CLIMATE COMPETITIVE INDUSTRIES: A PRACTITIONER’S HANDBOOK ©2016 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. 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Photography ©: Cover page: MACIEJ NOSKOWSKI: Refinery, Pipe, Tube, Equipment; Page 87: IV-SERG: LED, Factory, Lighting Equipment; Page 104: MACIEJ NOSKOWSKI: Refinery, Pipe, Tube, Equipment; Page 205: HRAMOVNICK: Steel Mill, Steel, Molten, Industry. Acknowledgements The Climate Competitive Industries Field-Guide was prepared for the World Bank Group by Ricardo Energy & Environment and the International Institute for Energy Conservation (IIEC). The team was led by Mike Doble and comprised Richard Woolley, Chris Nuttall and Amit Tripathi. The work was carried out under the direction of Etienne Kechichian, assisted by Naz Beykan and Jiemei Liu. Valuable advice and review was also provided by advisory panel members Heather Haydock, Julia Reinaud and Sanjay Dube, and World Bank reviewers Selma Rasavac, Farid Tadros and Paul Waide. Ricardo Energy & Environment provided design and typesetting of the guide. Trade and Competitiveness (T&C) The Trade and Competitiveness (T&C) Global Practice helps countries achieve the World Bank Group Twin Goals through rapid and broad-based economic growth, centered on strong contributions from the private sector. For our clients across lower- and middle-income countries and fragile and conflict-affected states, integration through trade and a focus on competitiveness are keys to economic growth. T&C is meeting growing demand for high-impact solutions that expand market opportunities, enable private initiatives, and develop dynamic economies. Its country, regional, and global efforts help boost the volume and value of trade, enhance the investment climate, improve competitiveness in sectors, and foster innovation and entrepreneurship. This joint World Bank–International Finance Corporation (WB-IFC) team of over 500 staff members offers world-class technical expertise, an extensive global footprint, and an updated business model. T&C’s day-to-day business is characterized by intensive learning-by-doing, strong internal and external partnerships, and a focus on results. The Climate Competitive Industries work within T&C assists countries with addressing climate action within the manufacturing sector while supporting the competitiveness of the sector. Foreword Climate variability and resource scarcity pose an increasing threat to the growth and competitiveness of industry, and nowhere is this issue more significant than in the world’s emerging economies. Governments and industry must work together to tackle this challenge. The World Bank Group’s Climate Competitive Industries (CCI) initiative aims to assist client governments to improve the competitiveness of their manufacturing industry, by facilitating the adoption of cleaner technologies and more efficient practices, tailored to the needs of the private sector. This Guide is designed to provide practitioners with an understanding of the CCI initiative and step-by-step guidance on how to design, develop, and implement a CCI or equivalent program. As well as practicioners, the Guide will be of value other resource efficiency stakeholders, including: owners, managers, and engineers within industrial enterprises; industrial trade bodies and chambers of commerce; and local and central government departments with responsibilities for industrial efficiency, energy policy, or environmental protection. The Guide is divided into four Modules Module 1: Module 2: Provides an overview of the impetus Provides guidance on how to take an for global action on resource efficiency initial concept for an industrial resource and the pressures on and the roles of efficiency program through to the individual enterprises and governments design stage. It provides the tools to in responding to the challenges and construct an understanding of a country’s opportunities presented. This Module also manufacturing base, including the main provides an introduction to the World actors, opportunities, drivers, barriers and Bank Group’s CCI Initiative success factors. Module 3: Module 4: Provides guidance on how to implement Focuses specifically on the development of a resource efficiency program within Standards and Labelling (S&L) initiatives. industry. It provides information on how to raise awareness and work with the core stakeholders throughout the process. Whilst the guide concentrates on energy efficiency, the principles can be equally applied to programs on water efficiency or waste reduction. The Guide includes and signposts various practical tools that can be used by the relevant practitioners to make key decisions and/or plans and develop CCI or equivalent programs. MODULE 1 The Urgency for Climate Competitive Industries CHAPTER 1 — INTRODUCTION 23 The pressing need to act on climate change 23 The resource crunch 24 The economic case for resource efficient industry 25 Strategy lag within the private sector 28 CHAPTER 2 — CHALLENGES FOR INDUSTRIES IN EMERGING ECONOMIES 30 Financial constraints 30 Corporate behavior 32 Market failure 32 Policy, regulatory and institutional challenges 34 CHAPTER 3 — OPPORTUNITIES FOR INDUSTRY AND THE ECONOMY 35 CHAPTER 4 — WBG’S CLIMATE COMPETITIVE INDUSTRIES (CCI) INITIATIVE 42 CHAPTER 5 — STIMULATING CLIMATE COMPETITIVE INDUSTRY 46 MODULE 2 Conception and Design of a Resource Efficiency Project CHAPTER 6 — INTRODUCTION 57 CHAPTER 7 — STEP ONE: PLANNING AN ENGAGEMENT STRATEGY 58 Sub-step 1.1: Researching the context 59 Sub-step 1.2: Meeting with the client 60 Sub-step 1.3: Planning stakeholder engagement 62 CHAPTER 8 — STEP TWO: CONDUCTING A DIAGNOSTIC STUDY 84 Sub-step 2.1: Assessing the market 85 Sub-step 2.2: Assessing the regulatory and institutional context 90 Sub-step 2.3: Assessing existing resource use and efficiency opportunities 96 CHAPTER 9 — STEP THREE: DESIGNING THE PROGRAM 105 Sub-step 3.1: Selecting a program 106 Sub-step 3.2: Selecting an institutional delivery mechanism 107 Sub-step 3.3: Assessing program risks and task allocation 113 Sub-step 3.4: Establishing a framework for monitoring and evaluation 115 MODULE 3 Implementation CHAPTER 10 — INTRODUCTION 125 CHAPTER 11 — STEP ONE: BUILDING STAKEHOLDER CAPACITY 126 CHAPTER 12 — STEP TWO: SECURING INDUSTRY COMMITMENT 129 CHAPTER 13 — STEP THREE: CONTROLLING AND MONITORING IMPLEMENTATION 131 Monitoring and evaluation 131 Measurement and verification 136 CHAPTER 14 — STEP FOUR: COMMUNICATING THE IMPACT 142 MODULE 4 Developing a Standards and Labelling Scheme CHAPTER 15 — INTRODUCTION 149 CHAPTER 16 — OVERVIEW OF STANDARDS AND LABELLING 150 What do we mean by standards and labelling? 150 How do standards and labelling schemes work? 155 Regional and international schemes 159 Examples of standards and labelling 160 Summary of key standards and labelling types 165 CHAPTER 17 — TECHNOLOGY BRIEFS 166 Introduction 166 Industrial boilers 166 Electrical transformers 170 Electric Motors 174 Fans and Blowers 179 Lighting 183 Professional / Industrial Refrigeration 189 ASSESSING THE CONTEXT AND KEY STEPS TO CHAPTER 18 —  DEVELOPING AND IMPLEMENTING A STANDARDS AND LABELLING SCHEME 192 Step 1: Diagnose the current situation 195 Step 2: Targeting a standards and labelling program 205 Step 3: Institutional, policy and regulatory considerations 211 Step 4: Development and Design 219 Step 5: Launch of the scheme 225 Step 6: Implementation and enforcement 228 Step 7: Evaluation and Revision 232 CHAPTER 19 — DETAILED CASE STUDY: IMPLEMENTATION OF A STANDARDS AND LABELLING SCHEME IN EGYPT 237 Introduction 237 Background and Context 237 Why focus on the industrial sector? 238 Understanding the industrial sector – what to focus on? 238 Which industrial products groups should be included? 239 Further considerations 244 Summary 246 Next Steps – Implementation Considerations 247 REFERENCES 250 List of figures Figure 1: Humanity’s Ecological Footprint 25 Figure 2: Cumulative CO2 emissions between 1850-2011 (% of world total) 43 Figure 3: CCI initiative integrated solutions 45 Figure 4: Examples of core government supporting interventions 47 Figure 5: Instruments suitable for large enterprises and SMEs 50 Figure 6: Key public (red) and private (blue) stakeholders for energy efficiency in SMEs 65 Figure 7: High-level stakeholder mapping 66 Figure 8: Stakeholder mapping matrix 67 Figure 9: The four main drivers for government intervention in industrial efficiency 70 Figure 10: Example of typical key stakeholders in an energy program 72 Figure 11: Steps involved in creating a communication plan 80 Figure 12: An example structure for the analysis of high-level market conditions 86 Figure 13: An example structure for analyzing the market for clean technologies 88 Figure 14: Factors affecting the selection of an institutional mechanism 108 Figure 15: Typical stakeholder profile prior to the establishment of a credit line for energy efficiency 110 List of figures (continued) Figure 16: Interests of financiers versus end users 114 Figure 17: The key elements in a resource efficient M&E plan 133 Figure 18: Process pathway during M&V activity 137 Figure 19: Types of labelling 152 Figure 20: Types of standards 154 Figure 21: Effect of standards and labelling on the market for products 156 Figure 22: Key steps for developing and implementing a standards and labelling scheme 193 Figure 23: Energy Consumption Trends in Egypt 197 Figure 24: Egypt electricity consumption by sector 198 Figure 25: Impacts of intervention for stakeholders 204 Figure 26: Egypt Motors S&L Stakeholder Group Identification and Mapping 244 Figure 27: Egypt Motors S&L Summary Matrix 246 List of tables Table 1: Industry-led initiatives and public sector support 37 Table 2: Global industrial GHG emissions (GtCO2e) broken down by source 42 Table 3: The advantages and risks of stakeholder engagement 63 Table 4: Key examples of sustainable dialogue platforms and tools 77 Table 5: Example summary information from energy efficiency audits 100 Table 6: Illustrative matrix for evaluation of clean technologies 106 Table 7: Options for obtaining outsourced expertise for project development and/or assessment 111 Table 8: Design considerations for efficiency evaluations 135 Table 9: Examples of leading M&V protocols used across the world 138 Table 10: Existing standards and labelling schemes for industrial boilers 168 Table 11: Existing standards and labelling schemes for transformers 172 Table 12: Existing standards and labelling schemes for electric motors 176 Table 13: Existing standards and labelling schemes for fans and blowers 181 Table 14: Existing standards and labelling schemes for lighting 185 Table 15: Existing standards and labels for industrial refrigeration plant 190 List of case studies Case study 1: The implementation of tried and tested technologies in existing industrial sectors 27 Case study 2: Successful market-based measures in Thailand 48 Case study 3: Energy efficiency in pulp and paper mills 52 Case study 4: The China Utility-based Energy Efficiency (CHUEE) Program 74 Case study 5: Successful use of Sustainability Dialogue Platforms The Myanmar Centre for Responsible Business (MCRB) 76 Case study 6: Two different approaches to implementing energy efficiency credit lines, dictated by market selection 89 Case study 7: IFC Advisory Services work with the foundry industry in Bangladesh in 2003 98 Case study 8: Access to technical capacity for energy efficiency in Brazil 107 Case study 9: Capacity building - Malaysian Industrial Energy Efficiency Improvement Project (MIEEIP) 128 Case study 10: The China Energy Label (Comparative Label) 161 Case study 11: PROCEL Seal in Brazil (Endorsement Label) 162 Case study 12: Minimum Energy Performance Standards (MEPS) in Ghana 163 Case study 13: The Energy Efficiency Label and Standard Program in South Korea (Comparative Label and MEPS) 164 List of abbreviations ABESCO Brazil Association of Energy Service Companies ADB Asia Development Bank BCSD Business Council on Sustainable Development BEE Bureau of Energy Efficiency (India) BMS Building Management System BRESL Barrier Removal to the Cost-Effective Development and Implementation of Energy Efficiency Standards and Labelling project CBRC China Banking Regulatory Commission CCI Climate Competitive Industries CEL China Energy Label CELC China Energy Label Center CFL Compact Fluorescent Lamp CII Confederation on Indian Industry CIPEC Canadian Industry Program for Energy Conservation CHUEE China Utility-based Energy Efficiency CLASP Collaborative Labeling and Appliance Standard Program CNIS China National Institution of Standardization COP Conference of Parties CRB Centre for Responsible Business CSI Cement Sustainability Initiative CSR Corporate Social Responsibility List of abbreviations (continued) DANIDA Danish International Development Agency DIHR Danish Institute for Human Rights ECM Energy Conservation Measure ECOWAS Economic Community of West African States ECPF Energy Conservation Promotion Fund ECREEE ECOWAS Regional Centre for Renewable Energy and Energy Efficiency EEFIG Energy Efficiency Financial Institutions Group EERF Energy Efficiency Revolving Fund EESL Energy Efficiency Standards and Labelling EMS Environmental Management System ESCO Energy Service Company ESG Environmental, Social & Corporate Governance EPR Extended Producer Responsibility ETS Emissions Trading Scheme FDI Foreign Direct Investment FEMP Federal Energy Management Program FOAB Foundry Owners Association of Bogra GEF Global Environment Facility GHG Greenhouse Gas GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit GJ Giga Joules GtCO2e Giga tonnes (metric) of carbon dioxide equivalent GWh Giga Watt hours GRI Global Reporting Initiative KEMCO Korean Energy Management Corporation IEA International Energy Agency IGA Investment Grade Audit IFC International Finance Corporation (part of the World Bank Group) IHRB Institute for Human Rights & Business IIP Institute for Industrial Productivity INDC Intended Nationally Determined Contribution IPCC Intergovernmental Panel on Climate Change ISO International Standards Organization JICA Japan International Cooperation Agency LBBF Liberia Better Business Forum LCA Life-Cycle Analysis LTA Long-Term Agreement LPG Liquefied Petroleum Gas M&E Monitoring & Evaluation M&V Measurement & Verification List of abbreviations (continued) MCRB Myanmar Centre for Responsible Business MEP Ministry of Environmental Protection MEPS Minimum Energy Performance Standard(s) MEWC Ministry of Energy, Water & Communications MIEEIP Malaysian Industrial Energy Efficiency Improvement Project MOF Ministry of Finance MW Mega Watts NBI National Business Initiative NDRC National Development & Reform Commission NGO Non-Governmental Organization OECD Organization for Economic Co-operation & Development PAC Program Advisory Committee PAT Perform Trade Achieve PROCEL Programa Nacional de Conservacao de Energia Eletrica R&D Research and Development S&L Standards and Labelling SDP Sustainability Dialogue Platform SAFE State Administration of Foreign Exchange SEAD Super-efficient Equipment and Appliance Deployment initiative SEDF South Asia Enterprise Development Facility SME Small- or Medium-Sized Business TERI Energy & Resources Institute of India TEST Transfer of Environmentally Sound Technology UNDP United Nations Development Program UNFCCC United Nations Framework Convention on Climate Change UNESCAP United Nations Economic and Social Commission for Asia and the Pacific UNF United Nations Foundation UNGC United Nations Global Compact UNIDO United Nations Industrial Development Organization USAID US Agency for International Development US DOE United States Department of Energy US EPA United States Environment Protection Agency WBCSD World Business Council on Sustainable Development WRI World Resources Institute 1 THE URGENCY FOR CLIMATE COMPETITIVE INDUSTRIES 20 1 URGENCY 2 CONCEPT AND DESIGN 1 Introduction „ The pressing need to act on climate change „ The resource crunch „ The economic case for resource efficient industry „ Strategy lag within the private sector 2 Challenges for industries in emerging economies „ Financial constraints „ Corporate behavior „ Market failure „ Policy, regulatory and institutional challenges 3 Opportunities for industry and the economy 4 WBG’s Climate Competitive Industries (CCI) initiative 5 Stimulating climate competitive industry 3 IMPLEMENTATION 4 STANDARDS 21 What the reader will get from this module: This Module introduces the challenges of climate change and the global pressures on natural resources. It goes on to introduce the World Bank Group’s Climate Competitive Industries (CCI) initiative and describes the pressures on and the roles of individual enterprises and governments in responding to the challenges and opportunities presented. 22 1 URGENCY 2 CONCEPT AND DESIGN 1. Introduction The pressing need to act on climate change Climate change is already happening; the globally averaged combined land and ocean surface temperature has warmed by 0.85°C over the period 1880 to 20121. The mean global sea level has risen by around 20 cm with significant contributions now coming from the melting ice sheets over Greenland and Antarctica. Arctic sea-ice extent has decreased in every season and in every successive decade since 1979, and, almost worldwide, glaciers continue to shrink. Anthropogenic greenhouse gas (GHG) emissions have increased since the pre-industrial era, driven by economic and population growth. The current atmospheric concentrations of carbon dioxide, methane and nitrous oxide are unprecedented in at least the last 800,000 years. There is a high degree of confidence that GHG emissions from human activities are the dominant cause of the observed surface warming since the mid-20th century. If we make no efforts to cut the use of fossil fuels, global warming is likely to reach between 2-7°C this century with further warming beyond. This would have major consequences for human welfare and ecological systems. The Copenhagen Accord2 was agreed at the 15th session of the Conference of Parties (COP 15) to the United Nations Framework Convention on Climate Change in December 2009. The Accord recognized the scientific view, as documented in the IPCC’s 4th Assessment Report, that the increase in global temperature should be kept to less than 2°C above pre-industrial levels to prevent dangerous anthropogenic interference with the climate system. Subsequently, at the December 2010 COP 16 in Cancun3, the Parties agreed to commit to the 2°C maximum temperature increase and to consider lowering this to 1.5°C in the near future. 1 IPCC. (2014). Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, R.K. Pachauri and L.A. Meyer (eds.)]. IPCC, Geneva, Switzerland, 151 pp. Retrieved from http://ar5-syr.ipcc.ch/ 2 UNFCCC. (2009). FCCC/CP/2009/L.7 Copenhagen Accord. Retrieved from http://unfccc.int/resource/docs/2009/cop15/eng/l07.pdf 3 UNFCCC. (2010). Milestones on the road to 2012: The Cancun Agreements. http://unfccc.int/key_steps/cancun_agreements/ items/6132.php 3 IMPLEMENTATION 4 STANDARDS 23 In December 2015 at COP 21 in Paris, agreement was reached to strengthen the global response to the threat of climate change by, inter alia: “holding the increase in the global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change”4. Achieving the 2°C limit, let alone 1.5°C, represents a significant challenge for the global community; it requires a large global emissions reduction of 40–70% in GHGs from 2010 levels by 2050 and near- or below-zero global GHG emission levels by 2100. The estimated aggregate greenhouse gas emission levels in 2025 and 2030 resulting from the Intended Nationally Determined Contributions (INDCs)5 promised by countries at the Paris Climate Change Conference is insufficient to achieve the goal of preventing the global average temperature from increasing by 2°C or less. To hold the increase in the global average temperature to below 2°C, 2030 emissions need to be reduced to an estimated 40 GtCO2e (giga-tonnes of carbon dioxide equivalent), whereas the INDCs lead to a projected level of 55 GtCO2e in 2030. It is clear that significant global action is required if we are to avoid the worst impacts of climate change. The resource crunch Climate change is not the only issue. With increasing global population and demand for better qualities of life, many resources are under greater pressure, which will increase prices and compromise availability. The Global Footprint Network estimates that humanity’s demand on nature has exceeded what our planet can replenish for the last 40 years as shown in Figure 16. The world’s population would need the regenerative capacity of 1.5 Earths to provide the ecological services the world currently uses. Such “overshoot” is possible because we can 4 UNFCCC (2015). FCCC/CP/2015/L.9 Adoption of the Paris Agreement. Retrieved from http://unfccc.int/resource/docs/2015/cop21/ eng/l09.pdf 5 UNFCCC (2016). Synthesis report on the aggregate effect of intended nationally determined contributions. Retrieved from http://unfccc.int/focus/indc_portal/items/9240.php In December 2013, all Parties to the UNFCCC were invited to communicate their Intended Nationally Determined Contributions (INDCs) well in advance of the Paris Conference. These contributions outline national efforts towards low emissions and climate resilient development in pursuit of the Convention’s objective and represent one of the main deliverables of COP 21. 6 Global Footprint Network. (2016) World Footprint. Do we fit on the planet? http://www.footprintnetwork.org/en/index.php/ GFN/page/world_footprint/ 24 1 URGENCY 2 CONCEPT AND DESIGN cut down trees faster than they mature, harvest more fish than oceans replenish, and emit more carbon into the atmosphere than forests and oceans can absorb. The consequences are diminished resource stocks and waste accumulating faster than it can be absorbed or recycled. FIGURE 1 Humanity’s Ecological Footprint6 2.5 Business as usual Earth Overshoot Day: 2.0 June 28, 2030 Number of planet Earths 1.5 Ecological Footprint 1.0 Carbon emissions reduced 30% 0.5 Earth Overshoot Day: September 16, 2030 0.0 1960 1970 1980 1990 2000 2010 2020 2030 Year The US National Intelligence Council7 has identified the “Megatrend” of the growing food, water, and energy nexus. Demand for these resources will grow by approximately 35, 40, and 50 percent respectively by 2030 owing to an increase in the global population and the consumption patterns of an expanding middle class. Climate change will worsen the outlook for the availability of these critical resources. The impact of this resource crunch is potentially huge for businesses, dramatically influencing the cost and availability of materials and the products and services they provide. The economic case for resource efficient industry The economic case for green industry is clear. Industrialization continues to be the most significant driver for income and job creation, and therefore the protection and acceleration of growth in this sector is critical for poverty reduction in emerging economies8. 7 National Intelligence Council. (2012). Global Trends 2030: Alternative Worlds. Retrieved from http://www.dni.gov/index.php/ about/organization/global-trends-2030 8 IEA. (2010). Energy Technology Perspectives 2010. https://www.iea.org/publications/freepublications/publication/etp2010.pdf 3 IMPLEMENTATION 4 STANDARDS 25 The main benefits to the economy from the increased uptake of industrial efficiency measures are as follows: 1. Industrial efficiency is cost effective. Investments in clean technologies typically have relatively short payback periods and lead to lower operating costs. After the initial cost, enterprises save money through decreased resource use, decreased risk of liability and remediation costs, reduced insurance costs, whilst also generating increased revenue through improved productivity; 2. A relatively high economic multiplier effect is common with public investment in industrial efficiency because in addition to improving productivity, resource efficiency provides a tangible financial return on investment; 3. Improved competitiveness is achieved as business and innovation potential is released through cost savings or new income flows, that can be utilized to drive expansion, create new jobs, and invest in further resource productivity improvements; 4. Job creation. The number of green jobs is on the rise. In 2006 42% of global steel output was recycled, saving 25% energy and employing ~200,000 people9; 5. Spill-over effects including demonstration effects, capacity building of workers and technological learning10; 6. Growth in demand for sustainable products means that enterprises in emerging economies that comply with sustainability standards and customer demands can gain access to new global markets, with price premiums for their products; 7. Innovation and risk are not obstacles. Most emerging economies would struggle to finance their own research and development (R&D) programs. However, industrial efficiency can be improved by scaling-up and mainstreaming proven practices and technologies that reduce resource consumption and emissions (see box). 9 Renner, M, Sweeney, S & Kubit, J. (2009). Job Prospects in a low-carbon world. Environment & Poverty Times, Issue 6, UNEP/ GRID-Arendal, Norway. 10 Rodrik, D. (2007) Industrial Development for the 21st Century: Sustainable Development Perspectives. Section 1.1 Industrial development: Some stylized facts and policy directions. United Nations. Retrieved from http://www.un.org/esa/sustdev/ publications/industrial_development/full_report.pdf 26 1 URGENCY 2 CONCEPT AND DESIGN Investment in resource efficiency serves to shield the economy from the emerging scarcity of natural Case study 1: resources by increasing the efficiency of resource use The implementation of tried and by expanding the supply of affordable and reliable and tested technologies in environmental goods and services. The greening of existing industrial sectors industries is therefore a means of providing sustainable access to affordable energy and raw materials, and it UNIDO’s transfer of facilitates economic development. environmentally sound technology (TEST) approach is a need-driven Reducing the demand for energy or water, or the systematic approach to integrate output of waste reduces the significant expense existing cleaner processes into of constructing new energy, water and waste industry operations. More than infrastructure. For example, the International Energy 230 cleaner production solutions Agency (IEA) estimates that by improving energy have been implemented in the efficiency alone, countries could make a 10% reduction 17 participating companies, in global demand by 2030, a total saving of US$ 560 complemented by US$1.7 million billion8. Furthermore, every US dollar invested in the of investment in new technologies, demand-side management of electricity can save more bringing estimated savings of than US$ 2 of investment in the power sector (almost US$1.3 million per annum for the US$ 3 in emerging economies), meaning the overall companies involved11. cost of the investment is even lower12. As well as economic reasons, there is also a growing international call for action on climate change. Action in industrial efficiency represents a cost-effective method of reducing national emissions in line with international or national climate change emissions targets. Reducing the threat of environmental pollution on public health is another benefit of action in this area, particularly in emerging economies. Improved industrial efficiency can improve access to clean water, energy (from a reliable grid)13 and improved nutrition from sustainable agricultural land management. Greening industries can also help build resilience to environmental risks by reducing direct harmful exposure to pollutants, such as those in air, water, food and solid waste. 11 UNIDO (2011). Green Industry Initiative for Sustainable Industrial Development. Accessed from http://www.unido.org/ greenindustry/green-industry-initiative.html 12 UNESCAP (2008). Energy Security and Sustainable Development in Asia and the Pacific, Economic and Social Commission for Asia and the Pacific. Retrieved from http://www.unescap.org/resources/energy-security-and-sustainable-development-asia-and-pacific 13 World Bank (2012). Inclusive Green Growth - The Pathway to Sustainable Development. Retrieved from http://siteresources. worldbank.org/EXTSDNET/Resources/Inclusive_Green_Growth_May_2012.pdf 3 IMPLEMENTATION 4 STANDARDS 27 Strategy lag within the private sector Governments around the world are working towards the development of policies, regulations and incentives to reduce GHG emissions and improve resource efficiency. At the same time, governments are seeking to drive economic growth. The industry sector may be among the most affected by government action in this direction. Worldwide, many governments have implemented climate change (or related) programs aimed at encouraging industry sectors to become more resource efficient. Such programs often fail to gain sufficient traction with industry, unless they are mandatory schemes that are rigorously enforced. Industrial operators can be reluctant to participate, being untrusting of government actions and of the benefits promised, whilst also fearing the impact that change could have on their competitiveness, if not equally applied to other operators. There is a need for more inclusion of the private sector in order to understand what will work best within a particular industry sector, or even within a specific business. The focus of the private sector is naturally on business efficiency and profitability rather than tackling climate change. However, improving the resource efficiency of business has a direct positive impact on business efficiency by reducing costs and waste, and by consequence providing a climate change benefit. Increasingly businesses around the globe are being driven to reduce emissions of the main GHG, carbon dioxide, through energy efficiency and greater use of renewable energy as governments adopt fiscal policies that incentivize action. Pressures on the supply chain are also increasing as the owners of global brands appreciate the benefits of an ethical image underpinned by responsible corporate behavior of suppliers as well as the brand operator itself. The focus is often on issues such as employee conditions and health and safety, but also encompasses the responsible use of resources, including energy and water. Improving the management of resources reduces operating costs of a business, increases margins and helps to support growth. It can also enhance corporate image, helping to differentiate companies and their products in a global market. 28 1 URGENCY 2 CONCEPT AND DESIGN In an increasingly resource constrained world, resource efficiency also lowers risks through making companies less vulnerable to sudden price increases and constraints in the availability of process inputs or materials. In this respect, it is important to understand that resource efficiency is not just about reducing the quantities used, it is also about finding alternative ways of doing things that are less exposed to external influences. For example, on-site generation of renewable power from solar or wind can help insulate a site from grid reliability issues and from price volatility. According to research undertaken by the Carbon Trust in 201214, companies remain unprepared for the effects of dwindling natural resources. The study showed that amongst 475 senior executives in Brazil, China, Korea, UK and USA, many are not prepared to look at the issue of resource shortages now and believe they will not need to make significant changes in their business operations to combat resource scarcity until 2018. Most consumer-facing companies predicted that they would only need to take action within the next ten to fifteen years at the earliest, meaning they may not have plans in place until 2025 or beyond. This inaction was found to be widespread, with 43% of organizations surveyed stating that they do not monitor the risks to their business of environmentally related shocks such as energy price rises and environmental disasters. Over a half (52%) have not set targets for managing the reduction of carbon, water or waste. However, when resource constraints become a reality, 60% of organizations think the cost of their products and services will need to increase, 55% show that they will need to engage in fewer markets and 43% show that they will deliver a less varied service or product offering. Such responses would clearly have an impact on business profitability and growth. 14 Carbon Trust. (2012). Are businesses sleepwalking into a resource crunch? Accessed from: http://www.carbontrust.com/ news/2012/12/business-resource-efficiency-resource-crunch/ 3 IMPLEMENTATION 4 STANDARDS 29 2. Challenges for industries in emerging economies Climate efficient industry faces particular challenges in emerging economies. This section considers these challenges and how governments around the world have sought to overcome them. In pursuit of rapid short-term growth, many emerging economies now face extensive environmental degradation and resource depletion that threaten opportunities for sustainable industrial development and long-term economic growth. Industrial activity in these countries is often characterized by inefficient use of energy, water and raw materials, and relatively limited pollution controls. The development of resource efficient industry addresses these inefficiencies, whilst at the same time promoting sustainable economic growth and relieving stress on the environment. The case for green industry is clear and convincing, yet there are barriers that often prevent industries from taking action. The barriers faced by emerging economies seeking sustainable industrial growth are varied and complex, but broadly comprise a combination of financial, market and policy failures. These common barriers will differ in influence across countries but will be present to some degree everywhere. This section outlines the challenges to wide-scale uptake of efficient industrial practices in emerging economies. Financial constraints The World Bank has been identified access to finance as the primary business constraint faced by firms in emerging economies15. This acts as a major barrier to the uptake of resource efficiency improvements, in particular for small or medium sized enterprises (SMEs). Furthermore, there is often the misconception amongst businesses that sustainability initiatives are in conflict with commercial interests. These factors conspire to limit the uptake of sustainable industry practices. 15 World Bank. (2015). Enterprise Surveys. Accessed from http://www.enterprisesurveys.org 30 1 URGENCY 2 CONCEPT AND DESIGN Access to finance is constrained for a number of reasons. Financiers will often lack awareness of the investment opportunity presented by efficiency measures and perceive the investment risk to be high, due to a lack of reliable information on technology, markets, and investment potential. SMEs can be at a further disadvantage as they may not be able to obtain the collateral and third party guarantees that financiers can insist upon; the emphasis financial institutions place on asset-based lending and balance sheet financing favors larger firms. In addition, credit lines extended to SMEs for efficiency investments are typically characterized by numerous smaller projects that are seen as having a higher risk compared with the returns16. These factors highlight the need for public or donor support to provide leverage for private sector capital and to share the risk with the investor17. Indirect cost constraints or ‘hidden’ costs also play an important role. These costs are more difficult to account for, which can lead enterprises to place a higher risk premium on these types of investment. Common indirect costs include: • management and staff time; • transaction costs (e.g. information gathering and analysis, negotiation, procurement, etc.); • disruption of business activity and inconvenience; • equipment incompatibility; • staff training and replacement; and • technical support and maintenance. SMEs face some indirect costs disproportionately. For example, SMEs tend to be less aware of efficiency opportunities and may lack the skills necessary for implementation. In such circumstances there is likely to be an additional cost for support from consultants, intermediaries or ESCOs. SMEs also have greater difficulty accessing public support and grants for the same reasons. Moreover, fostering resource efficiency often requires a value chain approach, with a need for coordination and cooperation between enterprises, which may exceed the capabilities of individual SMEs. 16 UNIDO. (2011). UNIDO Green Industry: Policies for supporting Green Industry. Retrieved from https://www.unido.org/fileadmin/ user_media/Services/Green_Industry/web_policies_green_industry.pdf 17 EEFIG. (2015). Energy Efficiency – the first fuel for the EU economy Energy Efficiency. How to drive new finance for energy efficiency investments. European Union. Retrieved from http://www.eefig.eu/index.php/the-eefig-report 3 IMPLEMENTATION 4 STANDARDS 31 Corporate behavior Where access to capital is not a constraint, companies often overlook resource efficiency opportunities due to corporate behaviors, including: • a lack of prioritization. Many enterprises do not view resource efficiency as a core business activity. Instead, improvements in efficiency are often treated as operating expenditure, for which budgets are set and limited. • a rule of thumb approach to investment decisions. Projects are frequently judged against a payback period threshold rather than by a full life-time assessment. These are compared with other projects that are competing for the same capital and that can potentially yield more immediate financial returns. Many companies will only fund projects with a payback period of less than 18-24 months, unless the project has a simultaneous productivity or growth outcome18. • dispersed benefits. Where the benefits of an investment are spread between departments within a business, there may not be sufficient incentive for any one budget holder to supply the capital for the investment19. • a perception of efficiency investments as complicated and risky. Energy efficiency investments, for example, may seem to pose a high risk due to a lack of familiarity with such projects in comparison with core business projects, and uncertainty in predicting future energy prices. Market failure Market failure refers to situations in which the market does not, and cannot by itself, be expected to, price goods and services at their true cost. In the context of industrial resource efficiency, three types of market barriers are relevant: • externalities describe a situation in which a third party incurs a cost or benefit, as a result of a transaction in which they were not involved. For example, the costs of environmental degradation to an economy as a result of the inefficient practices of industry is not carried by the companies concerned. Consequently, efficient practices are under-valued; 18 IIP & IEA. (2012). Energy Management Programmes for Industry: Gaining through saving. Retrieved from https://www.iea.org/ publications/freepublications/publication/policypathwaysindustry.pdf 19 McKinsey & Company. (2009). Unlocking Energy Efficiency in the U.S. Economy. Retrieved from www.mckinsey.com/~/media/ mckinsey/dotcom/client_service/epng/pdfs/unlocking%20energy%20efficiency/us_energy_efficiency_full_report.ashx 32 1 URGENCY 2 CONCEPT AND DESIGN • incomplete information or ‘imperfect’ information refers to a lack of access to information concerning efficiency opportunities. To make effective choices an enterprise must have access to clear and reliable information on the opportunities presented by efficiency measures. This is particularly critical for SMEs, which can be limited by a lack of internal technical capacity20; • split incentives occur when the investor cannot capture the benefits of the investment. In the industrial sector, split incentives can occur where a property owner has no incentive to improve the efficiency of the facilities their tenants are using, as the savings would not accrue to the owner. Governments will sometimes intervene to correct market failures; however, top-down manipulation of the market can create price distortions that prevent customers from appraising the true value of resource efficiency measures. For example, where energy prices are subsidized, businesses do not pay the full cost of their energy use, and therefore have less incentive to reduce consumption. Further details on government action on green industry are provided in this Module under Stimulating climate competitive industry, and details on how to diagnose the current market situation can be found in Module 2 under Sub-step 2.1: Assessing the market. 20 Australian Government Department of Industry and the Ministry of Economy, Trade and Industry of Japan. (2014). Energy efficiency in manufacturing SMEs: Sharing Australian and International Experience in Policy and Program Design. Retrieved from https://www.iea.org/media/workshops/2014/eeu/industry/EMAKworkshopreport.pdf 3 IMPLEMENTATION 4 STANDARDS 33 Policy, regulatory and institutional challenges Where the market fails to promote efficient practices, there is a case for policy and regulation to support and promote greener industry. However, emerging economies may lack the legal and policy frameworks necessary to address the environmental challenges they face. Furthermore, governments do not tend to prioritize natural resource management and as a result environmental ministries or agencies have generally less influential than ministries of finance, trade, and industrial development. The greening of industry represents a cross-cutting and long-term challenge, and many governments fail to address the range of issues it presents in a holistic way. This leads to tension between environmental policies and industrial development. Factors such as inconsistent policy communication and enforcement, diverse delivery bodies and overlapping regulations can all hinder implementation. There is also the possibility that existing regulations are hampering industrial efficiency. Regulation can impose administrative costs on firms and shape their perceptions about the cost of efficiency measures. For example, where21: • regulations are unclear or subject to change; • regulations are too complex and require third party intervention to be clarified; • regulations are too numerous, creating confusion and potentially imposing overlapping regulatory burdens; • where there is a lack of coordination between regulators to ensure consistent enforcement across sectors and geographical areas. Policy, regulatory and institutional issues can generally be expected to be more burdensome to SMEs than to large enterprises that have greater resources to manage them. Guidance on how to conduct a diagnostic on the current policy and regulatory context is presented in Module 2: Sub- step 2.2: Assessing the regulatory and institutional context. 21 UK Department for Business, Innovation & Skills (BIS). (2010). Green Light? A review of regulatory barriers to small businesses’ resource and energy efficiency. Retrieved from http://webarchive.nationalarchives.gov.uk/+/http:/www.berr.gov.uk/files/ file54466.pdf 34 1 URGENCY 2 CONCEPT AND DESIGN 3. Opportunities for industry and the economy Resource efficiency is a matter of business survival; in a resource constrained world only the most efficient companies will endure. Yet, the path to becoming a climate competitive industry presents opportunities as well as challenges. The opportunity for cost reduction is the usual driver for industry adoption of more efficient practices, but there are many other benefits, including18: • enhanced productivity and competitiveness; • reduced exposure to volatile energy and raw material prices; • the fostering of innovative technology development and adoption; • the achievement of voluntary or mandatory environmental targets (e.g. carbon reduction); • the ability to take advantage of increasing customer requirements for environmentally conscious manufacturing processes and end products; • improved corporate reputation. The industry sector is facing shifts every day in both supply and demand behavior. On the supply side, input materials may be increasing in cost, may be more difficult to obtain and even become scarce over time. On the demand side, markets shift at a higher rate demanding higher quality finished goods. This trend is not new, as increasing productivity has been a goal for several years in the private sector, but markets will contain higher risks in the coming years due to climate change22 and resource constraints. Sustainability in the private sector has become a target in recent years mostly because of shifts in the market. An increasingly integrated global value chain, accompanied by knowledge dissemination, has induced new supply-demand channels. This creates new business models, opportunities, and challenges. The private sector gains a variety of opportunities such as reputation management, operational improvements and new growth. Private sector leaders need to rethink their organizational structures, market engagement, production processes and environmental actions in order to mitigate and manage these supply and demand risks. 22 McKinsey & Company. (2014). Resource-Productive Operations. Extract retrieved from http://www.mckinsey.com/business- functions/operations/our-insights/resource-productive-operations 3 IMPLEMENTATION 4 STANDARDS 35 Integrating environmental, social and governance issues into current business models will help industry to prepare for the risks presented. These issues are not new to the private sector, but they tend not to be part of companies’ core strategic planning; sustainability needs to be understood as an issue with a direct impact on business results. The growing demand for sustainable products and services, good corporate governance and social responsibility, linked with scarcer resources and tighter regulatory requirements are some of the reasons why it is important for industries to take the lead within CCI programs23. Business leadership, with government support, can facilitate the creation of competitive and practical programs that aim to: 1. increase resource efficiency in a cost-effective way; 2. decarbonize energy sources; 3. accelerate the development and deployment of low-carbon/energy-efficient and resource efficient technologies and practices; 4. adjust to business and consumer behaviors. Several types of effective industry-led resource efficiency initiatives have been adopted across the world in order to realize the benefits. These are often encouraged by government support as shown in the examples provided in Table 1. In countries that have effective industry-led initiatives, the design of any new resource efficiency programs should consider whether they could reinforce or complement the developments already happening in the market. 