Energy efficiency governance: the case of white certificate instruments for energy efficiency in Europe 9783658006808, 9783658006815, 1431431451, 2132162182, 3658006803, 9781283935555, 1283935554, 3658006811

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Energiepolitik und Klimaschutz Herausgegeben von PD Dr. Achim Brunnengräber, TU Dresden PD Dr. Lutz Mez, FU Berlin

Dagmar Sibyl Steuwer

Energy Efficiency Governance The Case of White Certificate Instruments for Energy Efficiency in Europe

Dagmar Sibyl Steuwer Berlin, Germany

Dissertation Freie Universität Berlin, 2012 Gefördert durch das Stipendienprogramm der Deutschen Bundesstiftung Umwelt

ISBN 978-3-658-00680-8 DOI 10.1007/978-3-658-00681-5

ISBN 978-3-658-00681-5 (eBook)

The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at http://dnb.d-nb.de.

Library of Congress Control Number: 2012954142 Springer VS © Springer Fachmedien Wiesbaden 2013 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher’s location, in its current version, and permission for use must always be obtained from Springer. Permissions for use may be obtained through RightsLink at the Copyright Clearance Center. Violations are liable to prosecution under the respective Copyright Law. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. While the advice and information in this book are believed to be true and accurate at the date of publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for any errors or omissions that may be made. The publisher makes no warranty, express or implied, with respect to the material contained herein. Printed on acid-free paper Springer VS is a brand of Springer DE. Springer DE is part of Springer Science+Business Media. www.springer-vs.de

Acknowledgement

I am especially thankful to my supervisors, PD Dr Lutz Mez and Professor Dr Miranda A. Schreurs, for their very helpful guidance on this research project. They always had ideas about how best to proceed with the research. I would like to thank the Deutsche Bundesstiftung Umwelt and the German Academic Exchange Service for their financial support. In addition, I would like to express my special gratitude to those who reviewed parts, or even the whole, of the manuscript, or who helped me with translation: (in alphabetical order) Dr Matthias Adolf, Luca Ballestra, Veit Bürger, Dr Louis-Gaëtan Giraudet, Dr David Jacobs, Dr Michael James, Dr Nicola Labanca, Dr Benjamin Miethling, Inken Reimer, Stefan Rother, Daniele Russolillo, Dr Annika Sohre and Dr Kerstin Tews. Thanks are due also to the members of the Ph.D. colloquium, who regularly attended my presentations and made valuable contributions to solving research problems. I would like to thank my family and my colleagues from the German Council for Sustainable Development, for their patience in supporting my project and sustaining my morale. Many thanks also to Dr Günther Bachmann for providing me with the necessary environment for completing the dissertation. Finally, may I express my appreciation for the support for all those experts who agreed to be interviewed. This project would not have succeeded without their cooperation. (The views expressed in the interviews do not necessarily represent the official policy of any particular company, institution, or agency. Individuals spoke entirely – and only – on their own behalf.)

Overview of contents

Acknowledgement

5

Overview of contents

7

Detailed table of contents

9

Figures

19

Tables

21

List of Abbreviations

23

1

Introduction

27

2

Theoretical framework

49

3

Methodological Operationalization

101

4

Research on WCIs

115

5

France

167

6

Britain

213

7

Italy

263

8

Comparison

309

9

Conclusions

341

List of References

367

Annex

391

Detailed table of contents

Acknowledgement

5

Overview of contents

7

Detailed table of contents

9

Figures

19

Tables

21

List of Abbreviations

23

1

27

Introduction 1.1

Motivation

27

1.2

Inductive-deductive research process

30

1.3

White Certificate Instruments

31

1.3.1

How do WCIs work?

32

1.3.2

Two sources of WCIs

34

1.3.3

Measurement of savings

36

1.3.4

Design Choices: Determining the WCI’s mode of action

37

1.3.4.1

WCI as hybrid instruments: the quest for functional equivalents

38

1.3.4.2

Quantity versus price incentives

39

1.3.4.3

Coercion versus flexibility

40

1.3.4.4

Provision of information, enhancing networking and cooperation

41

1.3.5

Additionality

42

10

Detailed table of contents 1.3.6

2

WCIs in practice – deriving the research question

Theoretical framework

49

2.1

Studying WCIs: A policy analysis perspective

49

2.2

Ideas in context – expanding Historical Institutionalism to Constructivist Institutionalism

52

2.2.1

Strategic action and goals

2.2.2

Fostering change: Framing the problem and creating a policy image 60

2.2.3

Policy entrepreneurs as agents of strategic action

63

2.2.4

Unintended outcomes and prevailing tensions

65

2.3

Policy instruments and change: tools, indicators, or agents?

57

66

2.3.1

Explaining policy instrument choice and change

66

2.3.2

Implications of a historical-constructivist institutionalism perspective for models explaining policy instrument choice

70

2.4

Understanding market-based policy instruments

77

2.4.1

MBIs as ‘technical tools’: a variety of categorizations

2.4.2

Strategies and misconceptions: Ideas about market and marketbased policy instruments 83

2.4.3

WCI – a hybrid in disguise

2.5

Energy efficiency – The complexity challenge

2.5.1

3

42

Multiple goals

77

87 90 91

2.5.1.1

The liberalization of energy markets

92

2.5.1.2

Security of energy supply

93

2.5.1.3

Climate change

93

2.5.2

Multiple solutions

94

2.5.3

Multiple actors

96

Methodological Operationalization

101

Detailed table of contents 3.1

Introduction: Two levels of analysis

101

3.2

Process tracing

104

3.2.1

Archival research

104

3.2.2

Semi-structured expert interviews

105

3.3

Perception tracing

3.3.1

Qualitative content analysis

106 107

3.3.1.1

General rules

108

3.3.1.2

Establishing search patterns

109

3.3.2 3.4 4

11

Participatory observation Putting the pieces together: multidimensional comparison

Research on WCIs

111 111 115

4.1

Introduction: Analysing the WCI expert community

115

4.2

Identifying and selecting sources for analysis

116

4.3

Delineating and characterizing the expert community

117

4.4

2004–2007: European and international research projects

119

4.4.1

Research Consortia

120

4.4.2

Objectives and research focus

120

4.4.3

Results and design recommendations

122

4.4.4

The three research projects in a nutshell

127

4.5

Major Publications

128

4.5.1

Literature presenting the ‘big picture’

129

4.5.2

Literature on WCIs and trading

135

4.5.3

Comparing WCIs with other policy instruments

137

4.6 4.7

Knowledge development: Preliminary summary of written material

140

Conferences

142

12

Detailed table of contents 4.7.1

IEA workshop on WCIs in Milan

143

4.7.2

JRC Workshop on ‘White ertificates, utility and supplier obligation’ in Brussels

143

4.7.2.1

European harmonization versus national particularities

145

4.7.2.2

Flexibility versus coercion

146

4.7.2.3

WCI in the context of energy-efficiency discourses

148

4.7.3

ECEEE summer study 2009

4.7.3.1

Presentation on WCIs in Italy, Britain, and France

153

4.7.3.2

Informational session on recent news on WCIs

155

Exchanging knowledge at conferences: Summary

156

4.7.4 4.8

5

151

Concluding analysis

158

4.8.1

Focal issues over time

159

4.8.2

Preliminary conclusions

164

France 5.1

167 The French energy structure

167

5.1.1

Energy savings in the 2006 investment plans

169

5.1.2

Energy savings in the 2009 investment plans

170

5.1.3

Slowly liberalizing energy markets

171

5.2

History of White Certificate Instruments in France

172

5.2.1

Existing measures in end-use energy efficiency

173

5.2.2

First period Agenda-setting: Choosing a market-based policy instrument 175

5.2.2.1

Design choices: regulating the details

177

5.2.2.2

Outcomes

184

5.2.3

Second period

185

5.2.4

Preliminary conclusions on the history of WCI in France

188

Detailed table of contents The discourses of energy efficiency in France

5.3

189

5.3.1

Liberalization of energy markets – Protecting the incumbent and creating business opportunities 189

5.3.2

Energy efficiency in the discourse of the Grenelle de l’Environnement: Environmental and social objectives enter the stage 192

5.4

Perceptions on the WCI and the policy process – the policy image

194

5.4.1

Objective (and hidden) purposes

195

5.4.2

Mode of action and demarcation from other policy instruments

196

Design choices and political conflict

201

5.4.3 5.4.3.1

Negotiating primary legislation

201

5.4.3.2

Negotiating secondary legislation

205

5.5 6

13

Conclusion: The French WCI between market and regulatory practice

Britain

209 213

6.1

The British energy structure

213

6.2

History of White Certificate Instruments in Britain

216

6.2.1 6.2.2

First phase: Energy Efficiency Standards of Performance (EESoP) and the E Factor: preparing agenda-setting

218

Second phase: Energy Efficiency Commitment (EEC)

223

6.2.2.1

Agenda-setting

223

6.2.2.2

Design choices

225

6.2.2.3

Outcome

226

6.2.3 6.2.3.1

Third phase: Carbon Emission Reduction Target (CERT): Recasting the obligation Agenda-setting

227 227

14

Detailed table of contents 6.2.3.2 6.2.4 6.3

Summary Discourses of energy efficiency in Britain

6.3.1 6.3.2 6.4

228 232 233

The discourse of liberalizing energy markets and tackling fuel poverty

233

Energy efficiency in the climate change discourse

237

Perceptions of the WCI and the policy process – the policy image245

6.4.1

Objective and (hidden) purposes

245

6.4.2

Mode of action distinct from other policy instruments

246

6.4.3

Design choices and political conflict

251

6.5 7

Design choices

Conclusion: re-regulation and competition of objectives

Italy

258 263

7.1

The Italian energy structure

263

7.2

History of White Certificate Instruments in Italy

267

7.2.1

Existing policies and measures to increase energy efficiency in end-use sectors 267

7.2.2

First period

269

7.2.2.1

Agenda-setting

269

7.2.2.2

Design choices: creating a market

272

7.2.2.3

Updates in design

278

7.2.2.4

Outcome

281

7.2.3 7.3

Preliminary conclusions on the history of the WCI in Italy

290

Perception of the WCI and the policy process – the policy image 293

7.3.1

Objectives and (hidden) purposes

293

7.3.2

Mode of action and demarcation from other policy instruments

294

Detailed table of contents Design choices and political conflicts

7.3.3 7.4 8

Conclusion: cost-effective – to whom?

Comparison 8.1

300 303 309

Comparing the case studies

8.1.1

15

Objectives: Intended and delivered

309 310

8.1.1.1

Security of supply

310

8.1.1.2

Consumer protection in liberalized energy markets

311

8.1.1.3

Climate protection

312

8.1.1.4

Cost effectiveness

313

8.1.1.5

Delivered objectives

314

8.1.1.6

Competition of objectives, unintended effects and discourses of energy efficiency

316

8.1.2

Mode of action: flexibility versus coercion

318

8.1.2.1

The role of standardized measures

318

8.1.2.2

Scope of obliged and eligible actors

319

8.1.2.3

Trading

321

8.1.3

Incentive mechanisms (prices, obligation, cost recovery, penalties)

322

8.1.3.1

Perceived modes of action

323

8.1.3.2

Breaking with traditions?

