS(Y) Y = 25 In this equation, EAS(Y) represents electricity consumption caused by air conditioners entering stock in year Y. Notably, the electricity consumption by air conditioners in year N is multiplied by the coefficient of K in order to reflect the average yearly operation hours of equipment bought in that year. This figure is set to be 5% in this case based on the assumption that air conditioners are introduced unrelated to the time of year in tropical Ghana. EAS(Y) is calculated by the following equation. EAS(N) = NAES ( Y ) CC OH S( Y) where, NAES(Y) = number of air conditioners entering stock in year N S(Y) = Average of air conditioners entering stock in year Y CC = Average cooling capacity of air conditioners is assumed to be 4.2kW OH= annual operation hours of air conditioners = 299 days/year*9 hours/operational day= 2691 hrs/year

11 As for the number of air conditioner sales, a projection in the PDD shows that sales would increase from about 1,4 units in 25 to reach about 169, units in 211. As for the development in the baseline case, energy efficiency performance of air conditioners to be sold in the Ghanaian market is assumed to improve by.2% annually, from in 25 to in 211 in s term, based on the historical records. If CDM project had been implemented, of air conditioners sold in Ghanaian market would have been raised to 2.8 during the same period. Operation hours and carbon intensity of electricity in Ghana is assumed to be constant during the project implementation period. Following the estimation method shown above, Fig.6 indicates annual electricity generation caused by air conditioners for both the baseline case and the case with improvement by proposed CDM project. Fig. 6 Electricity generation caused by air conditioner operation in Ghana between 25 and electricity generation(twh) Baseline power generation reduced power generation Year (UNFCCC 26) Total electricity generation caused by air conditioners in Ghana between 25 and 211 is estimated to be 43TWh as indicated in Table 1. The possible reduction of electricity generation brought about by the enforcement of minimum energy standards would be 3TWh, which accounts for 8% of total power generation during the same period. CO 2 emissions can be calculated by multiplying carbon intensity (kept constant at.88 kg CO 2 /kwh) by electricity consumption. CO 2 emissions would be reduced correspondingly by 3Mt as also indicated in Table 1. Table 1 CO 2 emission and possible reduction for Ghanaian air conditioners between 25 and 211 Power generation (TWh) Reduction of power generation (TWh) Reduction of power generation (%) CO 2 emission reduction (Mt) (UNFCCC 26) 3.2 Estimation of reduction of electricity generation and CO 2 emission in China Estimation method of electricity generation The outlook for the reduction of electricity consumption caused by energy efficiency can be obtained by subtracting the electricity generation of a low CO 2 emission case from that of a baseline case. For the baseline case, electricity generation is calculated based on the outlook of average of air conditioners without technology diffusion from developed countries and the outlook of air conditioner stock of China. The low CO 2 emission case is where the energy efficiency of air conditioners is improved through technology diffusion. Total electricity consumption from 26 through 22 for each case can be calculated as the sum of electricity consumed by all air conditioners in each year as indicated in the following equation.

12 Total electricity consumption = = NAS( Y ) CC OH 22 Y 26 A( Y) (1 Pl ) where, A(Y), NAS(Y), CPE(Y) and Pl are defined as follows. NAS(Y) = Number of air conditioners in stock in year Y CC = Cooling capacity of air conditioners is assumed to be 2.8kW OH = Annual operation hours kept constant at 4 hours A(Y) = Average of all the air conditioners in year Y Pl = Distribution loss and suppliers own use kept at 21.9 % Operation hours are assumed to be kept at 4 hours which is supposed to be the average for air conditioners in warm provinces in China. (David Fridley, Gregory Rosenquist et al. 21) In this study, only electricity consumption by air conditioners in warm provinces of China is estimated since cooling only air conditioners are viable in these regions. Distribution loss and own use of electricity by suppliers is assumed to remain constant at the present level of 21.9% over the next 15 years (IEA 25). As for the cooling capacity of each air conditioner, it is assumed to be 2.8kW which is common both in China and Japan Outlook of air conditioner stock in China The outlook of air conditioners stock is indicated in Fig.7. Fig. 7 Forecast for Air Conditioners in Stock in Chinese warm provinces Units(*1,) 18, 16, 14, 12, 1, 8, 6, 4, 2, Year A dotted curve in the graph indicates the low outlook and a dashed curve depicts the high outlook of an air conditioners adoption in Chinese households in warm regions until 22 respectively. (See Annex A) The warm or hot regions in China can be identified by selecting the southern provinces which are Suchuan, Hubei, Nanchang, Zhejiang, Hunan, Guangdong, Fujian, Jiangxi, and Guangxi shown in Fig.8. These provinces account for 34% of total households in China.

