People s Republic of China: Promoting Energy- Efficient Products by Strengthening the Energy Labeling Scheme

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1 Technical Assistance Report Project Number: Policy and Advisory Technical Assistance (PATA) September 2012 People s Republic of China: Promoting Energy- Efficient Products by Strengthening the Energy Labeling Scheme The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature.

2 CURRENCY EQUIVALENTS (as of 10 September 2012) Currency unit yuan (CNY) CNY1.00 = $ $1.00 = CNY ABBREVIATIONS ADB Asian Development Bank AQSIQ General Administration of Quality Supervision, Inspection, and Quarantine CEL China Energy Label CNIS China National Institute of Standardization MEPS minimum energy performance standard PRC People s Republic of China TA technical assistance TECHNICAL ASSISTANCE CLASSIFICATION Type Policy and advisory technical assistance (PATA) Targeting classification General intervention Sector (subsector) Energy (energy efficiency and conservation) Themes (subthemes) Environmental sustainability (environmental policy and legislation), capacity development (institutional development) Climate change Climate change mitigation Location (impact) Rural (low), urban (medium), national (high), regional (low) NOTE In this report, "$" refers to US dollars. Vice-President S. Groff, Operations 2 Director General R. Wihtol, East Asia Department (EARD) Director A. Bhargava, Energy Division, EARD Team leader Team member N. W. Kim, Environment Specialist, EARD P. Dungca, Senior Operations Assistant, EARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 I. INTRODUCTION 1. During the country programming mission in November 2011, the Government of the People s Republic of China (PRC) requested the Asian Development Bank (ADB) to provide technical assistance (TA) to strengthen the China Energy Label (CEL), a mandatory energy labeling scheme in the PRC, by establishing a reliable and comprehensive evaluation system. The TA was included in the PRC country operations business plan, The concept paper was approved on 21 June During a fact-finding mission in August 2012, the impact, outcome, outputs, financial plan, and implementation arrangements of the TA were agreed with the General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) and the China National Institute of Standardization (CNIS). The design and monitoring framework is in Appendix 1. 2 II. ISSUES 2. The PRC s sustained economic growth over the past 20 years has brought millions of people out of poverty. But this economic growth was energy-intensive, and it came at a disproportionately high cost to the environment and resources. During this period, the PRC became the world s largest energy consumer. One of the most important development challenges in the PRC is to direct consumption and production patterns toward resource conserving and energy-efficient growth patterns. This requires concerted and cooperative efforts throughout the entire cycle of production and consumption of energy. In this effort, the PRC achieved an energy intensity reduction of 19.1% in 2010 compared to But the emphasis was primarily on the supply-side options, and measures to specifically target end-user energy efficiency have been lacking. 3. The PRC is now one of the world s largest producers and consumers of energy-using products. Household energy consumption has increased sharply owing to the rapid growth in the ownership of home appliances. 3 In 2010, household electricity consumption was about 12% of the total electricity consumption in the PRC. 4 In the absence of consumer awareness and education about energy-efficient products, especially how high operational costs offset the initial cost advantage of inefficient products, consumers continue to prefer low-cost but high energyconsuming products. As a result, there is insufficient demand for energy-efficient products, which in turn has deterred producers from innovating and launching highly energy-efficient products. Unless these highly energy-efficient products are launched and used extensively, it will not be possible to achieve the cost reduction benefits resulting from economies of scale and technological improvement. This is a major barrier to improving energy efficiency at the household level. Highly energy-efficient products offer opportunities for consumers to reduce their energy bill and conserve energy, which can moderate demand growth, thereby reducing emissions. 1 The TA is included as Energy Efficiency Compliance Evaluations for High-Efficiency Products in ADB Country Operations Business Plan: People s Republic of China, Manila. 2 The TA first appeared in the business opportunities section of ADB s website on 28 June In 1981, the ownership of home appliances was extremely limited. By 2005, nearly 190 million urban households had an average of more than one color television, and nearly all owned a washing machine, refrigerator, and air conditioner. Between 1998 and 2005, personal computer ownership rates jumped from near-zero to over 40%. 4 Total electricity consumption in 2010 was 4.19 trillion kilowatt-hours and households consumed 0.51 trillion kilowatt-hours. National Energy Administration of the PRC Report on China s Energy Development for Beijing.