325

8.1.4

The policy image in the interplay between actors and institutions

325

8.1.4.1

Policy entrepreneurs

326

8.1.4.2

Political parties and administration

327

8.1.4.3

Energy companies in their regulatory environment

329

8.1.4.4

Newly institutionalized structures

333

16

Detailed table of contents 8.2

9

Comparison of research on WCI with practical insights

335

8.2.1

Emergence and consideration of knowledge

335

8.2.2

Framing a success story

337

8.2.3

Ideological reinforcement versus depoliticization

339

Conclusions 9.1

Theoretical lessons

341 341

9.1.1

Common design features of WCIs

342

9.1.2

Hybrid instruments: too smart to steer?

343

9.1.3

Hybrid instrument WCI – offering room for misconceptions 346

9.1.4

All-embracing hybrid instrument: framing a success story ‘WCI’

349

9.1.5

Challenging the effectiveness of hybrid instruments

350

9.1.6

Summary: policy instrument choice and change remain a politicized process

352

9.2

For practitioners: Transposing theoretical lessons into practice

356

9.3

Future prospects

361

9.3.1

Discussion of methodological approach

9.3.2

Remaining research questions and current dynamics of WCI development 362

9.3.3

Coda: Vision 2050

361

365

List of References

367

Annex

391

Annex I – List of Interviewees

391

Annex II – List of Conferences and Workshops with Participatory Observation

392

Annex III: Questionnaire template France

392

Annex IV: Questionnaire template Italy

394

Detailed table of contents Annex V: Questionnaire template United Kingdom

17 395

Annex VI: Examplary sheets used to document participatory observation 397 Analysis of a Panel Discussion on WCI with regard to policy instrument’s mode of action 397 Annex VII: Counting experts to filter out core group of experts

403

Figures

Figure 1: WCIs: energy efficiency delivery mechanisms ............................... 34 Figure 2: Evolution of world total final energy consumption by region, in Mtoe, 1965–2008 .......................................................................... 90 Figure 3: Sketch of a cost abatement curve demonstrating the net costs and CO2-reduction potential of CO2 abatement measures ...................... 95 Figure 4: Research design .............................................................................. 103 Figure 5: Checklist to determine the WCI’s effectiveness ............................. 113 Figure 6: Final energy demand in 1000 toe, 1996–2007 ................................ 168 Figure 7: Import dependence of primary energy in the UK, 1996–2007 ....... 213 Figure 8: Final energy consumption in the United Kingdom by sector, 1996– 2007 ..................................................................................... 214 Figure 9: Indexed development of energy consumption per capita in Britain, 1990–2005 ...................................................................................... 215 Figure 10: Final energy consumption in Italy by sector (1996–2007) in toe 1000s .............................................................................................. 265 Figure 11: Share of particular measures in the total savings realized by electricity distributors, 2005–2009 ................................................. 282 Figure 12: Share of particular measures of the total amount of savings realized by natural gas distributors, 2005–2009.............................. 282 Figure 13: Relative distribution of trading activity: bilateral vs. market, 2005–2009 ..................................................................................... 285 Figure 14: Number of white certificates sold bilaterally within a certain price range, 2008-2009 ............................................................................ 286 Figure 15: Comparison of weighted average prices for market trades (dark grey pillar) vs weighted average prices traded for bilateral trades (light grey pillar) for different types of Italian white certificates, 2008–2009 ...................................................................................... 287 Figure 16: Price development of white certificates traded via the electronic market platform GME, 2006-2009.................................................. 289 Figure 17: Successfully implementing a WCI – Two interpretations .............. 352

Tables

Table 1: Table 2: Table 3: Table 4: Table 5: Table 6:

WCI schemes in Britain, France, and Italy compared ....................... 44 Energy saving targets by sector, 2006–2009 ................................... 179 ‘Coercion’ and ‘flexibility’ in the transcripts of interviews ............ 200 Development of the scope of the British WCI................................. 231 ‘Coercion’ and ‘flexibility’ in the transcripts of interviews ............ 250 Overall target of the Italian WCI for electricity and gas distribution companies set out in the ministerial executive orders of 2001 and 2004 respectively ............................................................................. 274 Table 7: Overall target of the Italian WCI for electricity and gas distribution companies from 2008 to 2012 set out in the ministerial executive order of 2007.................................................................................... 279 Table 8: ‘Coercion’ and ‘flexibility’ in the transcripts of interviews ............ 295 Table 9: Success factors and obstacles in designing a WCI .......................... 357

List of Abbreviations

AEEG ADEME ATEE ANAH BERR BMU CCL CCS CDM CER CERT CESP CFL CO2 CRC CRE DECC DEFRA DETR DG DGEC DGEMP DIDEME DRIRE DSM DTI ECEEE EEA EEC EESoP

Autorità per l’Energie Elettrica e il Gas Agence de l’Environnement et de la Maîtrise de l‘Énergie Association Technique Energie Environment L’Agence National de l’Habitat Department for Business, Enterprise and Reguatory Reform Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit Climate Change Levy Carbon Capture and Storage Clean Development Mechanism Certified Emission Reduction Carbon Emissions Reduction Target Community Energy Saving Programme Compact Fluorescent Lamp Carbon dioxide CRC Energy Efficiency Scheme, formerly: Carbon Reduction Commitment Commission de Régulation de l’Énergie Department of Energy and Climate Change Department for Environment, Food and Rural Affairs Department of the Environment, Transport and the Regions Directorate-General Direction Générale de l’Énergie et du Climat Direction Générale de l’Énergie et des Matières Premières Direction de la Demande et des Marchés Énergétiques Directions Régionales de l’Industrie, de la Recherché et de l’Environnement Demand Side Management Department of Trade and Industry European Council for an Energy Efficient Economy European Environmental Agency Energy Efficiency Commitment Energy Efficiency Standards of Performance

24 ENEA ESCO EST ETS EU GHG GME GWP HI IEA JI JRC kWh kWh cumac MBI MEDDTL MEDEF MEEDDAT MEEDDM MEDDTL MINEFI M&V NEEAP OECD Offer Ofgas Ofgem PPI PIP RECs TEE TGC toe TWC TWh

List of Abbreviations Agenzia nazionaleper le nuove tecnologie, l’energie a lo sviluppo economico sostenibile Energy Service Company Energy Saving Trust European Emissions Trading Scheme European Union Greenhouse Gas Gestore mercato elettrico Global Warming Potential Historical Institutionalism International Energy Agency Joint Implementation Joint Research Centre Kilowatt Hour Kilowatt Hour cumulés et actualises Market-Based Instrument Ministère de l’Écologie, du Développement Durable, Transport, and Logement Mouvement des Entreprises de France Ministère de l’Écologie, de l’Énergie, du Développement Durable et de l’Aménagement du Territoire Ministère de ‘Écologie, de l’Énergie, du Développement Durable et de la Mer Ministère de l’Écologie, du Développement Durable, des Transports et du Logement Ministère de l’Économie, des Finances et de l’Industrie Measurement and Verification National Energy Efficiency Action Plan Organization for Economic Co-operation and Development Office for Electricity regulation Office for Sas Supply Office of Gas and Electricity Markets Programmations pluriannuelles des investissements Plan Indicatif Pluriannuel des Investissements Renewable Energy Certificates Tituli di Efficienza Energetica Tradable Green Certificates Tonnes of Oil Equivalent Tradable White Certificates Terrawatt Hour

Detailed table of contents US UK VAT WCI

United States of America United Kingdom Value Added Tax White Certificate Instruments

25

1 Introduction

1.1 Motivation Interest in the opportunities for slowing electricity demand growth by improving end-use efficiency is increasing in many IEA countries. Rising concerns about the costs and environmental effects of increasing electricity production and other constraints on new generating capacity in some countries are stimulating this interest. (...) The hundreds of electricity end-use technologies differ widely among the 21 Member countries of the IEA in their application and intensity (...) One of the principal findings is that while significant further capital stock is replaced by new, more efficient technologies, even further gains are possible. (...) All IEA Member countries have government or utility policies which are aimed, at least in part, at improving the efficiency of electricity end-use. Although few have very extensive efforts in this area, IEA countries have some experience with each of the major types of policies that might be used to accelerate efficiency improvements. (IEA 1989: 3; 11; 16) 1

The quotations are from a study of the IEA that is more than 20 years old. Back then most the policy instruments, or incentive mechanisms, to foster end-use efficiency were already in place – including utility programmes. Many of the elements and objectives have persisted: energy security, cost effectiveness and environmental benefits are still among the objectives of fostering end-use energy efficiency. Similar technologies are still believed to hold a big energy-saving potential. However, the situation has somewhat changed: in 1989, climate change was not as prominent on the political agenda as it is today, and energy markets were on the point of being liberalized 2. Today, the energy system is believed to be on the verge of a great transformation towards a low-carbon economy (European Commission 2011; EthikKommission Sichere Energieversorgung 2011; SRU 2011; WBGU 2011). In all scenarios for this low-carbon economy, energy efficiency as well as the devel-

1

Citations are indicated with quotation marks in the continous text and otherwise by the format (italic, text block). 2 In the UK, the Gas Act of 1986 (HM Government 1986) can be seen as the start of liberalization and privatization in Europe.

D. S. Steuwer, Energy Efficiency Governance, DOI 10.1007/978-3-658-00681-5_1, © Springer Fachmedien Wiesbaden 2013

28

1 Introduction

opment of renewable energies plays a pivotal role. What steps are to be taken to close the energy efficiency gap? A critical first step in the design of effective policies for improving electricity enduse efficiency is examining the regulatory framework for and participation of electric utilities. (...)Electricity utilities might play an important role in implementing a number of such programmes (...) They could do either on their own initiative as any public or private business or in response to government regulation. In any case, it is essential that governments and utilities work co-operatively in designing and implementing effective policies to improve end-use efficiency. Many of the actions that might be considered desirable by governments are best implemented by utilities. But if the utilities view the policy as conflicting with their own business objectives, effective implementation may be hampered. This emphasizes the need for governments to design policies that are economically attractive to utilities if the utilities will be implementers. Similarly, in order to achieve certain utility load objectives, it may be most effective if governments took appropriate action. (IEA 1989: 125f)

White certificate instruments to foster end-use energy efficiency 3 did not exist in 1989. This rather new policy instrument builds essentially on the idea of compelling energy companies to effect some energy savings in the end uses. Will WCIs help to close the energy efficiency gap? And will policy instruments be more effective if governments and energy companies work cooperatively on their design and implementation? I encountered this policy instrument while researching the emerging European emissions trading scheme (EU ETS) in 2005. Among the rich literature on the EU ETS, some papers examine ways of integrating white, green 4 and black 5 certificates (e.g. Bonneville & Rialhe 2005). I became curious and learned about the ongoing research projects, including yet another tradable permit scheme to be discussed in Europe. At that time Britain, Italy, and France were reported to be those European Member States that had at least an established legal basis to set up a WCI, even if not yet in place. Given the early experience of the EU ETS and the differing positions of Member States on it, the question immediately arose of why Member States with different regulatory traditions in energy policy would chose the same policy instrument. Why would France, a country with neither previous experience nor traditions of tradable permit schemes, decide to implement a WCI? Why would Britain and France opt for the same policy instrument given the differences in their energy market structures and in their regu3 Note that – other than the IEA quotation from 1989 – White Certificate Instruments embrace not only energy efficiency in electricity uses but also gas and other fuels. 4 Certificates for renewable energy production. 5 Certificates of emissions trading schemes.