23 McKinsey & Company. (2011). The business of sustainability: McKinsey Global Survey results. Viewed at http://www.mckinsey. com/insights/energy_resources_materials/the_business_of_sustainability_mckinsey_global_survey_results 36 1 URGENCY 2 CONCEPT AND DESIGN TABLE 1 Industry-led initiatives and public sector support16 Industry-led Definition Encouragement Examples initiative from public sector Environmental The management Soft loans, grants Bavarian Environmental management of an organization's or subsidies. Agreement (Germany) systems (EMS) environmental – subsidizes the cost Facilitation of programs in a of an independent access to expertise. comprehensive, environmental audit and systematic, planned Adoption linked the introduction of an and documented with permit EMS for SMEs. Companies manner (e.g. requirements. that have introduced ISO14001 / 500001). EMS are granted relief from other environmental duties / obligations (e.g. emissions reporting). Eco-label and Eco-labels are Mandatory roll out Thai Green Label certification voluntary or of labelling. Scheme – a national mandatory labelling environmental Green procurement systems for products. certification awarded to by public sector. They provide an products shown to be indication of the environmentally friendly environmental cost compared to other of that product, products that serve the making it easy for same function. consumers to consider environmental concerns. 3 IMPLEMENTATION 4 STANDARDS 37 Industry-led Definition Encouragement Examples initiative from public sector Life cycle A technique to assess Provision of European Commission analysis (LCA) the environmental information and Integrated Product aspects and potential tools. Policy – research to impacts associated identify products with with a product, the greatest potential for process, or service. low cost improvement of environmental performance. Greening the A wide variety Government Green Suppliers supply chain of actions that agencies greening Network (USA) – companies carry out their supply chain. Assistance offered to SME to install greater suppliers to help them Financial assistance environmental achieve the more rigorous to supply chain performance over standards. greening. their extended supply chains. Extended An industry-based Government Extended Producer producer voluntary initiative provides a Responsibility System responsibility (e.g. take-back of framework (South Korea) – (EPR) products). mandatory amount Negotiated of waste that must agreement between be recycled by each government and producer. Manufacturers industry (e.g. the must collect and recycle Dutch Packaging their products after Covenant). consumer use or pay the cost of recycling. 38 1 URGENCY 2 CONCEPT AND DESIGN Industry-led Definition Encouragement Examples initiative from public sector Corporate A form of corporate Government CSR Action Plan social self-regulation agencies adopting (Denmark) – legislation responsibility whereby a business CSR. requires large businesses (CSR) monitors and ensures to take a position on CSR Legislation on its active compliance in their annual reports. adoption of CSR with the spirit of the law, ethical standards and national or international norms. Environmental A subset of Governments accounting accounting proper, provide which incorporates information, economic and guidance or environmental regulation on information. environmental accounting. The two boxes below, concerning the cement and iron & steel sectors, provide examples of opportunities for industrial processes to become more efficient by using improved technologies and the substitution of inputs. In each sector efficiency improvements have been driven by demand, mostly from the construction sector. However, in both cases government has an important role to play through the provision of fiscal incentives for improved technologies, research and development, and other support for the private sector to apply these measures without undue risk24. 3 IMPLEMENTATION 4 STANDARDS 39 Opportunities in the cement sector Emissions from the production of cement arise from the fuel combustion used to heat clay, limestone and other minerals, and from the calcination reaction of the input materials. The IPCC’s fifth assessment report identified the global cement sector’s GHG emissions to be around 2,700 million tonnes of carbon dioxide equivalent in 2010, representing around 17% of global emissions. Of this total, approximately 40% (800 million tonnes carbon dioxide equivalent) relates to energy use in the production process. Several actions can be taken to reduce these emissions such as: • Improvements in energy efficiency • Better technology • Higher quality inputs • Fuel switching The calcination reaction emissions, accountable for nearly 50% of the total emissions, are unavoidable due to the chemical composition of the materials and the production process reaction. Although, improved material efficiency may be an option, the main way in which these emissions could be reduced is through reduced demand, for example resulting from innovative products as an alternative to standard cement. The remaining 10% of the GHG emissions come from the pre-processing and transportation of the raw materials and finished product. These are therefore often embedded within the product’s supply chain. The majority of cement kilns burn coal, but it is also possible to use alternative fuels such as biomass wastes, which can decrease GHG emissions. 24 IPCC. (2014). Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Edenhofer, O., R. Pichs-Madruga, Y. Sokona, E. Farahani, S. Kadner, K. Seyboth, A. Adler, I. Baum, S. Brunner, P. Eickemeier, B. Kriemann, J. Savolainen, S. Schlömer, C. von Stechow, T. Zwickel and J.C. Minx (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. Chapter 10 retrieved from https://www.ipcc.ch/report/ar5/wg3 40 1 URGENCY 2 CONCEPT AND DESIGN Opportunities in the iron and steel sector The global iron and steel industry GHG emissions were around 2,600 million tonnes of carbon dioxide equivalent in 2010. The sector is very energy intensive, the production requires significant heat and power, but also has significant variability by technology and region. Many energy efficiency opportunities exist, including: • Improving heat and energy recovery from process gases, products and waste streams • Improving fuel delivery through pulverized coal injection • Improving furnace designs • Improving process controls • Reducing the number of temperature cycles through better process coupling • Using energy efficient technologies • Applying coke dry quenching techniques • Using top pressure recovery turbines 3 IMPLEMENTATION 4 STANDARDS 41 4. WBG’s Climate Competitive Industries (CCI) initiative Since the mid-19th century, industrial GHG emissions have been on the increase, a trend that has become more significant in recent decades (Table 2). Industry’s GHG emissions have grown from 10.4 GtCO2e (giga-tonnes of carbon dioxide equivalent) in 1990 to 15.4 GtCO2e in 2010, and currently contribute around 30% of global GHG emissions. TABLE 2 Global industrial GHG emissions (GtCO2e) broken down by source24 Sources 1990 2005 2010 Direct (energy-related) 3.96 4.41 5.27 Indirect (electricity + heat) 3.27 4.48 5.25 Process CO2 emissions 1.42 2.01 2.59 Process non-CO2 GHG emissions 0.55 0.77 0.89 Waste / wastewater 1.17 1.37 1.45 Totals 10.37 13.04 15.44 Since the beginning of the current century, GHG emission growth has been particularly strong in Asia, Latin America, and the Middle East25. Most of these economies are in their early stages of industrial development, and with increasing market activities, the trajectory of strong emission growth will last in these regions if no immediate actions are taken. 25 IEA. (2014). Energy Technology Perspectives 2014. Retrieved from http://www.iea.org/etp/etp2014/ 42 1 URGENCY 2 CONCEPT AND DESIGN FIGURE 2 Cumulative CO2 emissions between 1850-2011 (% of world total)26 Rest of world 17% United States 27% Indonesia 1% Brazil 1% Mexico 1% Canada 2% India 3% Japan 4% Russian Federation 8% China 11% European Union 25% Climate variability and resource scarcity are jeopardizing the competitiveness of more vulnerable economies, and posing increasing challenges to the growth of the manufacturing sector. In response, governments and industries must find ways to tackle this challenge together, while also taking advantage of the opportunities presented by cleaner technologies and more efficient processes. Yet despite the importance of resource efficiency to economic development, it is rarely seen as a priority. In developing countries in particular, resource efficiency faces a number of barriers, including a lack of clear and stable policy, a lack of information on best practices, and limited access to investment finance. 26 WRI. (2014). 6 Graphs Explain the World’s Top 10 Emitters. Viewed at: http://www.wri.org/blog/2014/11/6-graphs-explain- world%E2%80%99s-top-10-emitters 3 IMPLEMENTATION 4 STANDARDS 43 The World Bank Group’s Climate Competitive Industries (CCI) initiative aims to assist emerging economies in improving the competitiveness of their manufacturing industry by facilitating the implementation of more efficient practices that are tailored to the needs of the private sector. The CCI initiative advises client governments on how to accomplish this, and targets the following market challenges to promote green competitiveness: • Increasing resource scarcity and risk: Industries are becoming less competitive due to increasing resource scarcity coupled with high and volatile energy costs, causing shocks in the market. • The need for prioritized and private sector oriented responses: Governments, which are pivotal in promoting resource efficiency, need tools to prioritize practical energy and water saving opportunities for their key industries. • Information asymmetry for investors: Informational barriers slow the ability of companies to react to resource and price shocks, and take advantage of market-based opportunities. • Prioritization challenge: Coordination failures and limited access to information among private sector firms, governments, civil society and other institutions have prevented uptake of profitable investment opportunities in resource efficiency. • Much needed global effort: Uncertainty in global climate negotiations causing companies in developing counties to decelerate the rate of adoption of the most efficient technologies. The CCI initiative responds to market failures by providing policymakers with solutions to reduce the use of energy and water, and the production of waste in manufacturing processes, while reducing the sector’s operating costs and risk profile. As part of a comprehensive solution the initiative focuses on four integrated solutions as illustrated below. 44 1 URGENCY 2 CONCEPT AND DESIGN FIGURE 3 CCI initiative integrated solutions INTEGRATED TARGET CURRENT SOLUTION BENEFICIARY CLIENTS 1. Resource efficiency policy & regulation Industry Encourages private sector investments in Pakistan efficiency and energy saving through (energy intensive industries) policies, reforms, guidelines and Jordan initiatives that enhance equipment (energy intensive industries) and/or processes. 2. Standards & labelling Global Guatemala Triggers market transformation toward (energy in textile industry) value efficient equipment, technology and chains Egypt buildings in industry sectors. (energy in textile industry) Bangladesh 3. Financing mechanisms (water & energy in textile Incentivizes efficiency investments at the industry) company level, and are in the forms of financing, leasing, and energy service companies (ESCOs) or fiscal/ non-fiscal Bangladesh (EPZ) Clusters/ incentives. cities Vietnam (eco-parks) 4. Clean technology supports the Africa (green cities) production of technologies that facilitate the uptake of efficiency India (eco-cities) measures by manufacturing industries. The CCI initiative aims to assist client governments in the selection of the right mix of these four solutions for a given target beneficiary. To identify those solutions, CCI establishes strategic dialogue platforms to engage with various stakeholders ranging from governments to the private sector, from local industrial associations to NGOs. 3 IMPLEMENTATION 4 STANDARDS 45 5. Stimulating climate competitive industry The growth of climate competitive industry is best led by the private sector and supported by government through the creation of stable and predictable enabling conditions. There is a diverse range of actions that governments (national or local) can undertake to accelerate the transition to resource efficient industry, and therefore governments have an important role to play in the development and implementation of climate competitive industry programs. Governments need to ensure that policies and incentives promote efficient behavior and decision making by industry and address barriers to uptake27. In cases where industry is not adopting resource efficient practices, then regulations, incentives and support mechanisms provided by government can motivate companies to implement better resource management. There is no ‘one-size-fits-all’ tool applicable across all sectors, countries and company types, and therefore the tools most suitable to a particular context must be carefully selected. There are a number of approaches that government can adopt to facilitate resource efficient industry, either on their own, or integrated with one another. These normally can be separated into four core categories11 28 (Figure 4): • Research and development: developing, gathering and disseminating information. Government, or independent bodies set up or recruited by government, can act as an effective contact point for industry actors wishing to learn more about efficient processes or technologies. Industry trade associations are often well placed to take on this role, but may lack sufficient resources. • Policy and regulation: high-level policy goals and statements of intent can give firms confidence in a government’s long-term support for efficiency investments. Regulation, such as compulsory technological standards or the ban of specific methods or materials, may also be necessary. However, there can be a risk of stifling innovation if businesses are driven to adopt one particular solution. 27 World Bank. (2012). Inclusive Green Growth - The Pathway to Sustainable Development. Retrieved from http://siteresources. worldbank.org/EXTSDNET/Resources/Inclusive_Green_Growth_May_2012.pdf 28 Investment in infrastructure is another core intervention, which is explained in further detail in the World Bank’s Low-Carbon Zones Handbook: World Bank. (2014). Low-Carbon Zones: A Practitioner’s Handbook. Retrieved from https://www.wbginvestmentclimate.org/toolkits/low-carbon-zone-handbook/ 46 1 URGENCY 2 CONCEPT AND DESIGN • Financing mechanisms: measures that use market mechanism to provide incentives for desired behaviors. This includes fiscal incentives such as loans or grants, but also levies that seek to incorporate the external costs of a product or service into its price (e.g. carbon taxes). It also includes the creation of property rights and proxy markets for the use of environmental services (e.g. emissions trading). Market-based measures afford businesses flexibility to innovate in finding the most cost-effective solutions for their particular circumstances (see box). • Standards and labelling: involving private enterprises in the development of appropriate standards and labelling schemes, e.g. through trade bodies or chambers of commerce. For governments, this could mean stepping aside and letting industry take the lead, or providing a framework or benchmarks for those that wish to participate in a voluntary initiative. FIGURE 4 Examples of core government supporting interventions Research and development Policy and regulations • Identify and prioritize resource • Sectoral policies and guidelines efficiency opportunities • Enhance public-private • Research and development communication channels of knowledge about resource • Sector reforms efficiency markets and • Industry intiatives opportunities for industry Financing mechanisms Standards and labeling • Fiscal incentives • Equipment standards • Grants • Energy performance standards • Loans and credit lines • GHG standards • Guarantee programs 3 IMPLEMENTATION 4 STANDARDS 47 Case study 2: Successful market-based measures in Thailand In the early 1990s Thailand identified energy conservation as a low-cost pathway to addressing rising energy demand. The 1992 Energy Conservation Promotion Act established energy efficiency requirements for industry and created an Energy Conservation Promotion Fund (ECPF), financed by a dedicated sales tax levied on petroleum products. In 2002 the government used funds from the ECPF to establish an Energy Efficiency Revolving Fund (EERF) to provide credit lines to local banks that would then provide loans at fixed low interest rates for energy efficiency projects in industry. The initiative started with six banks and has expanded to eleven; meanwhile the banks involved have gained sufficient familiarity with energy efficiency projects to take on more of the financing cost with fewer concessions. By 2010, the revolving fund had financed 335 energy efficiency projects and 112 renewable energy projects, with a total investment of $453 million. The estimated annual energy cost savings were $154 million, with an average payback of around three years. By 2012, every dollar committed by the ECPF helped mobilize an estimated two dollars from other investors29. 29 Polycarp et al. (2013). Mobilizing Climate Finance – Annex 1 Energy Efficiency in Thailand. World Resources Institute. Retrieved from http://www.wri.org/sites/default/files/pdf/mobilizing_climate_investment_energy_efficiency_in_thailand.pdf 48 1 URGENCY 2 CONCEPT AND DESIGN These interventions can be more effective when used in combination, and the synergies that exist between them should be exploited. For example, if minimum standards are adopted that proscribe the purchase of an inefficient boiler type, a low-interest loan to purchase a compliant, but costlier replacement boiler will help bring forward replacement and promote compliance with the regulations. The impact of interventions will be determined to some extent by the size of the enterprise in question (Figure 5). It will often be SMEs where there is greatest potential for efficiency savings, due to the specific barriers they face. Five key government support mechanisms have been found successfully to encourage resource efficiency amongst SMEs21: • Financial assistance. Public subsidies and soft loans are particularly effective in the case of SMEs, which will often lack access to capital for investment in efficiency improvements; • Investment assistance. Easy-to-use instructions and standards for steps in the investment process; • Technical assistance. Product and service delivery to an appropriate standard. SMEs may be confronted by a range of claims made by suppliers and service providers. This may encourage complacency due to conflicting messages and a lack of confidence in the ability of suppliers and service providers to deliver consistent outcomes; • Policy stability and consistent messaging. Efficiency improvement can be maximized through consistent communication of the business case for efficient industry, using multiple channels including across multiple government departments and industry associations. Developments in policy should support and reflect this consistent messaging; • Networks and fora for exchange of knowledge. Interactions within and between policymakers and practitioners can be particularly constructive in providing new perspectives on effective policymaking and program implementation. Participants can share successful practices and explore solutions to challenging policy and program implementation issues. 3 IMPLEMENTATION 4 STANDARDS 49 FIGURE 5 Instruments suitable for large enterprises and SMEs Large enterprises SMEs • Binding environmental targets • Networks and fora for exchange of • Mandatory audits knowledge • Mandatory integration of energy/ • Policy stability and consistent environment management systems messaging and international standards • Financial assistance (e.g. ISO 50001) • Technical assistance • Provision of information on clean • Investment assistance technologies and necessary skills to assess investment A diverse policy and regulatory mix, that specifically targets SMEs, should be used to help leverage opportunities for improvement. These government actions can be more effective when they target specific phases in the business life cycle, for example, when SMEs replace existing equipment, when they develop budgets, and when they conduct business planning. To ensure the success of any new measure, it will be critical to understand what institutions are present within the country and the extent to which any existing measures have already been adopted (see Module 2: Sub-step 2.2: Assessing the regulatory and institutional context). If there is potential to be exploited, then this should be a key objective of any meeting with government authorities. With these interventions, governments provide a variety of benefits for the private sector, such as enhanced competitiveness through cost reductions, new business opportunities, better environmental compliance, health benefits through better local air and water quality, better work conditions, and reduced waste, all of which provide multiple indirect private and social benefits.24 50 1 URGENCY 2 CONCEPT AND DESIGN 3 IMPLEMENTATION 4 STANDARDS 51 The box below summarizes an analysis of energy efficiency programs in the pulp and paper industry sector. Barriers were identified and policy recommendations made that involved both private and public sector actions, similar to a CCI program. Cooperation between the public and private sector was found to be fundamental to improving efficiency within the sector and key to building the foundations of a robust low-carbon economy at a city, state and national level. Case study 3: Energy efficiency in pulp and paper mills In 2013, the World Resources Institute published a report30 highlighting the role of energy efficiency programs in improving the performance of pulp and paper mills. It was found that inefficient facilities had a high potential to achieve cost savings and decrease GHG emissions. Significant savings could be achieved by investing in initiatives that had the aim of driving these facilities to achieve the average U.S. energy efficiency level. In order to achieve this, many barriers had to be understood, analyzed and overcome. The main challenges for the less efficient pulp and paper mills were: • Prohibitive costs for project financing • Limited information about energy efficiency opportunities • Inconsistent or non-existent regulations • Technical obstacles • Prolonged investment cycles and • Slow capital turnover rates 30 Aden, N., Bradbury, J. and Tompkins, F. (2013). Energy Efficiency in U.S. Manufacturing: The Case of Midwest Pulp and Paper Mills. World Resources Institute. Retrieved from: http://pdf.wri.org/energy-efficiency-in-us-manufacturing-midwest-pulp-and- paper.pdf 52 1 URGENCY 2 CONCEPT AND DESIGN These barriers have to be overcome through different actions, from the direct support of financial institutions and energy efficiency investment programs to energy efficiency awareness. Energy-related capital investments are frequently perceived as risky due to the uncertain and volatile economy, lack of governmental support and energy market conditions. Information/awareness barriers were found to be very common amongst industry leaders, as they often were unaware of the existing opportunities, technologies and processes available to implement energy efficiency practices. Misconception of the energy efficiency potential was also a barrier that was identified in this sector. Business understood the need to comply with environmental regulations, but did not always appreciate the potential financial benefit of implementing energy efficiency programs that would also assist with compliance. Due to the slow capital turnover rates typical within the pulp and paper industry it was noted that new policies, programs and incentives were needed to help the sector to exploit energy efficiency measures where possible. This research identified how certain barriers could not be overcome without government support. The pulp and paper industry sector needed to work with governments to enable policies and programs that help create awareness, and develop financial and technical programs which aid efficiency actions in the sector. Industry-led action is needed at a local, state and national level, to achieve sustainable results. The report recommended actions including: • Periodic benchmark industrial energy efficiency performance reviews • Support of combined heat and power use though state and national policies • New regulatory frameworks to promote electric utility-manufacturer collaboration • Building on current research to develop geographically and sectoral integrated climate policy 3 IMPLEMENTATION 4 STANDARDS 53 2 CONCEPTION AND DESIGN OF A RESOURCE EFFICIENCY PROJECT 54 1 URGENCY 2 CONCEPT AND DESIGN 6 Introduction 7 Step One: Planning an engagement strategy „ Sub-step 1.1: Researching the context „ Sub-step 1.2: Meeting with the client „ Sub-step 1.3: Planning stakeholder engagement 8 Step Two: Conducting a diagnostic study „ Sub-step 2.1: Assessing the market „ Sub-step 2.2: Assessing the regulatory and institutional context „ Sub-step 2.3: Assessing existing resource use and efficiency opportunities 9 Step Three: Designing the program „ Sub-step 3.1: Selecting a program „ Sub-step 3.2: Selecting an institutional delivery mechanism „ Sub-step 3.3: Assessing program risks and task allocation „ Sub-step 3.4: Establishing a framework for monitoring and evaluation 3 IMPLEMENTATION 4 STANDARDS 55 What the reader will get from this module: This module provides guidance on how to take an initial concept for an industrial resource efficiency program through to the design stage. It provides the tools to enhance the practitioner’s understanding of a country’s manufacturing base, including the main actors, opportunities, drivers, barriers and success factors. Sound knowledge of the existing context will assist the practitioner in meeting the specific needs of industry, leveraging support from financiers and government, and addressing the relevant market, regulatory and institutional barriers. 56 1 URGENCY 2 CONCEPT AND DESIGN 6. Introduction The module has been written primarily for the benefit of practitioners, but will also be useful to those with whom the practitioner will collaborate, specifically industrial enterprises and trade bodies as well as government authorities and NGOs. This module is structured as three practical steps: Step One: Step Two: Step Three: Planning an Conducting a Designing the engagement strategy: diagnostic study: program: Guidance on stakeholder Scoping and diagnostics Guidance on identifying engagement including of the existing market, and agreeing the target preliminary research. regulatory and institutional market and progressing conditions within the the initial design of the country. program. 3 IMPLEMENTATION 4 STANDARDS 57 7. Step One: Planning an engagement strategy There are certain key pieces of information that a practitioner should gather prior to an initial meeting with the client. This section provides practitioners with a clear idea of what they need to know to ensure they are able to make the most of their first engagement with the client. It will also help them to ensure that their time is used effectively, by providing guidance on how to identify the relevant local actors, and how to outline the case for why these stakeholders should be interested in a particular project or program. Sub-steps Sub-step 1.1: Researching the context Sub-step 1.2: Meeting with the client Sub-step 1.3: Planning stakeholder engagement 58 1 URGENCY 2 CONCEPT AND DESIGN Sub-step 1.1: Researching the context It is important for a practitioner to gain a preliminary understanding of the local context and the potential for an industrial efficiency program prior to first visiting the client. This section outlines what a practitioner should research and what information they will need at their fingertips when in discussion with relevant stakeholders. Once a practitioner has made first contact it can be agreed with the client whether a more in-depth scoping study is necessary (see Step Two: Conducting a diagnostic study). The policy and regulatory context can provide the right enabling conditions for the development of climate competitive industry. By examining the key policies and instruments in this area the practitioner will gain an understanding of what action is being taken, what is motivating that action, and who the main stakeholders are. 1. What are the main energy and resource consuming sectors and processes? Undertake research to identify the key industrial sectors and processes operating in the country or region and understand their current status and issues relevant to resource efficiency. 2. What action has been taken on industrial efficiency? Including relevant policies, frameworks and legislation. One useful source of information on industrial efficiency policies is the Industrial Efficiency Policy Database31. 3. What are the main policies governing industrial development? A useful database of national development strategies and as well as industry development policies is maintained by the United Nations Economic and Social Council32. 4. What action has been taken on climate change? For example, does the country have any national GHG emission targets? If the country has submitted an Intended Nationally Determined Contribution (INDC), then it can be found on the UNFCCC website33. Analysis of national actions and commitments on climate change can be found on the Climate Action Tracker website34. 5. What is the state of the energy market? What is the price of energy? Who are the principal stakeholders (i.e. utility firms, energy consumers, regulators, government ministries, etc.)? Are there issues regarding security of supply? 31 IIP. Industrial Efficiency Policy Database: http://iepd.iipnetwork.org 32 The United Nations Economic and Social Council: http://webapps01.un.org/nvp/polcat.action?id=1941 33 Submitted INDCs can be found here: http://www4.unfccc.int/submissions/indc/Submission%20Pages/submissions.aspx 34 Climate Action Tracker website: http://climateactiontracker.org 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 59 Narrowing down the focus of areas for potential investment will come after meeting with the stakeholders concerned. However, even before that has happened, by looking at programs in the geographic region, or in countries with a similar economic profile, it will be possible to get an initial idea of the areas on which it might be appropriate to focus. One way of doing this is to investigate previous investment or advisory programs. It is important that any new work builds on, and has synergies with, any other current or previous programs carried out in-country. Furthermore, the practitioner should identify any research into the investment potential of industrial energy efficiency within the country, region, or other relevant area. Examining the conclusions and evaluations of previous similar programs will provide the practitioner with a quick initial assessment of the barriers likely to be faced, as well as potential routes to avoid these obstacles. If possible, contact relevant program managers with the aim of discussing any issues experienced, including those highlighted by any program evaluation work. Investigate whether there are any cultural issues that should be taken into account when approaching contacts in-country. Sub-step 1.2: Meeting with the client The first stage of the engagement will be some form of inception meeting with the client. Depending on the particular circumstances, the client might be an industrial trade body, chamber of commerce, government department, local government authority, or regional development body. Use this initial meeting to discuss the objectives and scope of a potential program, and to create an outline work plan including details of the next steps, task allocation and a plan for stakeholder engagement. Establishing clear objectives for the first meeting will enable the practitioner and client to prepare for the meeting, reducing the time and effort involved on the day. The main outcome of the initial meeting should be the client’s agreement on the likely objectives and scope of a program. However, there will be a range of other things the practitioner will want to take away from the meeting and therefore it is essential to define the objectives of the meeting in advance. 60 1 URGENCY 2 CONCEPT AND DESIGN At this stage, the following preliminary details are essential: 1. The client’s goals: What are the client’s goals in seeking improved resource efficiency? Identify the driving forces behind their interest. This will dictate much of the design of the program, not least the selection of the program’s target segment(s) and opportunities for investment. The client may have a very clear idea of the path they wish to pursue; equally, they may have no preconceptions and will require an in-depth diagnostic study to understand where the most appropriate opportunities lie. The practitioner will need to establish whether there is an interest in particular technologies, and whether costed opportunities have already been identified. 2. Funding: Dependent on the focus of the program, it may be possible to obtain an understanding of the scale and types of funding that might be accessible to the program from government sources. 3. Information and data: Consider what sort of secondary information is available and whether an in-depth scoping study is necessary? What is known about the market, institutional capacity and current efficiency for any potential opportunity? The client should be well placed to provide a practitioner with relevant details and documents concerning these critical success factors. Particularly if the client is a government body, they may also be able to provide details of the existing regulatory context and the barriers faced in program implementation in this area. 4. Stakeholders: Work with the client to identify all the stakeholders who are likely to be affected, as well as those who have an interest in moving the work forward – can they provide a complete list? The next section, Sub-step 1.3: Planning stakeholder engagement, provides guidance on how to approach these actors. 5. Ambition: The development of high-level aims, objectives and targets that are specific, measurable, ambitious, realistic and time-bound (SMART). 6. Timeline: Plan out the initial scoping tasks, including further meetings with the client and with stakeholders individually or collectively, perhaps in the form of a workshop. 7. Communication with the client: In order to monitor the evolution of the program, ensure there is provision for regular contact with the client, to report on progress and interim outputs, and to provide a forum to discuss program developments, anticipated difficulties and proposed solutions in a timely manner. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 61 Sub-step 1.3: Planning stakeholder engagement Stakeholder buy-in is a fundamental requirement of implementing a successful resource efficiency program. Engaged stakeholders will validate, support and even drive forward the implementation process. This section provides guidance on identifying the stakeholders relevant to a successful program, and explains how to plan and manage effective stakeholder consultation with individual stakeholder groups. Stakeholder engagement should be an ongoing process, which starts in the concept phase, and continues throughout program development and into the implementation phase. Consultations at this early phase of the program should aim to give the stakeholders a sense of ownership of the initiative and provide a forum for the development of a consensus on the driving forces of industrial efficiency, the barriers to implementation, and the factors that will be critical to the program’s success. This process will begin to forge partnerships between actors, which will eventually facilitate the development of transparent, relevant and achievable objectives that meet the needs of industry and the client. 62 1 URGENCY 2 CONCEPT AND DESIGN The risks and benefits involved in stakeholder consultation are summarized in Table 3. TABLE 3 The advantages and risks of stakeholder engagement35 Advantages Risks Decision Constructive exchange of ideas and Time consuming/costly process past experience Potential to generate or intensify Build trust and establish strategic hostility between opposing groups alliances Develop stakeholder ownership of decision-making Outcomes Overcome points of contention Loss of decision-making control between stakeholders. Risk of legitimizing a decision heavily Avoid potential costs of litigation influenced by opposing interest groups between dissatisfied stakeholders Policy and implementation decisions that are acceptable to all parties 35 IEA. (2010). Energy Efficiency Governance: Second Edition. Retrieved from: http://www.iea.org/publications/freepublications/ publication/eeg.pdf 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 63 Identify the stakeholders At the outset of the process all relevant stakeholders should be identified. Involving the client and other stakeholders in the process should broaden a practitioner’s understanding of the key players and lower the risk of overlooking an important stakeholder. To help frame the identification process, stakeholders can be categorized into three groups36: • public sector stakeholders consist of government entities that could be responsible for underpinning the program by introducing relevant policies, regulations, fiscal incentives or penalty mechanisms. These stakeholders can also be critical to the creation of strategic dialogue platforms that can facilitate the interaction of the various stakeholders concerned. Public sector stakeholders in this context are typically ministries of finance, industry, commerce, planning, energy and the environment, as well as local authorities and industrial zone authorities. However, they may also include the managing agencies of any existing energy programs/funds; energy regulatory commissions, cleaner production centers, energy efficiency centers, standards and metrology organizations, and development partners (e.g. active agencies such as GEF, UNIDO, ADB, GIZ, JICA, DANIDA etc.). • private sector stakeholders are the implementers and beneficiaries of efficiency projects. They include industrial enterprises, industry and trade associations, chambers of commerce and industry, banks and financial institutions, accountants, utility providers, equipment manufacturers and vendors, installers, ESCOs, energy and resource efficiency consultants and legal experts; • community stakeholders can include local communities, educators, researchers and NGOs who would benefit from greater industrial efficiency, or a cleaner environment, as well as the spill-over benefits of new knowledge and skills. They can play an important role in ensuring that the local communities also benefit from a resource efficiency program. Ultimately, the appropriate stakeholders for a program will depend on the target industry(s) and/ or technologies, the size range of target companies, and the nature and scale of the program interventions chosen. For example, Figure 6 illustrates the key stakeholders identified for SMEs, by members of a platform for strategic dialogue in Australia. 36 World Bank. (2014). Low-Carbon Zones: A Practitioner’s Handbook. Retrieved from https://www.wbginvestmentclimate.org/ toolkits/low-carbon-zone-handbook 64 1 URGENCY 2 CONCEPT AND DESIGN FIGURE 6 Key public (red) and private (blue) stakeholders for energy efficiency in SMEs37 Funding programs Education Information and training program programs Industry Energy outreach retailers programs Industry Funders SMEs associations Energy Accountants service provider Trades ESCOs people Equipement providers 37 Australian Government Department of Industry and the Ministry of Economy, Trade and Industry of Japan. (2014). Energy efficiency in manufacturing SMEs: Sharing Australian and International Experience in Policy and Program Design. Retrieved from https://www.iea.org/media/workshops/2014/eeu/industry/EMAKworkshopreport.pdf 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 65 Map the stakeholders Once stakeholders have been identified, the practitioner should conduct a stakeholder mapping exercise to gain an understanding of the political, economic and social impact of the prospective program on the interested parties. The process will help the practitioner to summarize the power dynamics and perceptions that govern the relationships between the stakeholders. Figure 7 takes the practitioner through the questions that determine the ability of individual stakeholders to either hinder or enhance a new initiative36. The outcome from the exercise can be illustrated in a matrix as shown in Figure 8. FIGURE 7 High-level stakeholder mapping 1. Stakeholder • Define the stakeholder • To which stakeholder category do they belong? • How will they be affected by the program? 2. Roles • What control or influence could they have over program design and implementation? • What influence do they have over the other stakeholders? 3. Goals • What action are they currently taking in this area? • What is their interest in the program? 66 1 URGENCY 2 CONCEPT AND DESIGN FIGURE 8 Stakeholder mapping matrix36 Key stakeholders • Strongly affected • Strongly affected • High influence • Low influence • Weakly affected • Weakly affected • High influence • Low influence 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 67 Stakeholder mapping should be conducted following direct consultation with stakeholders in order to get the most out of the process. Use the process to evaluate the program objectives alongside the goals of the other stakeholders, in particular38: • The goals of private financiers: Ascertain who local financiers are targeting in order to develop new customers or business lines (e.g. industry, SMEs etc.). Designing the program to dovetail with their efforts could improve the chances of success. For example, are there any existing targeted loan programs that the program could complement? • The goals of other investors: Government authorities and other international donors may have specific goals that drive the direction of their program interests. For example, are there any ongoing technology promotion programs that could provide a gateway into the market, or which might conflict with any new program? Reaching out to stakeholders will allow the practitioner to identify and assess their goals, ensuring that where beneficial the program aligns with the stakeholders’ objectives. Public sector stakeholders This section looks at the typical interests of government authorities, and provides details on how a CCI or similar intervention might align with their goals. Owing to the complex nature of industrial efficiency initiatives, government support, in the form of clear policy statements, regulation or incentives, is often a requirement of a successful program. Resource efficient industry programs are most successful where there is strong commitment and leadership from prominent agencies within the government (e.g. the prime minister’s office, finance ministers, economic development ministers etc.), backed up by broader support throughout the public sector. The need to incorporate a diverse range of actors may also rely upon access to government connections and endorsement. The support of local authorities can also be critical to a program’s success. Local authorities are the main providers of key services, such as water supply, waste removal, and in some cases electricity, and local governments themselves will benefit from any resource efficiency initiatives. 38 Taylor, R. et al. (2008). Financing Energy Efficiency: Lessons from Brazil, China, India, and Beyond. The International Bank for Reconstruction and Development / The World Bank. Retrieved from: http://siteresources.worldbank.org/INTEAPASTAE/ Resources/FinancingEnergyEfficiency.pdf 68 1 URGENCY 2 CONCEPT AND DESIGN For these reasons, it is likely that the first contact a practitioner will make is with government authorities, either at the national or at the regional or local level. By harnessing political resolve and adequate governmental support, the practitioner can raise the profile of their program, gain local credibility, and extend the reach of the program. The first step is to consider which elements of government (at all levels) would be best to act as a local counterpart. To be successful the practitioner will need to gain a good knowledge of the existing capacities of authorities and institutions within the country. This will require the identification and mapping of stakeholders as described earlier in this chapter. When approaching any government department, think in advance about their aims and objectives and how these can be supported and complemented by growth in resource efficient industry. Four main factors drive government to support industrial efficiency initiatives, and the relative importance of these will vary depending on the specific country’s circumstances – see Figure 9. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 69 FIGURE 9 The four main drivers for government intervention in industrial efficiency39 40 Economic • Reduce energy intensity / resource depletion • Improve industrial competitiveness • Reduce production costs Resource • Reduce reliance on imports security • Reduce domestic demand to maximize exports • Increase reliability and security of supply • Control demand growth Climate • Contribute to global mitigation and adaption efforts change • Meet obligations under the UNFCCC* • Meet supra-national requirements or directives (e.g. EU) Public • Reduce local pollution health • Reduce environmental degradation * United Nations Framework Convention on Climate Change. 