4 2 4. Recognizing the need to address end-user energy efficiency, the government introduced some policy measures. In 1989, the minimum energy performance standards (MEPSs) were launched to prevent the market entry of high energy-consuming products that did not meet the threshold energy efficiency level. But the MEPSs stimulated neither product innovation nor the demand for highly energy-efficient products. Thus, in 2005, the CEL was introduced to complement the MEPSs. The CEL helps consumers to identify energy-efficient products easily because the label placed on the product informs the consumer of its energy efficiency performance. Since its introduction, the CEL has expanded to cover 25 product groups and over 260,000 models. CNIS, which is responsible for the technical work of the CEL, estimated that CEL saved 15 terawatt-hours of electricity between 2005 and 2010, equivalent to 60 million tons of coal equivalent, and the associated emissions were avoided. To realize these benefits in a timely manner, there is an urgent need to strengthen the CEL. 5. In 2010, a random product testing of nine popular products with high energy efficiency 5 was conducted by CNIS and the CEL Center. 6 It found serious discrepancies between the nameplate energy performance rating claimed by the manufacturer and the actual energy efficiencies observed during the product tests. Since the CEL does not mandate independent external verification of the claimed energy efficiency, the manufacturers tend to overstate it. This has eroded consumers confidence about the reliability of product information and undermined the CEL objectives. The accuracy and reliability of energy efficiency testing has been another major problem with the CEL. The current CEL system does include a set of broad testing standards, testing methods, and procedures. However, it does not provide sufficient productspecific technical instructions, which often leads to conflicting and unreliable test results. Under these circumstances, the CEL faces some challenges to ensure a high level of compliance. 6. The TA will support the strengthening of the CEL by addressing the key issues outlined above. An improved CEL is expected to build consumers confidence about the nameplate energy efficiency rating of products, thereby strengthening demand for them. The TA will also provide a substantial end-user energy efficiency gain to help the PRC achieve its energy intensity reduction targets. 7. The TA is consistent with the strategic priority of environmentally sustainable growth under ADB s Strategy 2020, 7 and ADB s country partnership strategy for PRC, , which indicates environmentally sustainable growth, including the promotion of energy efficiency, as a core pillar. 8 The Twelfth Five-Year Plan, of the PRC targets 16% energy intensity reduction by 2015, and both production- and consumption-side efforts are needed. This TA will address demand-side energy efficiency improvement in the PRC and is a logical extension of ADB s ongoing and planned interventions on the supply side. It fits well with the priorities of both the PRC and ADB on improving energy efficiency and reducing carbon intensity in the PRC. 5 These appliances include fixed speed air conditioners, variable speed air conditioners, compact fluorescent lamps, induction cookers, refrigerators, gas water heaters, electric water heaters, washing machines, and computer monitors. 6 The CEL Center was established within CNIS to manage CEL registration and monitor the use of energy labels. 7 ADB Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, Manila. 8 ADB Country Partnership Strategy: People s Republic of China, Manila.

5 3 III. THE TECHNICAL ASSISTANCE A. Impact and Outcome 8. The impact of the TA will be improved end-user energy efficiency in the PRC. The outcome will be a strengthened and more reliable CEL. B. Methodology and Key Activities 9. This policy and advisory TA will help strengthen the CEL with a viable and comprehensive evaluation system. The TA has four closely interlinked outputs: 10. Output 1: A comprehensive assessment of the current CEL and a comparison with other international energy labeling schemes. The current CEL will be thoroughly analyzed to identify system gaps, institutional weaknesses, and barriers that cause low compliance with the CEL. A comparison with selected international energy labeling schemes will be undertaken to examine how the lessons learned from better performing international schemes can be incorporated into the CEL. The results of the analysis will be used to formulate a set of policy recommendations (output 2) for strengthening the CEL system. 11. Output 2: A comprehensive technical and regulatory policy brief to strengthen the CEL evaluation system. This output will be a policy brief that proposes (i) a regulatory framework to ensure a high level of CEL compliance, and (ii) product-specific detailed technical instructions for energy efficiency testing of refrigerators, air conditioners, and televisions. These three product groups are in high demand with the highest growth rate, and therefore have high energy conservation potential. 12. Output 3: Pilot testing of the proposed technical instructions. The recommended technical instructions will be field-tested to check that they contain no ambiguities, are easy to use, and are feasible to be deployed across testing laboratories in the PRC. A total of about 90 different models in the selected product groups will be pilot-tested using these technical instructions. This robust testing will provide valuable feedback and lessons to refine and improve the technical instructions. 13. Output 4: Capacity strengthening in CEL implementation. A comprehensive program of capacity development will be formulated to target relevant stakeholders, such as product testing laboratories, institutions for standardization, product manufacturers, and relevant government authorities. Targeted knowledge events will be organized to bring together all key stakeholders in the PRC and some international experts to discuss the TA outputs and key building blocks of the strengthened CEL and its implementation. In-depth training on the formulation of technical instructions, their pilot testing, and rollout for other product groups will also form a key part of the capacity strengthening component. C. Cost and Financing 14. The TA is estimated to cost $500,000, of which $400,000 will be financed on a grant basis by ADB s Technical Assistance Special Fund (TASF other sources). The government will provide counterpart support in the form of counterpart staff, office accommodation, office supplies, and other in-kind contributions. Details of the cost estimates and financing plan are provided in Appendix 2.