1.1 Motivation

29

latory traditions? Why would Italy be among those countries pioneering the introduction of a new policy instrument even though it was typically not counted as a leader in environmental policy? Is this policy instrument the one-size-fits-all solution to fill the energy efficiency gap? Analysis of the introduction of the policy instrument thus appeared to be a promising dissertation topic. White certificate schemes have entered the policymaking agenda in an increasing number of countries both in the European Union (EU) and worldwide. Choosing a policy instrument’s name and creating a policy image turned out to be a crucial explanatory element of my analysis. A starting point for my analysis was thus to seek the origin of the term ‘white certificates’. The term was probably first used at the turn of the 21st century: Italy decided to implement a white certificate instrument (WCI) 6 in 2001. However, throughout my research I could not determine the origin of the term or the precise moment when it first appeared. Some of the experts I interviewed told me that the term was a European Union’s creation while others believed it originated to be in Italy. Britain, Italy, and France introduced the policy instrument some years ago. The same holds true for the Australian state of New South Wales. More recently, Denmark changed an existing policy instrument to a scheme that is now also considered as a WCI. In addition, Flanders has a similar scheme and it was reported in an expert interview that the Dutch government has reconsidered introducing the policy instrument. While the scheme had been on the agenda also in Sweden and Hungary, it was rejected in both countries. The National Energy Efficiency Action Plans (NEEAPs) of the European Member States reveal that Poland, Bulgaria, and Romania have at least considered implementing the idea. With its energy concept of September 2010, the German Ministry of the Environment launched a pilot project on WCIs. Outside the European Union, the policy instrument is finding increasing support, including in South Korea and other states of Australia. It became apparent to me that the WCI was much more complex than the EU ETS. The schemes differ considerably, since the EU ETS is a so-called capand-trade scheme while the WCI is a baseline-and-credit scheme. As a ‘projectbased scheme’ the WCI is very similar to the clean development mechanism (CDM) or the joint implementation (JI) – two flexible mechanisms enshrined in the Kyoto Protocol besides the ETS (e.g. Newell & Paterson 2010: 133). In addition, the complexity exists not only in the mechanism, but in the policy area under investigation – energy efficiency policy. ‘Energy efficiency’ is a term that comprises multiple purposes and implementation possibilities. Many actors and 6

However, even if the first draft legislation of the Italian WCI dates back to 2001, it referred only to ‘titoli di efficienza energetica’, not to ‘certificati bianchi’. The first documents that I found utilizing the term ‘white’ or the equivalent in translation date back only to 2004.

30

1 Introduction

sectors will have to be involved in order to achieve significant improvements in energy efficiency. Energy efficiency policies are thus linked to manifold barriers that will have to be addressed by policy instruments. The analysis addresses two main topics. First, analysis of the political process of policy instrument choice can be expected to reveal the complexity of enduse energy efficiency. It therefore may provide some insights into certain overarching factors explaining policy instrument choice in end-use energy efficiency. In this sense, the analysis addresses people working in the field of energy efficiency, especially decision-makers: can we make a policy instrument a solution to the problem by finding ways to implement it? There is a lack of studies of the politics of energy efficiency, unlike with, for example, climate policy or renewable energy policy. This study is an attempt to contribute to filling this gap in the literature by focusing on a policy instrument that is on the one hand a very specific case and can only be regarded as a niche, but on the other hand covers a broad range of end-use energy efficiency topics and as a result has gained political weight, so that analysing the introduction of the WCI may provide insights into energy efficiency policy in general. Second, the analysis is intended to contribute to the discussion of policy instrument choice as a separate field of policy analysis. It aims to explore a rather novel approach in policy instrument choice by making use of theoretical approaches typically used in international relations and applying it to classical interest-based policy analysis. To help the reader to understand the core subject of the analysis, I introduce the policy instrument before proceeding to investigate my research topics. But first, the following section aims to guide the reader through the research process.

1.2 Inductive-deductive research process The underlying research question and empirical knowledge about the issue at hand have evolved over time in an inductive–deductive process. With the observation of the appearance of a new policy instrument, some obvious ad hoc research questions (see above) were formulated. These questions guided the indepth examination of the existing literature and further helped to explain the empirical reality of WCIs. While the characteristics of the policy instrument as a hybrid scheme as will be further illustrated below, the research question changed the course of the examination, and the theoretical approach became more apparent. In going back and forth from institutional theory and the literature on policy instrument choice to the case of WCIs, the underlying research puzzle became clearer. Readers of the following analysis should bear in mind this inductive–

1.3 White Certificate Instruments

31

deductive conduct of the research. The outline of the analysis does not fully mirror the chronological research process. Rather, it is adapted to the logic of the research puzzle. Thus, some insights that have emerged from examination of the case of WCIs in practice have been anticipated in the chapter on the theoretical approach. Accordingly, this analysis cannot be regarded as an attempt to falsify a fixed hypothesis. Rather, it aims to explore theoretical ways of explaining policy instrument choice in the special case of end-use energy efficiency. It thereby links policy instrument choice with institutional change. A core assumption is that the type of policy instrument as well as its image has an influence not only on policy instrument choice but also on its effectiveness due to the interaction with existing regulatory traditions and the prevailing policy style. Since the inductive–deductive research process does not allow for strict hypothesis testing, five assumptions are formulated in subsection 1.3.6 in order to guide the research process. It is believed that the specificity of the case given various complexities (complex steering mechanism, complex set of actors, complex challenge of end-use energy efficiency), makes it suitable for presenting many challenges of instrument choice as well as challenges of end-use energy efficiency governance. While generalizations are not legitimate due to the composition of the research, the results are expected to present a range of plausible and relevant dynamics in a field of complex decision-making.

1.3 White Certificate Instruments The following section introduces the policy instrument, its origins, its main energy efficiency delivery mechanism, and its key design features, both theoretically and in practice. This allows the reader to get an understanding of the object of study. White certificate instruments are mandatory energy-saving targets for energy companies to be delivered through end-use energy efficiency measures. In order to deliver the target, WCIs contain a range of flexibility provisions, which are explained further below. To avoid confusion about the terms, this analysis differentiates between the terms ‘white certificate instruments’ (WCIs), ‘energysaving obligations’, ‘tradable white certificate schemes’ (TWC), and ‘white certificates’. The term ‘white certificate instrument’ 7 is used most frequently since it comprises all approaches that utilize an energy-saving obligation with some kind 7

I decided to include the term ‘white certificates’ to name the policy instrument under investigation since this is the catchword that experts use mostly informally instead of energy saving certificates or energy saving certificates.

32

1 Introduction

of flexibility provision. This does not necessarily entail the issuing of ‘white certificates’ but may entail trading the obligation, energy-saving projects, or the savings attached to such projects. It does not include voluntary approaches, that is, those schemes without a mandatory saving obligation where only certificates are generated and possibly sold. The term ‘energy-saving obligations’ refers only to mandatory energysaving quotas and gives no information about a possible trading option. The term ‘tradable white certificates’ 8 is used for end-use energy policy instruments that have both a saving obligation expressed as a quota and a trading option for certificates in place that provide proof of the amount of energy saved. By contrast, ‘white certificates’ are the certified savings, that is, the ’certificates issued by independent certifying bodies confirming the energy savings claims of market actors as a consequence of energy efficiency improvement measures’ as defined in the end-use energy efficiency and energy service directive – Directive 2006/32/EC – of the European Parliament and the European Council (2006). 1.3.1 How do WCIs work? 9 Energy-saving obligations may be imposed on companies operating in generation, in transmission/ distribution, or in retail businesses. The responsible authority (e.g. ministry or regulator) fixes an overall saving target to be delivered in a fixed period of time. The target may, for instance, be derived from a political commitment to reduce annual energy consumption by one per cent. This relative target can accordingly be transposed into an absolute target with the help of historical data or projections. The target can be expressed in various units, such as carbon dioxide (CO2) emissions, primary energy (tonnes of oil equivalent, toe), or final energy (kilowatt hours, kWh). The overall target is then allocated to the companies concerned by applying a key reflecting, for example, the companies’ market shares in terms of turnover, delivered energy, or number of customers. Typically, in order to protect small companies from bearing a disproportion-

8 White certificates are also referred to as energy efficiency titles (EET) (Oikonomou & Patel 2004: 3) or as tradable certificates for energy savings (TCES) (Bertoldi & Rezessy 2006: 1). 9 Note that the paragraphs referring to existing schemes and design options in Chapter 1 consists of a compilation of knowledge the author gained during the research process. The most important references the presented insights are reflecting are Bertoldi & Rezessy (2006, 2008), Bertoldi et al. 2010, Bürger & Wiegmann 2007, Capozza 2006, Mundaca & Neij 2009, and Eyre et al. 2009 but also the expert interviews. A more detailed and differentiated account of the sources and references will be provided in Chapter 4 on the research community and in Chapters 5-7 on three case studies.

1.3 White Certificate Instruments

33

ate energy-saving burden, only companies above a certain size 10 are subject to an obligation. Importantly, an energy-saving obligation does not cap the overall delivery of energy to final customers. Thus, an absolute target is not equal to an absolute reduction of energy consumption: while the target is formulated in absolute terms (e.g. saving 100 terawatt hours, TWh, of energy), the savings are attached to measures and do not guarantee an absolute reduction of energy consumption in end uses. This measure may lead to a more efficient use of energy through the use of more efficient appliances. But it does not control for overcompensation. Under which conditions these savings really lead to an overall reduction in energy consumption depends, among others, on the additionality of the measure. There are several possible ways for actors to comply with the obligation: ƒ

ƒ ƒ

ƒ

The companies concerned carry out energy efficiency measures in end-use sectors. In principle each end-use sector can be included as a target sector, but most practical examples are found in the residential sector. For each project the resulting amount of energy savings is accredited to the delivering actor. Companies conclude agreements with other companies, for example by tendering a programme which is then carried out with the help of manufacturers of energy-efficient products, installers, or energy-service companies. Companies subject to obligations do not at all themselves actively carry out energy-efficiency projects. Instead, they purchase energy savings (e.g. in the form of white certificates if this option is available) after the project has been carried out by a third party. If trading of certificates is involved in the scheme, it can take the form of bilateral contracts or trading on the spot market. Companies could be released from their obligations by paying a fixed penalty or buy-out price.

Figure 1 illustrates the principles of WCIs.

10

The minimum size of a company can be defined in terms of a minimum number of customers or a minimum amount of energy delivered.

