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issue: December 2006 APPLIANCE Magazine

Appliance Line
Europe’s Action Plan


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Tim Somheil, Editor

The EC has a plan to annually save 100 billion euros worth of energy by 2020. But does Europe have the will to make it happen?

Tim Somheil, Editor

On October 19, the European Commission released its Action Plan for Energy Efficiency. The goal is to reduce Europe’s energy consumption 20 percent by 2020, which could save 100 billion euros (approx. U.S. $126 billion) a year. It’s not hyperbole when the EC lists the many benefits of such an achievement, encompassing industry, consumers and the environment. The EC says the plan will, “Improve the Union’s competitiveness, the living standards of its citizens, boost employment, and increase exports of new, energy-efficient technology. On an individual level, small changes in our energy consumption patterns will mean saving money, helping the environment and doing our bit for a common European goal.”
Specific steps the EC recommends for consumers include changing light bulbs, boilers and refrigerators; better-insulating homes; using more public transportation; and buying cars that pollute less.
“The good news is that, provided the EU acts in an integrated and coordinated manner now, saving a substantial amount of energy is still possible,” the EC states. EU member states sometimes have problems acting in a way that resembles integrated or coordinated. Still, the EC Action Plan makes an excellent starting point, and Europe’s household appliance industry welcomed its release. It should be noted that the Plan addresses points that the appliance industry in Europe has been making for some time.
An earlier report, Europe’s High Level Group on Competitiveness, Energy and the Environment (HLG), caused the appliance industry no little frustration by failing to recognize the need for market changes to promote the diffusion of energy efficient technology that already exists.
“The High Level Group has completely missed the point,” said Luigi Meli, director general of European appliance association CECED when the HLG report was released on June 2, 2006. “The challenge now is not to promote new dynamic efficiency standards, as the High Level Group demands, but rather to accelerate the diffusion of efficient appliances into European homes, replacing old gear.”
Meli finds the current Action Plan more to his liking. “The EU desperately needs new ideas to tackle old problems,” Meli says. “The Energy Efficiency Action Plan puts forward some clever new measures like tax credits to provide real, positive incentives to bring about change in energy demand. We can embrace the Commission’s ambition to cut down energy waste due to the stand-by mode of appliances.”

True Incentives

Specifically, CECED likes the Action Plan’s financial inducements, and especially its support for tax credits to producers of highly energy efficient appliances. This plan gives tax credits to OEMs for every supplementary highly efficient appliance they sell in a given year (compared to a prior reference period), which would be a true incentive for those OEMs to boost sales of cutting-edge technology. It would help energy efficient appliances move from niche to the mainstream.
Governments would benefit from the plan because it would help them meet their environmental targets, including their Kyoto protocol obligations. Their in-country industry would also grow more competitive. Consumers would win with better-performing appliances and reduced utility bills from energy and water savings. Appliance makers would win by selling more high-value products and increasing their competitive capabilities.
In fact, a recently commissioned CECED study confirms the benefits of such incentives. The Cost-Effectiveness of Production Tax Credits in Transforming the Market for Home Appliances and Harnessing Manufacturers’ Competitiveness was prepared by Bill Mebane, a partner in the Italian/U.S. firm Mebane Investments Limited, and Emanuele Piccinno, CIRPS, of Rome’s Università degli Studi di Roma “La Sapienza.”
The report, released just 2 weeks prior to the Action Plan, studied a hypothetical case of applying production tax credit in Europe’s household appliance sector. The target product was a refrigerator/freezer with the top European energy efficiency rating of class A++. The study compared four types of policy: production tax credits (applied to corporate income taxes); production tax credits applied to labor taxes; rebates; and value-added taxes.
The results show production tax credits providing the most benefit overall. Mebane and Piccinno write: “Compared to the business-as-usual base case, the production tax credit (as applied to corporate income tax) results in increased cash flows for the manufacturer, zero or neutral cash flows for the government and positive cash flows for the consumer.”
They add that: “Surprisingly, for the government the loss in electricity taxes due to energy savings and the cost of the tax credits are almost fully compensated by increased value added taxes and increased corporate income taxes, due to the production shift to the more costly and profitable A++ model. A small compensation is also counted for decreased carbon dioxide production as an avoided cost for the government in reaching Kyoto targets (for the 2008-2012 period) and post-Kyoto agreements. Thus, the first major conclusion is that the production tax credit can result in essentially positive cash flows for all three major stakeholders.”

Action not Words

Meli of CECED says that, as good as the plan may be, “Any regulation will not bring about the desired change without an increased focus on proper enforcement!”
He is right. Putting the Plan on paper is not good enough. Putting this Plan into Action is going to require EU-wide coordination and dedication.

 

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