39 IEA. (2010). Energy Efficiency Governance: Second Edition. Retrieved from http://www.iea.org/publications/freepublications/ publication/eeg.pdf 40 IEA. (2010). Energy Technology Perspectives 2010. Retrieved from https://www.iea.org/publications/freepublications/publication/ etp2010.pdf 70 1 URGENCY 2 CONCEPT AND DESIGN Private sector stakeholders In the context of industrial resource efficiency, industrial enterprises and financiers are typically the key stakeholders, and it is critical that the incentives for both parties are communicated clearly from the start of the process. This section looks at how resource efficiency can align with their interests. Financial institutions may be a vital conduit for overcoming the lack of access to finance faced by firms in emerging economies. Donors and governments can help overcome this problem by establishing dedicated credit lines that allow financial institutions (often local banks) to on-lend funds to entities wishing, for example, to improve their energy efficiency. The success of a credit line depends largely on the selection of competent and committed financial institutions. A technical assistance component built into the credit line also helps lower the technical and thus financial risk of projects. Sector associations are critical points of contact for a practitioner working with industry. It is important to note that previous work by international donors may, in some cases, have fostered an environment which is hostile to outside intervention (e.g. because of unfulfilled promises or unsuccessful projects). Furthermore, a practitioner may find that local companies believe that providing detailed business or market information could put them at a disadvantage. These factors highlight the need for early engagement and the use of strategic dialogue platforms throughout the duration of the program. The adoption of efficient practices by industry is typically driven by the potential for cost reduction. However, as described in Module 2, there are a number of other benefits to industry, such as enhanced productivity and competitiveness, and reduced exposure to volatile energy and raw material prices. To improve the chance of successful outreach with these parties: 1. Research examples of successful projects using the specific program model selected. This will be critical in gaining buy-in during market outreach. These serve the purpose of providing clarity on the potential products on offer, and increasing confidence amongst the parties. The creation of a short-term pilot scheme can also have the same benefits. 2. Include local financiers and technical experts from the outset. This will help ensure financiers are interested in the chosen program, demonstrate to the client that they are supportive of the program, and begin the conversation about the strengths, weaknesses, opportunities and threats concerning potential institutional partnerships. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 71 Community stakeholders For most industrial resource efficiency programs there are likely to be few, if any, relevant community stakeholders. Nevertheless, the practitioner should consider whether there could be any impacts, positive or negative, on community interests from an anticipated program. Impacts and the need for community involvement are likely to arise where larger infrastructure type projects are supported by the program, such as renewable power generation, district heating, waste handling/recycling facilities, etc. Implementing organization and program advisory committee The initial consultation activities should aim to establish the stakeholders’ commitment to the program and their potential roles in its development. Figure10 illustrates the types of typical stakeholders that might be involved in an energy program. FIGURE 10 Example of typical key stakeholders in an energy program Government Taxation Public sector ministries & departments Implementation regulators body Private sector Research & Program Utility development implementing firms institutions organisation Industry Equipement trade manufacturer bodies trade associations 72 1 URGENCY 2 CONCEPT AND DESIGN It is important to consider the different ways in which the implementation and the ongoing operation of the program could be managed. It is likely that a single organization will take responsibility for leading the implementation of the program. Depending on the nature of the program, this organization could be a government ministry, an existing agency, trade body, other NGO, or even a private contractor. A single implementing body provides clarity, but such an approach needs to ensure that the ‘ownership’ and responsibilities of other stakeholders are maintained and, where appropriate, formalized. It is important that clear governance structures and accountabilities are established for the design, implementation, operation, and eventual monitoring and evaluation of the program (see Sub-step 3.4: Establishing a framework for monitoring and evaluation). Whether an advisory group or committee is necessary for the program should be considered: • Will the program connect multiple stakeholders of similar relative importance? An advisory group can help provide a platform for the exchange of ideas, where there is not already a relevant platform in existence. • Are there important stakeholders that cannot be involved directly in the design and management of the program due to conflicts of interest? It may be the case that it would be inappropriate for certain stakeholders to have a role beyond providing advice and views; having them as members of an advisory group may be a suitable way of ensuring their involvement. • Is the program sufficiently important to government authorities? Government authorities may not be sufficiently interested to commit the resources towards supporting an ongoing advisory group. • Is the active support and involvement from the practitioner’s senior management necessary in order to convene the stakeholders? Consider whether the involvement of senior staff may have a bearing on the program, and whether the cost-benefit is worthwhile. • How long is the program expected to last? It may not be cost-effective to organize a leadership group if the program timescale is short. If an advisory group or similar is to be established, some key factors should be considered to optimize the process. Foremost is that all parties should be brought together from the outset of the program, to ensure any conflicts are immediately understood and managed so as to reduce the risk of later problems. Once the stakeholders are together, seek to ensure that the highest- level stakeholders clearly voice their approval of the program. This will enhance the credibility of the program to other stakeholders and help ensure their cooperation. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 73 Case study 4: The China Utility-based Energy Efficiency (CHUEE) Program The CHUEE Program41 Advisory Committee (PAC) provides an example of stakeholder collaboration that succeeded in advancing China’s energy efficiency sector. Stakeholder meetings have been held annually since 2007, providing a platform for all stakeholders to contribute to the ongoing success of the program. The program required the close collaboration of stakeholders including government, banks, donors, market players, as well as the IFC. Three lessons can be learned from the program. 1. Coordinate all parties together from the beginning. The buy-in and participation of multiple supervisory governmental departments was critical to the program’s success. The program team had to secure consistent consent from authorities as varied as the Ministry of Finance (MOF), National Development and Reform Commission (NDRC), China Banking Regulatory Commission (CBRC), State Administration of Foreign Exchange (SAFE) and the Ministry of Environmental Protection (MEP). These authorities did not always have synchronized interests and early engagement made this process possible. The solution was to set up a Program Advisory Committee (PAC), staffed by a representative from each stakeholder organization. This ensured a strategic dialogue platform to assess the program’s development and discuss its future direction. 2. Encourage the highest-level stakeholders to voice clearly their approval of the program. At the first PAC meeting the IFC ensured that the most senior representatives of the bodies represented affirmed their support of and commitment to the program. The team found that this process precipitated cooperation within the government authorities and strengthened the program’s profile when approaching banks. 3. Once the committee has been established, continue the momentum allowing the expansion of the program and its influence. The program team scheduled annual advisory committee meetings in order to share experiences and expand the scope of the program, and review how to further publicize and duplicate the success of the program. Successive meetings led to suggestions that were beneficially adopted by the program, such as raising the loan ceiling and expanding the pool of loss-sharing with the bank. 41 IFC. (2012). Facilitating Strong Stakeholder Engagement: A Key Element to Energy Efficiency Financing Success in China. IFC, World Bank Group. 74 1 URGENCY 2 CONCEPT AND DESIGN Should it be decided that there will be no advisory committee, decide who will coordinate inter- agency communication. It is essential that the practitioner and the client agree who will take responsibility for actions such as negotiating with stakeholders to reach agreement on how best to develop the program, deciding on stakeholder roles within the program and the factors that are expected to affect them in the future. Form a sustainability dialogue platform It is increasingly recognized that the private sector can play an important role in generating viable solutions to the challenges faced by government. One of the most effective ways of delivering a sustainable improvement within the industry sector is to improve the effectiveness of public-private dialogue and advocacy. Promoting inclusive dialogue allows local actors to set their own reform priorities and identify solutions that they support. This should assist in the design of policies and programs that are more credible and acceptable to the private sector. Sustainability dialogue platforms (SDPs) connect public and private stakeholders, providing a structured, participatory and inclusive approach to policymaking. SDPs can address issues at local, national, or international levels, and be organized by industry sector, cluster or value chain. They can also be time-bound (established to solve a particular set of issues) or institutionalized for in-depth transformation and development42. Practitioners can use SDPs to bring together stakeholders for the successful design and implementation of a climate competitive industry program. In the context of resource efficiency policy-making, the inclusion of stakeholders in a sustainability dialogue platform can have the following key benefits: • Policy decisions are more effective as they are based on evidence from stakeholders; • Development of regulations is more responsive to feedback; • Policy has credibility and legitimacy in the eyes of stakeholders; • Industry buy-in results in sustainable reform. Some examples of key ongoing sustainability dialogue platforms and tools are presented in Table 4. 42 Centre for International Private Enterprise. (2015). Public-Private Dialogue: The Key to Good Governance & Development. Retrieved from: http://www.cipe.org/sites/default/files/publication-docs/FS_Jan2015_PPD%20World%20Bank.pdf 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 75 Case study 5: Successful use of Sustainability Dialogue Platforms The Myanmar Centre for Responsible Business (MCRB) The Myanmar Centre for Responsible Business (MCRB) is an initiative to encourage responsible business activities throughout Myanmar. The establishment of the Yangon-based center is being led by the Danish Institute for Human Rights (DIHR) and the Institute for Human Rights and Business (IHRB). Established in July 2013, the center provides a trusted, impartial forum for dialogue, seminars, and briefings to relevant parties, as well as access to international expertise and tools. The long-term goal for the MCRB is to become an independent and self-sustaining entity that will provide a crucial platform for businesses, civil society, academics, and governments to meet, exchange ideas and build capacities regarding responsible investment and responsible business practices in Myanmar. See: http://www.myanmar-responsiblebusiness.org World Business Council on Sustainable Development (WBCSD) The World Business Council for Sustainable Development (WBCSD) is a CEO-led organization of forward-thinking companies that galvanizes the global business community to create a sustainable future for business, society and the environment. Through its members, the Council applies its respected thought leadership and effective advocacy to generate constructive solutions and take shared action to drive business action on sustainability. The WBCSD aims to be the leading voice of business that will support companies in scaling up value-added business solutions and in creating the conditions under which companies that are more sustainable will succeed and be recognized. Members work together across sectors, geographies and value chains to explore, develop and scale up business solutions to address the world’s most pressing sustainability challenges. Through their work to change the rules of the game and drive measurable impact, WBCSD is emerging as a leading and compelling sustainable development business voice with multilateral institutions such as the United Nations, World Bank, UNFCCC, as well as with global platforms like the UN Climate Summit and COP negotiations. See: http://www.wbcsd.org 76 1 URGENCY 2 CONCEPT AND DESIGN TABLE 4 Key examples of sustainable dialogue platforms and tools International National sustainable Sector specific Sustainable sustainable dialogue platforms sustainable reporting tools dialogue platforms dialogue & platform platforms UN Sustainable Business Council The Extractive Global Reporting Development on Sustainable Industries Initiative (GRI) Knowledge Platform Development (BCSD) - Transparency Have national chapter in Initiative the various countries (i.e. Ghana, Croatia, India, Uruguay, Vietnam etc.) Rio+20 United UNGC National Chapters International UNGC Principles Nations Conference Council on on Sustainable Mining and Development Metals United Nations Chamber of Commerce Responsible OECD Guidelines Global Compact & Industry-Vietnam Mining for the (UNGC) Development Multinational Initiative Enterprise The Equator Confederation on Indian The Principle Carbon Disclosure Principles Industry (CII)-India for Responsible Project (CDP) Investment Initiative World Business Responsible Business Investor IRIS Council on Charters of Keidanern Network on Sustainable (Japanese Business Climate Risk Development Federation) 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 77 International National sustainable Sector specific Sustainable sustainable dialogue platforms sustainable reporting tools dialogue platforms dialogue & platform platforms World Economic Centre for Responsible Sector Specific ISO 26000 Forum Business (CRB) at the Business Dubai Chamber of Associations Commerce & Industry Myanmar Centre for CASS-CSR 3.0 Responsible Business (MCRB) Liberia Better Business WRI GHG Protocol Forum (LBBF) National Business Initiative for Growth, Development and Democracy (NBI)-South Africa 78 1 URGENCY 2 CONCEPT AND DESIGN Sustainability Reporting and Efficiency Improvement Sustainability reporting (also referred to as social reporting, corporate responsibility reporting, Environmental, Social & Corporate Governance (ESG) reporting and non-financial reporting) has become an established component of communication to stakeholders that complements financial reporting by leading companies. Such reporting has emerged as part of a trend toward increasing transparency and accountability on environmental and social performance. Reports serve to communicate to multiple audiences a company’s corporate citizenship efforts in areas including community involvement, environmental impact, philanthropy and governance. In some cases, firms incorporate voluntary sustainability reporting in their mandatory financial reports. In addition to the value of issuing social reports, companies can derive internal and external benefits from the reporting process. It can help to inform strategy and culture, establish accountability, provide transparency, stimulate dialogue with stakeholders, and engage employees across the organization in advancing corporate social responsibility. Sustainability reports are written with various stakeholders in mind, including investors, employees, senior managers, customers, community organizations, as well as award ranking and recognition entities. Producing a social report is increasingly standard practice43. 43 Boston College Centre for Corporate Citizenship (2014). Sustainability Reporting. Retrieved from http://ccc.bc.edu/ sustainability-reporting.html 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 79 Develop a communication plan strategy An effective engagement strategy will be critical to ensuring stakeholder buy-in as well as making the most of stakeholder time and input. The first step in the engagement of multiple stakeholders might be the development of a communication and outreach strategy. The key steps in creating a strong communication strategy are outlined in Figure 11. FIGURE 11 Steps involved in creating a communication plan 1. Establish goals for a 2. Identify & define communication plan audience 4. Create an outreach 3. Identify key plan messages 5. Develop materials 6. Specify a timeline 7. Communicate results 80 1 URGENCY 2 CONCEPT AND DESIGN Establishing the goals of the communication plan is the first and most important step. An outreach program will have a better chance of success if the objectives are: • clear and specific; • time-bound; • measurable. The goals of the communication plan will determine the audience. Before deciding what to communicate, it is important to step back and listen to the target audience’s interests and concerns. Conversations with members of the intended audience (e.g. a sector association representative), over the telephone or in person, will allow a practitioner to gain a more in-depth understanding of their feelings and beliefs. Choosing the appropriate spokesperson for a communications campaign should depend on the message to be conveyed as well as the audience. A practitioner should avoid selecting a messenger before they know the audience and message to be communicated. Information is typically more credible when it comes from people directly affected by an issue, for example, an enterprise may be more receptive to advice from an industry body, than if it were delivered by a public official. The credibility of the messenger is just as important as the message itself. Presentation of the message is another important consideration. Summary fact sheets, detailing the aim of the program and the potential benefits, are a useful way to communicate key information. These must be honed to the information that will have the greatest impact on stakeholders. A practitioner should ensure the information they are providing is accurate and is provided in context, to avoid issues of trust later on. Developing a fact sheet for the program can also be a useful reference point, ensuring all stakeholders stay on message when talking with one another or with media and other interested parties. The message should be delivered in a format that provides the basic template for all future communications. The style should be concise, clear and compelling, and the content should: • give the target audience a reason to care about the issue by appealing to their values and immediate concerns; • describe the issue, its root causes, and why it is relevant to the given stakeholders; • provide a solution that will allow them to respond to the issue. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 81 Depending on the scale of the program and the degree of outreach required, a practitioner may wish to measure the results and analyze the effectiveness of their communication strategy using indicators such as: • participant feedback from meetings, programs, and events; • survey of target audiences; • content of media coverage. The next step in engagement may be a meeting, workshop or even an audit or site visit. Again, organizing preliminary telephone calls with stakeholders, either in the form of formal interviews or informal discussions, can be a useful method of gathering preliminary details to set a relevant agenda for future face-to-face meetings. Consultation workshops are a transparent and effective way of incorporating stakeholder ideas and viewpoints into the program design process. If the practitioner and the client decide that workshops would play a useful role in the engagement process, there are certain things that should be decided as early as possible: • How many workshops will be needed? The number and duration of workshops will be dictated by various factors, not least the program budget, and therefore a practitioner may not know this at the outset. However, it can be useful to look at similar programs to gauge what might be expected; • Who will attend the meeting? Work with the client to decide which of the stakeholders identified would be required at which meeting. Will each stakeholder be required for each meeting? Do any stakeholders need financial assistance to attend? • When should they take place? This is not just a question of when is suitable for the program timetable. Think about factors that might prevent stakeholders from attending, e.g. whether there are busy periods within the industry or cultural events that would limit attendance? Also, identify those key stakeholders without whom the consultation should be postponed. • Where should they take place? The location of the workshop may prohibit attendance by some stakeholders due to the cost of travel. Is there budget to support travel and accommodation for attendees? Think also about the cost and appropriateness of possible venues. Which, if any, venues have been used in the past and how was the experience? 82 1 URGENCY 2 CONCEPT AND DESIGN • Who will organize the meeting? There may be multiple actors involved in program leadership. Is there a consultant managing the program, or is it more appropriate for the client or the practitioner’s program team to set the agenda and lead the meeting? Who is covering the cost of the meeting? • What is the aim of the workshop? Usually the aim will be to bring to the surface any potential challenges to take into account while designing the program (e.g. absence of testing facilities for standards and labelling, cost of implementation, lack of access to or understanding of the required technology, lack of affordability for end customers, lack of necessary institutional capacity or support etc.). However, the workshop can also be used to increase awareness of the opportunities presented by resource efficiency amongst stakeholders. Think about exercises that could help this goal; for example, asking stakeholders to list the long-term benefits or export opportunities presented by efficiency measures. • How will it be structured? The program team should begin by presenting their initial thinking with respect to implementation options; however, the meeting should afford stakeholders the opportunity to comment. The structure must be setup to allow discussion, e.g. a roundtable format with question and answer sessions and with a detailed agenda provided in advance. Consider how stakeholder views will be captured and documented; e.g., will there be someone to record the meeting? Factor in time to probe the rationale behind any issues identified, as and when they come up, as well as to examine potential remedial actions. Summarizing the discussion at the end will give the stakeholders assurance that their perspectives are being taken into account. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 83 8. Step Two: Conducting a diagnostic study The potential for efficiency savings, and therefore financial savings, is the primary criterion for assessing whether an investment in clean technology is worthwhile. However, in order to understand what savings are possible, a practitioner will need to assess existing market conditions, the maturity of the target industries, underlying institutional structures and capabilities, and the regulatory framework within the country. These factors will all have a bearing on the success of the program. In some circumstances, the case for an investment may already have been made, and the advantages may be well understood. However, often it will be beneficial to conduct an in-depth diagnostic study at the initial stages of program scoping, for example, where there is a lack of information or raw data, where SMEs are involved, or where there is a need for a comprehensive large-scale program. An in-depth diagnostic will allow the practitioner to target the opportunities that show the greatest impact from a range of potential options, and will help in understanding the subsequent performance of any action taken. This section provides information on what to take into account when conducting an in-depth diagnostic study at the initial stages of program scoping. Based on the findings of the diagnostic study, the practitioner should produce a development plan for the program. This should include a detailed and pragmatic work plan that identifies the activities to be undertaken in terms of type, duration, dates, targets, resource requirements, and timeframe. 84 1 URGENCY 2 CONCEPT AND DESIGN Sub-steps Sub-step 2.1: Assessing the market Sub-step 2.2: Assessing the regulatory and institutional context Sub-step 2.3: Assessing existing resource use and efficiency opportunities Sub-step 2.1: Assessing the market Market analysis is the first step to providing a high-level diagnostic of the impact of more efficient technologies in a given market. Carrying out a market analysis will provide the practitioner with an understanding of the existing market structure, and will allow them to select a target market based on the potential for impact. A market analysis involves the identification of market and stock data, market trends, consumer prices, available technologies (including data on energy performance) and investment cost data. The approach taken to the resulting program will be dictated by market selection, and therefore it is critical that a robust market analysis precedes program design. For example, different types of technical expertise and institutional connections will be relevant to different programs. The first step is to establish whether there is detailed knowledge of efficiency potential within the target sector, for example is information available through recent audit programs? Where information is missing for specific equipment, or within particular industries, resource efficiency audits can be undertaken directly to support the project (see Sub-step 2.3: Assessing existing resource use and efficiency opportunities). 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 85 The most thorough approach to selecting a target market would be to conduct a macro- level review of the overall market, to identify the areas with the greatest potential for cost- effective resource efficiency. This would include a detailed assessment of the national context, including the current state of resource consumption, the drivers of consumption, as well as any future trends and their impact on the economy and environment. It should also focus on the industrial context, outlining the economic importance of the sector, its constituents (e.g. metals, textiles, chemicals etc.), and their relative share in consumption. This analysis should elucidate the distribution of manufacturing within the country, the orientation of the market towards technologically efficient equipment and the potential scale for increased exportation of products. FIGURE 12 An example structure for the analysis of high-level market conditions National • What are the consumption trends? context • What are the drivers of consumption growth? • How will consumption trends affect demand and supply? • What impact will a change in demand and supply have on the economy? • What impact will consumption trends have on the environment? Industrial • How important is industry to the country? context • What is the industry make up (i.e. sectors/size of enterprises/ location)? • What are the consumption trends (broken down by sector)? • What are the drivers of consumption growth? • What are the opportunities for improving industrial efficiency? (i.e. cost vs. savings and potential uptake from the global experience) 86 1 URGENCY 2 CONCEPT AND DESIGN © iv-serg However, a complete systematic review may not be practical given time and cost constraints. If the practitioner or key stakeholders already have in mind potential projects that are likely to be a success, then a targeted review of the market for technologies with the greatest potential, combined with a review of the regulatory environment and the institutional options available for delivery, will often be the most sensible course to pursue. In order to assess the opportunities for specific technologies in the context of the market, the practitioner will need to investigate their potential for efficiency savings at a high-level. This analysis should be comprised of a detailed assessment of the size of the market for the selected equipment, including its types and variants, and the projected growth of the market in future years. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 87 FIGURE 13 An example structure for analyzing the market for clean technologies Technology • What is the technology? • What is it used for in different industries? • What does it consume (e.g. fuel/raw material)? • What does it produce (e.g. waste)? Types / • What types, or variations of this technology are available? variants • How do the types differ (e.g. efficiency levels/fuel/size)? • How is the efficiency of the technology measured? Market • How many of each type are sold annually? • Do specific industries buy specific types of technology? • What is the future outlook of the market (e.g. growth trends)? • Is this technology manufactured locally or imported? Potential • What is the savings potential given high-level knowledge of market and efficiency? • What are the opportunities for opening up new domestic export markets? 88 1 URGENCY 2 CONCEPT AND DESIGN Typically, market analysis can rely on secondary research techniques, for example the collection of data from manufacturers, government statistics and previous studies. Useful information can be found in UNIDO’s statistical databases44. Where representative secondary data are not available, primary research such as industry-specific walk through audits and interviews with stakeholders (e.g. traders and end-users) can be carried out. Whichever method is adopted, any study should be conducted in cooperation with the client and industry stakeholders. Case study 6: Two different approaches to implementing energy efficiency credit lines, dictated by market selection45 Project size and technical sophistication will often be key differentiating factors. For example, where the program focuses on small projects, with replication of similar technologies, then a practitioner may want to implement template-type appraisal approaches that have narrowly focused technical assessments coupled with simple systems for rating financial risk. In India, the banks run SME energy efficiency lending programs that define specific types of technical solutions for specific industries in specific geographic locations, and then seek to replicate a large number of identical small projects. Large projects typically require detailed feasibility studies, customized technical design work, and greater technical sophistication. An even higher degree of technical expertise is required where the project requires customized system-optimization approaches and in- depth knowledge of specific process technology. The Romanian Energy Efficiency Fund, for example, has relied primarily on investment project proposals, typically developed as customized projects to meet the needs of specific industrial enterprises, through individual technical studies and enterprise audits. 44 UNIDO. (no date). Statistical databases: http://www.unido.org/en/resources/statistics/statistical-databases.html 45 Taylor, R. et al. (2008). Financing Energy Efficiency: Lessons from Brazil, China, India, and Beyond. World Bank Group. Retrieved from: http://siteresources.worldbank.org/INTEAPASTAE/Resources/FinancingEnergyEfficiency.pdf 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 89 Sub-step 2.2: Assessing the regulatory and institutional context Regulatory and institutional analysis comprises a survey and mapping exercise to identify the authorities, policies, targets and measures that are relevant to resource efficiency, climate change mitigation and industrial development. The information captured in this process will provide the practitioner with an understanding of the existing institutional and regulatory framework, and the challenges that may affect investments within a country. Understanding the underlying conditions will make it possible for the practitioner to build on what is already there, by designing programs that will be reinforced by the existing regulatory infrastructure. On the other hand, it will also reveal any institutional or regulatory gaps that might be addressed by an investment program. Together with a market assessment (see Sub-step 2.1: Assessing the market), it will provide the practitioner with a further tool to prioritize the support of one program over another. An institutional analysis should aim to assess the country’s financial, human and institutional capacity to: • implement new regulations; • provide technical guidance to relevant stakeholders (e.g. manufacturers, importers and retailers); • monitor and verify implementation; • enforce and respond to non-compliance offences; • evaluate the performance of the measure; • update regulations and measures as appropriate. The assessment should document the current context and provide a list of recommendations for areas of improvement, as well as capacity-building measures to cover the institutional capacity gaps identified. Consider who should lead the assessment and which stakeholders should be involved. A thorough analysis of the current regulatory and institutional capacity within a country can be conducted by following the checklist tool below. The analysis can be conducted through a review of secondary data; however, this may need to be supplemented with information gathered through stakeholder interviews. If there is no legislation / regulation in effect, the practitioner should determine whether there is any draft legislation in development and what barriers it might be facing. 90 1 URGENCY 2 CONCEPT AND DESIGN Checklist tool for assessing the existing regulatory and institutional environment 1. Institutional integration A strong dialogue across relevant government bodies helps to support the development of efficient industry. Policies relevant to the greening of industries cut across the domains of multiple agencies. Integration of environmental, social and economic objectives and actions should take place both “vertically” (between the international, national, and local tiers of government); and “horizontally” within government between ministries and departments. Do relevant authorities coordinate horizontally? i.e. through: FF Overarching strategies and policy frameworks FF Coordination mechanisms (e.g. inter-agency working groups, joint-research programs etc.) FF High-level inter-agency integration (e.g. within president’s or prime minister’s offices) FF Developing in-house capacity (e.g. an environmental unit within an economic ministry) Do relevant authorities coordinate vertically? i.e. through: FF Capacity building of local government (e.g. through oversight, implementation support, policy guidance & staff training) FF Appropriate funding and reporting mechanisms FF Clear allocation of responsibilities between levels of government to avoid friction, overlaps, redundancies, or lengthy procedures FF Information sharing to promote understanding of interlinked responsibilities and to facilitate coordinated decision-making 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 91 2. Influencing demand How is government influencing demand for efficient technologies? FF Communication and promotion FF Facilitating market access FF Influencing framework conditions (e.g. competition policy) FF Regulations that affect product standards and production processes FF Green procurement 3. Subsidies What is the state of subsidization and is there a movement to reform the system? FF Liberalizing energy prices and removing cross-subsidies FF Transitional support 4. Financing efficiency *An analysis of donor activity should be included. This will also help identify implementation partners. What financing instruments exist to promote resource efficient practices and technologies? FF Favorable loans and/or grants (e.g. soft or revolving loans). FF Government programs or through donor agencies (e.g. local development banks). FF Financial institutions or independent funds. FF Targeted “green” funds. FF Insurance markets. FF Loans for conventional large-scale projects (e.g. windfarm developments). FF Micro-credit loans supporting small-scale initiatives. FF Indirect: subsidies and tax breaks. FF Direct: equity support measures such as venture capital funds, direct government grants, green funds to guarantee bank loans, and investment guarantee funds. 92 1 URGENCY 2 CONCEPT AND DESIGN 5. National strategies and legal frameworks Integrating green industry policies into national strategies and legal frameworks ensures policies receive a high profile and benefit from national processes and allocated funding. Some countries promote their resource efficiency strategies through integrated legal frameworks, which determine political and administrative authorities, as well as regulatory and enforcement instruments. Is efficient industry integrated into any of the following high-level government strategies? FF National sustainable development strategies. FF Poverty reduction strategies. FF National development plans. FF National innovation strategies. Are there any strategies that address industrial efficiency specifically? FF National sustainable consumption and production strategies. FF Cleaner production strategies Is industrial efficiency integrated into any overarching legal frameworks? FF Integrated legal framework, e.g. China’s Circular Economy Promotion Law. FF Defined political and administrative authorities. FF Defined regulatory and enforcement instruments. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 93 6. Effective policy development A good policy process is vital to effective policy development. Listed below are some measures that can lead to successful policy formulation and implementation. FF Do policies provide relevant agencies with clearly defined mandates, responsibilities and time frames? FF Are policies backed by adequate resources (e.g. finance / personnel)? FF Are policy objectives clearly defined with measurable targets so that progress can be quantified? FF Are policies phased in gradually, providing time for affected industries to adjust? FF Is stakeholder consultation taking place? E.g. through consultative bodies or taskforces, including the community, NGOs, industry, trade unions. FF Are agencies developing policies independent of political lobbying or external pressures? FF Is there systematic use of environmental policy evaluations in the policy design cycle? FF Are policies enforceable? FF Is there a low compliance cost? 7. Raising awareness and capacity building Governments can support industry sectors and businesses by promoting practices that facilitate them to trade based on sustainable business practices. Businesses need to be able to see the value in adopting sustainable practices. For example, understanding how consumer preferences are evolving in relation to sustainability issues in specific market segments and the resulting market opportunities. What tools are being used to raise awareness? FF High-profile demonstration projects. FF Personnel training. FF Provision of funds for small investments. FF Provision of resources to monitor and disseminate results of efficiency investments. FF Cleaner Production Agencies. FF Cleaner production rapid assessments. FF Tools for analyzing options regarding improvements of resource efficiency. FF Support for the acquisition of funding. 94 1 URGENCY 2 CONCEPT AND DESIGN How is government encouraging the development of technical capacity? FF Promoting technology literacy by delivering quality education to as many people as possible. FF Encouraging investment. FF Permitting the creation and expansion of firms using high-tech processes. FF Facilitating access to finance. FF Building institutional capacity to promote the diffusion of technologies where private demand or market forces are inadequate. FF Fostering closer ties between public research institutes, universities and industry. FF Assisting firms to learn how to adapt, adopt, and market new technologies and services. FF Research institutions need to practice outreach, testing, marketing and dissemination activities. FF Openness to external technologies through foreign trade, foreign direct investment and other international networks is critical for technological progress – for both low- and middle-income countries. FF Integrating new technologies into government operations, including the provision of environmental infrastructure etc. How is the government supporting industry sectors to trade based on sustainable business practices? FF Market intelligence about the environmental goods and services sector. FF Promoting areas/opportunities for environmental goods and services. FF Contributing evidence to Regulatory Impact Assessments and consultations. FF Engagement and consultation of the environmental goods and services sector stakeholders, trade associations, regional development agencies, their clusters and devolved administrations. FF Access to international partnerships and networks for disseminating information, and presenting trade and investment opportunities? E.g. the Asia-Pacific Partnership. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 95 8. Encouraging environmental technologies How is government encouraging the development / adoption of environmental technologies? FF Sustained policy of increased openness to foreign trade and Foreign Direct Investment (FDI). FF Increased investments in capacity development. FF Investment in the development of science platforms. FF Foster partnerships with industry and end-users to ensure investments result in relevant and/or commercially viable technologies. FF Technology transfer mechanisms / networks. FF Coherence between environmental and innovation policies. Sub-step 2.3: Assessing existing resource use and efficiency opportunities To understand fully how to improve the efficiency of existing practices, it is important to develop a robust understanding of existing resource use within the industry sectors in question and the opportunities for efficiency improvements. The practitioner should therefore work with end-users to determine current resource and energy use patterns, and identify key common areas of environmental or resource risk. This section explains how to narrow down the focus of a program, once a target market has been identified. The focus here is on audits, however audits are not the only way to identify and define suitable programs. Industry associations should have an understanding of production practices and energy consumption patterns in their respective industrial subsector. Engaging with such associations can alleviate data collection burdens whilst ensuring that industry specific technical knowledge is gathered. Large and medium-size enterprises may have the internal technical capacity to identify potential resource efficiency opportunities themselves, and therefore be able to suggest what measures might best be included in a program. Furthermore, third parties such as equipment suppliers or ESCOs may already be successfully marketing predefined solutions for specific equipment applications (e.g. variable speed motor controls or boiler replacement projects, etc.). It is worth talking to stakeholders to see if these channels might lead to the appropriate scoping of a suitable program. 96 1 URGENCY 2 CONCEPT AND DESIGN Conducting an audit Audits provide a framework for a robust review of the efficiency of a facility. The findings can carry the objectivity of an independent auditor, and will allow the cost-effective identification of potential efficiency savings. This provides confidence that the program selected will be best suited to the end users. Audits can be used to inform the development of a program, put can also be an integral part of a program. They can be offered as mandatory or voluntary programs and be coupled with other measures, such as efficiency goals for companies or financial support for efficiency investments. Audit programs can be offered as part of a public sector or donor program, or can be financed by enterprises themselves. Depending on the scope of the potential program and the skills available, it may be possible for the practitioner, or auditors appointed by the program team, to complete site audits on a sample of installations, selected as representative of the industry overall. The use of equipment varies between industries and industrial plants. Therefore, where possible this exercise should focus on individual or similar groups of facilities. Audits can be carried out in two stages. A preliminary audit done remotely (i.e. by phone or email in conjunction with site staff) can help to establish the key inefficiencies prior to committing staff time to a site visit. Following this, a range of detailed and quantitative audits may be needed to secure sufficient data to be useful for informing the design of a credible program38. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 97 Case study 7: IFC Advisory Services work with the foundry industry in Bangladesh in 2003 IFC Advisory Services in the South Asia Enterprise Development Facility (SEDF) began work with the foundry industry in Bangladesh in 200346. Bangladesh has around 200 commercial foundries that produce an estimated 245,000 metric tonnes per annum of cast iron pipes, wellheads, engine parts, pump components, etc. The local foundry industry suffers heavily from low productivity and high product rejection, in comparison with regional counterparts. The IFC conducted a study, which indicated that the furnaces used had a life expectancy of 20-30 years, whereas some had been in operation for 100 years. Melting pig iron and scrap metal using these older furnaces resulted in inadequate combustion, lower melting rates, higher pollution, and overall higher production costs. The project team leveraged the expertise of the Energy and Resources Institute (TERI) of India as technology provider and implementation partner, and jointly identified two local potential service providers to introduce new furnace technologies. SEDF also collaborated with the Foundry Owners Association of Bogra (FOAB) to find two foundries that would be interested in hosting a divided blast cupola furnace as a pilot. The pilot study found that, in producing 1,600 tons of cast iron, one of the pilot foundries saved more than $76,000 in overhead and raw material costs in three months, giving a break-even point of just six months. Consider the technical evaluation necessary. Who might best undertake the necessary detailed project analysis? Bear in mind that local expertise may be lacking. Consider the program team’s in-house capacity, as well as those local groups that may hold useful knowledge. A cost-analysis may help in deciding the allocation of work. 46 IFC. (2009). Energy-Efficient Technologies are Saving a Vital Industry in Bangladesh. IFC, World Bank Group. Retrieved from http://documents.worldbank.org/curated/en/2009/09/11370116/energy-efficient-technologies-saving-vital-industry-bangladesh 98 1 URGENCY 2 CONCEPT AND DESIGN If a practitioner is required to conduct an audit, or must employ a third party to carry one out, the following details should be considered: • Aim: Is the aim to document the total consumption of a given resource at the facility or only to identify equipment that accounts for significant consumption? • Scope: What should be included within the audit? Will the audit be limited to specific technologies or processes (e.g. motors), or cover the whole facility? • Responsible staff: Staff from the facility should be allocated to provide information, access to buildings and a contact point for the auditor. • Existing data: Identify the availability, format and quality of existing data. Has there been relevant audit work carried out recently? Are relevant data collected under an existing system or scheme? Where are the gaps? • Data collection & audit methodology: Decide on a standard audit methodology, e.g. ISO 50002 or EN 16247. Agree a sampling approach. Consider the grouping of assets for auditing and site visits. Agree reference period. Agree acceptable estimation methodologies and use of assumptions. • Business factors: Identify and examine any impending changes or other factors that may have a bearing on the assessment and its conclusions. For example, are there any plans for facility expansion, upgrade, mothballing, partial or complete closure, or sale. • Expectations: Make it clear what the expectations are for the output of the audit, including any specific details required from the audit report. Are there any existing opinions and restrictions relating to potential efficiency measures? Does the company have particular evaluation criteria for opportunities, e.g. a payback period threshold or minimum Internal Rate of Return? Agree the format and contents of the resulting report. • Timeline: Agree an audit timetable. Agree dates for completion of audit reports. Usually the auditor should evaluate the impact of efficiency opportunities in economic terms, including factors such as: • the investment cost, including loan interest payments if appropriate; • potential financial savings from reduced consumption of energy, water and other resources; • other possible benefits such as gains in productivity or reduced maintenance requirements; • the value of any carbon credits gained; • any tax benefits. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 99 This will allow a comparison of the relative attractiveness of different efficiency measures. In making such comparisons it is important to consider the technical interactions between multiple actions since implementing one measure may reduce the savings achievable from another. TABLE 5 Example summary information from energy efficiency audits Action Identification Applicability Estimated annual Estimated Internal May be Method savings capital Rate of eligible costs ($) Return for (%) financial support $ tCO2 kWh Electric Audit All sectors XX XX XX XX XX Y/N motors Boilers Audit All sectors XX XX XX XX XX Y/N Compressed Audit All sectors XX XX XX XX XX Y/N Air Cost-benefit analysis of potential savings A cost-benefit analysis can be performed to examine the feasibility of an opportunity. It is recommended that methods of analysis based on lifetime discounted cash flow are used, such as Net Present Value (NPV) or Internal Rate of Return (IRR). These provide a more realistic way to measure and compare the cost-effectiveness of investments than more simplistic metrics such as payback period. 100 1 URGENCY 2 CONCEPT AND DESIGN To help ensure that a site audit is undertaken as efficiently as possible, it is usual to request certain information prior to visiting the site. This might include: • Site plans • Process flow schematics • Details of energy and water metering; • Consumption data as recorded; • Use patterns of the facilities (i.e. hours / days of operation); • Lists of equipment at the site, including ratings and specifications, particularly for significant energy consumers; • Building services details including heating, cooling, lighting, ventilation and small power loads; • Environment / energy management plan details; • Building management systems (BMS) details; • Any special access requirements; for example, for rooftop plant; • Important contacts, including the responsibilities of those who control and maintain systems; • Potential efficiency saving areas already identified. Sample audits will help characterize the target industry, and therefore the applicability of particular investment opportunities. Using the checklist below will also provide a practitioner with an understanding of how far a given facility, firm or industry has moved towards investment in efficiency and what stimuli exist for industry-led investments. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 101 Checklist tool for assessing how industry is currently stimulating efficiency Action by facility / firm Government assistance Environmental FF Adoption of environmental FF Financial assistance Management management system FF Access to expertise Systems (EMS) compliant with international FF EMS adoption linked with standards? permit requirements FF Subsidized cost Industry- Are there any industry-based FF Financial assistance based standards? For example, for: standards FF Design FF Manufacturing FF Packaging FF End-of-life stages Eco-labels and FF Is there use of eco-labels and FF Promotion and education at certification certification? the retail level FF Strategies to reduce prohibit unregulated labels that mislead consumers Life cycle FF Is there use of life cycle FF Voluntary and mandatory analysis analysis? measures FF Economic instruments FF Substance bans FF Voluntary agreements FF Environmental labelling FF Product design guidelines 102 1 URGENCY 2 CONCEPT AND DESIGN Action by facility / firm Government assistance Supply chain FF Is there any environmental FF Assistance for SME suppliers? supply chain management? Extended Are there any industry-based FF Regulatory frameworks / Producer voluntary initiatives? E.g. negotiated agreements / Responsibility FF Take-back programs FF Disposal bans and restrictions (EPR) FF Minimum recycled content FF Advance disposal fees standards FF Materials taxes FF Energy efficiency standards FF Deposit/refund FF Environmental labelling FF Mandatory waste recycling targets Corporate FF Is there a CSR program and FF Raising awareness Social reporting? FF Public acknowledgement of Responsibility best practice examples (CSR) Environmental FF Is environmental accounting FF Regulations and guidelines on accounting used? accounting practice. FF Financial incentives FF Raising awareness, e.g. training, funding research, pilot projects, networks. FF Setting an example 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 103 Interviews with relevant facility staff (i.e. senior management, production engineering managers, energy/facility managers etc.) will help to establish the status of the companies’ energy management policies and strategies. As well as the points in the tool above, a practitioner may want to establish responsibilities for specification and procurement of equipment and to what extent adherence to any standards is required. If companies are not implementing any industry- led initiatives, then the key points to establish are: • How important is efficiency in the company’s culture? Is there a dedicated environmental manager or team? What influence and budget do they have, and are they able to present opportunities to company directors? Is there any internal environmental training? Are targets set and progress towards them measured? • Is the company able to monitor consumption? Is the necessary equipment and staff resource in place? • Is there a process for regularly reviewing opportunities? If so, does this involve senior managers? • What measures have been or are being taken? How were they identified? Are the people responsible in-house or external and what relevant qualifications and experience do they have? © Maciej Noskowski 104 1 URGENCY 2 CONCEPT AND DESIGN 9. Step Three: Designing the program Once a practitioner has gained an understanding of the local context, through stakeholder engagement and relevant diagnostic research, they can start to specify a suitable program. This section will provide guidance on how to select an appropriate market and institutional mechanism for intervention, how to evaluate and delegate program risks, and how to put in place a results framework for the monitoring and evaluation of the program. Sub-steps Sub-step 3.1: Selecting a program Sub-step 3.2: Selecting an institutional delivery mechanism Sub-step 3.3: Assessing program risks and task allocation Sub-step 3.4: Establishing a framework for monitoring and evaluation 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 105 Sub-step 3.1: Selecting a program The results of the initial conversations with the client and stakeholders, as well as any diagnostic studies that have been carried out, should have resulted in a shortlist of technologies or processes that could be considered feasible investments under the given market, regulatory and institutional conditions. At this stage, it should be possible to select a specific program to take forward. An evaluation matrix can be used to prioritize programs or projects with a higher chance of success (see Table 6 for an illustration). The appropriate in-country stakeholders (including technical experts) should be invited to appraise the proposed subject(s) of the program according to the evaluation criteria selected. Based on the information captured against each parameter, the potential opportunity can be rated in order of prioritization, e.g. high, medium or low priority. TABLE 6 Illustrative matrix for evaluation of clean technologies47 Theme Parameters Technology / Process Option 1 Option 2 Option 3 Market Share of consumption at sector/facility level High Medium Low Potential unit saving High Medium Low Potential scale of application High Medium Low Regulatory Government support for project Medium High Medium and institutional Firms ability to implement project High Medium Low Complexity of implementation Medium Medium Medium Industry Need for external investment Medium High Low maturity 47 World Bank (2015). Egypt Energy Efficiency Industrial Equipment Standards and Labelling & Implementation Plan – Diagnostic Assignment. World Bank Report Number 84396-GLB. 106 1 URGENCY 2 CONCEPT AND DESIGN Sub-step 3.2: Selecting an institutional delivery mechanism The successful delivery of a resource efficiency program requires an institutional mechanism that combines technical, financial and management skills of the stakeholders on the ground. However, typically, local financiers will lack technical evaluation skills, whilst technical and project contractors will lack financial expertise. This requires the development of a strong link up between stakeholders and the building of capacity within individual players. Governments and industry leaders are critical in stimulating the development of relevant groupings. Case study 8: Access to technical capacity for energy efficiency in Brazil In Brazil, technical capacity and project development experience in energy efficiency were promoted through the national electricity conservation program (PROCEL), established in 198538. PROCEL, managed by Eletrobras, the federal holding company in the electricity sector, operates by funding or co-funding energy efficiency projects such as research and development, education and training, testing, labelling, standards, demonstration, and others. PROCEL cooperates with state and local utilities, state agencies, private companies, universities, and research institutes. Donor support has played an important role in training of energy efficiency technical expertise. In the case of ESCOs, this support was largely channeled through ABESCO, the Brazil association of energy service companies. Although there is strong technical assessment capacity in Brazil, technical experts are often insufficiently linked to the practical needs of end users and financial institutions. Challenges remain to build the investment project development and risk assessment skills needed to expand commercial energy efficiency investment. Local banks and ESCOs play an important role in creating a market for resource efficiency by providing access to finance. However, in order for a resource efficiency investment to proceed, both the end user and the financier must have confidence in the technical as well as the financial assessment. Banks need to understand the characteristics and risks involved with efficiency investments in order to evaluate project proposals and assign appropriate terms and conditions for loans and/ or co-financing. End users will want to be assured that their financial and operational risks from the investment is minimized. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 107 An institutional delivery mechanism is required that meets these needs. For example, banks may need training in understanding the cash flow of efficiency investments and the basic characteristics of relevant equipment (e.g. energy savings value, equipment design life, etc.), or they may need access to capable and credible technical assistance (e.g. ESCOs, consultants, etc.). There are a variety of institutional mechanisms that can be adopted for technical assessment, financial assessment and project development. Figure 14 illustrates the factors that will determine the institutional mechanism to select within a given situation. FIGURE 14 Factors affecting the selection of an institutional mechanisms Technical • What is the level of engineering expertise? evaluation • What is the level of audit awareness and experience? capacity • How many qualified auditors are operating (certified and licensed)? • What training facilities are available? (e.g. universities, research institutes etc.) Access to • How accessible is credible technical capacity to relevant institutions technical (including financiers, enterprises etc.)? capacity • Is access dependent on relationships between contractors and contractees? Project • What is the level of resource efficiency project development development experience? capacity • What is the level of understanding of the financial issues related to project formulation and design? Evolution of • Is energy performance contracting provided for in the legal system? policy & law • What does the system for certifying auditors/ESCOs involve? 108 1 URGENCY 2 CONCEPT AND DESIGN Adequate institutional capacity for project development, as well as technical and financial appraisal may be lacking in emerging economies. In these cases, the use of foreign consultants can be helpful, if it is targeted and simultaneously develops local capacity. However, foreign consultants are typically more expensive and may not be able to spend as much time in-country. Unless carefully chosen, they may also lack local knowledge and have difficulty adapting to the local working culture. The adoption of a simpler program design can reduce consultant costs. Where that is not an option, the use of a mix of regional and international expertise may reduce cost. For example, the relevant skills may be found in regional development hubs such as Thailand, Japan, and India in Asia, or Brazil, Argentina, and Mexico in Latin America38. If the program is of sufficient duration, consider the comparative cost of engaging full-time advisors in order to reduce consultant costs, improve knowledge transfer to local staff, and improve the quality and relevance of the outputs. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 109 When designing an appropriate institutional mechanism, the allocation of certain roles may be dictated by the country’s legal system or local ways of doing business. For example, in Jordan it was found that distrust towards energy service companies - that provide energy audits and other related services - was very high and hindered growth in the market for energy efficiency. Figure 15 shows the typical stakeholder profiles on the ground, prior to the initiation of an energy efficiency program. FIGURE 15 Typical stakeholder profile prior to the establishment of a credit line for energy efficiency. SMEs Large energy Financiers intensive companies Identification of Specialized internal No internal capacity for credible outside efficiency management technical assessments expertise is limited units and therefore reliance by cost and access to on contractors. credible contractors. Access to finance and ongoing relationships Unwillingness to provide access to accept independent outside technical technical assessments expertise commissioned by enterprises. 110 1 URGENCY 2 CONCEPT AND DESIGN If local financiers are to be involved in the project, the practitioner, together with stakeholders, will need to decide whether financiers and enterprises will need to outsource services, or develop them in-house. In many emerging economies, contracting may be based on relationships rather than the legalistic approaches typical in developed countries. Therefore, when making this decision consider the following key factors: • the level of trust in the outside service provider; • the state contracting and enforcement institutions; • the transaction costs; • the perception of the value added through building in-house capacity. The usual options available for obtaining outsourced expertise, for project development or assessment are shown in Table 7. TABLE 7 Options for obtaining outsourced expertise for project development and/or assessment38 Stakeholder When are they used? Advantages Disadvantages Equipment The end user has Client-specific Conflict of interest vendors a good idea of the solutions. (selling of vendor’s efficiency intervention products). Reputation of vendor required, particularly based on the quality Technical assessment may where a single type of of solutions. be limited by the vendor’s equipment is concerned perspective of efficiency. (e.g. boilers, lighting Costs related to etc.). technical assessments in collaboration with client staff should be reasonable. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 111 Stakeholder When are they used? Advantages Disadvantages Private This is the most common A fresh and independent Limited understanding energy delivery option available perspective of the facility of the client’s production auditors and to end users to outsource and its operation. process. consultants energy efficiency technical Accredited auditors can Potentially “study oriented” assessments and project provide financiers and i.e. better at writing development. Energy the end user with the reports than at designing auditors offer different necessary trust in the implementable solutions. levels of service such as audit. “walk-through” audits May not be able to meet the or “detailed/ investment assessment requirements of grade” audits. the end user or financier. Project In countries where Specialize in providing Academic in nature and less appraisal specialized project neutral technical anchored in operations. companies appraisal companies are appraisal services for available to undertake investment decisions. technical assessment work. Universities/ In countries where Technical assessment Academic in nature and less research technical assessment services are unbiased. anchored in operations. institutes services are available Typically inexpensive. through universities, research institutions, public agencies, and design institutes. ESCOs In countries where ESCOs Proactive marketing of Risk of the ESCO’s (energy exist and are supported by services to clients and commercial interests efficiency) a legal framework. development of potential receiving higher priority than project pipelines. the client’s. Can benefit from Limited success in the nonfinancial assistance development of “bankable” through public/donor proposals that can access programs designed to financing in emerging build in-country capacity. economies. 112 1 URGENCY 2 CONCEPT AND DESIGN Sub-step 3.3: Assessing program risks and task allocation The initial program development costs are high-risk outlays that are usually unrecoverable if program development is unsuccessful. The use of strategic partners to take on specific tasks can help to reduce these initial costs, thereby reducing the risk involved with the program. In order for a specific resource efficiency investment to proceed, both the end user and the financier must be confident in the technical assessment. Financiers will want to see that all of the key criteria that may affect projected savings have been identified and the associated risks assessed. The end users will want to know that their financial and operational risks are understood and minimized. This may mean that both the financier and end user require their own independent technical reviews. The selection of a technical contractor with a strong reputation may reduce these duplications of assessment, reducing project costs. If the project is not successful, then the risk will be borne by or shared among the client enterprise, the contractor, financier, or project team. When assessing these risks, consider the following38: 1. Technical performance: How might the installed equipment fail, or deliver lower than expected results? What has been done to mitigate these risks? For example, is the equipment guaranteed under a manufacturer or supplier warranty? 2. Project implementation plan: Will installation disrupt production at the recipient’s facilities (e.g. because of delays in the contractor procurement, construction, supply of equipment, testing etc.)? Who should be responsible for each stage of implementation and how will they be held to account for delivery? 3. Capacity factor: The patterns of use of the technology or processes can affect savings. For example, changes in production levels due to market conditions may affect the return on investment; 4. Quality of inputs and operation: The quality of inputs can affect the efficiency of clean technologies. For example, a poor quality fuel supply or lack of skills amongst operational staff may result in a sub-optimal performance. Can this risk be mitigated through training? 5. Price variations: Price variations (e.g. energy prices) can change the attractiveness of a project. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 113 Where there is joint funding of a project, the end user and financier will need to agree the risk allocation. They share a mutual interest that the project will return net positive cash flows in sufficient levels and on time. However, they also have different goals and these should be considered when engaging with each (Figure 16). By understanding these perspectives, it will make it easier to present the right case to each, and rule out end users who would not meet the criteria. FIGURE 16 Interests of financiers versus end users Financier End user What is the client’s Does the project fit with current corporate overall improvement plans? financial standing. Will the project improve What is their product/service quality? basic collateral and repayment Will there be external benefits guarantee in terms of efficiency/health & arrangements? safety/reputation gains? How will it reduce costs and over what timescale? 114 1 URGENCY 2 CONCEPT AND DESIGN Sub-step 3.4: Establishing a framework for monitoring and evaluation A results framework, such as that produced by the World Bank Group48, represents the underlying logic that explains how the objectives of the program are to be achieved. It is intended to serve as a management tool for both the industrial enterprise and the program manager at every stage of the program cycle. Therefore, in order to improve the effectiveness of projects and achieve the desired outcomes, a practitioner should begin considering the results framework from the outset of the program. Development of the results framework is a dynamic and iterative process that begins during program identification, and is only completed at the evaluation stage. Four pieces of information will be required to develop a results framework: 1. a shared understanding of the problem and the desired impact of the program; 2. a series of hypotheses of how the program inputs will lead to the desired outcomes; 3. knowledge of the type of evidence required to assess progress toward results; and 4. an understanding of the existing data sources and instruments available in the country. Although at the concept stage there will be insufficient information to complete the results framework, when discussing the program concept some key definitions will start to give shape to the framework, such as the proposed program development objectives, key performance indicators and possible risks. At the preparation stage the results framework serves as a tool for strategic planning and better program design. It helps the borrower, the lender, and any other development partners set the objectives and necessary arrangements to measure progress toward the achievement of those objectives. The results framework also helps build consensus and ownership around shared objectives and the arrangements to be used in achieving these objectives. 48 World Bank. (2013). Results Framework and M&E Guidance Note. Retrieved from http://siteresources.worldbank.org/PROJECTS/ Resources/40940-1365611011935/Guidance_Note_Results_and_M&E.pdf 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 115 Assess baseline resource use In addition to reducing resource consumption, and therefore reducing cost to business, CCI projects share the common goal of reducing greenhouse gas emissions from industry. This section provides details on how to conduct a baseline assessment and to calculate the potential efficiency savings associated with the program, and how to place those savings in the context of greenhouse gas emissions. This has added importance for industry as following the Paris Climate Agreement, emission reduction is becoming a key element in global industrial policy, and it will be of increasing interest to business to quantify their emissions reductions. Establishing a good understanding of resource use, based on accurate production and consumption data, provides the basis for the monitoring and evaluation of the program. This section provides details on how to conduct a baseline assessment to determine the efficiency of a business’ current operations. Depending on the program, the baseline data requirements that should be considered include: • energy used by energy source/fuel type; • water used by water source; • waste generated by the waste type; • raw material used by type. The measurement of baseline consumption is a critical aspect of any efficiency program, it is central to calculating the potential savings at the outset, and later in the evaluation of the success of the project. This section outlines a method that can be used to calculate the savings from an industrial efficiency program. The method focusses on energy use, but can be used to assess the use of any resource. A baseline measurement should be gathered before a project begins to form a comparison with measurements taken during and at the end of the program. This will allow monitoring and assessment of the efficacy of the activities undertaken. Baseline information should be established for a 24-month period where this is available, as this will serve to highlight any seasonal trends, but as a minimum baseline data should consist of at least a 12-month data set. 116 1 URGENCY 2 CONCEPT AND DESIGN In the case of energy, each piece of energy consuming equipment has a baseline level of energy use; their combined energy use forms the overall baseline for a specific project. The baseline can therefore be defined as the energy consumption that would have occurred if no energy conservation measures had been implemented. For example, if 2016 is taken as a baseline year, and a chemical factory uses 1,000 MWh from 1 January 2016 until 31 December 2016, then its baseline energy is 1,000 MWh. In 2020, if the same chemical factory uses 800 MWh from 1 January 2020 until 31 December 2020, then its reduction in energy use is 200 MWh Baseline Current Reduction in energy use energy use energy use (e.g. 1,000 MWh) (e.g. 800 MWh) (e.g. 200 MWh) However, baseline calculations for industry are often more useful if they include a ratio indicator. For example, if a chemical factory uses 1,000,000 kWh to produce 1,000 tonnes of a Product A from 1 January 2016 until 31 December 2016, then its baseline energy is 1,000,000 kWh per 1,000 tonnes. In other words, it needs 1,000 kWh to produce one ton of Product A; this factor is known as the ‘specific energy consumption’ and in this case would be expressed in terms of kWh per ton. Using a measure of activity, such as output production, can help to account for changes that are due to external factors (e.g. a change in production quantity due to economic factors). It is important to appreciate that the relationship between specific energy consumption and the activity measure will not be linear since there are fixed components of energy use that will not be affected by the level of activity. In fact, the under-use of production capacity will be less energy efficient than production at full plant capacity, irrespective of energy efficiency measures that might be introduced. In evaluating a program, it is important that apparent energy efficiency gains, or losses, due to varying production are not attributed to the program’s interventions. 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 117 For calculating emissions, energy consumption can be divided into two categories, primary and delivered. Delivered energy is the amount of energy consumed at the point of sale (e.g. that enters the facility) without adjustment for any energy loss in the generation, transmission, and distribution of that energy. As such, it is the sum of fossil and renewable fuels (e.g., biomass or fuel wood) and purchased electricity. Primary energy consumption comprises the delivered energy as well as the energy that is produced by the utility company, but lost during generation, transmission, and distribution. It is important to consider which type of energy use is appropriate for the program. If the goal is to capture the absolute emissions from industrial production, then primary energy should be used. Whereas if the goal is to concentrate on only the emissions that are under an industry’s direct control, then delivered energy might be more appropriate. Assess baseline greenhouse gas emissions In order to assess the baseline greenhouse gas emissions associated with industrial production it is first important to decide which type of emissions will be the best indicator of the success of the program. GHG emissions can be split into four broad categories: • Upstream emissions are emissions which occur upstream in the supply chain, and over which the business has no direct control (e.g. raw material extraction or upstream manufacturing of parts). These are, in most cases, excluded from GHG emissions reduction calculations unless required for a particular standard. Where upstream emission sources need to be included, if they are not available for measurement, they can be estimated based on external research and/or standard industry practices. • Operational emissions are emission sources associated with the target facility’s (or industry sector’s) onsite processes and activities. These GHG emissions should be calculated as part of monitoring and evaluation and included where significant. The following emissions sources should be considered: mobile fuel combustion; stationary fuel combustion used for back-up power or other purposes; electricity, heat, and steam purchased from third parties; onsite non- energy related processes; other emission sources. • Downstream emissions are emissions which occur downstream in the supply chain, and over which the business has no direct control (e.g. the transportation, end-use and disposal of manufactured goods). These are usually excluded from GHG emission calculations. Where downstream emission sources need to be included, if they are not available for measurement, they can be estimated based on external research and/or standard industry practices. 118 1 URGENCY 2 CONCEPT AND DESIGN • Leakage is a change in GHG emissions beyond the program boundary and can result from displacing a source of GHG emissions off-site or causing an unrelated increase in GHG emissions at a third party operation. For the most part, leakage is negligible unless otherwise described in specific project methodologies. Two methods can be used to assess the impact that the program has had on emissions. The first method includes all types of emissions, and avoids the potential for emission ‘leakage’, i.e. emissions being transferred out of the scope of measurement, but not actually reducing. Baseline Baseline Baseline Baseline Baseline upstream operational downstream leakage emissions emissions emissions emissions The second, simplified method, would only concentrate on a business’s operational emissions, i.e. the emissions that are under a business’s direct control. In the case of energy, this would involve applying a greenhouse gas factor to measured use of each fuel or energy source. For example, if 2016 is taken as a baseline year, and a chemical factory uses 1,000,000 kWh of Fuel 1 from 1 January 2016 until 31 December 2016, then its baseline energy is 1,000,000 kWh multiplied by the carbon factor for Fuel 1. Baseline Baseline operational emissions emissions 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 119 The greenhouse gas emissions reduction can be calculated in the same way as the reduction in resource use, by subtracting the emissions during (or at the end) of the project from the baseline emissions. Baseline Current Emissions emissions emissions reduction (e.g. 1,000 tCO2e) (e.g. 500 tCO2e) (500 tCO2e) 120 1 URGENCY 2 CONCEPT AND DESIGN 3 DEVELOPING THE PROGRAM 4 IMPLEMENTATION 121 3 IMPLEMENTATION 122 1 URGENCY 2 CONCEPT AND DESIGN 10 Introduction 11 Step One: Building stakeholder capacity 12 Step Two: Securing industry commitment 13 Step Three: Controlling and monitoring implementation „ Monitoring and evaluation „ Measurement and verification 14 Step Four: Communicating the impact 3 IMPLEMENTATION 4 STANDARDS 123 What the reader will get from this module: Module 3 provides guidance on how to implement a resource efficiency program within industry. It provides information on how to raise awareness and work with the core stakeholders throughout the process. 124 1 URGENCY 2 CONCEPT AND DESIGN 10. Introduction This module will assist the practitioner in meeting the specific needs of industry when implementing an efficiency program or project, by providing step-by-step guidance on what needs to be done at each stage of implementation. It is written primarily for the benefit of practitioners, but will also be useful to industrial enterprises and trade bodies interested in project implementation. This module is structured into four practical steps: Step One: Step Two: Step Three: Step Four: Building Securing the Controlling and Communicating stakeholder commitment monitoring the impact. capacity of relevant implementation. to lay the individuals groundwork for within industry. implementation. 3 IMPLEMENTATION 4 STANDARDS 125 11. Step One: Building stakeholder capacity The successful implementation of measures to increase resource efficiency across any particular industry is dependent on the involvement of various stakeholders operating at different levels, ranging from policymakers to factory owners. The efficacy of implementation is largely dependent on the capacity of each stakeholder group to enact resource efficiency measures, and by the overall effort and ability to coordinate and collaborate among groups. This section highlights the need, while indicating some of the key components necessary, for effective capacity building. Information on how to identify and classify the relevant stakeholders is provided in Sub-step 1.3: Planning stakeholder engagement. Engagement with all the relevant stakeholders will help to form effective and equitable partnerships and create a sense of mutual responsibility. This dialogue will also help to improve transparency and accountability. The key aspects of capacity building programs include: • Capacity building and training materials should be developed and disseminated to public and private banks, ESCOs, industry associations and end-users. In addition to basic energy efficiency financing information, training materials should build knowledge of technical, managerial and monitoring aspects. This information should include: industry basic training material and booklets, commercial banks basic training materials (to be tailored for each), utilities basic training materials and booklets, ESCO/technician basic training materials to support investment grade audits and other best practices; • Standard contract templates can be prepared using existing and successful contract formats to engage future service providers and regulatory bodies. They can subsequently be tailored to suit the industry’s financial and legal requirements. These may include loan and energy savings agreements, which can also be used as templates for facilitating future transactions. Standard contracts should be distributed and made available to stakeholders along with the other materials in this list; 126 1 URGENCY 2 CONCEPT AND DESIGN • Monitoring and evaluation protocols for project data should be developed and shared with industries, ESCOs, utilities, technicians and banks. This will help to track the success of the program, and to make standardized economic and quantitative resource savings data available to other stakeholders. Protocols should cover requirements and methods for gathering, analyzing and reporting data, as well as the dissemination of data to SMEs, ESCOs and banks; • Communication and dissemination of the capacity building materials should be designed to address all key stakeholders. Materials should be made available through existing online portals of service providers, industries and other stakeholders, and through any other relevant source; • Capacity building events for ESCOs, technicians and industry should be organized on a regular basis, to provide targeted training on conducting audits, developing baselines, program design, financing, implementation, repair and maintenance, and monitoring. This training should take place in partnership with utilities, vendors, technology providers and financing institutions. Stakeholders should receive capacity building materials and basic training courses on efficiency benefits and opportunities. Training materials for technical components should also be developed with the help of vendors, technology providers and ESCOs, to maximize their potential for wide dissemination to different stakeholders. • Standard documents to be developed should include, but not be limited to: a. guidelines on technology procurement; b. guidelines on collaboration with private sector and other partners; c. guidelines on environmental, social and occupational health and safety issues; d. guidelines on stakeholder engagement strategies; e. guidelines on project management; f. quality control matrices; g. guidelines on large-scale project development strategy; h. a list of key policy considerations; i. advice on subscription to leading e-resources; j. guidelines on mapping of external and internal risks, and risk awareness and management guidelines. 3 IMPLEMENTATION 4 STANDARDS 127 Case study 9: Capacity building - Malaysian Industrial Energy Efficiency Improvement Project (MIEEIP) To address barriers to energy efficiency in the country’s industrial sector, the Government of Malaysia initiated the Malaysian Industrial Energy Efficiency Improvement Project (MIEEIP) in 1999 to improve the rational use of energy in the industrial sector. Support and funding was provided by the Global Environment Facility (GEF), the United Nations Development Programme (UNDP) as well as the Government of Malaysia and the private sector. UNDP is the project implementing agency on behalf of the GEF. The Ministry of Energy, Water and Communications (MEWC) was appointed as the project’s executing agency, whereas Pusat Tenaga Malaysia (PTM) is the designated implementing agency. The project incorporates measures for capacity strengthening and a demonstration incentive scheme. MIEEIP initially focused on eight energy-intensive industries (wood, rubber, food, ceramics, glass, pulp & paper, iron & steel and cement). During project implementation, three other sub-sectors were later added (plastics, textile and oleo-chemical). It is expected that at the end of the project, Malaysia will have a foundation for continued efforts to capture the energy efficiency potential within the industry sector. 128 1 URGENCY 2 CONCEPT AND DESIGN 12. Step Two: Securing industry commitment For a business to embrace a resource efficiency project there must be buy-in from all levels of the organization. The practitioner should therefore work with the end-user(s) to develop an understanding of their current commitment to resource efficiency. The aim of this exercise is to use the dialogue to explain the benefits of resource efficiency and to find solutions to the specific barriers faced by the business. This process will build trust and help secure the buy-in necessary for successful implementation. Once buy-in from a business’s senior management is secured, the next step will be to help the management team to instill a resource efficiency mindset throughout the business. This process will usually involve the creation of company policy and operational documentation, and the development of appropriate two-way communications programs to inform and engage with the wider workforce. At this stage, the practitioner should help the management team to consider the necessary skills, authority, time and interest that key individuals can bring to the process. Businesses should be encouraged to establish a resource management team, dedicated to developing and implementing a resource efficiency program. There are a number of advantages in establishing a resource management team to plan, implement and communicate resource efficiencies across the business. For example, a dedicated resource management team can: • provide a holistic view of business resource use; • actively engage with decision-makers (e.g. senior leadership who may not be involved in the detailed aspects of the project); • provide a forum for monitoring and reviewing the progress of implementation; • help develop strategies that can be integrated into long-term business objectives; • share the workload between the team members. 3 IMPLEMENTATION 4 STANDARDS 129 The business may not need to establish a new team. It could build on an existing EMS or Health and Safety team, should that team’s technical capacity be adequate. A resource management team can be made up of various key individuals, including: • Site and other managers who have experience in the industry and are able to adopt a business-wide perspective. Managers are also key to securing cooperation amongst staff; • Operators who are familiar with the day-to-day issues involved in the operation of the facility and can help identify problems and opportunities; • Technical staff who have detailed experience and knowledge of the plant, equipment and operational issues, as well as insights into why certain priorities or procedures have evolved; • Sub-contractors and service providers who are likely to be familiar with the detail of on-site equipment and the challenges faced, and may have ideas about how new technologies or practices can improve resource utilization and bring other benefits; • Business-improvement staff or external consultants who have analytical and facilitation skills, and a broad perspective on strategies for identifying opportunities and creatively capturing them across the site. Early establishment of a team means that it can become directly involved in the planning for resource efficiency and ensure integration of the program with the ongoing business strategy. 130 1 URGENCY 2 CONCEPT AND DESIGN 13. Step Three: Controlling and monitoring implementation As implementation proceeds, the program may need to be reviewed and revised. Undertaking regular reviews to evaluate the success of the program is an integral part of the continuous improvement process and essential for the program’s continued success. This section explains how to carry out effective monitoring and evaluation and why this is important. Monitoring and evaluation Monitoring and evaluation (M&E) is a process by which the practitioner can compare baseline data to the anticipated results of a resource efficiency project. This information can be used to determine if the intended results of the project are being achieved as planned, and what corrective action may be needed to ensure delivery of the intended results. M&E provides opportunities at regular pre-determined points to validate the logic of a program, its activities and their implementation, and to make adjustments as needed. Good planning and design alone do not ensure results. Progress towards achieving results needs to be monitored. Conversely, no amount of good monitoring alone will correct poor program design, plans and results. Information from monitoring provides critical input to evaluation, which in turn can be used to improve action plans and encourage further improvements. The aim of a monitoring exercise is to answer the following questions: • Are the anticipated outputs being produced as planned? • What issues, risks and challenges are being faced or anticipated; and what action is needed to ensure the achievement of results? • Will the recorded program savings result in the achievement of the program objectives? • What lessons are being learned? 