34

1 Introduction Target allocation according to market share

Energy supplier A: 50 TWh Energy supplier B: 20 TWh Energy supplier C: 20 TWh Energy supplier D: 10 TWh Local authority XY

Energy Service Company Z

Authority verifies & certifies

Delivery routes Grants for an efficient fridge

Certificate 20 TWh

Free distribution of CFLs Certificate 40 TWh Purchase of certificates

Penalty/ buy-out Grants for renovation of social housing

Certificate 10 TWh

Exchange of white certificates

Overall target: 100 TWh per year

Actors

Certificate 20 TWh

Installation of micro-energy systems

Figure 1: WCIs: energy efficiency delivery mechanisms (Source: Author) 1.3.2 Two sources of WCIs The figure cannot display the two sources of WCIs. It is important to understand that there are two sources since they set the paths for the discourses of energy efficiency, to which I will turn later on (see section 2.5). There are two distinct sources of energy saving obligations: demand side management and tradable permit schemes. The two approaches to energy saving obligations imply different perspectives and associated objectives and regulatory traditions. These differences influence the policy design of obligations and most probably their impacts 11. First, WCIs can be understood as a distinct framework mechanism to incentivize demand side management (DSM) through utility activity (e.g. Labanca & 11 As it has been adumbrated above, the dissertation is based on the assumption that policy design has an influence on the policy instruments’ effectiveness. Effectiveness is always attached to the goals the policy instrument aims to achieve. Thus, the policy instruments’ impact, that is, the degree of their effectiveness, depends on design choices. The term ‘impact’ comprises not only statements about effectiveness but also effects that policymakers did not foresee.

1.3 White Certificate Instruments

35

Perrels 2008; Didden & D’haeseleer 2003). Other DSM mechanisms involve energy companies as responsible actors for energy efficiency programmes in end use, such as integrated resource planning or the provision of energy services. The defining feature of a WCI is that it is a mandatory target to be realized via concrete measures at the end-users’ site (Didden & D’haeseleer 2003). The DSM tradition dates back to the first energy crisis (1973 and 1979/80) when energy savings were perceived as an alternative to increased energy supply. Thus, security of supply, peak load reduction, and cost-efficiency are broader objectives associated with DSM. Second, WCIs can be understood as quotas similar to those for renewable electricity or emission caps that form the basis of trading schemes (‘cap-andtrade’) 12. The energy company may trade the obligation, the energy saving activity, or certified energy savings (white certificates). With or without certificates, the idea all WCIs have in common is to meet mandatory energy saving targets cost-effectively by allowing actors some flexibility in meeting their target. Flexibility provisions include the range of eligible measures, the scope of eligible target sectors, the eligibility of third actors to take part in delivering energy savings, banking of energy savings, offsetting early savings, and, most prominently, trading (e.g. Mundaca & Neij 2009). Tradable permit schemes are traditionally set up for environmental protection. Recently, especially since the rise of emissions trading, they have become associated primarily with climate policy. As mentioned above, emissions trading is to some extent related to WCIs since both schemes could be designed to reduce greenhouse gas emissions in the energy sector 13. However, the lessons from ETS that can be applied to WCIs are limited, mainly because the latter are project-based. Therefore, insights gained from experiences with project-based mechanisms, especially CDM, are valuable (e.g. Newell & Paterson 2010: 133). Ensuring additionality, that is, saving effects above business as usual, has been a crucial question for project-based mechanisms. This includes finding the proper baseline and monitoring mechanism. Increasing experience of CDM projects worldwide has shown that tradeoffs have to be made between the most cost-effective savings (e.g. those realized in projects reducing greenhouse gases other than CO2) and those that are politi12 ‘Cap-and-trade’ is the commonly used term for emission trading schemes that make use of an overall emissions cap. That is, only a limited amount of emissions are allowed to be emitted. For every unit of emission, the emitter has to hold so-called permits. Emitters holding excess permits may sell them to emitters who want to emit more than initially expected. 13 The unit of the emissions trading schemes is t CO2. The carbon savings are to be achieved by energy savings (partly through efficiency gains) mostly on the generation/ supply side. Energy saving obligations may also be defined in savings of CO2. Other common units are primary energy or final energy, all of which may be converted to CO2-savings. However, the accuracy of determining the savings is watered down by applying conversion factors.

36

1 Introduction

cally preferred but imply higher costs per unit of CO2 saved (e.g. development of renewable energy) 14. This again highlights the importance to the definition of the kinds of objectives that the eligible measures should achieve and how these measures can be incentivized. How to ensure that the measures promoted under the scheme do not undermine other objectives? How to ensure that specific objectives are achieved? The policymaker has to be clear about the trade-off between cost-effectiveness and the qualitative benefits associated with the savings.

1.3.3 Measurement of savings WCIs are usually not designed as self-monitored schemes. They require monitoring and verification of savings, and – if necessary – the application of sanctions. This has at least two implications. First, an actor has to be determined and equipped to administer the scheme and to carry out measurement and verification. Second, rules have to be devised to determine the energy savings resulting from the projects. There are several ways to do so (see especially Capozza 2006: 105ff): ƒ

Measures and their respective saving values are fixed ex ante. As a result, a list of deemed or standardized savings for eligible measures is available for actors concerned. 15

14 Newell & Paterson (2010: 130) use one example to identify one of the core problems of CDM: ‘Early on the market was also distorted by mega-projects which target greenhouse gases (GHGs) with a high level of what’s called Global Warming Potential (GWP). Gases with a higher GWP act as more powerful drivers of the greenhouse effect. Hydrofluorocarbons form one such family of gases where one tonne of HFC-23 is equivalent to 11,700 tonnes of CO2. The distortion comes from the fact that the credits countries receive for projects are related to this GWP. So a project to phase out HFC-23 for example produces a significantly larger financial return than a CO2 reduction project for example– in fact it can earn 11,000 times as many CERs as a CO2 reduction project! Consequently 70% of the CERs in the first one and half years of the CDM were issued for abating gases other than CO2.’ While the type of measures eligible under WCIs in industrialized countries differs from those under the CDM, analogous problems have been reported, as shown in the case study section below. 15 The list of measures for which standardized saving values are determined is constantly growing. It can be regarded as one of the benefits of the development of energy-saving obligations and similar policy instruments that experts systematically aimed at determining ex ante default values for savings. The EMEEES project is especially dedicated to monitoring and evaluating energy savings with regard to the Directive 2006/32/EC on end-use energy efficiency and energy services (http://www.evaluate-energy-savings.eu/emeees/en/home/index.php). However, there are limits to setting up default values for energy-saving measures. Behavioural measures and informative measures are the most difficult to evaluate. There have been some attempts to account for measures targeting behavioural change within the Danish energy-saving obligation. From 2010 on, this option has barely existed in the Danish case (Bach 2009). Also in the British and the French scheme there are some experimentations with including behavioural measures (see chapters 5 and 6).

1.3 White Certificate Instruments ƒ ƒ

37

On-site measurements are carried out ex ante and ex post. Measurement approaches make use of models that require the measurement of certain parameters in order to apply the model to the specific case.

The range of measurement options that are realized in practice depends on the policymakers’ design choices. If the policymaker accredits both standardized savings and savings that require some measurement, the company may choose to implement projects making use of default values or projects requiring on-site measurement. On the one hand, making use of default values has the advantage that the actor has some certainty about the savings he may claim for projects before carrying them out. On the other hand, on-site measurement has the advantage that real savings can be determined more precisely. It also enlarges the scope of possible projects. But there are also disadvantages. The actor has to bear the risk that the administrating authority does not accredit all the savings that the company counted on 16. Further, on-site measurement requires more administrative capacities and therefore results in higher costs. Even if some estimation models are used, the procedure will never be entirely standardized. Every measurement has to be treated on a case-by-case basis and creates potentially high transaction costs. In addition, it is difficult to attribute energy savings derived from a household’s annual electricity consumption to a single measure: energy savings result from a combination of different factors.

1.3.4 Design Choices: Determining the WCI’s mode of action A WCI can be seen as a framework instrument under which a range of different measures targeting different end-use sectors can be realized by the actors concerned in order to meet their obligations. Policymakers’ design choices determine the degree of flexibility available to actors in achieving compliance. This relates not only to the measures that can be chosen but also to certain incentives provided by the policy instrument, which may be more or less dominant in practice depending on the design choice. Subsection 1.3.4 deals with the different incentives or their functional equivalents to be found in WCI schemes.

16 In practice, the actor that wants to carry out a project requiring on-site measurement usually has to apply for certification beforehand. This typically involves costs (e.g. estimating the savings resulting from the project, or presenting details of the projects). In addition, there may be a difference between the savings that the project developer estimated in the beginning and the savings that were actually measured after the project was completed.

38

1 Introduction

1.3.4.1 WCI as hybrid instruments: the quest for functional equivalents A WCI is not only a framework instrument which allows for a multitude of objectives (see especially section 2.5). They can also be understood as hybrid instruments 17. Understanding WCIs as ‘hybrid instruments’ is a core element of this analysis. The term ‘hybrid’ always indicates a combination of at least two different steering mechanisms. Talking generally about governance hybrids, Hey et al. (2007: 1860) define hybrid regulation as a “combination of most of the new forms and more traditional forms of governance” 18, that is, the choice of processes of how to develop programmes and policy instruments, as well as the choice of particular types of policy instruments. Apart from labelling the combination of different types of governance as ‘hybrid governance’, some policy instruments themselves unite different steering mechanisms or incentive modes. These policy instruments are understood as hybrid instruments. There are different understandings of what makes a policy instrument a hybrid instrument. This mainly reflects different categorizations of policy instruments. In other word, the relevant question becomes: what are the distinct steering mechanisms within a policy instrument? In political science, a common dimension along which different types of policy instruments can be categorized is coercion versus flexibility for target groups. This reflects to a certain extent the degree of state intervention (from hierarchical steering to self-steering by target groups). A hybrid instrument would accordingly be a policy instrument that comprises both elements – coercion (e.g. standards) and flexibility (e.g. voluntary agreements) (see also Tews 2009). Economists often draw a distinction between economic and command-andcontrol instruments. The former are believed to steer by providing a price signal to regulated firms and individuals, whereas the latter is top-down mechanism 17

Throughout the analysis it became apparent that the WCI was not primarily classified as a hybrid scheme, either by experts or by practitioners. Instead, in many contexts it was labelled as a marketbased policy instrument. As will be shown in the section 2.4 on market-based policy instruments the term ‘market-based’ is attached to certain ideas. When talking about the scheme from an analytical perspective, it is therefore important to distinguish the terms ‘market-based’ and ‘hybrid instrument’. Compared with ‘market-based’, ‘hybrid’ is a rather depoliticized term. It also has a different meaning. The definitions of both terms further depend on the scientific discipline – while economists usually understand ‘hybrid instruments’ as a subgroup of market-based instruments, the term ‘hybrid’ in political science is wider and comprises different steering modes. Since I draw on different bodies of literature, and since the images that are attached to certain terms are important for this dissertation, I try to be as precise as possible about the terms and who is utilizing them in what way. 18 In this context, the authors introduced the term ‘metagovernance’, meaning ‘the design of interlinkages between different modes of governance“ (Hey et al. 2007: 1871).

1.3 White Certificate Instruments

39

that applies sanctions in the event of non-compliance (Hepburn 2009: 367). Among economic instruments, economists distinguish between price-based mechanisms that directly set a price incentive (e.g. a tax) and quantity-based mechanisms that only indirectly give a price signal through determining a quantified target and leave price-setting to the market (e.g. cap and trade) 19. Policy instruments that comprise both a price mechanism and a quantity mechanism and thus leave it up to the target group to decide which to observe are accordingly called ‘hybrid instruments’ (Hepburn 2009: 370; Bennear & Stavins 2007: 112). In this analysis, the term ‘hybrid’ is used in a broad way to include all the kinds of steering mechanisms that may be comprised in a WCI 20. Accordingly, the modes of action/functional equivalents that variations and priorities in design choices are possibly giving rise to are presented below.