6 4 D. Implementation Arrangements 15. AQSIQ will be the executing agency and CNIS will be the implementing agency. The TA will be carried out by a consulting firm (one international consultant for 5 person-months, and four national consultants for 18 person-months) with expertise in energy standards, energy labeling schemes, energy efficiency configurations, and product energy efficiency testing for home appliances. The consulting firm will be engaged using the quality- and cost-based selection method (with a quality cost ratio of 80:20) in accordance with ADB's Guidelines on the Use of Consultants (2010, as amended from time to time). The firm will be required to submit a simplified technical proposal covering all aspects of the terms of reference. 16. The experts required to undertake the activities of the TA include (i) energy standards and labeling expert (international, 5 person-months); (ii) research consultant (national, 4 personmonths); (iii) three technical instruction specialists (national, 6 person-months for refrigerator product group, 4 person-months each for air conditioner and television product groups). The international energy standards and labeling expert will be the team leader and will (i) coordinate the activities of the other consultants, and (ii) work closely with ADB and CNIS to discuss progress. The team leader will have technical expertise in (i) energy standards and labeling schemes, (ii) policy analysis and design, (iii) promotion and verification of energy-efficient products, and (iv) product testing. The national research consultant will have expertise in research and analysis of energy labeling schemes and their evaluation. The other three national technical instruction specialists will have broad technical expertise in the relevant product groups, namely refrigerators, air conditioners, and televisions. The outline terms of reference for consultants are in Appendix AQSIQ will provide oversight and guidance on the implementation of the TA. CNIS will be responsible for day-to-day supervision of implementation and will coordinate with the executing agency, consultants, and key stakeholders. TA review and tripartite meetings among ADB, CNIS, and the consultants will be held during TA implementation to guide the consultants and review their reports. 18. The pilot testing of selected products (para. 12) will be organized by CNIS under the supervision of AQSIQ. The pilot testing will be performed at selected testing laboratories in the PRC. CNIS, in coordination with ADB, will develop the evaluation criteria to select these testing laboratories. 19. An international workshop and technical training sessions will be organized by CNIS with the support of ADB, and an advance payment facility will be provided, if necessary. Disbursements under the TA will be made in accordance with ADB s Technical Assistance Disbursement Handbook (2010, as amended from time to time). 20. The TA will be implemented over a period of 15 months from 15 October 2012, with an expected completion date of 15 January The consultants will submit an inception report within 1 month after signing the consulting contract. The interim reports, for each output, will be provided 3 months after commencement of the task, and the draft final reports upon completion of each output. The consultants will take into account the comments provided by ADB and the implementing agency on the draft final report for each output, and the consolidated final report will be submitted upon completion of all the outputs. The team leader will be responsible for collating the reports of the individual consultants to ensure consistency and coherence. All reports will be provided in English and Chinese.

7 5 IV. THE PRESIDENT'S DECISION 21. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $400,000 on a grant basis to the Government of the People s Republic of China for Promoting Energy-Efficient Products by Strengthening the Energy Labeling Scheme, and hereby reports this action to the Board.

8 6 Appendix 1 DESIGN AND MONITORING FRAMEWORK Design Summary Impact Improved end-user energy efficiency in the PRC Outcome A strengthened and more reliable CEL Outputs 1. A comprehensive assessment of the current CEL and a comparison with other international labeling schemes 2. A comprehensive technical and regulatory policy brief to strengthen the CEL evaluation system Performance Targets and Indicators with Baselines Energy-efficient products save over 30 terawatthours of electricity and avoid at least 32 million tons of carbon dioxide emission per annum by 2015 (2012 Baseline: 0) Demand for energyefficient products increases by at least 25% in 2015 compared to 2010 (2012 Baseline: 5%) The technical instructions are adopted by 2014 (2012 Baseline: No) At least 50% of testing laboratories apply the technical instructions by 2015 (2012 Baseline: 0) The reliability of CEL for three targeted product groups improves to more than 90% by 2015 (2012 Baseline: 50%) A detailed technical assessment of CEL and other international labeling schemes is completed by March 2013 (2012 Baseline: No) A technical and regulatory policy brief is developed by December 2013 (2012 Baseline: No) Data Sources and Reporting Mechanisms CNIS statistics Approval of the technical and regulatory proposal by the General Administration of Quality Supervision, Inspection, and Quarantine CNIS statistics Consultant s report Policy brief on a comprehensive CEL evaluation system Assumptions and Risks Assumptions End-user energy efficiency gain remains a high priority in the PRC. Strengthened CEL stimulates demand for energy-efficient products. The CNIS and CEL Center are staffed with sufficient resources. Risk CEL is not strictly enforced. Assumptions Technical instructions for relevant product groups are developed and pilot-tested. Trained staff stay long enough in CNIS to implement CEL. Risk Technical laboratories do not properly follow technical instructions. Assumptions Qualified consultants are engaged in a timely manner. Product testing laboratories actively participate in the technical training workshops. Risk CNIS does not have access to all 90 product models selected for testing.