3 IMPLEMENTATION 4 STANDARDS 131 As well as monitoring, evaluation is an integral part of program management, providing an assessment of what worked and what did not work, and why this was the case. Evaluation can also help to identify any unintended consequences arising. This feedback can be used to improve ongoing program management and inform the development of future strategy. Information generated from program evaluations contributes to organizational learning as well as the global knowledge base on program development. Effective monitoring and evaluation49 is important because it: • Supports program implementation. Accurate, evidence-based reporting can inform program management and decision-making, helping to improve future performance; • Contributes to organizational learning and knowledge sharing, through reflection on the implementation experience and lessons learnt; • Upholds accountability and compliance by determining whether or not the program has been carried out as agreed; • Provides opportunities for stakeholders to provide feedback on the performance of the program, facilitating future program development and improving trust between stakeholders; • Promotes the program by highlighting its accomplishments and achievements, building morale within the team and interest from external parties (e.g. potential clients or partners). An M&E framework requires independent and robust baseline data as well as an adequate measurement and verification (M&V) regime. To implement any M&E regime, it is important for the program to have an M&V process that is acceptable to all the stakeholders. Different M&V frameworks are explained in the next section on Measurement and verification. 49 International Federation of Red Cross and Red Crescent Societies (IFRC). (2011). Project/programme monitoring and evaluation (M&E) guide. Retrieved from: http://www.ifrc.org/Global/Publications/monitoring/IFRC-ME-Guide-8-2011.pdf 132 1 URGENCY 2 CONCEPT AND DESIGN FIGURE 17 The key elements in a resource efficient M&E plan50 Decide the Decide the goal Select the focus target group What element What does success Who will need should be look like? to provide analyzed? the relevant information? Define Analyse Involve the performance existing relevant actors level framework Evaluate progress Which existing Who are the actors and overall results tools are available with knowledge & and could be used influence? 50 Adapted from: Super-Efficient Equipment & Appliance Deployment Initiative (SEAD), 2013. SEAD Guide for Monitoring and Evaluating Green Procurement Programs. Retrieved from: http://superefficient.org/~/media/Files/SEAD_GPP_ME_Guide_final.pdf 3 IMPLEMENTATION 4 STANDARDS 133 After a project has been monitored for some time, it is good practice to commission an independent in-depth evaluation to take stock of project progress. This should bring a fresh, objective and independent perspective on how well the project is achieving its goals, and how the process might be made more efficient. Key points to consider whilst drafting an evaluation program are highlighted in Table 8. The type of M&E system used will depend on the following: • pre-determined targets and goals; • prescriptions set at the policy level (e.g. if certain product groups have been prioritized already at policy level); • the information tracking systems used by authorities that are subject to monitoring (e.g. if they have a centralized monitoring or implementation system or not, etc.). 134 1 URGENCY 2 CONCEPT AND DESIGN TABLE 8 Design considerations for efficiency evaluations51 Typical efficiency Examples of comparison Potential monitoring question methods Is the program achieving the Extent of actual outputs against Analysis of routine project planned outputs? planned outputs information of resources, processes and outputs Are the program’s resources Expenditure compared with being used to achieve allocations Audits against standards outputs of the desired Community accessing the program Benchmarking against quantity and quality? versus those most in need of the other like programs Could the use of the program Case studies and SWOT resources be improved? Areas of actual investment versus (strengths, weaknesses, Is the implementation priority areas opportunities and threats) proving feasible? analysis Current costs of outputs compared Is the program adequately with planned costs from original resourced to enable the feasibility studies achievement of desired Program implementation compared outcomes? with standards or known best practice Actual implementation compared with desired implementation Various M&E tools are available to assess the effectiveness and outcomes of projects and programs. In addition to the World Bank Results Framework and M&E Guidance Note52, a further comprehensive example is the World Resource Institute (WRI) GHG Protocol and Policy Standard that helps policymakers to design comprehensive M&E regimes53. 51 New South Wales (NSW) Government, Australia. (2013). Design of Efficiency Evaluations. 52 World Bank (2013). Results Framework and M&E Guidance Note. http://siteresources.worldbank.org/PROJECTS/ Resources/40940-1365611011935/Guidance_Note_Results_and_M&E.pdf 53 World Resource Institute. (2014). GHG Protocol Policy and Action Standard. Retrieved from https://www.wri.org/sites/default/ files/Policy_and_Action_Standard.pdf 3 IMPLEMENTATION 4 STANDARDS 135 Measurement and verification The objective of measurement and verification is to quantify the energy savings resulting from implementation of energy conservation activities in a rigorous and transparent way. It is an important tool, which assists the M&E process in any program design. Monitoring and verification (M&V) are important management tools for tracking progress and facilitating decision-making. While some funders require evaluative processes, the greatest beneficiaries of an evaluation can be the community of people with whom the organization works. By closely examining the work, a given organization can design programs and activities that are effective, efficient, and yield powerful results for the program manager and all stakeholders. The basic principle of M&V is to compare the measured energy consumption and demand, both before and after implementing Energy Conservation Measures (ECMs), in order to determine the energy savings. M&V can also serve to improve facility operation and foster ongoing savings. As shown in Figure 18, M&V activities overlap with other project efforts (e.g. collecting data to both identify ECMs and establish energy baselines, commissioning and operational verification of installed ECMs, and installing monitoring systems to track and maintain savings persistence, etc.). Identifying these project synergies and establishing roles and responsibilities of involved parties during project planning will support a coordinated team effort54. An M&V plan is included in most energy saving performance contracts. Its components depend on the nature of the project and the individual actions to be undertaken. These are often finalized after the completion of the Investment Grade Audit (IGA). The following list provides an overview of the standard components of an M&V plan; they can be used as a guide, and modified based on project specifications. • description of energy conservation measures, intended results, and the measurement boundary. The measurement boundary is a “notional boundary that defines the physical scope of an M&V project. The effects of an ECM are determined at this boundary”. For example, the measurement boundary might be for: the whole facility; a sub facility; a lighting circuit; a mechanical services plant room; an electrical switchboard; or individual items of plant and equipment. 54 Office of Environment & Heritage, NSW Government. (2012). Measurement and Verification Operational Guide: Lighting Applications. Retrieved from: http://www.environment.nsw.gov.au/resources/energyefficiencyindustry/120995lightingapp.pdf 136 1 URGENCY 2 CONCEPT AND DESIGN FIGURE 18 Process pathway during M&V activity54 Plan Install Maintain • Identify ECMs • Install ECMs • Gather data • Document baseline • Commission • Verify savings energy • Verify operations • Report • Plan & coordinate • Document project M&V activity feedback • Design ECMs • Assure persistence • documentation of the facility’s base year conditions and energy data; • identification of any planned changes to conditions of the base year; • identification of the post retrofit period; • conditions to which all energy measurements will be adjusted; • specification of M&V options and data analysis; • procedures, algorithms, and assumptions for performing the statistical validation and anticipated level of accuracy of measurement and results; • specification of software, budget, and resource requirements; • documentation and data available for another party to verify reported savings; • methods for making relevant baselines adjustments for unforeseen changes. 3 IMPLEMENTATION 4 STANDARDS 137 Table 9 provides examples and case studies of the leading M&V protocols practiced across the globe. TABLE 9 Examples of leading M&V protocols used across the world Type Examples of M&V Protocols or Description Guidelines Individual 1. IPMVP Protocols or guidelines energy for evaluating energy 2. ASHRAE Guideline 14 efficiency savings for a single project M&V 3. Federal Energy Management Program energy efficiency project (FEMP) implemented in an industrial enterprise or building (e.g., 4. Australia’s the M&V Operational Guide a project implemented by an 5. Fides Mexico M&V Guide ESCO). This could be based on a measure-isolation 6. ClubS2E (France - Energy efficiency approach or a whole-facility stakeholders) approach. 138 1 URGENCY 2 CONCEPT AND DESIGN Type Examples of M&V Protocols or Description Guidelines EE program 7. The California Evaluation Framework, 2004 Protocols or guidelines for evaluation evaluating real energy 8. California Energy Efficiency Evaluation savings generated by EE Protocol, 2006 programs. The program 9. National Energy Efficiency Evaluation, M&V evaluation includes several Standard, USA LBL components, one of them being the energy savings 10. Model Energy Efficiency Program Impact impact evaluation. Different Evaluation Guide, US EPA evaluation techniques may 11. Evaluation and Monitoring for the EU be used to demonstrate directive on Energy End-Use Efficiency and the savings achieved. Energy Service, Intelligent Energy Europe, Performing M&V on a 2009 prEN 15900 Energy Efficiency sample of or all the projects Services (Europe) included in the program is one of them. 12. Energy Efficiency Program Impact Evaluation Guide, U.S. Department of Energy (US DOE), SEE Action program, 2012 13. Arkansas EM&V protocol There are many other protocols and guidelines, which though share similar basic concepts and principles, are adapted to specific contexts of individual jurisdictions. Nationwide/ 14. CIPEC program, the Canadian Procedures for calculating region-wide government (voluntary) energy intensity performed tracking by government ministries, 15. Dutch Long-term Agreements (LTAs) of trends statistical agencies or (voluntary) in energy research institutions. use indices Since many countries track these indicators, Could be voluntary or energy there are many more examples. initiatives or government intensity regulation to collect energy consumption information. 3 IMPLEMENTATION 4 STANDARDS 139 Type Examples of M&V Protocols or Description Guidelines EMS for ISO 50001 Energy Management System 16. Energy management organizations (Global) processes and procedures implemented in an EN16001- Energy Management 17. organization to monitor Standard (Europe) energy performance. 18. Superior Energy Performance (USA) The energy performance indicators (EnPIs) can be based on energy units or on other units (e.g., COP for chillers). The energy measurement system is only one component of a larger long-term initiative in a facility or organization. In some organizations, the data collected and organized within the framework of the EMS can be used to conduct M&V of energy savings. 140 1 URGENCY 2 CONCEPT AND DESIGN Type Examples of M&V Protocols or Description Guidelines Climate 19. World Resource Institute (WRI), 2003 Protocols for measuring Change – emissions reductions. Greenhouse Gas Protocol, World 20. Emission Often included as part of an Business Council for Sustainable Trading Emissions Trading Scheme Development. Scheme; (ETS). For energy efficiency Monitoring, 21. European Union methodologies (EU- projects submitted as part Reporting, ETS) of the ETS scheme, there is Verification always an M&V component (MRV) Western Climate Initiative (WCI) 22. to calculate energy savings. 23. New Zealand ETS These savings are then converted into emission US Northeast and Mid-Atlantic State 24. reductions. Regional Greenhouse Initiative (RGGI) California ETS (Cal ETS) 25. Australia “Clean Energy Future” 26. Carbon Pricing Mechanism Tokyo Cap-and-Trade Program (Tokyo 27. C&T) Perform Trade Achieve (PAT) India 28. Nationally Appropriate Mitigation 29. Actions (NAMAs) MRV Regime Energy Italian White Certificate Scheme 30. Protocol for measuring Efficiency energy efficiency achieved French White Certificate scheme 31. Certificate by individual projects or Exchange programs. They are used (White in the context of white Certificates) certificate schemes. 3 IMPLEMENTATION 4 STANDARDS 141 14. Step Four: Communicating the impact Effective communication of the success of the program is critical to distribute the knowledge gained throughout the program and to reinforce buy-in from stakeholders. The benefits of the effective communication of results include: • inspiring and educating others to take action, including by using the program; • informing stakeholders of the program’s progress in achieving its objectives; • promoting the program as a leader in the field. Reporting GHG reductions using everyday equivalents is an effective way of enabling stakeholders to engage with the results. For example, 1 metric ton of CO2 (or CO2 equivalent) is equivalent to55: 0.211 passenger vehicles driven for one year 3,832 kilometers driven by an average passenger vehicle 0.358 tons of waste sent to the landfill 0.051 garbage trucks of waste recycled instead of landfilled 428 liters of gasoline consumed 487 kilograms of coal burned 0.091 homes’ energy use for one year 0.0003 wind turbines installed 0.138 homes’ electricity use for one year 26.2 incandescent lamps switched to CFLs 2.3 barrels of oil consumed 55 US EPA Greenhouse Gas Equivalencies Calculator: https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator 142 1 URGENCY 2 CONCEPT AND DESIGN 1,000 metric tons of CO2 (or CO2 equivalent) is equivalent to: 0.0003 Coal-fired power plants in one year 1 metric ton of CO2 (or CO2 equivalent) is equivalent to the carbon sequestered by: 25.6 tree seedlings grown for 10 years 0.0033 square kilometers of forests in one year The US EPA’s calculator55 can be used to report reductions in other GHGs in everyday terms. Such factors do vary from country to country so it is important to check that what is proposed is representative of the country or region in question. 3 IMPLEMENTATION 4 STANDARDS 143 4 DEVELOPING A STANDARDS AND LABELLING SCHEME 144 1 URGENCY 2 CONCEPT AND DESIGN 15 Introduction 16 Overview of Standards and Labelling „ What do we mean by standards and labelling? „ How do standards and labelling schemes work? „ Regional and international schemes „ Examples of standards and labelling „ Summary of key standards and labelling types 17 Technology Briefs „ Introduction „ Industrial boilers „ Electrical transformers „ Electric Motors „ Fans and Blowers „ Lighting „ Professional / Industrial Refrigeration 3 IMPLEMENTATION 4 STANDARDS 145 18 Assessing the context and key steps to developing and implementing a standards and labelling scheme „ Step 1: Diagnose the current situation „ Step 2: Targeting a standards and labelling program „ Step 3: Institutional, policy and regulatory considerations „ Step 4: Development and Design „ Step 5: Launch of the scheme „ Step 6: Implementation and enforcement „ Step 7: Evaluation and Revision 146 1 URGENCY 2 CONCEPT AND DESIGN 19 Detailed Case Study: Implementation of a standards and labelling scheme in Egypt „ Introduction „ Background and Context „ Why focus on the industrial sector? „ Understanding the industrial sector – what to focus on? „ Which industrial products groups should be included? „ Further considerations „ Summary „ Next Steps – Implementation Considerations 3 IMPLEMENTATION 4 STANDARDS 147 What the reader will get from this module: Modules 2 and 3 provide generic guidance on establishing an energy or resource efficiency program. This Module deals specifically with developing a Standards and Labelling program; the steps described naturally follow the same general approach set out in the previous Modules. 148 1 URGENCY 2 CONCEPT AND DESIGN 15. Introduction Potential clients that the World Bank may support in the field of standards and labelling will depend on a country’s specific circumstances and therefore the nature of the support required. Clients are likely to include relevant government departments, for example ministries of energy, environment, commerce and industry, finance and taxation. Other potential clients may include industry trade bodies, standards organisations and product test laboratories. The client or clients for a particular intervention will depend on who has been mandated to develop a standards and labelling scheme. Furthermore, any previous work that has been undertaken in the area will affect the nature of the support required. For example, if a standards and labelling scheme has already been established, support may need to be focused on monitoring and compliance to improve the scheme’s effectiveness, rather than provide market analysis. 3 IMPLEMENTATION 4 STANDARDS 149 16. Overview of Standards and Labelling What do we mean by standards and labelling? Standards and labelling56 schemes or programs are tools that can be used to improve the environmental performance of products and equipment used across all sectors of the economy. This guide focuses on equipment used by industry, but the principles are applicable across all sectors including domestic appliances. The format of standards and labels varies, however they tend to focus on the key environmental impacts of a particular product, and can include requirements on a single environmental parameter or several parameters depending on the design and overall aims of the program. Energy efficiency has historically been at the core of most standards and labels, although some, including the EU’s labelling scheme, also include other environmental factors such as water use. Standards and labelling schemes also vary in other ways; for example, they can be mandatory or voluntary, and require different levels of compliance verification. These characteristics are discussed in more detail later in this module. Standards and labelling schemes are commonly run by a government agency. Industry voluntary agreements or initiatives, such as those run by a relevant trade body, while not classed together with standards and labelling schemes, often share similar characteristics. Before looking in more detail at standards and labelling it is useful to outline what is meant by standards and labelling within the context of this guide. In 2013, the Australian Department of Industry commissioned a report focused on energy standards and labelling schemes throughout the world. Based on a comprehensive review, it provides a useful insight regarding the global position57 58. It reports that national standards and labelling (S&L) programs have become commonplace around the world; the box opposite provides a snapshot of the key findings. 56 The term ‘standards and labelling’ is a widely used short hand expression among energy efficiency and product policy practitioners to describe the two most common regulatory instruments used in product policy. It is important to note that the term ‘standard’ has more than one meaning, as clarified in the section on Standards below. 57 Energy Efficient Strategies and Maia Consulting for the Department of Industry, Australia. (2014) Energy standards and labelling programs throughout the world in 2013. Retrieved from: http://www.iea-4e.org/news/s-l-programs-worldwide-2013 58 Other studies looking at international standards and labelling have also been undertaken. 150 1 URGENCY 2 CONCEPT AND DESIGN National Standards and Labelling: what is out there? • 81 countries (from 50 in 2004) now have a standards and labelling program. • 55 different products are subject to mandatory energy performance standard measures (from 42 in 2004). • 3,604 measures in 2013 (from 1,220 measures in 2004) that includes all types of standards and labelling measures in different countries around the world, comprising: – 1,453 (431 in 2004) using energy performance standard measures (including proposed) – 1,149 (354 in 2004) for comparative labels used (or proposed) for all product categories. Comparative labels have now overtaken endorsement labelling in absolute numbers, 80% of which are mandatory. – 1,002 (435 in 2004) for endorsement labels used (or proposed) for all product categories, with more than 95% of all endorsement labels remaining voluntary and applicable to or targeted at the most energy efficient of products. • The most commonly regulated product types used in industry are: – Motors (including 3 phase) – 90 measures – Air conditioners (central/3 phase) – 89 measures – Lamps or ballasts (67 countries with lamps alone, accounting for some 358 separate measures across all lamps types). – Furnaces – 69 measures – Fans (all types) 62 measures – Transformers – 45 measures – Pumps – 43 measures – Heat pumps – 40 measures • The countries with the most active national programs are: – China with 100 measures. – USA with 86 measures. – South Korea with 78 measures – All EU countries with 77 measures Note that the breadth of scope of measures will affect the total product energy consumption subjected to standards and labelling measure, meaning a higher number of measures will not necessarily mean wider product coverage. 3 IMPLEMENTATION 4 STANDARDS 151 Labelling Labelling schemes can be divided into ‘comparative’ and ‘endorsement’ types. FIGURE 19 Types of labelling Labels Comparative Endorsement Comparative labelling enables the performance of different models of products to be compared, for example by using a continuous scale or discrete performance categories. In contrast, endorsement labels are used to indicate that a product meets a single set of prescribed criteria. Both types of labels provide the purchaser with information on the energy and sometimes wider environmental performance of the product, which can inform their purchasing decisions. Standards Even within the world of standards and labelling, the term ‘standards’ is used to mean different things depending on the context; for example, it can refer to: • Standards setting out procedures and methods for the testing of products; or • Standards specifying performance limits or minimum performance thresholds for the products themselves: – Such performance limits can be included as part of non-binding technical standards, for example the IEC standard for electric motors (IEC60034-30-1) defines four energy efficiency classes (IE1, IE2, IE3, IE4), however it does not specify that particular types or applications of motors must or should belong to particular efficiency classes. The adoption of such standards is voluntary. – Alternatively, regulatory product performance limits or criteria for particular types of products, for example different types of electric motors, can be included as part of standards and labelling schemes established at regional or national levels, often with reference to the relevant technical standard. 152 1 URGENCY 2 CONCEPT AND DESIGN Within the context of using standards to improve the environmental performance of products, for example energy efficiency, the setting of performance limits for particular types of products is the key focus. Test standards are of relevance however, as they are used to ensure that tests and calculations to demonstrate compliance with particular limits are undertaken consistently and accurately across industry and the supply chain. Figure 20 summarizes the key types of standards and the interaction between the different types. Typically, test standards and technical standards are developed by recognized standards bodies, such as the International Organization for Standardization (ISO) or the International Electrotechnical Commission (IEC). Regional organization bodies also exist, for example the European Committee for Standardization (CEN) and the European Committee for Electrotechnical Standardization (CENELEC), as well as national bodies, such as the Standardization Administration of the People’s Republic of China (SAC). 3 IMPLEMENTATION 4 STANDARDS 153 FIGURE 20 Types of standards Standards Performance Test standards – support limits implementation of performance limits Technical Standards standards (under a Standards and Labelling Scheme) Minimum Minimum Prescriptive Class average requirements Energy features Performance Standards 154 1 URGENCY 2 CONCEPT AND DESIGN The standards developed can be harmonized at international and regional levels, or can be country specific depending on the product. Most countries have their own National Standards Bodies, with the foremost organizations in each country being a member of ISO59. Developing countries represent over 75% of ISOs members60, with support for developing countries led by DEVCO (the ISO committee on developing country matters)61. Standards (under a Standards and Labelling Scheme) that set performance limits can be divided into three main types (see Figure 20): • The first is minimum energy performance standards (MEPS), these set minimum requirements that a defined type of product must meet, but are general independent of technology so manufacturers can decide themselves how best to achieve the standard. • The second type are prescriptive standards, which require particular features to be included as part of a product or may ban the sale of a particular type of product technology. • The final type of performance limits or targets are known as class average. These set an average efficiency target for a defined product group in order to achieve an overall improvement in energy performance. This approach provides flexibility in how the target is achieved through the products that contribute to the targeted energy use, with class average reflecting that some products within the group may have a higher or lower efficiency than the target. How do standards and labelling schemes work? Standards and labelling are designed to influence the market for a particular product and promote improvements in energy efficiency. They can also embrace additional environmental performance aspects of the product. Standards and labelling work in different ways, and can be seen as complementary policies. Figure 21 illustrates the effects of standards and labelling on the market for products and how the two interact. 59 See: http://www.iso.org/iso/about/iso_members.htm 60 See: http://www.iso.org/iso/home/about/iso-and-developing-countries.htm 61 See: http://www.iso.org/iso/home/about/iso-and-developing-countries/devco.htm 3 IMPLEMENTATION 4 STANDARDS 155 FIGURE 21 Effect of standards and labelling on the market for products62 After standards Number of Units Sold After labels and standards Before labels and standards Standard level Energy Efficiency The introduction of mandatory minimum performance standards acts as a ‘push’ for manufacturers to remove the most inefficient products from the market (for voluntary minimum standards, the sharp cut off shown in Figure 21 will be less pronounced, although in practice most minimum performance standards are mandatory – see below). This establishes a baseline that manufacturers can aim to exceed, providing an incentive to some manufacturers to innovate and explore how far they can go beyond the minimum standard in the knowledge that over time the minimum standard is likely to be tightened. 62 Wiel, S. and McMahon, J. E. (2005). Energy Efficiency Labels and Standards: A guidebook for appliances, equipment and lighting, Second Edition. Collaborative Labeling and Appliance Standards Program (CLASP), Washington DC. Retrieved from http://clasp.ngo/en/Resources/Resources/StandardsLabelsGuidebook 156 1 URGENCY 2 CONCEPT AND DESIGN In contrast, labelling provides consumers with information on the environmental performance of products, typically energy, promoting demand for higher performing products. By helping consumers to make an informed decision this tends to ‘pull’ the market towards higher efficiency products as consumers look to purchase the best they can to reduce running costs. To a lesser degree, labelling can also incentivize manufacturers to improve products to enable an endorsement label to be awarded, or in the case of a comparative label, to demonstrate their products perform at the highest level. Voluntary versus mandatory standards and labelling schemes A key characteristic of standards and labelling is the basis on which they are introduced. This can be on a voluntary or mandatory basis and both have their own advantages and disadvantages. However, it is worth noting that certain types of standards and labelling are predominately either mandatory or voluntary. MEPS and comparative labels are often used to complement each other and are mainly implemented on a mandatory basis. As part of these mandatory schemes, it is common for a transitional period to be included, where requirements will initially be voluntary, before becoming mandatory. This allows the market and manufacturers time to adjust to the new requirements. The transitional period is usually stated within the regulations implementing the standards and labelling requirements for a given product type. The length of the transitional period will depend on factors such as the status of existing products on the market, readiness of manufacturers and awareness amongst consumers. Industry will usually feed into the setting of transitional periods as part of the consultation process. In contrast, endorsement labels are typically implemented on a voluntary basis only. 3 IMPLEMENTATION 4 STANDARDS 157 Codes of conduct or agreements with industry related to the performance of products they produce and sell often include minimum energy performance standards, but tend to be voluntary. However, the use of a code of conduct or voluntary agreement is usually on the basis that the majority of the manufacturers/suppliers are participating to ensure they are effective at improving the energy efficiency of the products covered. For example, under the Ecodesign Directive in Europe there is scope to use voluntary agreements instead of mandatory regulatory measures; appropriate voluntary agreements tend to work best within smaller sized industries. Where there is limited sign up by industry or the market structure does not lend itself to a code of conduct, then a mandatory approach would normally be employed. Monitoring and verification Monitoring and Verification are important elements of any standards and labelling scheme. How rigorous this needs to be will depend upon the basis of the label, for example, a mandatory comparative energy label or MEPS is likely to require third party testing and verification, while for a voluntary endorsement label a form of self-declaration by the manufacturers may be considered sufficient. A key aspect of the verification process is the use of test standards. They are an important element of standard and labelling schemes as they ensure that all products are tested on an equal and consistent basis. Monitoring is discussed further under Implementation, and will include aspects such as assessing verification information provided by manufacturers and undertaking market surveillance and data collection to ensure the scheme is robust and not undermined by false claims. Additional incentives for purchasers As well as the benefits of greater energy efficiency, further incentives can also be used as part of, or in conjunction with, standard and labelling schemes. For example, in the UK the Water Technology List (WTL)63 and Energy Technology List (ETL)64 are capital allowance schemes whereby purchasers of equipment can claim a business tax incentive when purchasing products from these lists. As part of these schemes, manufacturers must demonstrate their products meet specified criteria. Once a product is added to a list the manufacturer can display the relevant scheme logo for marketing purposes in respect of that product. 63 See: https://www.gov.uk/government/publications/water-efficient-enhanced-capital-allowances 64 See: https://www.gov.uk/guidance/energy-technology-list 158 1 URGENCY 2 CONCEPT AND DESIGN Other countries have also applied incentives for the purchasing of products that meet a particular energy efficiency standard. For example, in China businesses that purchase and use energy saving equipment that satisfy prescribed criteria can apply for a 10% tax reduction on the amount invested. Separate studies are available that provide further information on the wider use of green tax incentives and penalties such as grants, subsidies and loans. In particular, readers should refer to the World Bank guide, Green Incentives for Climate Competitive Industries: A Practitioner’s Handbook65. Regional and international schemes Standards and labelling schemes are usually implemented on a national basis, although there are some exceptions, and regional initiatives may run alongside or instead of individual national policies. At the European level, European Union Member States implement an EU wide comparative labelling scheme under the Energy Labelling Directive (2010/30/EU), and MEPS are similarly implemented at an EU level under the framework provided in the Ecodesign Directive (2009/125/EC). The Energy Star program developed in the US has a number of international partners66, with formal arrangements established with Australia, Japan, New Zealand, the European Union, the European Free Trade Association (covering Norway, Iceland, and Liechtenstein), Switzerland, Canada and Taiwan. The purpose of the arrangements with these partners is to promote specific Energy Star qualified products in those markets. In addition, countries can also participate in regional programs with others, whilst still implementing their own policies at a national level. An example of this is the Barrier Removal to the Cost-Effective Development and Implementation of Energy Efficiency Standards and Labelling (BRESL) project67, which is sponsored by the United Nations Development Program (UNDP) and the Global Environment Facility (GEF). The participants are Bangladesh, China, Indonesia, Pakistan, Thailand and Vietnam. The aim is to increase the adoption, harmonization and implementation of energy standards and labelling in Asia to promote the use of energy efficient products. The project is focused on the following products: refrigerators, room air conditioners, electric motors, ballasts for fluorescent lighting, electric fans, compact fluorescent lamps and rice cookers. 65 World Bank Group. (2016). Green Incentives for Climate Competitive Industries: A Practitioner’s Handbook. Retrieved from: http://documents.worldbank.org/curated/en/771681470127138842/pdf/107348-WP-World-Bank-Incentive-V30-PUBLIC.pdf 66 See: https://www.energystar.gov/index.cfm?c=partners.intl_implementation 67 See: http://www.bresl.com/ 3 IMPLEMENTATION 4 STANDARDS 159 Similarly, in the Economic Community of West African States68 (ECOWAS), support has been provided to help the development of a regional standards and labelling scheme for its member countries. The ECOWAS Regional Centre for Renewable Energy and Energy Efficiency (ECREEE)69 and the Super-efficient Equipment and Appliance Deployment (SEAD)70 initiative have been working together to help develop plans for a regional standards and label program that will contribute to achieving the goals set by the ECOWAS Energy Efficiency Policy. As part of the project an assessment of the institutional and regulatory framework for the ECOWAS appliance standards and labelling program has been undertaken, which includes recommendations on policy, legal and regulatory aspects, program design, implementation and enforcement, and the institutional framework71. Examples of standards and labelling This section provides some further examples of the different types of standards and labelling. As noted above, prescriptive requirements are rarely used, but could include for example that a particular inefficient technology cannot be used. However, the focus is usually on technology neutral policies to avoid limiting innovation, therefore the phase out of inefficient technologies is often achieved by setting minimum energy performance requirements. In practice, this means that certain technologies can no longer be used because they cannot meet the minimum requirements. Class average schemes are also less common, with the main current example being the Top Runner program in Japan. The Top Runner standards are set by identifying the most efficient models of different sizes and types of products on the market for a given product type, which acts as a benchmark to set an average efficiency target. Manufacturers, including importers then have to meet that target by a given date. This is achieved by ensuring the average efficiency of all their appliances (sales weighted) meets the target efficiency level. There is no minimum efficiency requirement set at the individual product model level, but penalties can be imposed if the average target efficiency is not achieved. 68 This group includes the following 15 countries: Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo. 69 See: http://www.ecreee.org/page/overview-ecreee 70 SEAD is an Initiative of the Clean Energy Ministerial and the International Partnership for Energy Efficiency Cooperation. See: http://www.superefficient.org/About-Us/What-Is-the-SEAD-Initiative 71 SEAD/CLASP. (2013). Institutional & regulatory framework assessment for the ECOWAS appliance standards and labeling program. Retrieved from: http://www.superefficient.org/~/media/Files/ECOWAS/ECOWAS%20Institutional%20Assessment_ Final%20Report%20with%20Appendices.pdf 160 1 URGENCY 2 CONCEPT AND DESIGN The more detailed examples below focus on minimum energy performance standards (MEPS) and comparative and endorsement labels, as these are the main types of standards and labelling currently implemented. These examples are for illustrative purposes only and other sources provide further details on the use of standards and labelling across a wider range of countries72. Case study 10: The China Energy Label (Comparative Label) The China Energy Label (CEL) was launched in 2005, and is aimed at transforming the Chinese market towards highly efficient appliances. Administration of the program is undertaken by the China Energy Label Center (CELC), part of the China National Institution of Standardization (CNIS). The label provides product information for consumers, including government, enterprises and individuals, across a range of products to help them make purchasing decisions by guiding them towards energy efficient equipment. It is a comparative label, with a series of efficiency grades used to indicate a product’s performance. The CEL covers over thirty product categories including home appliances, office supplies, industrial equipment and lighting. Examples include: motors, air conditioners, refrigerators, washing machines, gas kettles, photocopiers, air compressors and flat-screen televisions. The CEL is a mandatory labelling program with China’s Energy Conservation Law, Product Quality Law and Regulations on Certification and Accreditation forming its legal basis. Implementation rules for each product category set out key requirements, such as the label format, testing requirements, including relevant test standards that must be used, and verification requirements. Verification is undertaken by third part organizations approved by the CEL. A separate specification outlines the minimum allowable values of energy efficiency and energy efficiency grades for the label for each product category. For further information see: http://www.energylabel.gov.cn/en/ 72 For example, the CLASP S&L database at: http://clasp.ngo/en/Tools/Tools/SL_Search and: Energy Efficient Strategies and Maia Consulting for the Department of Industry, Australia. (2014) Energy standards and labelling programs throughout the world in 2013. Retrieved from http://www.iea-4e.org/news/s-l-programs-worldwide-2013 3 IMPLEMENTATION 4 STANDARDS 161 Case study 11: PROCEL Seal in Brazil (Endorsement Label) The Programa Nacional de Conservacao de Energia Eletrica (PROCEL) Seal is a voluntary endorsement label established in 1993. The scheme falls under the remit of the Ministry of Mines and Energy, with implementation managed by Eletrobrás, who are a major electric utilities company. The aim of the scheme is to stimulate manufacturers to make more efficient products and influence consumer purchasing decisions by guiding them to the most energy efficient products. It covers a range of products including fluorescent and high intensity discharge lamps, electric motors (3-phase general-purpose motors) and pumps (electrical centrifugal pumps) alongside other domestic/residential type products. A regulation has been established for awarding the energy saving PROCEL Seal, the requirements of which, together with the specifications developed for each product group, must be met before the Seal is awarded to a product. The specifications are determined by testing in a laboratory the range of efficiency of products available on the market to identify the level at which products should be awarded the Seal. This approach enables the Seal only to be awarded to products with the highest energy efficiency when compared to the rest of the market. A handbook is also available, which provides practical information for manufacturers on the use of the PROCEL Seal logo. This is just one of several standards and labelling policies implemented in Brazil, which also include a comparative energy label and minimum energy performance standards. For further information see: http://www.procelinfo.com.br/main.asp 162 1 URGENCY 2 CONCEPT AND DESIGN Case study 12: Minimum Energy Performance Standards (MEPS) in Ghana Energy Performance Standards were first developed in Ghana in 2000 following work between CLASP73, the Ghana Energy Foundation and the Ministry of Mines and Energy to establish Ghana’s Electrical Appliance Labelling and Standards Program. The work was supported by the United Nations Foundation (UNF) and the United States Agency for International Development (USAID). An important aspect of the work was to develop energy performance standards for products to help encourage consumers to purchase efficient products, but also ensure the market was not used to sell obsolete and inefficient products. Given the resources available, key decisions were made concerning product choices, with the initial focus on air conditioning due to its impact on peak power demand and consequential blackouts. The regulation for air conditioning was enacted in 2002. The standard for air conditioning is estimated to save Ghana’s consumers and businesses an average of $64 million annually in reduced bills and is expected to reduce CO2 emissions by 2.8 million tonnes over 30 years. This success has resulted in standards being developed for other products, including lighting (CFL and incandescent lamps) and refrigerators/freezers. In addition, Ghana has subsequently developed a comparative energy label to complement the energy performance standards. For further information see: http://clasp.ngo/en/OurPrograms/SuccessStories/Ghana.aspx 73 For further information on the Collaborative Labeling and Appliance Standard Program (CLASP) see: http://clasp.ngo/ WhoWeAre 3 IMPLEMENTATION 4 STANDARDS 163 Case study 13: The Energy Efficiency Label and Standard Program in South Korea (Comparative Label and MEPS) The Energy Efficiency Label and Standard Program in South Korea was introduced in 1992 to target products with high energy consumption and now covers over 30 product categories. This includes lighting, air conditioning, commercial refrigeration, 3-phase induction motors, gas water heaters and transformers. The framework for the program is the responsibility of Ministry of Knowledge Economy, while implementation and monitoring is the responsibility of the Korean Energy Management Corporation (KEMCO). The labelling aspect of the program established an energy label with five grades, with “1” representing the highest efficiency and “5” the poorest. It is mandatory for products covered by the program to display which energy efficiency grade they meet, with the aim of encouraging consumers to purchase high efficient products. It also aims to promote innovation amongst manufacturers by using energy efficiency (grade 1) as a target energy performance standard. This means that when initially established no products should meet grade 1, with the intention being that this will stimulate the marketing of products with a higher efficiency than currently found on the market. The minimum energy performance standard is enforced by not permitting products that fall below the lowest energy efficiency grade in the labelling to be placed on the market. The energy performance standards are typically updated every 3-5 years to ensure they continue to drive improvements. In addition to the Energy Efficient Label and Standard program, South Korea also operates a high-efficiency appliance certification program and the e-standby program, both of which are voluntary endorsement labels. For further information, see: http://www.kemco.or.kr/renew_eng/main/main.aspx http://www.kemco.or.kr/nd_file/kemco_eng/KoreaEnergyStandards&Labeling.pdf http://www.kemco.or.kr/renew_eng/energy/appliances/labeling.aspx 164 1 URGENCY 2 CONCEPT AND DESIGN Summary of key standards and labelling types In summary, there are various types of regulatory standards and labelling: • Standards: – Minimum Energy Performance Standards (MEPS); – Prescriptive features; and – Class average. The most commonly used types of regulatory standards are MEPS, with prescriptive features and class average standards being much less common. This is due to a desire to apply technology neutral approaches to regulatory policies and because of the extra complexity in developing and enforcing class average requirements. MEPS tend to be mandatory and set a minimum requirement for the market in order to eliminate the most inefficient products. It is also common for requirements to be phased-in, with increasingly stringent efficiency levels being introduced over time to allow manufacturers sufficient time to react. • Labelling: – Comparative labels; and – Endorsement labels. Comparative labelling is generally introduced to target consumer behavior regarding a particular product group through providing relevant information on the efficiency of the product in the group and thereby influencing purchasing decisions. Comparative labels are generally aimed at the whole market and are often introduced on a voluntary basis initially in order to prepare the market for them becoming mandatory at some future point. Labelling is also often implemented alongside MEPS. In contrast, endorsement labels tend to be focused on giving recognition to the best performing products in particular categories when evaluated against a series of assessment criteria. Endorsement label schemes tend to be voluntary. 