1.3.4.2 Quantity versus price incentives A mandatory energy-saving target is by definition a quantity mechanism. The explicit aim of the policy instrument is to achieve a certain amount of savings (here transposed to implementing a minimum mix of measures that corresponds to a certain amount of savings). However, by not simply introducing penalties but providing the actor with a buy-out option, the instrument, becomes a true hybrid instrument from an economist’s viewpoint: the actor may choose not to implement the measure but to pay the penalty or buy-out price in order to comply with the rules. The buy-out price acts as a price ceiling and adds a price mechanism to the quantity mechanism. As already mentioned, this option may increase certainty for the company. Nevertheless, if used, the buy-out option may not have the intended effect of implementing end-use energy-efficiency measures 21. As well as negative price incentives (e.g. taxes, penalties) the scheme may well contain positive price incentives (e.g. grants, subsidies). Granting rather high flat cost-recovery (e.g. collected via a surcharge on tariffs) may act as an implicit subsidy. This is especially true if the cost-recovery is fixed at a level exceeding the maximum costs for energy savings. 19 Strictly speaking, there also exist command-and-control instruments that are quantity-based instruments, in the case of a ‘zero-target’ enforced by a ban on certain emissions. To that extent the economists’ definition is flawed. 20 This is especially useful since it allows an understanding all shades of meanings that the interviewed experts attached to the WCI. 21 This is, of course highly, dependent on how ambitious the target is and at what level the buy-out price is fixed.

40

1 Introduction

At the programme level of WCIs, price incentives may become effective through incentive programmes implemented by the actors concerned. A company may decide to give grants to the final customer for the purchase of energyefficient appliances. This, however, can hardly be steered by governmental actors when designing the scheme.

1.3.4.3 Coercion versus flexibility Referring to the aforementioned distinction between coercion and flexibility, this subsection further elaborates on design choices determining the point on the ‘coercion–flexibility’ axis where the WCI is located. By definition, WCIs have a mandatory character. Penalties are usually among the rules ensuring compliance. However, the mandatory character of the policy instrument may be weakened by low, symbolic or poorly defined sanctions, exception to sanctions, grace periods or transition periods, or lack of enforcement capacity, including verification and the application of sanctions. The mandatory character may also be weakened by a wide range of possible actions or end-use measures accompanied by a weak additionality criterion (see section 1.3.5). A low reference baseline to determine savings achieved by certain measures (e.g. minimum legal requirements or standards or average market penetration of a good technology instead of the best available) may indicate low additionality. A long list of eligible measures and verification methods may allow individual companies to choose the type of measure that is not only the easiest to implement but might even be beneficial to them. While this is part of the charm of the policy instrument, it may lead to extreme cases where the company would have carried out the savings even without policy intervention. Accordingly, the savings would not be additional. Counting so-called early actions towards the target is an especially strong case of non-additionality. Double-counting, that is, using one measure under more than one support scheme 22 is another factor to be controlled for if additionality is considered as an important criterion for the schemes’ impact. On the other hand, coercion may be supported by a rigidly defined and a narrow range of measures and their application as well as strong additionality criteria including strong baselines.

22 An example for double counting would be the accreditation of energy savings due to the implementation of a micro-energy system under the energy-saving obligation while at the same time accepting support from a subsidy scheme existing parallel to the energy-saving obligation. Double counting may be tolerated if the behaviour is especially desired, or if government expects synergy effects.

1.3 White Certificate Instruments

41

It becomes obvious that designing energy-saving obligations always affects effectiveness through trade-offs between coercion and flexibility. The most extreme case of flexibility would be a scheme based on voluntary agreements. In practice, pre-negotiations between actors and policymakers could become relevant especially if there exists the possibility of buy-out (see subsection 1.3.4.2). If the policymaker does not want the actor to make use of the buy-out option, ex ante negotiations to determine the desired behaviour may lead to a particular choice of eligible measures: those measures are eligible that the actors agree to implement. In such a case, the energy-saving obligation can become a quasivoluntary agreement. Finally, Oikonomou et al. (2009) explore the possibility of combining a WCI with voluntary agreement by combining a minimum mandatory saving target with voluntary agreements for more ambitious targets.

1.3.4.4 Provision of information, enhancing networking and cooperation There are flanking mechanisms that are aimed at steering through addressing typical barriers to the penetration of energy-efficiency technology, such as training or information. Choosing energy companies as actors to deliver energy savings while granting some freedom over how to comply with their obligations not only affects the kinds of measures chosen (see above). It also offers several routes of delivery. One example has already been spelled out – the provision of grants for the purchase of energy-efficient goods. Theoretically it is also possible to achieve the desired behaviour by providing particular information, and accordingly launching advertising and information campaigns. If the actor lacks the capacity or knowledge to carry out the energy-saving programmes on its own, the scheme principally offers the opportunity to become engaged with other market actors and to start collaboration. The company may, for instance, opt to provide educational assistance for installers in order to qualify them for the installation of more efficient technology. They may also initiate collaboration with social housing companies, municipalities, manufacturers or retailers of energy-efficient goods. Energy-service companies may theoretically be incentivized to deliver energy savings as well. If this mechanism comes into effect, energy-saving obligations may overcome some well-described barriers to end-use energy efficiency. The whole supply chain for energy-efficient goods may be activated. This way, the energy company becomes a facilitator of energy-efficiency action. Again, these effects can hardly be steered by policymakers but are up to the company to de-

42

1 Introduction

cide. Defining eligibility of actors as well as minimum quality standards may nevertheless be an attempt to influence the range of the companies’ behaviour. Eligibility of actors and the definition of measures are strongly attached to the term “additionality” – a crucial element in order to define if the scheme actually enfolds effectiveness above business as usual. It will therefore be introduced below.

1.3.5 Additionality Are the savings delivered through the energy-saving obligation scheme additional to business as usual? In order to assess the policy instrument’s impact, answering this question is generally considered essential. ‘Additionality refers to the certification of genuine and durable increases in the level of energy efficiency beyond what would have occurred in the absence of the energy efficiency intervention, for instance only due to technical and market development trends and policy in place’ (Bertoldi et al. 2010: 1458). There are two general approaches to taking additionality of energy savings into account. First, the baseline definition determines the amount of savings attached to each individual measure. Different savings will result depending on whether the baseline reflects best available technologies, market average, or stock average. In addition, the regular update of baselines in order to reflect market developments has an impact on the additionality of savings over time. Second, ‘policy additionality’ (Bertoldi et al. 2010: 1459) describes the degree to which the savings really result from the policy instrument at hand and is not incentivized by other policies at the same time (‘double counting’).

1.3.6 WCIs in practice – deriving the research question Table 1 compares core design features of the three WCIs that are analysed. This includes categories comprising the scope of the WCI (target, actors, eligible actors, eligible target sectors, standardized and non-standardized measures) 23, its institutional anchorage (legal foundation, policy architects, administration, measurement and verification or M&V), incentive mechanisms (sanctions, cost recovery), additionality (focus of delivered measures, double counting), and trading. What the schemes have in common is that under every WCI a decision has been taken regarding the single design categories. However, design choices 23 Note that the categories ‘eligible actors, eligible target sectors, and standardized and nonstandardized measures’ also contain information about the incentive mechanism and additionality.

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43

are very different in practice. The target unit (CO2, kWh, or toe) differs, the scope differs considerably (ranging from 6 actors to more than 2,000, determining between 20 and more than 180 standardized measures). There are some overlaps in the institutional anchorage in that it involves different administrative entities in each country. However, the role of the ministry is more prominent in France, where the scheme is – unlike in the other case studies – also enshrined in primary legislation. In Britain and Italy, the regulatory authorities, too, have an important function in the schemes’ administration. The incentive mechanisms of the three WCIs differ, as well as the eligible trading options: Britain does not allow the trading of certificates, and in Italy trading is possible not only over the counter but also organized via an electronic trading platform. Table 1 displays the different design choices in a nutshell. They are analysed in more detail in the case studies.

44

1 Introduction

Table 1: WCI schemes in Britain, France, and Italy compared Britain: Carbon Emissions Reduction Target (2008–2011)a

France: Certificats d’Économies d‘Énergie (2006– 2009)

Italy: Titoli di efficienza energetica (2008– 2012)b

Objective

185 Mt CO2

54 TWh

6 Million toe

Actors

6 energy supplier (gas & electricity) (customer base >50,000)

>2000 energy supplier (gas, electricity, heating & cooling, domestic fuels; minimum threshold of delivered kWh)

>70 energy distributors (gas & electricity) (customer base > 50,000)

Eligible (third) actors

Contracting partners such as installers

Municipalities; actors that deliver more than 1 GWh savings and whose core business is NOT energy savings & which will not increases the profit of the company

Especially energy service companies (ESCOs)

Eligible sectors

Households, special sub-target for low-income households (priority group)

All end-use sectors including transport

All end-use sectors

Standardized measures

>20

> 180

> 20

Nonstandardized measures

Restricted to a percentage of target via socalled flexibility mechanism and demonstration projectsc

Possible

Possible

Legal

Order (Secretary of State) referring

Energy framework law (loi Pope 2005,

Ministerial

target

1.3 White Certificate Instruments

45

foundation

to Gas Act 1986, Electricity Act 1089 and Utility Act 2000

Art.14+15; Grenelle 2 2010, Art. 78)

decrees (2004)

Policy architects

DEFRA/ DECC; Ofgem

DGEC, ADEME & ATEE

Ministry, AEEG, ENEA, Cesi Ricerca, GME

Administration, M&V

Ofgem

DRIRE (ADEME)

AEEG, ENEA, (Ministry)

Sanctions

Up to 10% of companies turnover

2€ct/kWh

Yes, but casespecific, potentially broad range

Cost recovery

No

Theoretically through tariff regulation

Yes, dependent on energy prices

Insulation of existing homes; focus on lowincome households

Change of boilers

Lighting tems

Double counting

Synergy with fuel poverty schemes such as Warm Front

Tax credits

Tax credits

Trading

Trading of obligations or energy savings possible; no certificates

Bilateral trading of white certificates

Trading of white certificates bilaterally and on spot markets via electronic trading platform

Focus delivered measures

of

sys-

Notes: a

Energy savings throughout the lifetime of a measure count towards the target. Certificates have to be delivered annually. In order to comply with the target, savings are accumulated. b

46 c

1 Introduction

The percentage depends also on the kind of measure that is delivered through the mechanism.