9 Appendix 1 7 Design Summary 3. Pilot testing of the proposed technical instructions Performance Targets and Indicators with Baselines Pilot testing of 90 product models is conducted by October 2013 (2012 Baseline: 0) At least 80% of laboratories for pilot testing are satisfied with the technical instructions by November 2013 (2012 Baseline: 0) Data Sources and Reporting Mechanisms Product testing at testing laboratories Pilot product testing feedback from testing laboratories Assumptions and Risks 4. Capacity strengthening in CEL implementation An international workshop and technical training sessions are conducted by August 2013 (2012 Baseline: No) International workshop In-depth technical training Activities with Milestones 1. A comprehensive assessment of the current CEL and a comparison with other international labeling schemes 1.1 Conduct a detailed assessment of the CEL and identify system gaps, challenges, and opportunities (October December 2012). 1.2 Conduct technical research on selected energy labeling and other relevant schemes a (focusing on their evaluation systems, and extract lessons on how to improve compliance (November 2012 March 2013). 2. A comprehensive technical and regulatory policy brief to strengthen the CEL evaluation system 2.1 Draft product-specific and detailed technical instructions for three selected product groups (October December 2012). 2.2 Based on output 1, prepare a concrete policy proposal that explains how the CEL evaluation system would ensure a high level of compliance (January May 2013). 2.3 Finalize and submit a comprehensive technical and regulatory policy brief (October December 2013). Inputs ADB: $400,000 Technical Assistance Special Fund (TASF other sources) Item Amount ($ 000) Consultants International workshop and technical training sessions Studies (product testing) Contingencies Total The government will provide counterpart support in the form of counterpart staff, office accommodation, office supplies, and other in-kind contributions. 3. Pilot testing of the proposed technical instructions 3.1 Identify, select, and gain access to 90 product models for testing (January April 2013). 3.2 Select testing laboratories (January April 2013).

10 8 Appendix 1 Activities with Milestones 3.3 Conduct pilot testing and record testing results (May September 2013). 3.4 Prepare a report on pilot testing (August October 2013). 4. Capacity strengthening in CEL implementation 4.1 Plan and hold an international workshop on energy labels, and conduct in-depth technical training sessions on product energy-efficiency testing (January August 2013). 4.2 Prepare the proceedings of the international workshop on labeling schemes (August October 2013). 4.3 Prepare a summary report on the international workshop and technical training (August October 2013). Inputs CEL = China Energy Label, CNIS= China National Institute of Standardization, PRC = People s Republic of China. Source: Asian Development Bank estimates. a Other relevant schemes, for instance, are European Union energy labeling scheme, Energy Star-Most Efficient program, Super Efficient Equipment and Appliance Deployment program, Japan s Top Runner program, Top 10 project, and others.

11 Appendix 2 9 COST ESTIMATES AND FINANCING PLAN ($'000) Total Item Cost Asian Development Bank a 1. Consultants a. Remuneration and per diem i. International consultants ii. National consultants b. International and local travel c. Reports and communications International workshop and in-depth technical training b Studies (product testing) c Contingencies Total Note: The technical assistance is estimated to cost $500,000, of which contributions from the Asian Development Bank are presented in the table above. The government will provide counterpart support in the form of counterpart staff, office accommodation, office supplies, and other in-kind contributions. The value of government contribution is estimated to account for 20% of the total TA cost. a Financed by ADB s Technical Assistance Special Fund (TASF other sources). b An international workshop and in-depth technical training sessions will be organized by the implementing agency. An advance payment facility will be provided, if necessary. c The product testing of 90 models will be conducted to assess the clarity, ease of use, and feasibility of the proposed technical instructions. According to CNIS, each product testing will cost about $800 $1,000 depending on the product group. Source: Asian Development Bank estimates.