13 Fig.8 Map of China The boundaries and names shown and the designations used on maps included in this publication do not imply official endorsement or acceptance by the IEA Outlook of average energy efficiency of Chinese air conditioners Average energy efficiency of air conditioners in stock will be improved through the replacement of existing air conditioners with more energy efficient ones as shown in Fig.9. Fig.9 Improvement of caused by the replacement of air conditioners Air conditioners replaced Air conditioner in stock in year Y-1 Average = A(Y-1) Air conditioner in stock in year Y Average = A(Y-1) Air conditioner purchased in year Y Average =I(Y) Average = A(Y) The average in year Y is the weighted average of the stock carried forward from previous year of Y-1 and newly installed air conditioners in year Y. For the baseline case of CO 2 emissions, the of air conditioners is assumed to develop with Chinese domestic technologies and for the low CO 2 emission case, of air conditioners is assumed to be improved by the adoption of technologies coming from developed countries. In this replacement model, all the air conditioners are supposed to be replaced at the end of their lifetime; when the new air conditioners are more energy efficient. This will improve the average energy efficiency of air conditioners in stock year by year.

14 Two outlooks are made for the development of for air conditioners to be sold in both China and Japan, in order to set a high limit and a low limit of development as shown in Fig.1. Fig.1 Outlook of for Chinese and Japanese Air Conditioners for sale of Japanese air conditioners Years of Chinese air conditioners for fast technology development MEPS in Year of Chinese air conditioners for slow technology development The high outlook for Chinese air conditioners is depicted by a dashed line and lower one by a dash-dot line. The actual energy efficiency of Chinese air conditioners is expected to be between these two curves. A conservative outlook of the energy efficiency improvement is made based on the assumption that the of Chinese air conditioners will be improved at the same rate as their past improvement. The past improvement is assumed to be the same as the development of Chinese energy efficiency standards since most of the actual air conditioners have seemed to stay just above the energy efficiency standards as shown in Fig.2. For the estimate of higher development, it is assumed that the energy efficiency improvement of Chinese air conditioners will follow the same path as Japanese ones with a delay of seven years. In Japan, the average of air conditioners increased from 3.17 in 1997 to 5.27 in 25 almost linearly as depicted with solid curve in Fig.4. The outlook of a future improvement of accompanying the revision of the Energy Efficient Law is extrapolated linearly as indicated with a dotted line. It is also assumed that the will stabilise after reaching 6.32 in 21, though it might be improved further in its present situation. The present of Chinese air conditioners is almost the same as Japanese air conditioners seven years ago. In the same graph, the MEPS of Chinese split type air conditioners with cooling capacity less than 4,5 W which were enforced in 2 and 25 and which will come into effect in 29 are depicted by diamonds. The average was slightly above the MEPS in 25. By observing the relationship between the MEPS and average of air conditioners, it is probable that development of future in 29 and thereafter would be just above the MEPS to fall between the lower and higher improvement outlook. Air conditioners sales in warm provinces in China from 26 to 22 for the low and high sales outlooks are depicted in Fig.11, which are derived from the outlooks of air conditioner stock indicated in Fig.7. The sales of air conditioners are the sum of new installation and replacement occurring each year. The sales of air conditioners would increase for each scenario with fluctuation for each year caused by the fluctuation in the actual sales of air conditioners before 25. The replacement of air conditioners will rise around 215 since the sales of air conditioners were large around 23.

15 Fig. 11 Outlook of air conditioner sales in Chinese warm provinces U nits(*1,) 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, Year Low outlook sales High outlook sales As for the occurrence of replacement by year, it is assumed that 4% of existing air conditioners are replaced when they reach their lifetime and the remaining 6% are assumed to be replaced before and after their lifetime. Outlooks of the average of air conditioners in stock for each scenario are indicated in Fig.12. In each graph, dotted curves and dashed curves indicate the average trend where only Chinese domestic technologies are used. Solids curves indicate the possible average development with energy efficiency technologies transferred from developed countries. Fig. 12 Average energy efficiency improvement for a higher sales outlook High sale outlook of air conditioners Low sales outlook of air conditioners Effects of Technolog y Year Year Average development with technology transfer Average with Chinese domestic technology developing actively Average with Chinese domestic technology developing slowly The right-hand graph in Fig.12 indicates the average improvement in next 15 years for the low sales outlook of Chinese air conditioners and a left-hand graph indicates the average improvement in next 15 years for the high sales outlook. Even if the development of Chinese domestic technologies were brisk, an average would be low compared to that realised by technology transfer from more developed countries. The difference between a solid curve and a dotted or dashed curves indicate the margin of energy efficiency improvement brought about by technology transfer Estimates of reduction in power generation and CO 2 emission Electricity generation for 4 cases caused by air conditioners and their potential reductions realized through technology transfer are depicted in Table 2 with possible reduction of CO 2 emissions.