3 IMPLEMENTATION 4 STANDARDS 165 17. Technology Briefs Introduction Energy consumption varies across different sectors, and it is common for standards and labelling to target those sectors and products with high energy consumption. The key sectors will vary depending on the industrial landscape of a country and the available opportunities to implement energy efficiency measures. Common product groups relevant to industrial sectors and which often form part of standards and labelling schemes include: • Industrial boilers • Electrical transformers • Electric Motors • Industrial fans and blowers • Lighting • Professional / industrial refrigeration This section provides an overview of each of these product groups to illustrate the energy saving opportunities that may be available and how they are dealt with by existing standards and labelling schemes. Industrial boilers Overview of the technology Boilers are very common items of plant used to generate steam or hot water for use in a range of industrial sectors. This includes energy intensive sectors such as paper, food processing, chemicals, metals and the petroleum refining industry74. Nearly all industrial sites will have a boiler system of some type. For example, in the United States there are an estimated 43,000 industrial boiler units, with these representing 82% of total US boiler capacity and the energy consumption of industrial boilers accounting for 37% of total industrial energy consumption (some 6,823 PJ/year)75. Steam boilers are also used in electricity generation from certain fuels. 74 PricewaterhouseCoopers, Fraunhofer ISI and ICCS-NTUA. (2014). Ecodesign Preparatory Study on Steam Boilers (ENTR Lot 7.). European Commission. Retrieved from: http://www.eco-steamboilers.eu/eco-steamboilers-wAssets/docs/20141217- Steam-Boilers-Ecodesign-Final-Report.pdf 75 IEA-ETSAP. (2010). Technology Brief I01 – Industrial Combustion Boilers http://iea-etsap.org/E-TechDS/PDF/I01-ind_boilers-GS-AD-gct.pdf 166 1 URGENCY 2 CONCEPT AND DESIGN The fuels used in industrial boilers varies, and include coal, oil, natural gas and biomass. According to the IEA’s Energy Technology Network, industrial boilers running on coal, oil, natural gas and biomass can reach efficiencies of 85%, 80%, 75% and 70% respectively. Throughout industrialized countries natural gas is the predominant primary fuel, with over 50% of boilers using gas compared to other fuels75. In addition, a significant proportion (estimated at around 75%) of the existing boilers installed in industrialized countries are believed to be over 30 years old, therefore offering considerable scope for replacement with more efficient modern designs. Energy Efficiency Opportunities Research on steam boilers in Europe to support the implementation of the Ecodesign Directive has identified key areas at the product level that can improve the energy efficiency of industrial boilers, including: • Economizers to preheat the feed water by recovering heat from flue gases; • Air preheaters to transfer heat from flue gases to the air entering the burner; • Combustion control to optimize efficiency through reducing energy losses; and • Variable Speed Drives to reduce electricity consumption of associated pumps and fans. 3 IMPLEMENTATION 4 STANDARDS 167 In addition, other measures such as improved maintenance and sound operation of the equipment can help improve efficiency, although these are aimed at the use phase of the plant rather than its actual design. The study in support of the European Ecodesign Directive74 indicated that the stock of steam boilers in Europe is approximately 71,000. Savings based on a scenario of mandatory eco-design requirements indicate for 2030 a reduction in primary (fuel) energy consumption of 0.7% (or 8TWh) compared to business as usual. For electrical energy consumption (translated to primary energy) there is a 13% reduction as a result of the mandatory eco-design requirements scenario in 2030 when compared to business as usual. Existing Standards and Labelling Schemes for Industrial Boilers There are various existing standards and labelling schemes for boilers, a selection of which are shown in Table 10 below76. TABLE 10 Existing standards and labelling schemes for industrial boilers Country Standard Title / Scope Voluntary or Measure mandatory China GB 24500-2009 Minimum allowable values of Mandatory Minimum energy efficiency and energy efficiency grades energy of industrial boilers performance standards This standard is implemented by the National Development and Reform Commission (NDRC) and General Administration of Quality Supervision, Inspection and Quarantine of China (AQSIQ) Applies to a fixed type of steel-made steam boiler with water as the medium and rated steam volume no less than 0.1 t/h, and fixed type of steel-made hot water boilers with rated outlet water pressure greater than 0.1 MPa. 76 Identified from the CLASP Standards and Labelling Database: http://clasp.ngo/Tools/Tools/SL_Search 168 1 URGENCY 2 CONCEPT AND DESIGN Country Standard Title / Scope Voluntary or Measure mandatory Chinese Minimum Energy Performance Standards for Mandatory Minimum Taipei industrial boilers Energy (Taiwan) Performance This standard is implemented by the Bureau of Standard Energy, Ministry of Economic Affairs in Taiwan and applies to steam boilers with oil or gas firing, but not for through-flow boilers. Korea High-efficiency Appliances Certification Voluntary Label (ROK) Program for Industrial Gas Boilers Endorsement This label is implemented by the Korea Energy Management Corporation (KEMCO) and applies to industrial gas boilers whose rated capacity is less than 12 million kcal/h, maximum allowable working pressure is less than 10kg/cm2 and heat efficiency over 91%. Peru Guía de la etiqueta de eficiencia energética, Voluntary Label Comparative This program is still under development and is being implemented by the Ministry of Energy and Mines (MINEM) and the National Institute for the Defense of Competition and Protection of Intellectual Property (INDECOPI) in Peru. It is applicable to industrial smoke and water tube boilers without heat recovery systems that use combustible solids, gases and liquids derived from petroleum. 3 IMPLEMENTATION 4 STANDARDS 169 Electrical transformers Overview of the technology A transformer is an electrical device that transfers electrical energy between two or more circuits through electromagnetic induction. They are mainly used to change the voltages of alternating current (AC) in electric power applications. They are essential for the AC transmission, distribution and utilization of electrical energy. Transformers vary in size from less than a cubic centimeter to units weighing hundreds of tons, for example those interconnecting the power grid. Common types of transformers found in industry include, but are not limited to, low-voltage dry type, low-voltage control power, medium- voltage dry-type, medium-voltage pad-mount oil filled, medium-voltage pad-mount gas filled and medium voltage power oil filled. 170 1 URGENCY 2 CONCEPT AND DESIGN Energy Efficiency Opportunities The efficiency of transformers is affected by energy losses, which comprise: • No-load losses, which result from the magnetic field alternating in the core of the transformer, and are constant regardless of the loading of the transformer; • Load losses, which vary depending on the loading of the transformer and include heat losses in the transformer windings and conductor eddy current losses; and • Auxiliary losses, which arise through the use of energy to operate cooling fans or pumps within the transformer. Opportunities to improve the efficiency of transformers therefore address these areas to reduce energy losses. Typically, energy efficiency can be improved through changes in the balance of materials used within the transformer, for example as a result of the mix between using more material, higher grade steel, amorphous steel, and replacing aluminum with copper windings. A balance needs to be achieved in terms of increasing environmental impact due to increased material use, and the reduced impact achieved by the improved energy efficiency. Life-cycle costs also need to be considered. A study on transformers in support of the Ecodesign Directive in Europe77 highlighted in its analysis that the best available technology does not always correlate with lower life-cycle costs due to the improvements in efficiency being insufficient to offset the increase in the capital costs for the most efficient models. Nevertheless, significant economic and environmental benefits with respect to improved energy efficiency of transformers, which can be driven by standards and labelling schemes have been identified. For example, the US Department of Energy has estimated that the newly amended energy efficiency standards for distribution transformers, beginning in 2016, will save up to $12.9 billion for consumers and around a 1 million GWh of energy for equipment sold between 2016 and 2045. The US DOE has also estimated an avoidance of about 265 million metric tons of carbon dioxide emissions, equivalent to the annual greenhouse gas emissions of about 52 million automobiles. 77 BIO IS, VITO. (2011). LOT 2: Distribution and power transformers Tasks 1 – 7 Final Report (Ecodesign preparatory study on distribution and power transformers for the European commission). Retrieved from: https://transformers.vito.be/sites/ transformers.vito.be/files/attachments/EuP_TransformersTask_1_7_V60.pdf 3 IMPLEMENTATION 4 STANDARDS 171 Existing Standards and Labelling Schemes for Transformers There are various existing standards and labelling schemes for transformers, a selection of which are shown below78. TABLE 11 Existing standards and labelling schemes for transformers Country Standard Title / Scope Voluntary or Measure mandatory China GB 2005-2013 Minimum Allowable Values of Mandatory Minimum Energy Efficiency and the Evaluating Values energy of Energy Conservation for Three-Phase performance Distribution Transformers standards This standard is implemented by the National Development and Reform Commission (NDRC) and General Administration of Quality Supervision, Inspection and Quarantine of China (AQSIQ). It applies to three-phase, off-Circuit-Tap-Changing transformers with voltage level of 10kV, and rated capacities of 30kVA~1600kVA for oil-immersed transformers or 30kVA~2500kVA for dry-type transformers. It does not apply to gas-filled transformers. Egypt 2008/6977 Energy Efficiency of Distribution Mandatory Minimum Transformers Energy Performance This standard is implemented by the Egyptian Standard Organization for Standardization and Quality Control (EOS). 78 Identified from the CLASP Standards and Labelling Database: http://clasp.ngo/Tools/Tools/SL_Search 172 1 URGENCY 2 CONCEPT AND DESIGN Country Standard Title / Scope Voluntary or Measure mandatory Japan Top Runner Program for Transformers Mandatory Minimum energy This policy is implemented by the Energy performance Conservation Centre in Japan. It applies standards to transformers for high-voltage receiving and distribution, excluding gas insulating transformers, H class dry-type transformers, single-phase transformers with capacity no more than 5kVA or three-phase transformers with capacity no more than 10kVA, transformers with capacity over 2000kVA, Scott-connected transformers, transformers in mold structure for shared use between lighting and power, transformers with low voltage output voltage below 100V or above 600V, forced-air-cooled or water cooled type transformers, and multi- winding transformers. Energy-Saving Labelling Program Voluntary Label Comparative This program is implemented by the Energy Conservation Centre in Japan. It applies to the same transformer types as listed above. Australia Greenhouse and Energy Minimum Standards Mandatory Minimum (Transformers and Electronic Step-down energy Converters for ELV Lamps) Determination 2012 performance standards This standard is implemented by the Australian Department of Climate Change and Energy Efficiency (DCCEE) and is part of the Greenhouse and Energy Minimum Standards Act 2012. It applies to dry-type and oil-immersed type, three- phase and single-phase power transformers with power rating from 10kVA to 2500kVA and system highest voltage up to 24kV 3 IMPLEMENTATION 4 STANDARDS 173 Electric Motors Overview of the technology Electric motors convert electrical power into mechanical power. They can be categorized into small (<0.75 kW), mid-range (0.75 – 375 kW) and large (>375 kW), and are used for a wide range of applications in all sectors. Electricity consumption by motors is highest in mid-range motors, which are commonly used for industrial purposes, with asynchronous alternating current (AC) induction motors the most frequently used79. Motors can be sold as standalone items, which users then incorporate into their own applications, or motors can be integrated by manufacturers into other products, such as machine tools, pumps, fans and compressors. Large electric motors are also used for industrial applications, however in contrast with mid-range motors, these tend to be bespoke and custom designed for a specific site application. 79 IEA. (2011). Energy-Efficiency Policy Opportunities for Electric Motor-Driven Systems. Retrieved from: https://www.iea.org/ publications/freepublications/publication/energy-efficiency-policy-opportunities-for-electric-motor-driven-systems.html 174 1 URGENCY 2 CONCEPT AND DESIGN Energy Efficiency Opportunities The use of electric motors in industry dominates overall motor electricity consumption, with mid- range motors accounting for the largest proportion. With electric motor driven systems estimated to account for 43-46% of all global electricity consumption, resulting in 6,040 million tonnes of CO2 emissions78, it is a key area to consider for standards and labelling schemes. In addition to the use of inherently more efficient models of motor, there are a number of areas that can be considered to help improve the efficiency of electric motor systems: • Significant gains can be made by motors that can adapt motor speed and torque to variable loads using variable speed drives (VSDs), which significantly reduce partial load losses. • The correct sizing of the motor to the intended load, as below 50% load motor efficiency can be significantly reduced. • Correct operation and maintenance are also key to reducing losses, for example reducing idle time, avoiding fast starts and overloading, and proper lubrication and replacement of gears. • Integration and optimization of the motor with the system it forms part of, for example, with efficient end use equipment such as pumps, fans, compressors etc. will help minimize energy losses. A lack of awareness of the life-cycle costs associated with motors is a common barrier to more efficient solutions being implemented. The slightly higher costs of more efficient motors available on the market is usually offset by the reduced energy consumption costs, as typically 95% of the total life cycle costs for a motor can be attributed to the electricity it uses. By 2030, potential savings from the use of industrial electric motors through the implementation of best practice MEPS by all countries globally are estimated at 322 TWh of annual electricity demand, or a saving of 206 million tonnes of CO2 emissions. Significantly greater savings would be achievable if all motor driven systems were properly optimized across the system as a whole. For example, by moving to the least life-cycle cost level as soon as technically possible, it is estimated that 42,000 TWh of electricity demand, 29 Gt of CO2 emissions and USD 2.8 trillion in electricity costs would be saved globally by 203078. To date standards and labelling have usually been applied to the motors themselves; applying them to motor systems to achieve these greater savings is another challenge. 3 IMPLEMENTATION 4 STANDARDS 175 Existing Standards and Labelling Schemes for Electric Motors There are various existing standards and labelling schemes for electric motors, a selection of which are shown below80. TABLE 12 Existing standards and labelling schemes for electric motors Country Standard Title / Scope Voluntary or Measure mandatory US 10 Code of Federal Regulations Part 431 Mandatory Minimum – Energy Efficiency Program for Certain energy Commercial and Industrial Equipment. performance standards This legislation was implemented by the U.S. Department of Energy and is part of the Electronic Code of Federal Regulations volume 3, part 431. This applies to general purpose motors, with a single speed, induction motor, rated continuous duty operation or is rated duty type, contains a squirrel-cage or cage (IEC) rotor, has a foot-mounting, is built in accordance with NEMA T-frame dimensions, or IEC metric equivalents, operates on polyphase alternating current 60-Hertz and is rated 230 or 460 volts, including multi-voltages. Canada Electric Motors (1 to 500 HP/0.746 to 375 kW) Mandatory Minimum Energy Introduced by Natural Resource Canada Office Performance of Energy Efficiency, this legislation is part of Standard the Energy Efficiency Regulations. The motors covered under this legation are 3-phase general purpose 1 to 500 (0.746 to 375 kW) electric motors. 80 Identified from the CLASP Standards and Labelling Database: http://clasp.ngo/Tools/Tools/SL_Search 176 1 URGENCY 2 CONCEPT AND DESIGN Country Standard Title / Scope Voluntary or Measure mandatory Australia Greenhouse and Energy Minimum Standards Mandatory Minimum and New (Three Phase Cage Induction Motors) energy Zealand Determination 2012 performance standards Implemented by the Department of Climate Change and Energy Efficiency in 2012, these regulatory standards for motors are published jointly by Standards Australia and Standards New Zealand. This legislation applies to three- phase cage induction motors with a rating from 0.73 kW and up to but not including 185 kW, with scope to cover motors of rated voltages up to 1100 V. Brazil Portaria Interministerial No 553/2005 Mandatory Minimum energy Introduced by the Energy Efficiency Indicator performance Steering Committee. The legislation applies standards to three-phase electric motors with a rated voltage <1000V and frequency of 50 or 60 Hz. The rated output varies according to poles, with 2 and 4 poles including 0.75 – 185 kW while 6 and 8 pole includes 0.75 to 110 kW. European Commission Regulation (EC) No 640/2009 of Mandatory Minimum Union 22 July 2009 implementing Directive 2005/32/ energy EC of the European Parliament and of the performance Council with regard to ecodesign requirements standards for electric motors Introduced by the European Commission, the legislation applies to medium 3-phased general purpose motors. The characteristics of these include 50 or 60 Hz, squirrel cage induction motors that comply with IEC 60034-1. 3 IMPLEMENTATION 4 STANDARDS 177 Country Standard Title / Scope Voluntary or Measure mandatory Turkey Turkish Official Gazette No 28197 Mandatory Minimum energy Implemented by the Ministry of Energy and performance Natural Resources and the Ministry of Science, standards Industry, and Technology, this legislation emulates EC 640/2009. This legislation covers motors with a power range of 0.75 – 375 kW. China China Energy Label – Small & Medium Three- Voluntary Label phase Asynchronous Motors Endorsement Instigated by the National Development and Reform Commission and the General Administration of Quality Supervision, Inspection and Quarantine of China. This Voluntary schemes applies to electric motors which have a voltage <660 Volts, frequency of 50 Hz, and power <315 kW. CQC Mark Certification – Low-Power Motor in Voluntary Label a Small Motor Endorsement Introduced by the China Quality Certification Centre, this legislation includes low power small motors within its scope. 2012 Minimum allowed values of energy efficiency Mandatory Minimum and the energy efficiency grades for small and energy medium three-phase asynchronous motors. performance standards Instigated by the National Development and Reform Commission and the General Administration of Quality Supervision, Inspection and Quarantine of China. This includes motors with the following characteristics: three-phase AC, <1000V, rated power of 0.55 kW to 315 kW and for grade 1 motors the rated power should be 3kW to 315 kW, 2, 4 or 6 poles. 178 1 URGENCY 2 CONCEPT AND DESIGN Country Standard Title / Scope Voluntary or Measure mandatory Korea High-Efficiency Appliances Certification Voluntary Label Program for 3 phase Induction Motors Endorsement Instigated by the Korea Energy Management Corporation (KEMCO), this legislation is part of the high-efficiency Appliances Certification Program. The scope of this legislation includes small 3-phase general-purpose motors. Minimum Energy Performance Standards for 3 Mandatory Minimum phase Induction Motors energy performance Brought about by the Korea Energy Management standards Corporation (KEMCO), this legislation is based on article 15 and 16 of the Rational Energy Utilization Act. The motors included within the scope of this legislation includes 3 phase induction motors with a rated output of >0.75 kW Fans and Blowers Overview of the technology Fans and blowers are equipment used for industrial applications to provide a circulation of air. There are two main types of fan81: • Centrifugal fans are the most commonly used type of fan for industrial applications and are capable of generating high pressures with high efficiencies. Blade types can vary and include; forward curved, radial-blade, radial-tip, backward-inclined, backward curved and aerofoil. • Axial fans create aerodynamic lift through propeller blades creating an air stream parallel to the axis of the fan. Types include propeller, tubeaxial and vaneaxial. Fans are commonly used in a range of industrial applications, including heating, cooling, ventilation, air circulation, blowing and drying, as part of building ventilation, industrial processes, IT equipment ventilation and vehicle ventilation. It is common for fans to be part of a larger system; for example, nearly all types of fans for air conditioning and ventilation are driven by 3 IMPLEMENTATION 4 STANDARDS 179 electric motors, with integrated products increasingly common for non-residential building ventilation. Common product types include roof fans, air extraction fans, air handling units and boxed fans. Other elements of the wider system can include control systems, drive systems, ducting or pipework, filters, diffusers, flow controllers and in some cases heat exchangers. Energy Efficiency Opportunities The environmental impact of fans is dominated by the use phase, and arises as a result of the energy consumption during the operation of the fan and should therefore be the focus for improving the environmental performance of industrial fans. Fans and the systems of which they are part offer a number of areas for energy efficiency improvements. Previous research82 has suggested significant improvements of up to a 30% reduction in total fan input power that can be achieved by better selection of fans, their transmissions, their motors and their controls and the better design of the wider systems. It is not just the peak efficiency of the fan that is important, but the optimal selection and matching of the various components comprising a fan system. High part load efficiencies are also important, since heating and cooling requirements change throughout the year. 81 See: http://eex.gov.au/technologies/pumps-and-fans-2/ 82 Cory, W. (2005). The role of the fan industry in the field of energy efficiency in motor driven systems. EEMODS Conference Proceedings, Part I, pp. 33-36, Fraunhofer IRB, Stuttgart. 180 1 URGENCY 2 CONCEPT AND DESIGN Additional information on energy saving opportunities for industrial fans is available from The Energy Efficiency Exchange website, which is a joint initiative of Australian State and Territory Governments83, which includes advice on reducing the demand for fans, optimizing systems and selecting the correct type of fan system. Existing Standards and Labelling Schemes for Fans and Blowers Currently, the scope of MEPS for fans are predominately focused on comfort/ceiling fans and residential ventilation units/fans rather than industrial fans. Two main exceptions are in Europe, where there is an Ecodesign Regulation for non-residential fans, and in China, where the regulatory scope is comparable to the EU legislation. Furthermore, the CLASP database84 identifies other standards and labelling under the industrial sector for China and Iran, with the indication that standards and labelling in this area are under development in the US and Jordan. TABLE 13 Existing standards and labelling schemes for fans and blowers Country Standard Title / Scope Voluntary or Measure mandatory EU Regulation No 327/2011with regard to eco- Mandatory MEPS design requirements for fans driven by motors with an electric input of between 125W and 500kW. This standard is implemented by the European Commission. Requirements apply to fans placed on the market or put into service and covers those used in commercial and industrial buildings. The scope includes individual fans as well as those integrated into other products. This Regulation is currently under review. 83 See: http://eex.gov.au/technologies/pumps-and-fans-2/opportunities/#reduce-demand-for-fans-and-pumps 84 Identified from the CLASP Standards and Labelling Database: http://clasp.ngo/Tools/Tools/SL_Search 3 IMPLEMENTATION 4 STANDARDS 181 Country Standard Title / Scope Voluntary or Measure mandatory China GB 19761-2009 Minimum allowable values of Mandatory MEPS energy efficiency and energy efficiency grades for fan This standard is implemented by the National Development and Reform Commission (NDRC) and the General Administration of Quality Supervision, Inspection and Quarantine of China (AQSIQ). The following fan types are within scope: centrifugal and axial-flow type for general use, centrifugal ID-fan for industrial steam boiler, centrifugal IF-fans and ID-fans for power station boilers, axial type fans used at power stations, centrifugal fans for AC. CQC Mark Certification - Fans Voluntary Label Endorsement This standard is implemented by the China Quality Certification Center and applies to the following products; centrifugal and axial-flow type for general use, centrifugal ID-fan for industrial steam boiler, centrifugal IF-fans and ID- fans for boiler of power station, axial type fans used at power station, centrifugal fans for AC. China Energy Label – Ventilators Mandatory Label Comparative This label is implemented by the National Development and Reform Commission (NDRC) and the General Administration of Quality Supervision, Inspection and Quarantine of China (AQSIQ) and covers the following products: centrifugal and axial-flow type for general use, centrifugal ID-fan for industrial steam boilers, centrifugal IF-fans and ID-fans for power station boilers, axial type fans used at power stations, centrifugal fans for AC. 182 1 URGENCY 2 CONCEPT AND DESIGN Country Standard Title / Scope Voluntary or Measure mandatory Iran ISIRI 10634 Fans with capacity of Mandatory Label 170-3500 m3/h, Technical Specifications and Comparative Test Methods for Energy Consumption and Energy Labelling Instructions This label is implemented by the Institute of Standards and Industrial Research of Iran (ISIRI). It covers fans with a capacity of 170-3500 m3/h. It does not cover ceiling fans or portable fans. Lighting Overview of Technology Lighting is used across all sectors, which for general lighting can include residential, office, retail, industrial, hospitality, outdoor and architectural. It is estimated that lighting accounts for approximately 15% of total electricity consumption and 5 percent of worldwide greenhouse gas emissions85. Typical industrial lighting applications include general lighting for production, assembly and storage spaces in factories, warehouses, indoor sporting areas and halls. This includes downlights, linear lights, spotlights high/low bay lights and task lighting. The four main types of lighting available are: • Filament lamps (incandescent, tungsten halogen) • Discharge lamps (fluorescent, compact fluorescent, high intensity discharge (HID)) • Solid State Lighting lamps (LED, OLED) • Induction lamps 85 UNEP-GEF en.lighten initiative. (2014). Green Paper: Policy Options to Accelerate the Global Transition to Advanced Lighting. Retrieved from: http://www.enlighten-initiative.org/Portals/0/documents/global-forum/Green_Paper_FINAL%20reduced.pdf 3 IMPLEMENTATION 4 STANDARDS 183 The general lighting market has undergone significant transformation in recent years, with a move from a market dominated by incandescent lighting to more energy efficient products, which is increasingly LED (Light Emitting Diode) technology. Legislation introduced in various regions across the world is effectively banning the sale of the least efficient products, while newer, more efficient technology is decreasing in price. Increasing electricity prices have also driven the need for more efficient products, as businesses and householders look to reduce their energy costs. Energy Efficiency Opportunities The use stage continues to result in the largest impacts from lighting as a result of energy consumption. In terms of energy efficient lighting, research highlights the importance of the complete lighting system, including the luminaire (fitting plus lamp) and lighting control. Key parameters contributing towards overall high efficiency and cost effectiveness include luminous efficacy, lifetime, eliminating early failures and dimming. Although the general trend in lighting technology is towards the increased use of LED technology, this is slowest in the industrial sector compared to other sectors such as residential, offices, shops, and hospitality, with LEDs accounting for 4% of global industrial sector lighting in 2011, with future market shares forecast at 20% and 40% for 2016 and 2020 respectively84. This is on account of application-specific reasons along with existing widely used technologies (high frequency fluorescent and HID) having high-efficacy performance, limiting the cost-benefit of adopting LED equipment. Such variations in the market at the sector level would be important to take into account when developing a standards and labelling scheme for lighting. The pace of change in lighting technology is also very rapid with new products being introduced almost continuously. Existing Standards and Labelling Schemes for Lighting There are various existing standards and labelling schemes for lighting, a selection of which are shown on the following page86. 86 Identified from the CLASP Standards and Labelling Database: http://clasp.ngo/Tools/Tools/SL_Search 184 1 URGENCY 2 CONCEPT AND DESIGN TABLE 14 Existing standards and labelling schemes for lighting Country Standard Title / Scope Voluntary or Measure mandatory South High-efficiency Appliances Certification Program Voluntary Label Korea Endorsement Introduced by the Korea Energy Management Corporation (KEMCO), the program covers: –– Fluorescent CFLs – 32W compact lamps, 26mm 32W lamps and 16mm lamps. Tubular types of rated power consumption of 20W, 28W, 32W and 40W, circular type of rated power consumption of 32W and 40W and compact type of rated power consumption of FPX 13W, FDX 26W, FPL 27W, FPL32W, FPL 36W, FPL36W, FPL 45W, and FPL 55W –– Ballast fluorescent lamps –– LED luminaires –– Reflectors for fluorescent lamps –– LED exit signs –– HID reflectors –– HID lamps –– LED traffic lights 3 IMPLEMENTATION 4 STANDARDS 185 Country Standard Title / Scope Voluntary or Measure mandatory Canada Energy Efficiency Regulations Mandatory Minimum energy Introduced by Natural Resources Canada, this performance legislation includes: standards –– Fluorescent lamps – nominal power of not <28W with a nominal length of 1200mm, a nominal power <95 W with a nominal length of 2400mm, a nominal power of <28 W with a nominal length of 560mm (U-Shaped), and a nominal power of <28W with a medium bi-pin base. –– Incandescent lamps with luminous flux of 250 – 2600 lumens, nominal voltage range of 100 – 130V. –– Fluorescent lamp ballasts – designed for inputs of 120, 277 or 347V. –– Ceiling fan lighting kits –– Exit signs –– Torchieres –– Traffic lights China Introduced by the NDRC (National Development and Mandatory Minimum Reform Commission) and AQSIQ (General Administration energy of Quality Supervision, Inspection and Quarantine of performance China), this legislation includes: standards –– HID – scandium sodium series of metal halide lamps, with a power range of 175 – 1500W –– CFL with a rated voltage of 220V, rated working frequency of 50 Hz, rated power <60W –– Fluorescent lamps – rated power between 30 and 400W, using 200V and 50Hz power supply –– HID – High-pressure sodium lamps, power range between 50-1000W and operate normally with 92- 106% of rated voltage. 186 1 URGENCY 2 CONCEPT AND DESIGN Country Standard Title / Scope Voluntary or Measure mandatory Mexico Sello Fideicomiso para el Ahorro de Energía Eléctrica No. Voluntary Label 4123 Endorsement Implemented by the Fideicomiso para el Ahorro de Energía Eléctrica - FIDE (Trust for Saving Electrical Energy). This legislation includes HID lamps, linear fluorescent lamps T5, T5HO and T8, with ballast, voltages of 120, 127, 220, 240, 254, 277, 440 or 380. Jordan Technical Regulation on Eco-design requirements for Mandatory Minimum (pending) fluorescent lamps without integrated ballast, for high energy intensity discharge lamps, and for ballasts and luminaires performance able to operate such lamps (transposition of 245/2009/EC) standards Introduced by the National Energy Resource Centre, this legislation would include fluorescent (ballast), fluorescent, low pressure sodium, self-ballasted, CFL, HID (ballast) and HID lamps. Russia Federal Law No. 261-FZ Mandatory Minimum energy Introduced by the Federal Agency on Technical performance Regulating and Metrology, this legislation includes standards incandescent lamps of >25W. Federal Law No. 261-FZ Mandatory Label Endorsement Introduced by the Federal Agency on Technical Regulating and Metrology, this legislation includes incandescent lamps under 100W and low pressure sodium lamps Turkey Turkish Official Gazette No. 28038 (transposition of EC Mandatory Minimum 245/2009) energy performance Implemented by the Ministry of Energy and Natural standards Resources and the Ministry of Science, Industry, and Technology. The legislation covers fluorescent (ballast), CFL, HID (ballast), HID, low-pressure sodium and LEDs. 3 IMPLEMENTATION 4 STANDARDS 187 188 1 URGENCY 2 CONCEPT AND DESIGN Professional / Industrial Refrigeration Overview of the Technology Professional (or industrial) refrigeration equipment includes a range of products, with key types covered by standards and labelling as follows: • Professional storage cabinets • Blast cabinets • Walk in cold rooms • Process chillers Storage cabinets, blast cabinets and walk in cold rooms, which are professional refrigeration appliances, are used to store food, but are not used for the direct displaying and selling of food to consumers – thereby distinguishing them from ‘commercial’ products. Key applications include supermarkets, groceries, butchers, restaurants, hotels, industrial facilities and professional kitchens for example in schools, hospitals, and canteens. Process chillers are used in a wide range of applications, for example to cool water for air- conditioning plants or units within industrial processes where cooling of liquids is required, for example food and drink production and processing, and in the chemical sector. Process chillers can be further categorized at low, medium and high temperature. Energy Efficiency Opportunities The main impacts from professional refrigeration as a result of energy consumption in the use phase, and direct greenhouse impacts from energy use and from refrigerants. In terms of improvements to the energy performance of professional refrigeration equipment, a reduction in energy consumption in the use phase of between 10-20% can be achieved through the implementation of a range of measures. These include the following as appropriate for the different types of professional refrigeration: high efficiency compressors / Variable Speed Drive compressors, sealing door frames, efficient fan blades, efficient motors for evaporator and condenser fans, thicker insulation, defrost control, remote condensing, electronic expansion values, strip door curtains, automatic door closure, efficient lighting, defrost control and improved heat exchangers. It is noted that many of these improvements are focused at the component level of the refrigeration appliances, and need to be implemented in combination to maximize savings. 3 IMPLEMENTATION 4 STANDARDS 189 Existing Standards and Labels for Industrial Refrigeration Plant There are various existing standards and labelling schemes for industrial refrigeration plant, a selection of which are shown below87. TABLE 15 Existing standards and labels for industrial refrigeration plant Country Standard Title / Scope Voluntary or Measure mandatory Canada Chillers – Minimum Energy Performance Standards Mandatory Minimum energy The standard is implemented by Natural Resources performance Canada Office of Energy Efficiency and covers standards industrial process chillers that use a refrigerant cycle to remove heat from liquid. Europe Regulations under the Ecodesign Directive are in Under Minimum development for a range of professional refrigeration development energy equipment, including electric mains-operated blast – will be performance cabinets, electric mains-operated professional storage mandatory standards cabinets and process chillers. United ENERGY STAR – Commercial Refrigerators and Freezers Voluntary Label States Specifications Version 3.0 Endorsement This label is implemented by ENERGY STAR and covers commercial food-grade refrigerator and freezer, refrigeration cabinet, closed refrigerator, solid door cabinet, glass door cabinet, and mixed solid/glass door cabinet. 87 Identified from the CLASP Standards and Labelling Database: http://clasp.ngo/Tools/Tools/SL_Search 190 1 URGENCY 2 CONCEPT AND DESIGN Country Standard Title / Scope Voluntary or Measure mandatory United Energy Conservation Standards for Certain Consumer Mandatory Minimum States Products and Commercial and Industrial Equipment – energy 74 FR 32049 performance standards This standard is implemented by the US Department of Energy. It covers walk in coolers/freezers with a chilled storage area of less than 3,000 square feet. Products designed and marketed exclusively for medical, scientific, or research purposes are not within the scope of the standard. Mexico Standard NOM-022-ENER/SCFI-2008 – Minimum Mandatory MEPS and Energy Performance Standards and Energy Labelling Comparative for Refrigeration Label This standard and labelling scheme is implemented by Comisión Nacional para el Uso Eficiente de la Energía – CONUEE (National Commission for the Efficient Use of Energy). It applies to the following self-contained commercial electric refrigeration appliances, new, used or rebuilt: upright coolers with one or more front-opening doors, chest coolers, chest freezers, upright freezers, closed display cabinets, cabinets for bagged ice. 3 IMPLEMENTATION 4 STANDARDS 191 18. Assessing the context and key steps to developing and implementing a standards and labelling scheme Assessing the country context in relation to the introduction of a standards and labelling scheme can be complex and will depend on the circumstances of the country in relation to a range of factors, including: • the existence or establishment of an appropriate policy and legislative framework, • existing policies and standards and labelling schemes that already affect the country, • the availability of data, resources and funding, and • the willingness of key stakeholders to engage. This section describes the key steps, which are illustrated in Figure 22, and highlights the main elements to consider when assessing the need for a standards and labelling scheme, and when developing a scheme once the decision has been made to implement. The information is of course not exhaustive as there may well be additional technology and country specific aspects to consider. The initial steps ensure that before a standards and labelling scheme is developed it: • is clear that such a scheme is required; • targets the correct product areas; and • has the necessary legal basis and institutional support. The outcome of these steps will be a detailed diagnostic of the particular country’s current situation and recommendations on what could be implemented with quantified potential outcomes. Subsequent steps then address the details of the scheme’s development and design, launch, implementation and enforcement. The final step is evaluation of the scheme, with the results of this feeding back into the development and design process by way of revisions where appropriate. 192 1 URGENCY 2 CONCEPT AND DESIGN This section provides further details on each of these FIGURE 22 Key steps for developing steps. It should be noted that this guide focuses and implementing a on the key considerations in the development of a standards and labelling standards and labelling scheme using tools, such as scheme checklists and example terms of reference. Existing information and guides on the detailed design of standards and labelling schemes already exist; please Diagnosis see the References section. Tools For each steps a number of tools have been included Targeting in this module to assist the practitioner. • Firstly, there are checklists for each stage, which Institutional and summarize the key points that need to be policy considerations considered when developing a standards and labelling scheme. These will help the practitioner in discussions with stakeholders and in understanding the issues that are relevant for the particular Development country. and Design • Secondly, examples of the scope of work for different support activities are included, which can be incorporated into terms of reference (ToR) when commissioning support from consultants. Launch • Thirdly, references to other tools and information that are available from other sources. Implementation It is important to note that the scopes of work and enforcement provided are only examples, and these will need to be tailored as appropriate to reflect the status and circumstances of the country in question. In addition to a scope of works, a ToR will normally need also Evaluation and to include background and context, assignment Revision objectives and deliverables. 3 IMPLEMENTATION 4 STANDARDS 193 The background and context for the terms of reference will vary between countries, but typically could include information on the following aspects: • Background on the drivers for the work in the country; for example, rising population, poor resource efficiency, increasing fuel demands and fuel security. High-level statistics to characterize energy use within the country and in particular for the industrial sector can provide additional context. • Identification of recent work related to the ToR; this may include work undertaken by the country’s government or other national/regional organizations, or in conjunction with external organizations or implementation partners, including the World Bank Group. • Wider context of the work, for example if other projects forming part of a wider framework, are also been considered and how they link to the standards and labelling activity. The assignment objectives will vary depending on the circumstances, but examples are included together within the scopes of works later in this Module. Deliverables will also vary, depending on the scope of work, but typically will be in the form of reports, presentations, guidance, draft regulations and the delivery of workshops. 194 1 URGENCY 2 CONCEPT AND DESIGN Step One: Diagnose the current situation The first step concerns obtaining an understanding of the current state of play regarding key aspects, including: • What are the drivers for a standards and labelling scheme, including key areas of energy consumption at the national level; • What existing standards and labelling schemes are in place or have been considered, including relevant national and regional schemes; and • Identification of key stakeholders relevant to the development of standards and labelling. Reviewing this type of information will provide relevant background information to contextualize a potential scheme within the policy framework of the country being supported. This will help inform subsequent steps and decision making. In addition to the activities covered in this section, parallel activities identified in Step 3: Institutional, policy and regulatory considerations will be important at the early stage of considering a standards and labelling scheme. This will include for example, identifying the institutional home for the standards and labelling scheme. What are the drivers – understanding energy consumption and existing policies This stage focuses on understanding the drivers for energy and resource efficiency and potentially the development of a standards and labelling scheme. A key element of this is a sound appreciation of the context of energy production and consumption within a country and the existing relevant policy and regulatory landscape. The main focus for practitioners will be on government regulatory programs. There is a need to identify and then quantify what the country is currently working towards. From the policy viewpoint, what goals have been set and the timeframe to achieve them? This is equally relevant for an industry or utility company led initiative to understand how a standards and labelling scheme would contribute to an overall policy target. 