12 10 Appendix 3 OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. The TA will be implemented over 15 months from 15 October 2012 to 15 January The consultants will be responsible for producing the TA outputs and deliverables effectively and on time, and for organizing and carrying out all the tasks indicated. The requirement for consultants is estimated at 23 person-months (international, 5 person-months; and national, 18 person-months). 2. Energy standards and labeling expert and team leader (international, 5 personmonths). The expert should have at least 10 years of experience in sustainable production and consumption, with expertise in product-oriented environmental policy and labeling schemes; policy analysis and evaluation; broad technical knowledge on product testing; and promotion and verification of energy-efficient products. The expert shall have at least a master s degree in environmental policy, or engineering. Oral and written English proficiency is required. The expert will undertake the following tasks: (i) Responsible for all the consultants activities and outputs, including an inception report, interim reports, and a final report both in English and Chinese and ensure a high quality of deliverables in a timely manner; (ii) Supervise the national consultants closely as they conduct the China Energy Label (CEL) assessment; (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) Prepare the technical report on the CEL assessment; Conduct thorough research on selected labeling schemes that are relevant to highly energy-efficient products (i.e., European Union Energy Labeling Scheme, Energy Star-Most Efficient program, Super Efficient Equipment and Appliance Deployment program, Japan s Top Runner program, Top 10 project, and others); Extract and compile relevant and useful lessons that address key components to improve the evaluation system of the labeling scheme; Prepare draft and final reports on the technical assessment of other international labeling schemes with lessons learned; Prepare a policy brief containing detailed recommendations on designing and implementing regulatory measures to ensure a high level of CEL compliance; Review the quality of newly developed technical instructions for efficiency testing and incorporate them into the policy proposal. Compare the current and improved CEL evaluation system, and summarize the improvement in the compliance of the three target product groups; Coordinate the activities of the other consultants; and Work closely with the Asian Development Bank and the implementing agency to discuss progress. 3. Research consultant (national, 4 person-months). The expert should have knowledge of environmental product policy and/or a technical background in energy efficiency testing, with at least 5 years of experience in energy efficiency standards and labeling research. The consultant shall have at least a master s degree in environmental policy or engineering. Oral and written English proficiency is required. The expert will undertake the following tasks: (i) (ii) Prepare a detailed outline of the CEL assessment; Conduct a comprehensive and thorough analysis of the current CEL system, with a particular focus on (a) how energy efficiency information is produced and reported under the current CEL, including the institutional arrangements regarding roles, responsibilities, and resource allocation; (b) capacity assessment of relevant actors; and (c) details of current practices in the

13 Appendix 3 11 (iii) application of technical testing instructions, and information and financial flows of the current CEL system; and Draft and finalize the technical assessment report on the CEL, identifying issues and making recommendations for improvement. 4. Three technical instruction specialists (national, 6 person-months for the refrigerator product group, and 4 person-months each for the other two product groups). The experts shall have knowledge of the energy efficiency configurations of the three selected products (refrigerators, air conditioners, and televisions), and testing technology. The experts should have at least 5 years of work experience at testing laboratories for electrical and electronic products, mainly on consumer energy-using products. Experience in international energy efficiency testing and Round Robin Test is an advantage. The technical instruction specialists shall have at least a bachelor s degree in science or engineering. Oral and written English proficiency is required. The experts will undertake the following tasks: (i) Understand the CEL evaluation system and identify the potential improvements in product efficiency testing; (ii) Assist the China National Institute of Standardization in designing a testing plan in coordination with the product manufacturers, testing laboratories, and CEL Center; (iii) Review and analyze the current energy efficiency standards, testing methods, and technical configurations used for testing, and compare them with other international technical instructions for efficiency testing; (iv) Prepare an analytical and comparative report on energy efficiency testing methods and technical configurations used for testing of relevant product groups; (v) Develop draft product-specific and detailed technical instructions for testing according to the different functions and styles of product models; (vi) Carry-out one demonstration sample testing for each product group, supervise laboratory technicians to ensure that the testing is conducted in accordance with the newly developed technical instruction and request re-testing, if necessary; (vii) Resolve technical problems and disputes that might occur in testing laboratories (viii) during the course of a demonstration sample testing; Follow-up on the sample testing using newly developed technical instructions and collect feedback from all testing laboratories; (ix) Prepare a report on the analysis of sample testing data, comparing with the 2010 sample testing data, and develop a solid method of statistical data analysis that could facilitate the comparison between the current and improved CEL evaluation systems; (x) (xi) Prepare training materials and provide one-day of training on the newly developed technical instructions for energy-efficiency testing; and Revise and finalize product-specific and detailed technical instructions of energy efficiency testing.

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