16 Table 2 CO 2 emission and possible reduction for Chinese air conditioners in Chinese warm provinces until 22 High sales and high improvement of Chinese domestic technologies High sales and low improvement of Chinese domestic technologies Low sales and high improvement of Chinese domestic technologies Low sales and low improvement of Chinese domestic technologies Electricity generation (TWh) Reduction of electricity generation (TWh) Reduction of electricity generation (%) CO 2 emission reduction (Mt) Electricity generation caused by air conditioners in Chinese warm provinces over the next 15 years is estimated to range from 41TWh to 674TWh depending on sales outlooks and energy efficiency development of air conditioners. The possible reduction of power generation brought about by technology transfer from developed countries would range from 62TWh to 26TWh, which account for between 15% and 38% of total power generation in next 15 years. CO 2 emissions would be also reduced correspondingly. Chinese CO 2 emission intensity will decrease in a linear fashion from.911kgco 2 /kwh in 25 to.7989kgco 2 /kwh in 22 due to a power generation technology improvement and a decrease in ratio of coal power generation in China. (IEA 24) CO 2 emissions in each year can be calculated by multiplying the electricity generation by CO 2 emission intensity of each year. Details of calculation results are indicated in Fig.13 and Fig.14. Fig. 13 Electricity generation caused by air conditioner operation for a high sales outlook 8. High development for Chinese air conditioners Low development for Chinese air conditioners Electricity generation (TWh) Electricity Generation (TWh) Year Year The outlook of electricity generation for the high sales outlook and the low sales outlook are indicated in Fig.13 and 14 respectively. Indicated on the right-hand side of each graph is the outlook of electricity generation where Chinese domestic technologies are improved slowly. The left-hand side graph shows the electricity generation where Chinese domestic technologies are improved briskly. The solid bars indicate the electricity generation outlook with solely Chinese domestic technologies used and meshed bar indicate the electricity generation outlook where more energy efficient technologies coming from developed countries are adopted. In the high sales scenario, electricity consumed by air conditioners would increase drastically in next 15 years but efficient technology transfer could curb the rise of electricity consumption.

17 In the low sales scenario, the electricity generation would not increase drastically, however there still seems to be a margin of improvement realised by technology transfer from developed countries. Fig. 14 Electricity generation caused by air conditioner operation for a low sales outlook High development for Chinese air conditioners Low development for Chinese air conditioners Electricity genaration (TWh) Electricity genaration (TWh) Year Year

18 4. Barriers and countermeasures for the energy efficiency of air conditioners 4.1 General description of barriers to the diffusion of appliances and measures to overcome them General barriers to the diffusion of energy efficient appliances are outlined in Table 3. This Table was prepared for the barrier analysis for energy efficient lighting. However, it is likely to be applicable to other types of appliances. Table 3 Main barriers to energy efficient products in developing countries Type of barriers Policy Barriers Finance Barriers Business & Management Barriers Information Barriers Technology Barriers Common Practice Barrier Contents a Lack of institutional capacity, particularly at national level, to implement EE programs in the end-use sector b Energy efficient technologies is not given due consideration at the fiscal policy level c Lax, if any, Minimum Energy Performance for most end-use equipment. d Pricing of electricity below costs and poor recovery of electricity bills. a Price sensitivity of the appliance market b No financial incentive for manufacturers to invest in energy efficiency c Lack of financial incentives and mechanisms to promote EE products in the market d Financial misalignment or split incentives: those who make the decision on EE investments are often not the final users who pay the energy bill a Manufacturers uncertainty about market demand of high efficiency models b Lack of resources amongst small-scale manufacturers for developing and marketing energy efficient products a Lack of awareness about residential sector energy end-use, and therefore the energy efficiency potential, amongst consumers as well as the policy makers b Lack of information about the precise energy saving potential from energy efficiency c Lack of information about state-of-the-art energy efficient design and manufacturing of energy efficient lighting system. a Limited access to the state of the art energy efficiency technology among manufacturers b Lack of EE driven applied R&D by the manufacturers as well as the government labs and research institutes c Lack of adequately equipped and staffed independent test labs for energy efficiency testing of lighting system d Limited experience of energy efficiency testing amongst engineers a Lack of trust of new equipment b Local customs and inertial behavior working to maintain the status quo in the design, selection and operation of energy-using equipment. (Figueres and Bosi, 26) The influence of each barrier differs from one country to another due to the difference in technological, financial and political situation in each country. In addition, some barriers are on the national level while others exist on the international level (Cf. Ellis and Kamel, 27). Since some barriers such as low pricing of electricity and split incentives are domestic and institutional, it is more difficult to come up with policies and implementation measures to overcome these barriers. However, other barriers linked to finance, information and technology might be overcome through financial and technical measures to assist market transformation. From 1991 to 2, the GEF approved eight projects designed to stimulate markets for energyefficient products lights, refrigerators, industrial boilers, and building chillers in 12 developing and transition countries. Total project costs for this portfolio are about $52