What can be concluded at this stage is that Table 1 reveals a couple of obvious differences in the WCIs. While a common set of design choices was made in each case, the three schemes have little in common in terms of design options – they involve different actors and different modes of action. The schemes deliver different measures: boilers, compact fluorescent light (CFLs), insulation. Thus, savings are made in gas, electricity, and money respectively. The incentive structures of the schemes seem to differ as well, since sanction mechanisms, buy-outs and cost-recovery are differently organized in the three countries. Finally, trading is organized differently, not even involving certification in Britain. Consequently, the initial research question turned out to not capture the whole picture. It is not just a matter of asking why Member States with different regulatory traditions in energy policy would choose the same policy instrument. A second puzzling question has to be formulated: Why are three apparently different schemes presented as the same kind of policy instrument? A cascade of follow-up questions can be formulated. If the schemes are meant to be the same policy instrument, why are they so differently designed? Does it make a difference to present the schemes as examples of WCIs as opposed to three standalone schemes? If so, how? Who is presenting the schemes as examples of one type of policy instrument, namely, WCIs? Are those framing agents aware of the schemes’ differences? Is there in the end a common element that would justify categorizing the three different schemes as one type of policy instrument? In order to focus the investigation and to make these questions researchable, the following five assumptions are made. They are meant to guide the research process 24. Each of the assumptions reflects a certain stage of the research process. They can collectively be regarded as an accumulation of insights transposed into assumptions. The course of research can be understood more as a process of enrichment than as one of falsification, since all assumptions contain some explanatory power. They anticipate to a certain extent the theoretical part of the analysis. The section on the theoretical framework will work out the explanatory elements in more detail.

24

Since the whole research process has been inductive-deductive, the assumptions are not strictly falsified and will not be called ‘hypotheses’. However, they have a similar function for the research process.

1.3 White Certificate Instruments 1.

2.

3.

4.

5.

47

The three WCI schemes indeed share key characteristics which make the scheme a common scheme: the saving obligation, the involvement of energy companies as agents delivering energy efficiency projects, and the budgetary independence 25 of the WCI as a financing tool for energy efficiency projects. The policy instrument is a hybrid scheme. Therefore, it is unnecessary to say that they unfold differently in practice. A hybrid scheme allows for the adaptation of the policy instrument to national circumstances, such as nationally pressing objectives, regulatory and ideational paths, or the specific composition of the actors with their distinct interest-based agendas. There are misunderstandings regarding the nature of the policy instrument and thus its key characteristics. Policy actors believe that WCIs are so-called market-based instruments, revealing their costeffectiveness through flexibility provisions such as trading. The schemes are believed to be united by this element. Promoting a hybrid scheme as one type of policy instrument to solve a range of pressing problems increases the political acceptability of political intervention. Uniting different schemes that are apparently successfully implemented 26 in different EU Member States tells a success story to be followed by other EU states. Hybrid instruments are more likely to be implemented since they are able to attract relatively high levels of political acceptance. Acceptance of agenda-setting is, however, not at the same level as effectiveness. Effectiveness is mainly influenced by detailed design choices.The intended or unintended creation of a policy image – as a result of strategic action – influences design choices beyond agenda-setting, and thus the policy instruments’ effectiveness.

To put it in a nutshell, the research puzzle can be located on two levels. First, on the level of policy instrument choice, it is not obvious that the problem should be framed with the help of the categories ‘most similar’ cases and ’most different’ cases that are typical in comparative analysis. Rather, it remains unclear whether the puzzle is designing different policy instruments but thinking they are the same policy instrument, or implementing the same policy instrument despite different regulatory traditions in energy policy. Second, there is the level of 25 26

Budget independence means that the WCI does not involve or affect the treasury. Successful implementation does not by itself mean that the scheme is effective.

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practical relevance that concerns the factors determining the effectiveness of WCIs. These two levels relate to the two purposes of the analysis: on the one hand, the analysis aims to contribute to the body of literature on policy instrument choice; on the other hand, the analysis provides additional insights for policymakers seeking to design a WCI. In order to solve the puzzle, the analysis will have to examine different groups of actors and their understanding of the policy instrument throughout the political process. Chapter 2, on the theoretical framework goes into further details about the assumptions guiding the analysis.

2 Theoretical framework

2.1 Studying WCIs: A policy analysis perspective In this chapter, the analysis is first placed within the realm of policy analysis. Then historical institutionalism and its expansion with constructivist elements are introduced as the theoretical foundation. Core elements transferred from these approaches to new institutionalism are (a) the role of strategic action and the linkage of strategic action to policy goals, (b) the significance of creating a policy image beyond agenda-setting, (c) the role of experts as policy entrepreneurs, and finally (d) the probability of unintended outcomes as a consequence of strategic action being socially constructed. The third section is particularly dedicated to policy instruments. A distinct body of literature about policy instrument choice is introduced. To provide a better theoretical anchorage of the research, the section elaborates on the link between historical/constructivist institutionalism and the literature on policy instrument choice. Fourth, different ways of understanding market-based policy instruments are introduced, since WCIs are in practice often labelled as marketbased instruments. The final fifth section sets out the complexity challenge of energy efficiency policy, introducing the main discourses of energy efficiency. Instruments have (…) always been used in governing; what has changed is that we now understand that instruments can, and should, be considered independently of other aspects of the design of policies (see Linders and Peters 1984). Rather than being inherently intertwined in the policies that they deliver, instruments do have some autonomous effects of their own and can independently impact the policies for which they are chosen. These effects can determine the success or failure of a program in reaching its policy goals as well as the political success or failure of a program. Understanding the independent influence of instrument choice is important because policies that appear to be failures because they have chose goals that are not achievable through collective action may, in fact, be quite feasible and even popular if they were attempted utilizing different instruments. (Peters 2005: 353)

This quotation points to the perspective of this analysis: the focus is on the policy instrument since it is believed that it may exert an influence on policy change which is worthy of special attention. The link between policy instrument choice

D. S. Steuwer, Energy Efficiency Governance, DOI 10.1007/978-3-658-00681-5_2, © Springer Fachmedien Wiesbaden 2013

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and policy change is addressed further below. By understanding policy instrument choice and design as a result of socially constructed strategic action, another perspective of the dissertation is added, linking elements of policy analysis 27 to constructivist institutionalism. As a consequence, the way the policy instrument is understood is assumed to have an influence on the policy instrument’s effectiveness. A number of middle-range theoretical approaches seek to explain general policy change 28. Most of them are situated within the realm of new institutionalism; some are more attached to the rational choice variant, others put more weight on ideas and path dependencies and thus count as historical or sociological institutional approaches. Among the most received are the ‘garbage can’ model by Cohen, March and Olsen (1972), John Kingdon’s ‘multiple streams model’ (1984), and Baumgartner and Jones’s (1993) ‘punctuated equilibria’ explaining agenda-setting and change in policy process and outcome. Some authors emphasize the importance of policy learning as an intervening variable. They typically draw in some way upon the works of Hugh Heclo (1974), Peter Hall (1993), or Richard Rose (1991). Among the most influential concepts in explaining policy change is the advocacy coalition framework (Sabatier 1988; Sabatier & JenkinsSmith 1990). Moreover, policy transfer (Dolowitz & Marsh 1996, 2000; Evans & Davies 1999), policy diffusion (Tews 2005) or policy convergence (Holzinger & Knill 2005; Holzinger, Jörgens & Knill 2008; Bennett 1991) have become popular concepts for analysing aspects of change in the policy-making process. Applying these concepts, researchers seek drivers and routes that certain policies take towards implementation in a certain country or range of countries (e.g. be27 Note that the underlying policy analysis examines policy content, including policy output and policy outcome as well as the process leading to both content and outcome. 28 Two very influential analytical frameworks on a more aggregate level serve as a source of inspiration for many other middle-range theories and provide starting points for comparative policy analysis. They take into account both the role of actors and the institutional context in which they act. With their institutional analysis and development framework Kiser and Ostrom (Kiser & Ostrom 1982; Ostrom 2007) created a well-known and frequently applied framework of analysis providing a range of explanatory factors and leaving room for a range of theories to fit this framework. The second framework is the actor-centered institutionalism developed by Fritz Scharpf and Renate Mayntz (Mayntz & Scharpf 1995), which similarly combines a number of variables in order to explain policy change. One of their suggestions is to take into account all these factors and then model game theoretically the behaviour of decision-makers, which then usually serves as the main research hypothesis. Many of the scholars who refer to Scharpf (2000), however, find it useful to use just the collection of factors and the way they are interrelated by Scharpf and Mayntz for structuring their own, often comparative, empirical analysis. Although very influential, these approaches are not directly referred to here since other theoretical accounts (expanding explanations beyond the rationality or ‘bounded rationality’ of actors and interests as the main variables) seem to be more fruitful for the analysis.

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ing consciously transferred or adopted rather randomly under pressure from generally changing economic conditions or as a result of the presence of key actors or institutions) and explain their relative similarities or differences. None of these concepts is, however, especially designed to explain policy instrument choice with the policy instrument as a starting point. Even if many insights from these approaches are also applicable to explaining instrument choice, they focus on specific aspects and processes but do not offer a general framework for explaining policy instrument choice or policy instrument change. Therefore, explanations of policy change are taken from historical as well as constructivist institutionalism and applied to the body of literature on policy instrument choice to fill this gap. What most of the middle-range theories for analysing policy change have in common is the strong link between change and agenda-setting. Hence, a considerable literature exists on changing the political agenda. With their concept of punctuated equilibrium, Baumgartner and Jones (1993) acknowledge the consequences of agenda-setting for the subsequent political process. Still, their analysis puts agenda-setting in focus. The underlying piece of work, however, aims at analysing the influence that policy instrument choice and the way a policy is brought on to the political agenda (i.e. to which intentions, goals and images it is linked) have on the policy implementation 29. Since policy instruments unfold steering capacity in order to attain specific policy goals, the quest for effectiveness arises automatically 30. Effectiveness is dependent on detailed design choices. The analysis thus focuses on how agenda-setting affects the design of the policy instrument on the microlevel. Besides the middle-range theories, there exists a body of literature on policy instrument choice that has advanced over time and developed into more concrete ideas of the process that determines instrument choice, instrument change, and instrument design. This literature often does not place great importance on the theoretical anchoring of policy instrument choice. Political anchoring would, however, allow for a more distinct identification of variables and their analysis. Further, only a few distinct models aim at explaining the paradoxical results of instrument choice that are so often found in political reality, thus going beyond a 29

Policy analysis is typically structured around different stages of the policy cycle (Hill 2005: 19ff). While the policy cycle is a heuristic tool that does not mirror complex reality, it is still worth distinguishing different stages such as agenda-setting and implementation in order to render the analysis more structured and clear as well as to separate explanatory variables from the scope of their influence. Thus, this analysis also makes use of the different stages the policy cycle model provides. 30 Thus, the analysis is not about explaining change or stability per se. Rather, it is of interest to what extent the effectiveness, that is, goal attainment, can politically be influenced by instrument choice and change.

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purely ‘technical’ and solely rational approach to instrument choice. Recently, more research has been dedicated to putting instrument choice in the context of governance (see e.g. Voß 2007; Eliadis, Hill & Howlett 2005; Lascoumes & Le Galès 2007). In anchoring policy instrument choice and change in the context of new institutionalism, it becomes possible to follow these governance approaches to research on policy instruments and even to go further in stretching the concepts by introducing a constructivist perspective, as is further explained below. In a sense, the theoretical approach adopted in this analysis is an experiment as it takes theoretical levels from macro-theoretical concepts and incorporates middle-range theoretical approaches for analysing political processes on a microlevel 31. The linking element is the influence of ideas on policy instrument and design choice via the policy image. Ideas are understood in the realm of historical institutionalism and its expansion to what some experts call ‘constructivist institutionalism’, as presented in the following section.

