Why are the European energy labels changing (again)?

energy
The information sticker was introduced in the EU in the 1990s. Shutterstock

By Corinne Faure, Grenoble École de Management (GEM) and Joachim Schleich, Grenoble École de Management (GEM)

If you went shopping for a refrigerator or a washing machine in Europe these past weeks, you might have noticed that some appliances have a new energy label. This is not the first time these labels change, why is this happening? The short answer is very simple: because they work! A more complete response below.

Why an energy label?

Household appliances and lighting are responsible for about 60% of total EU residential end-use electricity consumption (Eurostat, 2019. To accelerate the diffusion of energy-efficient appliances, the EU and other countries have long relied on minimum energy performance standards and energy labels.

Minimum standards remove the worst energy performing appliances from the market. A way to protect consumers from purchasing appliances that may have lower purchasing costs but higher costs of total ownership (therefore higher costs once taking into account the costs of using the appliances over the years) than more energy-efficient appliances.

Labels are meant to help consumers make more informed choices by showing them the relative energy efficiency of appliances through the provision of observable, uniform, and credible information. Energy labels typically show a rating of the appliances on energy efficiency classes, along with expected energy use in kWh/year. The current EU energy label comprises of seven energy efficiency classes visualized by horizontal bars of different colors and length. In the EU, 28 product groups are currently covered by minimum standards and 16 product groups by mandatory energy labels.

Recent research shows that both labels and MEPS have been effective. For instance, evaluating the previous major change in appliance regulation, an 2020 empirical study conducted in eight EU countries finds that the combination of a tightening of the minimum standards in 2010 and the introduction of the A+++ to D labelling scheme in 2011 helped increase the market share of cold appliances (refrigerators and fridge-freezer combinations) with an energy label of A+ and better between about 15 and 38 percentage points depending on the country.

A quick history of the energy labels in Europe

When the energy labels were introduced in Europe in 1992, absolute criteria were defined for different types of appliances to determine the energy class of each appliance to be sold in Europe, ranging from A (best energy performance) to G (worst energy performance). After several years of use, for some types of appliances such as refrigerators, technological progress brought the labels to their limits because, when applying these criteria, most appliances on the market were classified in the highest energy classes.

To avoid this problem, in 2011 the European Union kept the same criteria but introduced three new energy classes A+, A++, and A+++. Since then, the energy classes have ranged from the dark green class-A+++ label (best energy performance) to the red class-D label (worst energy performance). When the change was made in 2011, appliances that were classified B or worse kept the same classification (since the same criteria were applied), but many appliances classified A got the chance to move up to A+ or better.

In recent years, it has become clear that these labels have again reached their limits for certain types of appliances. First, under the combined effects of technological progress and minimum standards, for some appliances (especially cold appliances), the least energy-efficient appliances currently available on the market are classified A+. This means that the classes A to E are empty. Second, consumers are convinced that the label classes A+ to A+++ are all very efficient. With grades better than an A and a green colour, a refrigerator labeled A+ seems to be a good choice, whereas in fact consumers who buy this appliance buy the worst available appliances on the market as far as energy efficiency. For these types of appliances, the labels therefore no longer fulfill their function of informing consumers.

New labels in 2021

To take care of these problems, the European Union has scheduled a replacement of the current energy label for March 2021; the replacement process officially started throughout the EU on November 1, 2020. During these four months, both labels may be used on the appliances concerned (refrigerators and freezers, washing machines, dishwashers, TVs and screens).

Easy to recognise thanks to new icons and the addition of a QR code to access a database of appliances, the new label will rescale all existing appliances on the familiar A to G scale (the categories A+ to A+++ will no longer exist). Instead of keeping the 1992 criteria, the criteria have been updated to reflect technological progress. An appliance that was classified A+++ in 2020 will likely be classified B or C in 2021, one classified A++ likely classified D or E, and the lowest performance appliances currently classified A+ will find themselves at the bottom with an F or G label class. This is therefore the first time that the label will be rescaled, and that all appliances on the market will receive a new label class.

To account for future technological progress, the best label classes will first be left empty: there will therefore be no refrigerator or washing machine with a label class A in 2021 under the new label. This will provide time for manufacturers to make progress and fill up the better energy classes in the coming years. Once the top energy classes fill up again (specifically, once more than 20% of the appliances on a given category achieve the energy class A), a new rescaling will be undertaken.

But how effective are they?

In a recent study conducted within the H2020 project CHEETAH, we investigated whether the new label will be effective. Using a representative sample of more than 1000 German consumers, we studied through experiments the refrigerator choices made by consumers exposed to the current labels, the new labels, or both labels simultaneously.

Our results clearly show that the new rescaled labels help increase the value that consumers give to top rated appliances and that the label change should therefore help the adoption of more energy-efficient appliances. However, our study also shows than when both labels are shown simultaneously (as might be the case during the transition period), the positive effects of the new labels disappear and consumers make their choices based on the old labels. We therefore recommend limiting the transition periods as much as possible for future rescaling efforts of the labels.

In summary, the energy labels need frequent updates because they work so well that they quickly become obsolete.

Corinne Faure, Professor of Marketing, Grenoble École de Management (GEM) and Joachim Schleich, Professor of Energy Economics, Grenoble École de Management (GEM)

This article is republished from The Conversation under a Creative Commons license. Read the original article.