19 million, with GEF contributions of $9 million and co-financing from other donors, multilateral agencies, governments, and private companies of $43 million. These projects use a combination of approaches to remove supply side and demand-side barriers to sustained markets for energy-efficient products. (Birnera, S. and Martinot 25) Table 4 shows some of the projects outlined implemented under GEF. For many of the projects, the GEF funds contributed to expansion of markets for energy efficient appliances by capacity building of government officials, labelling program and technology transfer. However, for some projects aiming at the technology transfer of advanced technologies, they did not seem to achieve the expected goals due to the lack of financing and insufficient protection of intellectual property. Table 4 Examples of GEF projects on energy efficiency of home appliances Project (date approved by GEF Council) Mexico high efficiency lighting pilot (1991) China efficient industrial boilers (1996) China commercialisation of energy efficient CFCfree refrigerators (1998) Thailand promotion of electricity energy efficiency (1991) (Birnera, S. and Martinot 25) Implementing agency / budget World Bank / 7.7m euros GEF 17.8m euros total World Bank / 25.5m euros GEF 78.2m euros total UNDP / 7.7m euros GEF 31.7m euros total World Bank / 7.4m euros GEF 147.m euros total Description / Suggestion Pilot a utility DSM program to sell CFLs purchased by bulk procurement to residential consumers Develop affordable energy-efficient industrial boiler designs by technology transfer and mass produce and market these designs throughout China Assist Chinese manufacturers to design, produce, and market efficient refrigerators; raise demand with education, marketing, incentives and labelling Conduct a 5-year utility DSM program by the national electric utility responsible for power generation (EGAT) 4.2 Barriers to the diffusion of energy efficient air conditioners in developing countries Barriers and countermeasures for the diffusion of energy efficient air conditioners are studied for two types of countries, which are countries with their own manufacturers and countries without their own manufacturers: China and Ghana, respectively. In countries with their own manufacturers, Finance Barriers and Business & Management Barriers are likely to suppress the diffusion of more energy efficient air conditioners on top of Policy, Information Technology Barriers which are main barriers in less developed countries. Potential solutions are then offered and the role of CDM in weakening the current barriers is studied. Let us look at the CDM as a mechanism that could create funds through the sale of credits generated by the individual projects. These revenues are currently in the hands of the project investors and implementers, but there are examples (in China) where a tax is being put on certain project types, implying that the government receives a share of the CERs. In this paper we assume that the government retains (a share of) the revenues from CDM projects, which can therefore be used to set incentives for investments in energy efficient appliances Barriers in Ghana Products have to be imported from other countries where countries do not have their own manufacturers, like Ghana. In these countries, Policy, Information and Technology barriers depicted in Table 3 are likely to hamper the diffusion of energy efficient appliances. The previous section has highlighted the high potential for energy efficient air conditioners in Ghana. Until now, however, this potential has not yet materialised. The project design document of CDM on energy efficient air conditioners in Ghana suggests lack of capacity on the part of the government to implement an appliance standard as the barriers to the diffusion of