2.2 Ideas in context – expanding Historical Institutionalism to Constructivist Institutionalism In order to offer new insights for research on policy instruments, the analysis presents a constructivist account of new institutionalism in order to apply its core elements (socially constructed strategic action, creating a policy image, and the conditions for unintended policy outcomes) to the research design of WCIs. Different branches of new institutionalism make different assumptions about preferences (endogenously given versus exogenously formed), behaviour (is rational behaviour possible?), and the interaction between structure and agency (see e.g. van Waarden 2009: 290f.). Scholars usually distinguish three approaches: rational choice institutionalism, sociological institutionalism, and historical institutionalism 32. More recently, some authors have identified the emergence of a fourth variant of new institutionalism, which is referred to as 31 Carefully weighing strengths and weaknesses, Sil and Katzenstein (2010: 426) provide convincing arguments for what they call ‘analytic eclectisism’: ‘First, analytic eclecticism alone aims to problematize complex phenomena encountered by practitioners and ordinary actors, phenomena that are typically sliced into more narrowly circumscribed puzzles by adherents of research traditions. Second, analytic eclecticism alone is designed to simultaneously traffic in theories from multiple traditions in search of linkages between different types of mechanisms that are normally treated in isolation in separate traditions. In so doing, analytic eclecticism increases the chance that scholars and other actors will hit upon hidden connections and new insights that elude us when we simplify the world for the sole purpose of analyzing it through a single theoretical lens.’ 32 Some authors draw other distinctions. For example, Peters (2000) refers to the normative rather than the sociological approach of institutionalism. He adds ‘empirical institutionalism’. Immergut (1997) refers to organization theory rather than to sociological institutionalism.

2.2 Ideas in context – expanding Historical Institutionalism to Constructivist Institutionalism 53 ‘constructivist’ or ‘discursive institutionalism’. The discursive institutionalist perspective, as Vivian Schmidt understands it, differs from the constructivist institutionalist perspective that Hay (2006) offers. Both authors differentiate their new notion of institutionalism in some way from the rational choice variant. But whereas Hay sees much fruitful common ground with historical institutionalists, Schmidt stresses the relation of discursive institutionalism with sociological institutionalism, arguing that the latter is all about ideas and discourse (Schmidt 2008: 320) 33. Another piece of work has been very influential for the analysis: Jabko (2006: 26) has framed the term ‘strategic constructivism‘ 34 from the constructivist perspective rather than the institutionalist, 35 emphasizing the influence of strategic action. Since there exists an extensive literature about different accounts of New Institutionalism (see e.g. van Waarden 2009; Thelen 1999; Immergut 1997; Peters 2000; Schmidt 2008; Hay 2006), the differences between the individual understandings are not fully displayed here. As the focus of the analysis here is on assumptions of historical institutionalism and of what recently emerged out of historical institutionalism 36, namely, constructivist institutionalism, the following paragraph deals with these accounts in greater detail. Those aspects are highlighted that supposedly will matter throughout the analysis The charm of historical institutionalism (HI) consists in the combination of the two central elements: path dependency and ideas 37. The existing literature 33 Since I understand this new approach as a theoretical expansion of historical institutionalism, I follow Hay’s suggestion and refer to ‘constructivist institutionalism’. 34 Jabko’s work is dealt with in more detail below. Even though his work has much in common with other approaches, including the approach adopted here, his work does not stem from the logic of new institutionalism. Therefore, I do not refer to the term ‘strategic constructivism’ but adhere to Hay’s constructivist institutionalism. 35 Similarly, Hajer (1995) showed that institutional analysis and discourse analysis go together. Exemplifying a discourse analysis, his work is interesting from a methodological viewpoint. However, he showed the institutional dimension of discourse (1995: 263) rather than the significance of constructivism for institutional analysis. While influential on this subject in general terms, Hajer’s work is of limited usefulness for the concrete development of the analysis here since this dissertation proceeds from the institutional perspective and subsequently integrates constructivist insights. In addition, it does not carry out a discourse analysis even though the term ‘discourse‘ appears and plays a role, as is shown further below. 36 Constructivist institutionalism as understood by Hay (2006) has been most influential on the analysis here. Hay distinguishes his institutionalism from historical institutionalism as a combination of explanations of behaviour driven by calculus (as in rational choice institutionalism) and cultural logic (as in sociological institutionalism) (Hall & Taylor 1998). However, he acknowledges that other accounts of historical institutionalism are closer to his constructivist institutionalism. He mainly refers to Thelen and Steinmo (1992) in this respect. Therefore, the dissertation bases its theoretical assumptions largely on the work of Thelen and Steinmo. 37 Peter Hall and Rosemary Taylor distinguish two other characteristics of historical institutionalism, namely, the relatively broad conceptualization of the relationship between institutions and individual behaviour and the asymmetries of power associated with the operation and development of institu-

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clearly treats those decisions taken before the decision to be examined as the main explanatory factor for the persistence of policies. This includes the continued existence of the policy instruments in use and other institutions that were created to support policy goals: Path dependency takes into account the fact that the policy and structural choices made at the inception of the institution will have a persistent influence on its behaviour for the remainder of its existence (Peters, 2000: 3). In a nutshell, the history of the political process matters and has explanatory power. 38 Among the most influential work on HI is that by Peter Hall 39 (Peters, 1999: 64). In a publication with Rosemary Taylor on the three New Institutionalisms, he further elaborates the importance of the concept of ideas and the role that ideas play in explaining policy design. Historical institutionalists draw special attention to the relationship between institutions and ideas or beliefs (Hall & Taylor 1996: 942). It is not so much the claim that ideas have influence, but rather the urge to understand how ideas interact with institutions to cause change and why it is that certain ideas seem to have more influence than others (see Thelen & Steinmo 1992: 23). In Peter Hall’s well-known analysis, it is the structure of political institutions that help put certain ideas on to the political agenda and finally lead to a paradigm shift (Hall 1993). This causal relationship of institutions favouring the transmission of certain ideas by offering particular channels is also underlined in King’s analysis (King 1992) and as a constraining factor within the concept of ‘bounded innovation‘ by Weir (1992) as well. However, this analysis does not restrict ideas to the function of cognitive filters but rather follows Thelen and Steinmo (1992) and Hay (2006). In their view, ideas are also drivers of institutional change. Hay and Wincott (1998) refer to Thelen and

tions (i.e. political decision-making is characterized by power imbalances and so policy outcomes generate losers) (Hall & Taylor 1996: 938ff). 38 It is, however, less clear why traditions and not purposes (rational institutionalism) or norms (sociological institutionalism) are followed. As van Waarden (2009: 288) puts it, the drivers for following traditions might indeed be either ‘rational’, as a policy change would involve excessive costs, or ‘norm-driven’, since the social environment would not support breaking with established institutions that reflect norms. Seen this way, a historical institutionalist perspective allows for the integration of other theoretical assumptions and thus serves as a theoretical frame. Like van Waarden, Hall and Taylor (1996: 938f., 950) highlight an important virtue of the historical institutionalism which embraces both a calculus and a cultural explanation of the individuals’ behaviour and choices. Thus, the individual is both a utility maximizer and a satisficer. Colin Hay and Daniel Wincott radically criticize Halls and Taylor’s position. They argue that putting both options – the individual as both maximizer and satisficer – at the heart of HI is nothing more than highlighting the main difference between the two (incompatible) approaches of new institutionalism: rational choice institutionalism and sociological institutionalism (Hay & Wincott 1998: 953). 39 Certainly among Hall’s most important publications is the journal article from 1993 on policy paradigms, social learning and the state.

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Steinmo in order to capture the distinct relationship between institutions and behaviour in HI: Institutional analysis…allows us to examine the relationship between political actors as objects and as agents of history. The institutions that are at the centre of historical institutionalist analysis…can shape and constrain political strategies in important ways, but they are themselves also the outcome (conscious or unintended) of deliberate political strategies of political conflict and choice. (Thelen and Steinmo 1992: 10 in Hay and Wincott 1998: 955)

Hay and Wincott attempts to argue that historical institutionalism offers the basis for a theory that explains change by the interaction of actors within their institutional environment. This interaction can be understood as the mutual constitutive formation of institutions as well as actors’ preferences and behaviour. In this way it can be seen as a bridge with the new variant of new institutionalism that has recently been put forward by a growing number of researchers 40 (e.g. Hay 2006; Schmidt 2008; Blyth 2003), 41 Hay later formulates a distinct definition of institutional change from constructivist institutionalism: (...) institutional change is understood in terms of the interaction between strategic conduct and the strategic context within which it is conceived, and in the later unfolding of its consequences, both intended and unintended. As in historical institutionalism, such a formulation is path dependent. (Hay 2006: 64; emphasis in original)

Hall and Taylor (1998: 361) argue that historical institutionalists capture a view of actors as able to alter both basic and strategic preferences according to the manifold ideas that they are exposed to. Hay (2006) places an emphasis, from the constructivist institutionalism viewpoint, on the impossibility of deriving interests and preferences from the context, since interests are social constructions.

40 In his paper on constructivist institutionalism, Hay refers to the book by Campbell and Pedersen (2001) as the first publication clearly identifying a new ‘new institutionalism’. 41 Vivian Schmidt (2008: 314–15) argues that it is due to the ‘logic of communication‘ that discursive institutionalism (DI) is better able to explain institutional change than the other three new institutionalisms. According to Schmidt, it is the (foreground) ‘discursive abilities’ (through which agents may change institutions and which exists parallel to the ‘background ideational abilities’) that represents this logic of communication. It ‘enables agents to think, speak, and act outside their institutions even as they are inside them, to deliberate about institutional rules even as they use them, and to persuade one another to change those institutions or to maintain them’. She argues further that the older approaches can be used as ‘background information’ in order to identify what one would expect to happen, whereas DI may better explain the unexpected.

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The understanding of ideas in this analysis follows Hall and Taylor (1998: 961). To them, ideas exist at all possible levels, such as overall ideas about what governs the world, ideas about what drives the behaviour of individuals, or ideas that entail a moral dimension. In historical institutionalism actors are not assigned single preferences but a multitude of preferences, all of which might have an effect on the relevant issue. ‘This renders issue-definition a particularly consequential dimension of the political problematic’ (Hall & Taylor 1998: 961). As a consequence, there are many ways for ideas to be embodied in institutions and to affect individual action. On the one hand ideas act as cognitive filters, and on the other hand they can be considered as main components of action. In order to understand their functionality, certain institutional structures have to be opened up by tracing institutions empirically and historically. Like Thelen and Steinmo (1992), Hay emphasizes that both institutional and the ideational path dependence (Hay 2006: 65) matter in the course of historical analysis: ‘Institutions are built on ideational foundations which exert an independent path dependent effect on their subsequent development.‘ This is a core assumption also of the analysis at hand. While this section mainly sets out the basic ideas of HI enriched by elements of constructivist institutionalism, the following subsections are more strongly focused on the constructivist perspective on institutionalism. They are structured around the core elements of the theoretical assumptions underpinning the research taken from both historical and constructivist institutionalism, namely, strategic action and goals, creation of a policy image, the role of policy entrepreneurs, unintended outcomes and prevailing tensions.