3 IMPLEMENTATION 4 STANDARDS 195 Any existing regulatory drivers aimed at energy efficiency should be identified; this may include industrial sector or product specific aspects. Existing wider instruments that may influence energy demand or the markets for energy efficient products, such as public procurement rules or subsidies should be identified. Any regional or international policy initiatives that countries need to take into account should also be identified. For example in Europe many policies related to energy are driven by requirements at the European level, and work by international programs, such as The Super-efficient Equipment and Appliance Deployment (SEAD)88 initiative may also act as a driver. It is important to understand this wider policy landscape and the drivers for it as any standards and labelling scheme should complement and align with existing policies and drivers. Energy demand, national production and energy security are at the heart of an energy efficiency policy and are the key drivers behind the implementation of many standards and labelling schemes. It is therefore useful to review and understand the dynamics of the country in terms of energy requirements. Other reasons for implementing standards and labelling schemes include greenhouse gas abatement, economic efficiency and trade agreements and/or alignment. It will be useful to understand the current energy consumption in the country, broken down by economic and industry sector, as well as understanding energy generation within the country. This will be relevant to understand how a standards and labelling scheme will help tackle the challenge of energy efficiency and quantify what it can achieve and/or needs to achieve within the context of the relevant issues identified. For example, is the country trying to stabilize current energy usage, avoid the need for new energy supplies, limit dependency etc. Energy production, including energy import, and export play a key role in the success of an economy. Many developing countries struggle with energy supply, which in turn can hinder economic growth. At this stage, there is a need to identify: • Total energy generated (if any) and how much of it is used at the national level and how much is exported (including the revenue generated). • Total energy imported and associated cost. 88 See: http://www.superefficient.org/About-Us/What-Is-the-SEAD-Initiative 196 1 URGENCY 2 CONCEPT AND DESIGN • What are the current energy supply problems faced by the country: power cuts, high energy prices, subsidized energy prices? • How does the above translate in terms of GHG emissions and any international commitments made? This information will help secure buy in for a standards and labelling scheme, and in determining its impact on energy production (or imports) and savings realized. In addition to production, understanding energy consumption is of key importance. This stage is focused on understanding what the local context is in term of the national energy consumption broken down by primary energy sources, in order to establish past trends and future forecasts (as Figure 23 shows for Egypt as an example). FIGURE 23 Energy Consumption Trends in Egypt89 100 Oil Consumption 90 (million tonnes) Energy consumption (million tonnes) Natural Gas Consumption 80 (million tonnes oil 70 equivalent) Coal Consumption 60 (million tonnes oil 50 equivalent) Hydroelectricity 40 Consumption (million 30 tonnes oil equivalent) Renewable energy 20 Consumption (million 10 tonnes oil equivalent) Primary energy 0 Consumption (million 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 tonnes oil equivalent) 89 PWC. (2015). Egypt Energy Efficiency Industrial Equipment Standards and Labelling & Implementation Plan – Diagnostic Assignment. World Bank Group 3 IMPLEMENTATION 4 STANDARDS 197 It is then a case of drilling down into the detail to understand which sectors of the economy are the most energy intensive; see Figure 24. Once key sectors are identified, further investigation into the processes and products that result in high consumption is undertaken in Step 2: Targeting a standards and labelling program, building on this initial information. Depending on the level of data available, a series of assumptions may be required to help estimate energy consumption at the more detailed level. It is important to note that standards and labelling schemes tend to focus on accessible cost effective energy savings, therefore the most energy intensive parts of the economy may not necessarily be the most appropriate areas to focus on, depending on the scope of the scheme and saving opportunities. This is addressed further in Step 2. FIGURE 24 Egypt electricity consumption by sector PERCENTAGE RATES OF SECTORAL CONSUMPTION OF ELECTRICITY IN 2012* Street Lights 2% Water Pumping 14% Household 43% Commercial 17% Industry 24% * Ministry of Energy and Mineral Resources 198 1 URGENCY 2 CONCEPT AND DESIGN Finally, it will be important to understand the drivers that are leading to growing energy demand. This can be due, for example, to: • Economic development, leading to the growth in ownership and usage of energy using equipment; • Population growth; • Increased energy intensive industrial activities; • An increase in transport and/ or car ownership (private or commercial transport); • Energy prices (this could be linked to the implementation of heavy subsidies to specific sectors or general subsidies). The example below from Egypt illustrates how these drivers were considered and the type of information that can be gathered, for example the contribution of industrial energy consumption, to help inform the decision making process when considering implementing a standards and labelling scheme. Egypt – drivers for energy efficiency In Egypt, a growing population and ongoing economic development especially within energy intensive industrial activities have led the country to change from being an oil and gas exporter to a net importer. This has a double impact: reduced income for the Government from oil revenue, and uncertainty faced due to energy shortages, increasing energy prices, and foreign energy dependence. These have the potential to reduce the rate of economic growth. It was estimated that the industrial sector consumed 44% of the energy produced and was therefore a key target sector for the introduction of energy efficiency measures, including consideration of standards and labelling schemes. 3 IMPLEMENTATION 4 STANDARDS 199 Review of current standards and labelling activities Standards and labeling initiatives or schemes can take many forms. The practitioner should review what current standards and labelling activities are operational, or what might have been operational in the past, at the national or regional level. At this stage, the practitioner should refer back to the findings from Module 2 regarding the regulatory analysis, which should have identified any regulations that would be driving or underpinning standards and labelling activities (mandatory ones). In addition, activities in Step 3, which may be undertaken in parallel to these earlier steps where appropriate, will be important to identify the underlying legislative framework under which a standards and labelling scheme might be implemented. The CLASP database, which lists worldwide standards and labelling activities by product groups, can be useful for this step – see box. CLASP Database Tool The CLASP Standards and Labelling Database is a publicly available tool that enables practitioners to search for standards and labelling by product group and country. Initial search results can then be filtered further by standard and labelling type, more specific products, policy type, policy status, and whether they are voluntary or mandatory. Information provided includes policy type, policy status and most recent effective date. The tool can be accessed from: http://clasp.ngo/en/Tools/Tools/SL_Search 200 1 URGENCY 2 CONCEPT AND DESIGN The checklist tool below summarizes the key questions to consider when reviewing standards and labelling activities and drivers. Checklist tool for reviewing S&L activities and drivers Current FF Who is managing the scheme? standards FF Is it a mandatory or voluntary standard and/or label scheme? and labelling FF What type of label is it - comparative or endorsement label? initiatives FF Is it modelled on existing schemes (EU, USA, China …)? / schemes FF Is it national or regional? running FF What products are currently covered? FF At what levels are the standards set? FF What is the level of ambition? FF What do the labels look like? FF For how long has it been in place? FF Current state of play – what has it achieved (e.g. how many products are covered, changes in the market, energy saving delivered?), or has the program stalled? If so, why? Past FF What type of scheme was it? Standards and/or labelling, voluntary or initiative(s) mandatory, comparative or endorsement? FF Who was running it? FF Was it national or regional? FF For how long was it in place? FF What products did it cover? FF What is its current status? FF Why did it stop? 3 IMPLEMENTATION 4 STANDARDS 201 Regulatory FF Are there specific regulatory drivers in place (or being developed) that drivers will support the implementation of standards and labeling programs? If so, what are they and what are their remits? Procurement FF Within the public and private sectors are there any initiatives drivers encouraging the purchasing of energy efficient products? These could be in the form of tax breaks or low interest rate loans for example. FF What relevant awareness campaigns are in place? Stakeholder identification Understanding the relevant stakeholders and their roles will also be key to understanding the current situation regarding existing standards and labelling schemes, but also to identify the key stakeholders to involve in successfully developing and implementing a new or amended scheme. Stakeholders that may be relevant to consider include: • Ministries with responsibility for energy, environment, commerce and industry, finance and taxation • National or regional standards bodies • National test laboratories (if any) • Industry trade organizations (these could be numerous and include those manufacturing/ supplying products and those buying/using them) • Chambers of commerce • Utility companies / trade associations • Environmental organizations, e.g. NGOs • International aid agencies / donor agencies • Regional co-operation bodies • Organizations running international initiatives such as SEAD Once a list of stakeholders has been identified, a more in-depth understanding of stakeholders and their roles can take place. This is best done through a mapping exercise, for example using an assessment tool such as that outlined in Map the stakeholders. 202 1 URGENCY 2 CONCEPT AND DESIGN This mapping exercise should help you to understand which stakeholders are currently active and their roles within standards and labelling activities, and identify the key players to involve in developing and implementing a scheme successfully. For example, a number of government departments and bodies might have an interest in such a program, but they will also have varying levels of influence. It is important therefore to understand which have the most influence and get them fully engaged from the outset. Identifying and engaging with the government ministries and agencies that have the legal authority to design and implement standards and labelling legislation and regulations is paramount in ensuring they are fully involved and probably leading the scheme’s development. This is further covered in Step 3. When engaging with stakeholders it is important to understand the benefits to them of involvement, as this will help bring the various groups on-board. As an example, shows the benefits identified for the development of a standards and labelling scheme in Egypt. The stakeholders identified will be important consultees in the subsequent steps for establishing an effective standards and labelling scheme. 3 IMPLEMENTATION 4 STANDARDS 203 FIGURE 25 Impacts of intervention for stakeholders • Testing • Savings in terms of requirements/systems electrical & thermal energy will improve which will facilitate overcoming eventually have a positive energy imbalances in the impact ensuring country such as fuel developing global level orie s Gov shortages, electricity verification facilities in orat t. o fE demand & supply gaps etc. b Egypt. Thus, the la • The electricity savings gy st pt Te laboratories will have the would result in reduction opportunity to upgrade its of capital investment in infrastructure w.r.t energy supply anufacturer international standards. infrastructure. EEHC & U • Carbon dioxide emissions • Lowering of electricity have grown rapidly in the demand which eventually tm past decade. The S&L would release the burden tili en program will help reduce tie of subsidy in tariffs. pm pollution and meet s ui • Provide opportunity to Eq climate change goals. design & implement large Industries scale Demand Side • It strengthens’ competitiveness Management (DSM) of local private sector initiatives. manufacturers in the global marketplace and make local markets more attractive for multinational commerce. • It helps in removing indirect • Large amount of energy / cost savings are possible. trade barriers for • It complements’ the ongoing efforts of industries to spread technologically advanced awareness towards energy efficiency. energy efficient equipment. • Accelerated adoption of new & advanced technologies. • Binding regulation helps in • The program will facilitate discontinuation of import of cheap, bringing innovation and inferior equipment in the country. confidence within the • Predominance of better quality & energy efficient equipment in the manufacturing sector to local markets. produce world class products. Source: PWC. (2015). Egypt Energy Efficiency Industrial Equipment Standards and Labelling & Implementation Plan – Diagnostic Assignment. World Bank Group 204 1 URGENCY 2 CONCEPT AND DESIGN Step Two: Targeting a standards and labelling program At this stage, the practitioner will need to gather a number of data sets to determine which products the scheme should target and focus on, and will build on the wider informtation and data collected in the previous step. Data and market analysis will help in understanding the performance of products within the target market for the prospective scheme, and enable potential opportunities for improvement to be identified by comparing this to the products available on the wider market. Together with the understanding of the policy context from Step 1: Diagnose the current situation, this will help to determine what type of standards and labelling scheme is best suited to the local economy and is likely to deliver the best energy efficiency outcomes. The checklist tool below captures the key questions to consider when considering the target areas for a standards and labelling scheme, with the box providing an example of the impact and savings identified for standards and labelling for motors in Egypt. © Hramovnick 3 IMPLEMENTATION 4 STANDARDS 205 Checklist tool for targeting an S&L program Topic Considerations Industry FF Breakdown of how energy is used within the country sector FF Rank which sectors consume most energy FF What processes and plant within that industry use most energy (e.g. motors, boilers, fans, pumps etc.) FF Understand how improved energy efficiency will help reduce energy use – which sectors/products? FF Understand how energy use is impacted by product use in the country by consumers/industry. This type of information will be gathered via reported statistics, stakeholder engagement, product datasheets, manufacturers’ information, market data (see below), and estimates based on informed assumptions etc. Residential FF Households can be large consumers of energy, however as the focus sector of this guide is on industrial products this is only highlighted for information. FF However, any equipment that could obviously achieve significant savings could be targeted, depending on the scope of the standards and labelling scheme under consideration. Market Standards and labelling schemes work through targeting very specific data product groups or products. In order to identify which products should be included in a scheme, market data is used to identify products that would deliver the largest energy savings. 206 1 URGENCY 2 CONCEPT AND DESIGN Topic Considerations Market Understand which products to target: data FF The process involves understanding how much energy particular product groups consume and the potential for improvement. It may not necessarily be the case of focusing on the largest energy consumers, with the proportion of savings in relation to energy consumed a key factor. FF Establish market breakdowns of the sales of different products and their energy consumption. This should differentiate between specific products within a technology group; for example, electric motors should be analyzed by type, size (power) and so forth. FF Establish past, present and future trends regarding the purchase of these products. Industrial products tend to be purchased/replaced in cycles, which is an important factor in understanding how fast the market can change and the energy savings that can be realized. FF Other data relevant to the market analysis include: regional/international market efficiency distributions, the technical feasibility of reaching higher energy efficiency levels, the associated incremental production and purchase price cost, the affordability to end-users and the life cycle cost implications. FF By combining the above data, it is possible to establish how fast the market could be transformed and the consequent energy savings. Market data showing the distribution of products by efficiency may not be available at the beginning of a standards and labelling scheme, in which case it may be necessary to use proxy data from other, ideally similar, economies to help derive initial savings estimates. FF Initial potential savings from energy consumption (and energy production/ imports too) can be calculated to feed into a cost benefit analysis FF Tools are available to help with such analysis, for example the CLASP Policy Analysis Modelling System (PAMS) tool, see summary below and the following link for further information: http://www.clasp.ngo/en/Tools/ Tools/PolicyAnalysisModelingSystem.aspx 3 IMPLEMENTATION 4 STANDARDS 207 Topic Considerations Market FF The outputs from such tools and the use of scenario analysis can data be used to help understand and explain the policy implications to stakeholders when establishing MEPS or labelling classes. Impact of FF There is a need to understand how the market is structured in terms standards of local producers vs global companies as this may influence target and stakeholders. labelling FF Can local producers cope with a standards and labeling program, what support would they need to ensure their products are compliant (technical training, financial support, capacity building)? FF Impacts on local industry can be sensitive to whether they design and build all parts of a product, or whether they assemble pre-fabricated and imported components. Determining this will help understanding of the needs of local industry. FF Access by manufactures to appropriate test laboratories, that usually charge for testing of products, will be an important factor and key for the implementation of a standards and labelling scheme. Further information on this is included in Step 3. FF Communicating the benefits, as identified in Step 1, of complying with a standards and labelling scheme, for example in terms of widening the local producers’ market to a more regional and global one. FF Consider impacts on importers, agents, retailers (especially within the used and refurbished market). FF Financing and lending institutions and their potential involvement. FF The impacts may vary depending on the mechanism used, for example standards, or labelling or both, and whether they will be voluntary or mandatory. 208 1 URGENCY 2 CONCEPT AND DESIGN Assessment of potential energy and cost savings, payback and GHG reduction for Egypt’s efficient motors standards and labeling program The analysis reported an estimated savings potential of more than 400 million kWh pa of electricity through the intervention of a standards and labelling program in Egypt and the resulting displacement of the purchase of standard motors by energy efficient motors from 2018 onwards. The analysis was carried out for a period of four years, from 2018 to 2021. It was estimated that such an intervention would result in annual monetary savings for the industrial sector from 35 million USD in 2018 to 70 million USD in 2021. An analysis of the payback period for replacement of standard motors by energy efficient motors gave a typical payback period of 1.28 years, thus indicating a highly economically viable option, considering the average life of motors to be 7.7 years. To gauge the environmental impact of the standards and labelling program, the reduction of CO2 equivalent GHG emissions was estimated. The analysis estimated a reduction of CO2 equivalent GHG reduction of 245 thousand tons in 2018, going up to 391, thousand tons in 2021. The program also aims to build institutional and testing capacity in Egypt to support the standards and labeling program for motors. Source: PWC. (2015). Egypt Energy Efficiency Industrial Equipment Standards and Labelling & Implementation Plan – Diagnostic Assignment. World Bank Group 3 IMPLEMENTATION 4 STANDARDS 209 The PAMS tool available from CLASP can be used to help analyze the impacts of a standards and labelling scheme. CLASP Policy Analysis Modelling System (PAMS) The CLASP PAMS tool is a publicly available tool that can be used by policymakers to assist them in assessing the benefits of standards and labelling schemes and identify the most appropriate targets for appliance efficiency levels. This is important when assessing which product to target with a standards and labelling scheme, in order to ensure it provides maximum benefits in terms of energy savings, and the impact on stakeholders in terms of monetary costs and benefits. PAMS is an Excel based model, and can be used at a basic level with limited input data, but for more accurate results country specific inputs can be added. PAMS has default values for 150 countries and three appliances, however with appropriate data sets the model can be used to assess MEPS for any appliance or equipment type, including industrial equipment. Further information is available here: http://www.clasp.ngo/en/Tools/Tools/PolicyAnalysisModelingSystem 210 1 URGENCY 2 CONCEPT AND DESIGN Step Three: Institutional, policy and regulatory considerations In parallel with or following the diagnosis of existing standards and labelling schemes and identification of target product groups, there are a series of key institutional, policy and regulatory considerations that need to be addressed if a decision has been taken to establish a new standards and labelling scheme. These issues are fundamental in ensuring that a framework is established within which the standards and labelling program can operate successfully and promote the market transformation of the energy efficiency of selected equipment and appliances. This includes aspects related to key stakeholder support, resourcing, roles and responsibilities, supporting mechanisms (in particular related to product test standards and testing capacity), consultation processes and alignment with other regulations. Establishing a sound institutional structure is vital for an effective standards and labelling scheme. Critical factors include the identification of the government body that has the legal authority to design and implement standards and labelling legislation and regulations, and that it leads the scheme’s development. Other ministries and agencies with critical responsibilities needed for the successful design and implementation also need to be successfully engaged and motivated to support the initiative. This will build and link into the stakeholder mapping in Step 1, with key implementation roles including: control of products entering the country; surveillance of products placed on the market; control of retailers; certification and conformity assessment; development of test standards; creation of stable funding for the program; awareness raising and promotional activities; industrial support; complementary incentives; and negotiation of trade alignment aspects. This needs to be done with full consultation across the various parties to ensure there is clarity on roles and responsibilities and the necessary levels of support. 3 IMPLEMENTATION 4 STANDARDS 211 As this stage of the process, it is assumed that the decision to implement a standards and labelling scheme has been made. The tool below provides a summary and checklist of the key institutional, policy and regulatory issues that should be considered. Checklist tool for S&L institutional, policy and regulatory considerations Topic Considerations Key FF Understanding the current situation will help establish the level stakeholder of political engagement and support that exists and whether this support needs to be enhanced. FF The support of key policy makers is vital for the successful implementation of a standards and labelling scheme – the political will must exist. FF This needs to include policy makers across all countries where a regional scheme is considered. FF Support from other stakeholders, for example manufacturers and trade associations will also be important, particularly where the scheme is not operated by government. Capacity FF In addition to key stakeholder support, there is the need for sufficient resources and capacity to be made available, not just for the setting up of the scheme, but also to ensure effective ongoing implementation and enforcement. 212 1 URGENCY 2 CONCEPT AND DESIGN Topic Considerations Establishment FF Any existing legislative framework, such as energy efficiency or of regional conservation laws, consumer laws, environmental laws etc. under and national which the standards and labelling scheme might be implemented regulatory need to be identified and assessed in terms suitability to identify frameworks for any gaps in the framework that need to be addressed. implementation FF A clear and transparent framework for establishing the scheme as appropriate needs to be established. This needs to outline how the scheme will be implemented, including aspects such as establishing relevant institutional bodies and key roles and responsibilities. FF This will include providing the mandate for the relevant instructional bodies or government department/organization to develop and revise product specific requirements in terms of standards and labelling. This will include aspects such as evidence gathering, stakeholder consultation and the regulatory process for adopting standards and labelling. FF The extent of the framework required may depend on the type of standards and labelling scheme proposed; a voluntary endorsement label will require less of a regulatory approach than a mandatory MEPS and comparative labelling scheme. Test standards FF Test standards are a key element of standards and labelling and procedures schemes, as they enable products to be tested and then compared on a like for like basis. FF Given that product development is increasingly international, alignment with international test standards used by key trading partners would be appropriate and reduces barriers to the introduction of the latest technologies to the local market. FF Alignment with international test standards used in established standards and labelling schemes will also mean information and analysis previously undertaken can be used to inform the development of a scheme. 3 IMPLEMENTATION 4 STANDARDS 213 Topic Considerations Test standards FF Existing national test standards will also need to be considered to and procedures avoid any conflict with international test standards that might be adopted. FF The choice of which test standards to use may depend on the products targeted and nature of their markets, e.g. whether they are generally national or international. Testing capacity FF Requiring the use of particular test standards needs to be aligned with the availability of testing capacity; are there existing suitable test facilities within the country, or would these need to be developed? FF Establishing new test facilities in a country will take time and resources, including funding. The nature of test facilities will depend on the products covered by the standards and labelling scheme and testing to be undertaken as part of the verification process. Further information on setting up test laboratories is available from the IEC90. FF If international test standards are used and the market for the targeted products is international, then testing capacities in other countries may be used. This could reduce the cost, effort and schedule for setting up the standards and labelling scheme. FF For a regional standards and labelling scheme, the testing capacity should be considered at the regional level, rather than the individual participating countries. FF Setting up test facilities may require international verification to confirm testing is undertaken in accordance with required standards. This is a further cost to consider. 90 UNIDO/IEC (2012). Setting up an electrical testing laboratory in a developing country. Retrieved from: http://www.iec.ch/about/ brochures/pdf/conformity_assessment/Setting_up_an_electrical_testing_laboratory.pdf 214 1 URGENCY 2 CONCEPT AND DESIGN Topic Considerations Regulating FF The sale and purchase of used goods often requires much lower used (second investment, and is therefore an attractive option to purchasers, hand) goods particularly in low-income markets. However, the performance of second hand products needs to be considered within a wider context to ensure this does not compromise energy efficiency and therefore overall energy consumption. FF The impact of used products can be understood by considering the life cycle costs, where the energy cost savings of a more efficient product offset a higher initial outlay. Communicating this benefit and the payback periods will help reinforce the aims of the standards and labelling scheme. FF Low cost, but poor efficiency second hand products could undermine the scheme’s aims. The impact of limiting inefficient second hand products should therefore be considered, especially where the products are relevant to low income markets. Some form of loan support may be required to facilitate the initial additional investment needed in new, more efficient products. FF Controlling the import of less efficient second hand goods is also an important consideration, particular where payback periods of efficient models are relatively high. This could be done through regulation on imports of particular second hand equipment. 3 IMPLEMENTATION 4 STANDARDS 215 Template scope of work related to Steps 1-3: The template below is for a scope of work that could be included in a Terms of Reference (ToR) when commissioning support in relation to diagnosis, targeting and institutional and policy considerations. Such templates should be revised as appropriate to circumstances to reflect the specific support required for a given country or region. Template scope of works relevant to the diagnosis, targeting and institutional and policy considerations steps Assignment Objective The World Bank is seeking a firm (the Consultant) to carry out an initial assessment of key industrial equipment energy efficiency standards and labelling practices within [insert country] in order to identify potential opportunities to improve the energy efficiency of industrial sectors. Scope of work 1. Overview of industrial sector – The Consultant will provide an overview of the industrial sector for [insert country/region]. This should include an overview of the country’s economy, the industrial sector’s role within the economy, for example GDP contribution, a breakdown of industrial sector sub-categories. 2. Policy Analysis – The Consultant will identify and analyze existing and planned policy measures related to energy efficiency. This should include country, regional and sector level policies and targets as well as relevant international, national and regional policies specifically relevant to standards and labelling. The analysis should include an assessment of how the different policies align, and their potential conflicts and synergies. 3. Identification of opportunities in standards and labelling – The Consultant will review existing data and information on energy consumption in different industrial sub-sectors to identify those sub-sectors and key product groups with significant potential for improvements in energy consumption from standards and labelling. This analysis should be quantitative and supported by qualitative information, for example, from interviews, consultation with stakeholders, reports and global market trends. The analysis should include: 216 1 URGENCY 2 CONCEPT AND DESIGN a. Market analysis for industrial equipment – This analysis should take into account the energy consumption of main industrial sub-sectors identified and the relative contributions of different types of industrial equipment. The analysis should include the market size, potential efficiency improvements, and benefits to industrial energy consumers, the energy using product manufacturing sector and the country’s overall provision of energy (cost, security of supply and environmental impact). The potential impact on manufacturers, importers, and service providers, including financing and lending institutions should also be considered. [Note for practitioners: the nature and viability of this task will be sensitive to the availability of relevant data – if this is insufficient primary data collection activities may be required, which can be time consuming and incur associated costs.] b. Evaluation and recommendations of which industrial equipment categories should be the focus of a pilot for a standards and labelling intervention. This should be based on predefined and agreed criteria, such as the potential for energy demand and cost reduction, priority for efficiency improvements of particular sub-sectors, impact on local equipment manufacturers and service providers, impact on imports etc. c. Stakeholder mapping and identification of implementation partners at government, industry and donor level. This should identify the main partners and beneficiaries of a standards and labelling scheme for prioritized products and take into account past and current initiatives and regulatory interventions on improving the energy efficiency of industrial equipment. d. Impact of a standards and labelling scheme, including an initial baseline assessment and potential impact of standards and labelling for prioritized equipment. This should include potential energy savings (kWh/year), company operational cost savings and a realistic and practical analysis of impacts from a standards and labelling scheme for the prioritized equipment. An assessment of different standards and labelling options should be undertaken. 3 IMPLEMENTATION 4 STANDARDS 217 4. Institutional and Regulatory Analysis – Based on the analysis of opportunities, the Consultant should carry out a high-level analysis of the potential for standards and labelling for the prioritized industrial equipment in [insert country]. The analysis should include: a. Institutional analysis to understand the government’s and industry’s ability to implement a standards and labelling scheme. This analysis should take into account the capacity for implementation of the scheme, the costs associated with implementation (e.g. testing laboratories, inspections systems etc.) for the different parties involved and the benefits for their institutions. b. Regulatory and administrative barriers analysis to understand regulatory barriers, incentive structure, guidelines, and strategy. The analysis should identify if there is any legislation that allows regulation of industrial equipment energy efficiency, and agencies available to develop energy performance test procedures, minimum energy efficiency standards and labelling. If there is no legislation or regulation in effect, the Consultant should aim to understand whether draft legislation is in development and the potential barriers faced. [Note for practitioners: it is likely that the institutional and regulatory analysis may need to precede or be conducted in parallel with other analyses.] 5. Implementation Plan – Based on the findings from Tasks 1-4 the Consultant should develop an implementation plan for the introduction of standards and labelling for energy efficient industrial equipment in [insert country]. This will include the development of a detailed and pragmatic work plan that identifies the activities to be undertaken, including duration, targets, key actors and associated mandates, stakeholder resource requirements and capacities, and timeframes. Activities should cover all stages of the standards and labelling scheme, including design, implementation, and monitoring and evaluation. Deliverables: • A report presenting the research, findings and recommendations from Tasks 1-4 • An implementation plan from Task 5 • A presentation summarizing the key findings and implementation plan 218 1 URGENCY 2 CONCEPT AND DESIGN Step Four: Development and Design Once the decision to develop a standards and labelling scheme has been taken, the design of the label and the level of ambition for the standards and labelling classes needs to be considered carefully. The design and format of any labelling is important, as this is the interface of the scheme with the end user/purchaser. Labels are aimed at influencing and improving purchasing choices, therefore they need to be clearly understood by consumers (either individuals or businesses depending on the product group) and contain relevant information. The levels of ambition of the standards and labelling classes set are also vital, as these are the elements that will drive the market to improved efficiency. If they are too stringent or conversely are too easy to meet, then this will reduce the effectiveness of the scheme; achieving the right balance is important. The design and development of the scheme will take time, and should be considered at an early stage of a scheme’s development. The checklist tool below summarizes the main aspects that should be considered to ensure the scheme is as effective as possible. 3 IMPLEMENTATION 4 STANDARDS 219 Checklist tool for S&L development and design considerations Topic Considerations Label design FF Label design should be started at the earliest possible stage once and format the decision to introduce a standards and labelling scheme has been made. FF Working documents with the different options and their pros and cons should be drafted to ensure the process is clear and transparent. FF Part of the design process should involve testing with focus groups, which include for example end users and manufacturers, with the feedback received incorporated into the final design and format. FF Consider existing examples for similar schemes to help with the design and format of the label, for example China, Australia or EU energy labels. FF For regional labels, the language used is important, bi-lingual labels can be used, as in Tunisia91, however the use of graphics and pictograms should be considered in order to eliminate the use of different languages where possible. This is advantageous for manufacturers, as they can then use a single label, with which purchasers across different countries will become familiar. FF A harmonized regional label provides the opportunity for manufactures to ensure their products are labelled correctly, as they can apply the labels themselves, before their products leave the factory or importer warehouses, while national labels may need to be applied at the point of sale. 91 An example image of the Tunisian bi-lingual label is available on the CLASP Standards and Labelling Database: http://clasp.ngo/ Tools/Tools/SL_Search/SL_SearchResults/SL%20Detail%20Page?m=4ff7cf19-9c66-411e-9fdc-bafeef557b08 220 1 URGENCY 2 CONCEPT AND DESIGN Topic Considerations Label design FF There will need to be some input from the standardization and format organizations and relevant ministries/implementing agencies, together with relevant testing bodies, which will depend on the test standards used, to ensure information on the label is consistent with that provided by the test standards. FF While harmonization of label design can be beneficial, for example in terms of trade, there may be cultural differences between countries that mean country specific designs are most appropriate. FF If developing a harmonized regional label, then consideration of any existing national schemes will be needed to ensure they align and compliance efforts for industry are minimized. This may include alignment or withdrawal of national labels in order to strengthen a proposed regional label. Level of FF The level of ambition of any standards e.g. MEPS, and labelling ambition / classes needs careful consideration, taking into account the market standards analysis undertaken previously to help identify target product setting groups. FF Addition market data or insights may also be required to understand current market performance and forthcoming product developments to help set standards and labelling classes at the appropriate level. This could include for example knowledge of the expected learning curve manufactures will be required to go through in relation to standards and labelling for a given product group. FF Develop labelling classes in line with any MEPS that may be set, to ensure the two are aligned. 3 IMPLEMENTATION 4 STANDARDS 221 Topic Considerations Level of FF Harmonization of the parameters and test standards used with ambition / other labels will help reduce impacts on manufacturers, such standards as cost; however, the thresholds set should reflect the market setting the standards and label are aimed at. For example, if the most advanced products have yet to penetrate the market the scheme may need to reflect this to ensure the scheme’s effectiveness is maximized. FF Verification should be in line with appropriate test standards used in criteria. Consultation FF Coordination between different parts of government is critical to a successful standards and labelling scheme. This will help define roles and responsibilities, and the necessary levels of support, as identified in Step 3. FF Consultation with interested stakeholders is vital when developing the scope and criteria for a given product group, including manufacturers and importers. FF Stakeholder consultation can provide valuable information e.g. technical developments, current product performance, sales. FF Consultation can be through various means, for example websites, focus groups and expert working groups. FF Stakeholder feedback will help inform the decision making process of the organization leading the scheme’s development. FF Scenario analysis and outputs from tools such as PAMS (see Step 2) can be used to help communicate the policy implications of standards and labelling and the setting of appropriate MEPS and labelling classes. 222 1 URGENCY 2 CONCEPT AND DESIGN Topic Considerations Timing/phasing FF The timing of introducing a standards and labelling scheme will and voluntary need to take into consideration the availability of products on the vs. mandatory market. requirements FF Industry will need advance warning particularly of mandatory elements (probably at least a year), to enable them to prepare accordingly. FF Consider introducing labels on a voluntary basis with the aim of them becoming mandatory after a couple of years. This will help acceptance and familiarity to be developed amongst manufacturers and purchasers. See the example below for India, where labelling can be either mandatory or voluntary depending on the product group. FF Consider introducing MEPS after labelling has been introduced and once the market has been reviewed to ensure there is a sufficient supply of energy efficient products – this may be 2-3 years after mandatory labelling. FF MEPS may be phased, with increasing stringency over time. FF Allow sufficient time for the market to respond to the standards and labelling requirements – for example ensuring the supply of products that comply with label/MEPS are available before it becomes mandatory, at a cost comparable with non-compliant products. FF An element of market surveillance is important to help understand how the market responds to the standards and labelling scheme to ensure it does not impact negatively and sufficient products are available. Consultation with manufacturers and importers / distributors will also help. Further information regarding implementation and enforcement is covered in Step 6. FF Consider prohibiting other labels that illustrate energy use and mandate the use of the national/regional label. This will help to avoid confusion and misleading claims. 3 IMPLEMENTATION 4 STANDARDS 223 India: Energy Efficiency Standards and Labelling Program The Indian Energy Conservation (EC) Act 2001 has provisions for mandatory energy efficiency labels and minimum energy performance standards (MEPS) for appliances. The Bureau of Energy Efficiency (BEE) is the primary entity responsible for implementing the EC Act. Energy Efficiency Standards and Labelling (EESL) is one of the priority elements of the EC Act implementation. BEE has identified refrigerators and air-conditioners as high priority equipment for the EESL program. According to the EC Act, the government will: • Specify the equipment and appliances targeted for labelling and MEPS; • Specify the energy consumption test procedures to be used; • Direct display of labels on specified appliances; and • Enforce minimum efficiency standards by prohibiting manufacture, sale and import of products not meeting the minimum standards. The Bureau initiated a standards and labelling programme for equipment and appliances in 2006 to provide the consumer an informed choice about the energy saving and thereby the cost saving potential of the relevant marketed products. The scheme covers 19 equipment/ appliance types, specifically: room air conditioners; fluorescent tube lights; frost free refrigerators; distribution transformers; induction motors; direct cool refrigerators; electric storage type geysers; ceiling fans; colour TVs; agricultural pump sets; LPG stoves; washing machines; laptops; lighting ballasts; floor standing air conditioning; office automation products; diesel generating sets and diesel operating pump sets. The first four products were included under mandatory labelling from 7th January 2010; the others are presently in a voluntary labelling phase. The energy efficiency labelling programs under BEE are intended to reduce the energy consumption of appliances without diminishing the services they provide to consumers. Furthermore, the standards and labels for refrigerators and air-conditioners have periodically been made more stringent. As a result, the least-efficient products are removed from the market as the more efficient products are introduced. During the next phase (XII) the EESL program will target at least three more equipment/ appliance types and the up-grading of the energy performance standards for equipment covered during the previous phase (XI). 