20 energy efficient appliances. This is caused by the lack of education of policy makers, various government agencies (i.e. customs officials), importers, distributors and consumers. Sufficient testing capacity of advanced energy efficient appliances is also mentioned as essential for the implementation of the project since accurate information on energy efficiency of appliances is indispensable for labelling programs. Without labelling programs, it would be difficult to provide appropriate information on the advantage of energy efficiency to consumers, retailers and government officials including customs officials. Though the Ghanaian Government has been aware of the policy benefits of implementing a standard and labelling program, they have lacked the financial resources to implement these measures. Fig.15 indicates the relationship between energy efficiency performance and prices in US dollars for air conditioners sold in Ghanaian markets. Proposed minimum energy efficiency standards (=2.8) are indicated with a thick line in the same graph. Since the prices of air conditioners do not rise with the increase of, consumers do not have to pay additional costs on the purchase of more energy efficient air conditioners. However, air conditioners with lower than minimum energy efficiency standards are dominant in Ghanaian markets due to insufficient information dissemination to custom officials and to the general public at present. Fig.15 Energy efficiency performance and prices of air conditioners sold in Ghana (UNFCCC 26) Possible Countermeasures in Ghana In Ghana s case, implementing measures for the enforcement of the minimum energy efficiency standards (=2.8), such as establishment of a well-equipped laboratory and capacity building of government officials such as customs officials and staffs in the testing laboratory, are proposed. The feasibility of these measures to be taken for the energy efficiency of appliances can be estimated by assessing the effects of projects implemented by the GEF in other developing countries. In 1993, the Thai national electric power utility (EGAT) launched a comprehensive five-year DSM program. The utility first created a new DSM office, and then supported that office in developing and implementing a number of different market interventions for energy efficiency. Once the DSM office staff was trained, it showed strong leadership and initiative throughout the program a key factor in many of the results. (Birnera and Martinot, 25) This project proved the effectiveness of a labelling program on policy and presumably on technology barriers, too. The fund from the GEF was effectively used for strengthening the technological capacity of government officials working for the energy efficiency of appliances. This suggests that the proposed CDM project whose revenues are assumed to be available for public interventions could strengthen the capacity of government officials in Ghana, which will be a foundation for the implementation of programs to increase public awareness on energy efficient appliances.

21 The second example shows the effectiveness of GEF projects on information dissemination of energy efficient appliances in China. The project was to conduct education programs to enable consumers to understand the benefits of efficient refrigerators, create incentive programs for retailers to stock the efficient models, enact a national labelling program so consumers had the right information to choose between different models in the store, and create national standards against which different models could be compared. (Birnera and Martinot, 25) For the CDM project in Ghana, information should be disseminated to government officials, as well as to consumers. The project in China shows the effect of the project implementation on lowering the information barriers exiting for policy makers, various government agencies (i.e. customs officials), importers, distributors and consumers in Ghana. The success of these projects indicates that funds coming from aid organisations are an essential factor for the smooth implementation of projects on energy efficiency of appliances in developing countries. These funds could offer necessary financial resources to overcome existing policy, information and technology barriers in developing countries. For the implementation of these countermeasures, a newly introduced programmatic approach of CDM could be effective because of small scale and wide spread characteristics of home appliances Potential barriers in China In developing countries with their own manufacturers, Financial and Business & Management barriers depicted in Table 3 are likely to hamper the diffusion of more energy efficient appliances. To better highlight this point, let us provide some empirical evidence, comparing the circumstances in China with those in a country that has managed to overcome a wide range of barriers hampering energy efficient appliances, Japan. Fig.16 and Fig 17 depict the Financial barrier facing consumers in China. Crosses in Fig.16 depict the relationship between purchase prices and air conditioners with cooling capacity of 2.8kW in Japan and diamonds indicate those sold in China. For Japanese air conditioners, the information is collected by POS (Point of Selling) system which cover 35-4% of total air conditioner sales in Japan. (ECCJ 26b) For Chinese air conditioners, the information was collected from internet shopping sites. Fig.16 Purchase prices of Japanese air conditioner Purchased price(euros) 2.8kW air conditioners The overall trends show a rise with increases in energy efficiency. The prices rise steeply for air conditioners of of 4. or more. Energy efficiency of Chinese air conditioners is higher than that of air conditioners in Ghana. However, the margin of improvement of remains low compared to that of more developed countries. There are overlaps for the energy efficiency of Chinese and Japanese air conditioners. If the price of air conditioners of the same energy efficiency is compared, the difference in the selling price between Japanese air conditioners and Chinese air conditioners is almost zero. The difference is small because some of the air conditioners sold in Japan are manufactured in China. These facts suggest that the price of more energy efficient air conditioners presently sold in Japan would be in the same price range if they were sold in China.