224 1 URGENCY 2 CONCEPT AND DESIGN Step Five: Launch of the scheme Once the label has been designed and the standards and labelling classes set at appropriate levels of ambition, the launch of the scheme can be considered. Key elements of the launch of any scheme are the communication and training requirements. Initial thoughts regarding these can be made in parallel to the previous step, with the details finalized once the design and development of the label is complete. Only once these elements are in place should the scheme be launched. The tool below provides a checklist of the main considerations for this step. Checklist tool for the launch of an S&L scheme Topic Considerations Capacity FF The organization implementing the scheme will need to build building capacity across targeting, design, implementation, product testing and enforcement of the standards and labelling scheme. FF This will include, for example, program managers, enforcement teams, testing and technical experts. FF Relevant training material will need to be developed as appropriate. FF Knowledge sharing between standards and labeling program leads in the countries covered by a regional scheme should be encouraged, and knowledge sharing between similar individual country schemes. 3 IMPLEMENTATION 4 STANDARDS 225 Topic Considerations Communication FF A clear communication strategy is required for the implementation plan / strategy of any standards and labelling scheme. This needs to take into considerations account a number of factors, including those below. FF Understand what information is already communicated on the energy efficiency of products and to which stakeholders. This will help to ensure that the introduction of a standards and labelling scheme is aligned with any existing information provisions and takes into account the level of information already available. FF The communications strategy needs to address different stakeholders, including end purchasers, manufacturers, supplies, etc. The messaging will vary between different stakeholders. For example, manufacturers and suppliers will need to know about their obligations, whereas purchasers will need to understand the label and the benefits of selecting more efficient products. FF Communication methods can include television and radio adverts, the internet, print media (magazines and newspapers), billboard posters, point of sale information, but should be appropriate and accessible for the target population. FF Communicate the benefits of new products over second hand products, in particular reductions in life cycle costs due to energy costs savings where there may be an initial higher product price. This will help foster the market for energy efficiency products. FF Key and consistent messaging between countries, especially for a regional scheme, should be agreed. Manufacturer FF Local manufacturers that are not operating internationally may support to help struggle to meet higher energy efficient standards if they do not the transition have the R&D capacity of their international competitors. This will to designing depend on the product group sector. Such manufacturers should and producing be considered as potential candidates for support to adapt to the more efficient requirements of standards and labelling schemes. products 226 1 URGENCY 2 CONCEPT AND DESIGN Topic Considerations Manufacturer FF Local manufacturers that are not operating internationally may support to help struggle to meet higher energy efficient standards if they do not the transition have the R&D capacity of their international competitors. This will to designing depend on the product group sector. Such manufacturers should and producing be considered as potential candidates for support to adapt to the more efficient requirements of standards and labelling schemes. products FF This will need to be considered to ensure sufficient lead in times are provided to allow them to plan for compliance. FF Support may include information on product designs and manufacturing practices to help make it feasible for them to meet the required standards. This could include support for design, component selection and sourcing, engineer training, etc. FF There may be opportunities for local manufacturers to work in partnership with established international companies to produce existing equipment designs under license. Support might be provided to facilitate such partnerships. 3 IMPLEMENTATION 4 STANDARDS 227 Step Six: Implementation and enforcement When developing a standards and labelling scheme there are a number of practical implementation and enforcement elements that need to be designed to ensure the scheme can operate effectively once launched. The checklist tool below summarizes the key considerations for this step. Checklist tool for S&L implementation and enforcement Topic Considerations Manufacturer FF A clear process for receipt and processing of applications from applications manufacturers for voluntary elements of the standards and labelling / product scheme needs to be introduced to ensure it is implemented registration correctly, for example, only products that meet the relevant criteria should display the label. FF As part of the application process, conformity with the criteria for MEPS will need to be checked. FF Verification can be undertaken by third party organizations or self-declarations by the manufacturer. This will have cost and administration implications, and will influence how robust and impartial the scheme is viewed. FF Dealing will applications will usually be the responsibility of the organization in charge of implementing the scheme. FF Product registration will be useful to enable a product database to be developed, against which monitoring and enforcement can be checked. 228 1 URGENCY 2 CONCEPT AND DESIGN Topic Considerations Product FF If the scheme is regional, then a database at the regional level will registration minimize the burden for manufacturers and individual countries. database / FF Relevant information to capture in the database includes: Enforcement o Model numbers / names under which the product will be sold database o Manufacturer / importer / distributor contact details o Product characteristics, e.g. description/key features o Details of country of origin and country(s) the product will be sold in (those covered by the scheme) o Test details, including by whom and where the testing was undertaken and a copy of the test report / results o Person giving approval for inclusion in the database FF If not regional, then a clear structure needs to be provided to countries covered by the label to ensure relevant and consistent information is collected. FF Further information on suitable databases can be found in SEAD report ‘SEAD Energy Efficiency Data Access Project 0 Final Report’ 92 Monitoring FF Market surveillance is important at different stages of the of the market development and implementation of a scheme. This includes – market initial product selection and the levels of ambition for criteria, surveillance but also going forward in terms of how the market is changing (transforming). Understanding the transformation of the market will help to assess the effectiveness of the standards and labelling scheme and inform future revisions to the criteria or labelling classes, and the inclusion of new products. FF Monitoring of the market will usually be initiated by the organization implementing the scheme, but may involve others such as market research bodies and/or industry trade associations. 92 SEAD. (2013). SEAD Energy Efficiency Data Access Project: Final Report. Retrieved from: http://www.superefficient.org/~/media/77903201309C443ABBE8622809582EE7.pdf 3 IMPLEMENTATION 4 STANDARDS 229 Topic Considerations Monitoring FF In addition, compliance monitoring will also be required, this is of the market covered below under enforcement. – market FF Establishing a database of approved products will help market surveillance surveillance and compliance. Enforcement FF Compliance monitoring is vital to ensure the ongoing integrity of / Compliance the scheme. Checking FF This will need to be proportional and will depend on the basis of the scheme, for example whether it is voluntary or mandatory. FF Countries will need to decide how enforcement will be managed, including allocation of resources, who will undertake enforcement and the penalties to be imposed where failure to comply is identified. FF Typically, compliance monitoring can include site/warehouse visits, checking of promotional material, etc. FF Enforcement activities are likely to be undertaken, at least in part, on a risk basis in order to maximize the effectiveness of available resources; for example, a focus on suspect manufactures and/or distributors or particular product types might be appropriate. FF More technical aspects such as reviewing product test results is likely to require specialist knowledge in determining the energy efficiency of products and an understanding of products’ functionality. FF For a regional scheme, a few regional experts to assist individual countries would help ensure consistency, and help to minimize costs. FF Tools and guidelines on enforcement and compliance monitoring will need to be developed. For example, guidelines on the analysis of test results; tools on product registration and authorization for confirming MEPS or a given energy class has been met; database structures, etc. 230 1 URGENCY 2 CONCEPT AND DESIGN Topic Considerations Enforcement FF Types of enforcement activities can include: / Compliance o Verification testing, following relevant test standards Checking o Documentation checks, especially at borders o Point of sales visits – check labels are displayed correctly and are in the appropriate format / include the required information o Importer / distributor warehouse visits – is labelling correct, are there any non-conforming or proscribed products o Manufacturer facility visits – confirm design documentation, ensure correct label usage, ensure components etc. have not been substituted following initial testing o Guidelines for customs authorities to verify imports against the list of approved products o Checklist for assessing manufacturers’ / suppliers’ promotional material – does it comply with the use of the label as outlined in the framework/rules of the scheme. 3 IMPLEMENTATION 4 STANDARDS 231 Step Seven: Evaluation and Revision Once a scheme is established and starts to be used, periodic reviews will be needed to evaluate performance and identify any shortcomings that should be addressed, for example through the revision of the scheme’s framework, or revision of product specific standards or energy classes. Key to this will be understanding how the market has changed as a result of the standards and labelling to ensure they remain effective. Key considerations are captured in the checklist tool below. Checklist tool for S&L evaluation and revision Topic Considerations Evaluation FF Similar to the market review required to help identify target product groups at the initial stage of developing a scheme, further Market reviews market reviews will be required to understand the impact of the and revision scheme and the level of market transformation. This will again of standards include aspects such as sales and product performance. and labelling FF Undertaking this type of evaluation is required to ensure any MEPS schemes and labelling classes continue to reflect the market and remain effective at promoting energy efficient products. FF The resourcing and scheduling of such reviews needs to be considered and factored into the overall scheme. FF Where the market has advanced significantly, a revision of the MEPS or labelling classes may be required to ensure the scheme continues to promote the most energy efficient products. 232 1 URGENCY 2 CONCEPT AND DESIGN Topic Considerations Market reviews FF Such a review could be undertaken by a detailed study of the and revision market, or at a higher scoping level, for example in consultation of standards with key stakeholders such as key industry experts, although and labelling matters of impartiality need to be addressed appropriately. schemes Template scope of work related to Steps 4-7: A template is provided below for a scope of work for inclusion in terms of reference when commissioning support in relation to development and design, scheme launch, implementation and enforcement, and evaluation and revision. The template should be tailored as appropriate to reflect the specific support required. Template scope of works relevant to the development and design, scheme launch, implementation and enforcement, and evaluation and revision steps. Assignment Objective The World Bank is seeking a firm (the Consultant) to provide implementation support for the introduction of a standards and labelling scheme for [insert industrial equipment types] in [insert country]. This will include policy, regulatory, communication and design support. Scope of work: 1. Label design and format options should be assessed by the Consultant. This should include: a. A review of existing international and national labels for similar schemes and equipment. b. Different labelling options should be presented together with their advantages and disadvantages. The potential use of harmonized labels should be considered and assessed. 3 IMPLEMENTATION 4 STANDARDS 233 c. Consultation with relevant stakeholders (for example end users, manufacturers, testing bodies, etc.) on different labelling options should be undertaken. This should include the testing of different labelling designs with focus groups. [Note for practitioners: Market research tools can also include quantifiable analysis, which may be appropriate depending on circumstances, alongside tools such as focus groups.] d. A recommendation on a proposed label design and format should be made based on the research and consultation exercises. 2. Legislative framework development support for a standards and labelling scheme will be provided by the Consultant to the responsible organization / department in [insert country] for policy making. This support should focus on the development of the overarching framework for a standards and labelling scheme including: a. Assistance in developing and drafting regulatory proposals for a standards and labelling scheme in [insert country]. This should take into account the cost of and the capacity for implementation. [Note for practitioners: This is only an example, depending on circumstances assistance may also be needed in developing the regulatory framework first, and then the regulations beneath that.] b. Supporting consultation processes on regulatory proposals, including workshops, seminars and written consultations, analysis of feedback and updates to the regulatory proposal. c. Identification and allocation of key roles and responsibilities within the proposed scheme across different organizations and stakeholders. This should include capacity and training support as appropriate for relevant agencies. 3. Market preparedness and industry awareness raising Building on the market analysis undertaken as part of the identification of standards and labelling opportunities, the Consultant should hold a series of consultative meetings with manufacturers, suppliers, importers and service providers and share with them global and regional good practice on [insert industrial equipment] standards and labelling. The market potential and financial benefits should be communicated based on quantitative market information. The consultant should also identify other ways in which these industry stakeholders can benefit from a [insert industrial equipment] standards and labelling scheme. Efforts should be made to bring together different groups of stakeholders, including manufacturers and service providers, industrial energy consumers, business associations, government officials, 234 1 URGENCY 2 CONCEPT AND DESIGN test bodies and relevant NGOs in order to formulate a phased action plan for marketing and awareness raising that will benefit these stakeholders. The planned activities should help develop marketing messages and help to identify and coordinate with potential media and communication outlets. • Deliverables – Detailed marketing and communication strategy for the various stakeholder groups that is practical, cost sensitive and with greatest reach. 4. Development and drafting of regulations and standards – The Consultant should work with relevant government agencies to develop appropriate standards and labelling for [insert industrial equipment]. This should include: a. Development of an evidence base to inform the setting of standards and labelling classes for [insert industrial equipment] in particular, the key parameters to be included and the level of ambition at which standards are to be set. This analysis should include, but not be limited to: a review of relevant existing standards and labelling at national and international levels; stakeholder consultation; review of market data including sales and environmental performance of current and future products / technologies; identification of key environmental impacts; assessment of improvement potential and finalization of baselines and policy recommendations (including draft standards, labelling classes and associated efficiency levels, balance between standards and labelling and how they align, basis of scheme (voluntary vs. mandatory), transitional periods). A clear rationale for all proposals and decisions should be outlined. [Note for practitioners: The workload for this package of work is likely to be significant and may need to form a separate tender in its own right.] b. Assisting relevant government agencies in the drafting of regulations, standards, guidelines, and other forms of legal text to help implement and promote the scheme. These outputs should be implementation ready and take into account costs and capacity of the relevant agencies in [insert country] to ensure they are practical and there is the ability of the government to implement them. Sensitivity should be given to the legal provisions that can be readily implemented by the government of [insert country], which are in line and do not conflict with the overarching legislative framework for the standards and labelling scheme. 3 IMPLEMENTATION 4 STANDARDS 235 5. Implementation support – Following the establishment of a standards and labelling scheme for [insert industrial equipment], the Consultant should provide guidance and implementation support to the various stakeholder groups, including but not limited to: a. Policy makers – Assist relevant parties as necessary following approval of standards and labelling regulations. This may require workshops and seminars to support the regulations, and assistance on marketing and communication of the legislative framework for the standards and labelling scheme, and specific regulations for [insert industrial equipment]. The proposed monitoring and evaluation framework should be piloted and put into operation. b. Manufacturers, suppliers and service providers – Assist this group of stakeholder to prepare for and take advantage of the standards and labelling scheme. c. Business associations – The consultant should engage with the relevant business associations for [insert relevant industrial sectors] to ensure they are promoting efficient [insert industrial equipment] opportunities and the scheme within these industries. d. Financial institutions – Financing is a critical part of energy efficiency for industries. To support the scheme, the consultant should work with potential funders in order to link businesses to banks that provide lending services to firms within the appropriate sectors. Support in identifying adequate government funding for its activities, including the compliance infrastructure should be considered. 236 1 URGENCY 2 CONCEPT AND DESIGN 19. Detailed Case Study: Implementation of a standards and labelling scheme in Egypt Introduction This case study provides insight into the practicalities of developing a standards and labelling scheme for industrial equipment. The case study focuses on the diagnostic phase of establishing a standards and labelling scheme for electric motors in Egypt, which was completed in May 2015. However, key considerations and recommendations with respect to the implementation phase that arose from the diagnostic analysis are also highlighted. It is important to note that this case study is included as an example only to illustrate some of the issues and practical considerations when developing a standards and labelling scheme. It does not necessarily reflect a model approach for use in different countries. Each country will have its own set of circumstances that will need to be considered specifically and addressed accordingly. Background and Context The key drivers that are influencing energy use in Egypt and the impacts this is having are important to understand as this provides important context for the consideration of policies to address particular issues, including the introduction of a standards and labelling program for industrial equipment. The industry and residential sectors are the main electricity consumers in Egypt, with 33% and 40% of demand respectively. Demand is forecast to continue rising, with electricity consumption in each of the industrial and residential sectors due to exceed 80,000 GWh per year by 2020. The growth in energy consumption, which affects oil and natural gas in addition to electricity, is driven by population growth, economic development, increased energy intensive industrial activities, increased vehicle sales (private and commercial) and energy subsidies. This has resulted in Egypt struggling with its energy security in recent years, with serious energy shortages to meet local demands. These issues have implications for the country’s economic growth, with impacts arising from imbalances in the energy sector, including: shortage of fuels; reducing revenues 3 IMPLEMENTATION 4 STANDARDS 237 from the export market; widening budget deficits; and an increasing energy subsidy burden. In addition, there are the environmental impacts associated with increased energy consumption. Why focus on the industrial sector? The first key step to successfully implementing a standards and labelling scheme is to undertake a diagnostics analysis to identify the areas on which to focus and to identify gaps in the current institutional and regulatory frameworks that need addressing. Egypt already has a standards and labelling program focused on consumer equipment, which covers products such as lighting, fridges and freezers, air conditioning units, washing machines and electric storage water heaters. This program is administered by the Egyptian Organization for Standards and Quality (EOS). In response to the issues highlighted above and the importance of the industry sector in terms of electricity consumption, consideration has been given to extending the program to include industrial equipment. Improving the energy efficiency of products has an important role in helping reduce consumption, with analysis at a global level, identified by Egypt in its diagnostics analysis, highlighting the significant potential energy efficiency savings available in the industrial sector. Understanding the industrial sector – what to focus on? In order to consider expanding the standards and labelling program to include industrial equipment, Egypt undertook a more detailed analysis of its industrial sector, as part of the diagnostic phase. This was done to provide greater understanding of where and how energy is used within the industrial sector in order to inform the focus for subsequent activities, including the identification of potential product groups on which to focus. The initial step undertaken was to understand the industrial sector in Egypt further, by identifying key industrial sectors and activities in Egypt and the number of industrial facilities within the country. This was achieved by using existing information to understand the importance of different sectors i.e. agriculture, industry and services together with stakeholder engagement to help categorize industry activities and the number of facilities within Egypt. Textiles, food processing, tourism, chemicals, pharmaceuticals, hydrocarbons, construction, cement, metals and light manufacturing constitute the major industries in Egypt, with an estimated 30,000-40,000 registered industrial facilities within the country, which include micro, small, medium and large enterprises. 238 1 URGENCY 2 CONCEPT AND DESIGN Identifying the energy consumption of different industrial activities is key to ensuring the standards and labelling scheme focuses on the most relevant areas. Industrial activities were categorized as energy intensive and non-energy intensive, with data from the Ministry of Petroleum identifying the steel, cement and fertilizer industries as the largest primary energy consumers. Further data on electricity consumption identified the metal (iron & steel, aluminum etc.), cement, food, textiles and fertilizer industries as the major consumers of electricity in Egypt. Which industrial products groups should be included? A successful standards and labelling scheme needs to target opportunities with impacts and product groups that are suited to the standards and labelling approach. As part of the diagnosis phase Egypt analyzed the following products, to assess the potential impact and appropriateness for inclusion within a standards and labelling scheme: • Industrial motors; • Industrial fans; and • Industrial boilers. For each product group the approach to the analysis was broadly the same. This is briefly outlined below, using the example of motors to illustrate how the activities were undertaken and the types of issues that arose. Product categorization, for example providing an overview of the different types of motors available on the market and those most relevant to industrial applications. Electricity consumption data for different applications and types of products within a broader product group is important in identifying those most important in terms of energy use. This information was gathered from existing data sources. For example, a global analysis for the sector wise distribution of electricity demand for motors was identified in a paper by the International Energy Agency (IEA). Further analysis undertaken by UNIDO was also identified as part of the Egyptian diagnosis analysis, which identified pumps, fans, ventilation systems and compressed air systems as the main electricity consuming motor systems in the industries in Egypt. The relative importance of these different motor systems varies between industries, with information identified from the IEA on the typical split of these different uses across different industry types. 3 IMPLEMENTATION 4 STANDARDS 239 The level of existing information available will vary between countries, and several different sources are likely to be required in order to establish the level of detail and understanding required. Where existing information is not available, for example through previous studies and reports, other sources may need to be used, for example consultation with key stakeholders and/or modelling where the level of information available enables reasonable assumptions to be made. Understanding the market for the product group is important, as this will be used to help assess the potential improvement and impact of a proposed standards and labelling scheme. The diagnostic analysis included consultation with a range of organizations to help identify data and understand the market for motors in Egypt. The discussions with stakeholders established that there is limited information on market data of motors in Egyptian industry. This is not an uncommon problem, and in many cases identifying market data will be challenging, with data not existing or unavailable, for example due to manufacturers’ commercial confidentiality. In the case of Egypt, the Central Agency for Public Mobilization & Statistics (CAPMAS) was able to provide some market data on total electric motors sales for the 2011-2013 period. This left remaining issues to be resolved, for example identifying the sales in specific industrial sectors and the sales by size/capacity of the motor. A review of the literature identified a further paper detailing the Egyptian motor market segmentation by size of electric motors. This data was 18 years old, which raised concerns about its applicability to the current market structure. Instead, an alternative top-down approach was used, based on more recent global analysis of motor markets undertaken by the IEA. The IEA analysis indicates industrial motors represent 10% of overall electric motor market globally. Applying this to the total motor sales in Egypt provided by CAPMAS it was estimated the industrial motor market in Egypt to be approximately 1 million units in 2013. These are principally medium sized motors, which are the most significant consumers of electricity, accounting for 68% of total electricity consumption. Smaller motors are mainly used in residential and commercial applications, and larger motors are usually bespoke designs. Based on this information, Egypt focused its further analysis on medium sized motors with respect to developing a standards and labelling scheme for industrial motors. 240 1 URGENCY 2 CONCEPT AND DESIGN Energy savings potential in motors and motor systems (i.e. systems incorporating motors) was the next aspect to be assessed. The potential level of improvement was identified from the literature, for example, efficient motor designs can improve energy efficiency by up to 10% in comparison with standard motors. The additional cost of efficient motors also needs considering, with a 20% premium identified, which results in a relatively short payback period of a few years and an attractive lifetime economic performance. Motor systems are more complex and energy efficiency improvements can be made not only using higher efficiency motors, but also the efficient design of the system itself and components used, such as pumps, compressors and fans. Information on motor systems in industries at a global level, this time undertaken by UNIDO, was identified to provide information on average saving potentials, which was based on several US and EU studies. This information was used to estimate potential savings in Egypt – see below. Challenges to the implementation of energy efficiency measures for industrial motors do exist and were identified as part of the diagnosis analysis. These included: • limited end user control over the efficiency of motors in motor systems; • investment decisions largely made on initial cost, not taking into account lifetime running costs; • energy efficient motors being mostly imported into Egypt at high prices, limiting the availability of such products at reasonable prices; • a lack of knowledge amongst operators on how to run motors efficiently; • the absence within companies of an incentive to purchase efficient equipment where there is a disconnect between the purchasing department and the department responsible for energy costs. It is important to understand such challenges, as they will influence how a standards and labelling scheme is implemented; for example, the scope of products/systems targeted and the level and type of communications and awareness raising that is required. 3 IMPLEMENTATION 4 STANDARDS 241 Opportunities to improve energy efficiency through standards and labelling were considered. This was initially done at a high level to consider the applicability of such measures to standalone motors and motor systems. The conclusion of this analysis indicated that the initial priority should be on the motor component, with labelling of wider components of systems something that could be considered in the future. This would address standards for new products. Optimization of existing stock would not be addressed through standards and labelling, with options such as energy audits and capacity development more appropriate for addressing this aspect. Global MEPS programs were reviewed to help inform the development of the standards and labelling scheme in Egypt. This review helped to identify relevant test standards and the parameters and benchmarks set, for example in relation to the efficiency of electric motors. Energy saving potential in Egypt for industrial motors was calculated using a top down approach. This was used due to the limited availability of reliable data on market size and electricity consumption of electric industrial motors in Egypt. It was therefore considered the most appropriate approach to provide a best-estimate of electric motor electricity consumption and savings potential, based on the data collected through the various sources, identified in the above steps, and the setting of appropriate assumptions. The key stages of the top-down approach were as follows: • Determine total electricity consumption in Egypt. • Estimate electricity consumption in the industry sector. • Estimate electricity consumption by motors in the industry sector. • Market segmentation of the motor market based on capacity and calculation of energy consumption for each capacity category, small, medium and large. • Develop assumptions to derive stock and annual sales for each motor category. • Identify the focus capacity categories and potential savings from standards and labelling by promoting energy efficient motors. Key assumptions were as follows: • Average annual growth rates for electricity consumption to forecast consumption from when the standard and labelling scheme would be implemented, i.e. 2018. • Assumptions, based on information from the literature, regarding percentage electricity consumption in industries and for the different capacity sizes (small, medium and large) were made to calculate electricity consumption for each size. 242 1 URGENCY 2 CONCEPT AND DESIGN • Existing stock was calculated based on the total electricity consumption for the different capacity categories and assumptions on the median size, annual hours of operation, load factor, average efficiency and average life, based on analysis by IEA. • Sales were calculated based on the replacement of existing stock and addition of new stock, using lifetime assumptions already established. It was also assumed that all stock prior to 2018 were standard motors, and they would be replaced with efficient motors. • To calculate the energy efficiency improvement potential, a 10% improvement was assumed. • Further assumptions were made in relation to power plant capital costs, fixed operations and maintenance costs, variable operations and maintenance costs, GHG conversion rates, average electricity prices for medium sized industries, annual operation hours of power plant, transmission and distribution losses and average power plant capacity factor. These assumptions enabled the avoided generation capacity and associated cost savings to be calculated. Simple payback calculations were also made, indicating a payback period of only 1.28 years when specifying an energy efficient rather than standard motor. Assumptions were formed to calculate the payback on the following parameters: motor efficiency and price; operating conditions (hours of operation per day, days operated, lifetime, loading); and electricity prices for medium sized industries. Conclusions of analysis for electric motors The analysis enabled the following conclusions to be drawn for motors: From a standards and labelling perspective the focus should be on medium sized motors, as these are mainly used by industry and account for significant electricity consumption. Although small motors have significant stock and sales, they account for a relatively small proportion of the total electricity consumption by industry (less than 10%). The benefits of standards and labelling of medium sized motors are summarized below: Industry Benefits • Potential for saving more than 400 GWh of electricity annually by replacing the new purchase of standard motors by energy efficiency motors. Savings range from 439 GWh in 2018 to around 700 GWh in 2021. • The electricity savings would result in annual monetary savings varying from 35 million USD in 2018 to around 70 million USD in 2021. 3 IMPLEMENTATION 4 STANDARDS 243 Benefits to government and power generation units • The electricity saved by energy efficient motors in industries would result in substantial electricity demand reductions at power plants, which in terms of avoided generation capacity would equate to ~100 MW in 2018 and ~160 MW in 2021. • These savings are extremely important for the Egyptian government, which is already struggling with an energy crisis due to fuel shortages. Further considerations In addition to understanding the market and the improvement potential of different products types, other key parameters were considered as part of the diagnostic assessment for Egypt to help inform the decision making process. Stakeholder Group Identification and Mapping included the identification of stakeholders as shown in Figure 26. FIGURE 26 Egypt Motors S&L Stakeholder Group Identification and Mapping GOVERNMENT Supreme Energy Ministry Egyptian Ministry of Petroleum Planning Energy Efficiency of Trade & Organization for & Mineral Resources Council (SEC) Unit (EEU) Industry (MOTI) Standardization (MOTI) (MOP) Energy Egyptian Organization Ministry Federation MOEE and its Execution Efficiency for Standardization of Trade & of Egyptian subsidiaries: Units (EEUs) and Quality (EOS) Industry (MOTI) Industries (FEI) EEHC & NREA The Egyptian Electric Utility Egyptian Environmental Regulation & Customer Protection Affairs Agency Regulatory Agency (EEUCPRA) (EEAA) INDUSTRIES Federation Egypt Industrial Egyptian Energy General Organization of Egyptian Modernization Service Business for Export, Import Industries (FEI) Center (IMC) Association (EESBA) & Control (GOEIC) DONORS World Bank Group GEF UNDP UNIDO MENA Trust Fund Note: Position of the boxes does not respresent any hierarchy or relationship between the entities. 244 1 URGENCY 2 CONCEPT AND DESIGN The existing standards and labeling scheme for domestic appliances was reviewed, and an overview of the current status of developments provided. This helped to identify the roles of various stakeholders, and the capacity gaps and other issues that existed. This insight is helpful to the implementation of the industrial standards and labelling scheme. Institutional capacity in Egypt was reviewed in consultation with stakeholders to assess existing capacity and identify gaps. The need for clear roles and responsibilities was identified, with multiple organizations currently working together to define energy sector policies, but not enough clarity on implementation responsibilities. It is therefore considered important for the Egyptian government to appoint a single authority responsible for the implementation of the standards and labelling scheme. The readiness economy for implementing S&L program for industrial equipment in Egypt has been considered by undertaking institutional and regulatory analysis, including discussion with IFC, World Bank and other stakeholders in Egypt. Key institutional aspects that require addressing for an industrial standards and labelling scheme in Egypt include: • a clearly defined institutional structure including roles, responsibilities and authorities; • increased technical training of staff; • development of standard guidelines; • the legal basis of the establishment of technical committees and the formation of technical committees for relevant industrial products; • establishment of in-country test infrastructure for industrial equipment; • development of standard energy saving calculation methodologies; • evaluation of the needs and mechanism for financial assistance; • clear processes to enable data collection; and • the development of monitoring, verification and enforcement guidelines. 3 IMPLEMENTATION 4 STANDARDS 245 Key regulatory aspects that need addressing include: • the development of energy efficiency regulation for industrial equipment; • national test protocols, which are currently not available; and • the provision of legal sanctions for non-compliance. Summary Based on the understanding gathered from the analysis, a final matrix (Figure 27) was developed taking into consideration impact, approach and implementation factors to provide an overall rating for the implementation of standards and labelling for different components of electric motor systems and boilers. This clearly identified stand-alone electric motors as the priority for an industrial standards and labelling scheme: FIGURE 27 Egypt Motors S&L Summary Matrix Parameters Electric Motor Systems Boilers Standalone Pump system Compressor Fan System electric motor system Energy input Electricity Electricity Electricity Electricity Fuel Consumption share H M L L L Impact Potential energy saving % H M H M L Reach / level of application H M L M L Potential energy saving % H H H M L Approach Ability to comply / transform market H H H L M behaviour Level of complexity for product H M M M H standard to up-take reform Ease of Implementation Nature of product from Standard & H M M L L Labelling point of view Do international MEPS targeted for H H H H H S&L exists? Nationalized test standard available? H H H H M Priority from the point of view Goes H M M M L and industry stakeholders Overall Rating High Medium/High Medium Medium/Low Low 246 1 URGENCY 2 CONCEPT AND DESIGN Next Steps – Implementation Considerations The activities described above provided the evidence for the business case to support a standards and labelling scheme in Egypt, in particular for electric motors. The next stage that Egypt will focus on is the implementation of the standards and labelling scheme. As part of the diagnosis phase, an implementation plan identified the key steps, together with key considerations that Egypt will need to consider. Market Analysis will build on the analysis undertaken in the diagnosis phase outlined above. In addition to market information on motor equipment, this should also include an assessment of the testing infrastructure specific for electric motors, applicable test standards and a review of global standards and labelling schemes for electric motors. The aim is to develop a standard methodology for the market analysis, which can be used for other products in the future. Test procedures are crucial to standards and labelling schemes. In Egypt there is no national test procedure for industrial electric motors, therefore one will need to be developed. This will need to take into account existing international standards to ensure international trade and competitiveness in local markets can be facilitated. Development of MEPS will be developed by EOS through legislative procedures. This will include discussions with stakeholder groups and experts to develop the MEPS and the introduction, for example on a phased basis with increasingly stringent requirements introduced over time. This will include a revision schedule as part of the scheme’s roadmap so that industry can plan and revise equipment designs in advance. Generating energy performance data for electric motors will be a significant activity for the implementation of the standards and labelling scheme. Two key aspects need to be addressed. First EOS will need to develop a system to collect and record test reports from manufacturers based on the final test procedures agreed. Secondly, there is currently no test facility for industrial motors in Egypt. This gap will need to be addressed in the longer term to enable EOS to test sample equipment. 3 IMPLEMENTATION 4 STANDARDS 247 Launch of a standards and labelling scheme for electric motors can be done once standards are set and test requirements established. EOS will need to consider, along with implementing partners and stakeholders, whether to introduce a voluntary or mandatory scheme. They will also need to develop an outreach campaign to communicate effectively about the scheme and its benefits. It has been recommended that this include a web portal, which is updated regularly. Monitoring verification and enforcement protocols will need to be developed by EOS. These will need to include the roles and responsibilities of EOS staff and stakeholders (e.g. manufacturers and suppliers) to ensure that monitoring, verification and enforcement is effective. Training and capacity building will be key to ensure the successful implementation and management of the standards and labelling scheme. A review of training needs in Egypt in proposed, in consultation with EOS, following which a training strategy can be developed. This will build the capacity of EOS staff and other stakeholders towards international best practices. A 30-month timeline has been proposed and outlined as part of the diagnostic phase for the above implementation activities. 248 1 URGENCY 2 CONCEPT AND DESIGN 3 IMPLEMENTATION 4 STANDARDS 249 References Aden, N., Bradbury, J. and Tompkins, F. (2013). Energy Efficiency in U.S. Manufacturing: The Case of Midwest Pulp and Paper Mills. 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Retrieved from: http://documents.worldbank.org/curated/en/771681470127138842/ pdf/107348-WP-World-Bank-Incentive-V30-PUBLIC.pdf World Resources Institute. (2014). 6 Graphs Explain the World’s Top 10 Emitters. Retrieved from http://www.wri.org/blog/2014/11/6-graphs-explain-world%E2%80%99s-top-10-emitters World Resources Institute. (2014). GHG Protocol Policy and Action Standard. Retrieved from https://www.wri.org/sites/default/files/Policy_and_Action_Standard.pdf 255 If you have a printed version of this guide, you can also view a PDF version that is interactive. This is accessible from the following link. www.worldbank.org/........ World Bank Group World Bank Group Cert no. SGS-COC-2528 Cert no. SGS-COC-2528