2.2 Ideas in context – expanding Historical Institutionalism to Constructivist Institutionalism 57 2.2.1 Strategic action and goals A building block of the underlying theoretical framework is strategic action. Nicolas Jabko’s research fits very well in this section since he merges different institutionalist accounts with a constructivist perspective, putting political strategies at the heart of his research. He comprehends political strategy as a social construct (Jabko 2006: 28–9). Further, he finds that issue definition is an inherent part of strategic action 42. And finally, the empirical example that he investigates is the use of the term ‘market’ and different kinds of ideas that are connected with this term. Since ‘market‘ is also a central term/concept used in association with tradable white certificates, his findings are especially interesting for this analysis (see section 2.4). Strategic action on the part of actors such as policymakers or policy entrepreneurs is usually an assumption in rational choice institutionalism. In this analysis, too, actors are assumed to act strategically in order to ‘realize complex, contingent and often changing goals’ (Hay & Wincott 1998: 954). But the definition of strategic action goes beyond rational choice institutionalism. This analysis follows the constructivist-institutionalist understanding of strategic action. Here, strategic action is affected by a whole range of sometimes diverging subjective preferences going beyond what is often referred to as ‘bounded rationality’ (e.g. Schmidt 2008: 318; Hay 2006: 63–4). Strategic action is always happening in a context about which actors have limited information; and thus the perception of the context can be neither predicted nor a complete mirror of the situation. ‘[The actors’] desires, preferences, and motivations are not a contextually given fact (...) but irredeemably ideational, reflecting a normative (indeed moral, ethical, and political) orientation towards the context in which they will have to be realized‘ (Hay 2006: 63–4). Here a constructivist perspective comes into play: it is acknowledged that interest-based behaviour, which drives strategic action, exists. However, the relevant question is not about the material reality but about the reality that exerts an influence – and this is always socially constructed. This means that even interests are social constructs. Nicolas Jabko bases his investigation on similar assumption. In this context, he introduces the term ‘strategic constructivism’ (Jabko 2006: 26) to label the theoretical approach to explaining what – as he argues – has driven European integration. Like historical institutionalism, his approach goes beyond what he calls the utilitarian behaviour of influential political actors, beyond institutional explanations mainly of incremental change, and finally also beyond a purely constructivist perspec42

He puts goal complexity as a core element of political strategy and find that it is the actors’ ability to pursue a common political strategy that led to various integrationist reforms in Europe despite disagreeing over their long-term purposes (Jabko 2006: 29ff).

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tive, in that he refuses to explain the development of the common European market purely by the power of (neoliberal) ideas. He uses the term ‘utilitarian’ rather than ‘rationalist’ because he finds ‘utilitarian’ more specific and distinct than the broadly and oft-cited terms ‘rationalist’ and ‘rational choice’ (Jabko 2006: 12 n). To Jabko, a political strategy, or what he calls ‘the politics of market ideas’, caused institutional change 43. Constructivist institutionalism further acknowledges that strategic resources are unevenly distributed, including knowledge of the institutional environment. ‘This in turn affects the ability of actors to transform the contexts (institutional and otherwise) in which they find themselves’ (Hay 2006: 65). Guided by their preferences, actors will act strategically, adapting to the institutional context at a certain time in history. At a certain moment, new ideas may have the potential to cause groups to rethink their preferences and interests, which will then lead to a new packaging of policies or to the formation of certain coalitions (Weir 1992: 9). This ‘packaging’ or ‘coalition formation’ is often described as strategic action. Given that this action is caused by a range of historically determining factors such as the occurrence of a certain idea at a point in time when, for example, the prevailing institutions prescribe a reallocation of resources, strategic action cannot necessarily be bound to cognition or utilitymaximizing behaviour, but is to a certain degree context-driven. Hay and Wincott’s definition of change captures these implications well and therefore supplies the understanding of institutional change in this analysis: Change is seen as the consequence (whether intended or unintended) of strategic action (whether intuitive or instrumental), filtered through perceptions (however informed or misinformed) of an institutional context that favours certain strategies, actors and perceptions over others. (Hay & Wincott 1998: 955)

Strategies are adjusted in the light of preferences. Whereas rational institutionalists see preferences as given exogenously, necessarily deduced from the situational context and serving maximizing actors’ self-interest, historical institutionalists 44 assume that preferences are not given but shaped by and within the social and political institutional context. They ‘argue that not just the strategies but also the goals actors pursue are shaped by the institutional context‘ (Thelen & Steinmo 1992: 8). 43

As a result of his investigations, Jabko found that there is no single market ideology, and explored different ideas associated with the term ‘market’. This made it possible for actors to justify different and sometimes conflicting steps of integration. 44 This assumption can also be found in constructivist institutionalism, but it is not shared by all accounts of historical institutionalism.

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Jabko also stresses the importance of goal formulation in following strategies. To him, political strategies help to integrate differing goals into single policy decisions: We generally assume that people who act together must share at least some common goals. However commonsensical it may sound, this is not a safe assumption for political analysis. (…) In fact, it is perfectly possible to agree on a strategy without sharing the same long-term goals – just as it is possible to agree on goals and disagree on strategy. In such cases, all actors take the risk of deviating from their respective long-term goals in carrying out their common strategy, but they each also work hard to retain the initiative and to make progress toward their long-term goals. (Jabko 2006: 28)

Thelen and Steinmo (1992) argue that historically based analyses need to explain why actors emphasize certain goals over others. This is done through an historical analysis that puts assumptions about self-interest in context. In other words, goals, strategies, and preferences are explained throughout the analysis (Thelen & Steinmo 1992: 9). Following Jabko’s arguments, it is not only that goals, strategies, and preferences have to be explained in terms of finding out why some of the goals are better received than others. Instead, Jabko claims that it is important to examine in detail what kind of goals can be found implicit in political strategies and decisions in order to explain the persistence of seemingly different goals. Finding out about different goals teaches us a lot about the way political strategies are constructed. (...) we must therefore attend to the fine grain of actors’ political strategy. When we observe actors who appeal to similar ideas in multiple contexts, we should question this similarity and examine the concrete meanings of these ideas. The broad repertoires from which actors draw their ideas are crucial to explain the occurrence of change, yet they are rarely as uniform and coherent as it may seem at first glance. We should expect actors to creatively exploit the polyvalence of ideas and the institutional tensions that these ideas create in pursuit of complex and multiple goals. (Jabko 2006: 40)

By placing great importance on the dynamic relationship between action and a transformation of the institutional context – change goes in both directions – constructivist institutionalism also tries to explain institutional change. Thus, a decision, which has been shaped by the institutional context and former deci-

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sions at the point in time the decision was taken, will influence future decisionmaking as well by transforming the historical path itself 45. In a nutshell, understanding strategic action in terms of social constructs implies that the underlying research has to ask what policy architects expect when advocating a certain idea. The investigation has to grasp the meaning of ideas – and, consequently, the meaning of goals – to the policy architects. They cannot be derived from the context alone but have to be directly derived from the policy architects’ statements and the context of those statements.

2.2.2 Fostering change: Framing the problem and creating a policy image Historical institutionalism is often criticized for being unable to explain change 46 and for following the logic of ‘institutional determinism’. Yet there are explanations that bound change to context 47. Understood as an intervening variable, institutions mediate the way other factors, such as ideas, interests, or actor coalitions, influence policy outcomes (Schreurs 2002: 23). But it is not only the intervening institutions that matters; so too does the occurrence of interventions in 45 The constructivist attempt to explain change has faced criticism similar to that claiming that HI offers no satisfying explanation for change (see also next subsection): on the one hand a constructivist perspective points correctly to the mutual formative dynamics between structure and agency, but on the other hand fails ultimately to explain change since it also offers only intervening variables that are able to illuminate the processes (e.g. Hay 2006: 71–2). The author is aware of these shortcomings but sees nevertheless the chance to explain policy instrument choice on a case-specific basis, making use of these insights and stressing the importance of certain intervening variables. 46 It is objected that path dependency mainly explains the persistence of policies and incremental rather than deeply-rooted or revolutionary change (Thelen & Steinmo 1992: 14; Hay 2006: 60). This is, however, only a snapshot conclusion. Change obviously occurs in reality and historical institutionalisms do not deny this. 47 Thelen and Steinmo, for example, identify four distinct sources of institutional dynamism when compiling the results of various case studies by different authors (1992: 16f.). There are three possible ways that lead to a change in the performance of the very same institution due to some kind of stimulus: broad changes in the socioeconomic and political context cause (a) an increase in the significance of formerly rather insignificant institutions, or (b) old institutions to assume new functions and meanings as new actors pursue their goals through existing institutions; (c) exogenous forces may lead to a shift in the goals and strategies pursued in existing institutions. The authors finally (d) identify an institutional dynamic that leads to actors changing and adapting institutions themselves by adjusting their strategies. Change in HI is also often associated with Peter Hall’s empirical work on paradigm shifts. As this is the major inspiration of the development of constructivist institutionalism (Hay 2006: 66), authors more recently following this constructivist approach try to fill the gaps that Hall is not able to. They subsequently ask ‘under what conditions paradigms emerge, consolidate, accumulate anomalies, and become subject to challenge and replacement’ – and this is often accompanied with a focus upon the moment of crisis (Hay 2006: 67). According to Blyth analyses, ‘Crisis (…) can be viewed as moments in which actors’ perceptions of their own selfinterest become problematized‘ (Blyth 2002 in Hay 2006: 67).

2.2 Ideas in context – expanding Historical Institutionalism to Constructivist Institutionalism 61 times of decision-making: ‘the order in which things happen affect how they happen; the trajectory of change up to a certain point itself constrains the trajectory after that point‘ (Hay & Wincott 1998: 955; see also Hay 2006: 64). This rather calls for an inductive way of theory building and a methodology that allows the history of the political process to be taken into account. In contrast to rational choice institutionalism, historical institutionalism is also able to explain change as a result of choices that lead to policy failures and unintended outcomes. Still, there remains a gap in explaining the processes that lead to different degrees of change. A range of well-received research has been conducted in order to better explain factors and their interplay in the political processes that lead to change. In the following paragraph, I mainly refer to insights in a study of Baumgartner and Jones (1993) about agenda stability in American politics. The authors seek to explain periods of equilibrium and instability with what they call ‘punctuated equilibrium’. The underlying research does not aim to explain phases of stability or instability. Rather, the analysis proceeds from the insight that the policy image that was able to cause a shift in the agenda has consequences for the policy process. Other than this analysis, Baumgartner and Jones do not address the other stages in the policy cycle. However, their explications of ‘policy images‘ and ‘issue definition‘ (Baumgartner & Jones 1993: 25) fit well in the context of constructivist institutionalism and Jabko’s ‘strategic constructivism‘ where actors strategically define issues and thereby create the image of the policy – and consequently guiding perceptions. Baumgartner and Jones propose that the interaction between changing images and institutional venues of public policies is the explanatory factor for what they call ‘positive feedback‘, which causes disequilibrium. Their understanding of ‘policy image‘ can be linked to what Böcher and Töller understand as the ‘discourse of policy instruments‘ (Böcher & Töller 2007: 305–8; see also below). How a policy is understood and discussed is its policy image (Baumgartner & Jones 1993: 25).

This rather simple definition of policy image already entails its critical features: ‘understanding‘ a policy implies the involvement of cognition and thus it becomes clear that a policy image is always bound to subjective perception. This perception becomes visible in the way policies are discussed. The authors point out that experts usually have a different view of policies and discuss their characteristics in a different way from political elites. In order to persuade decisionmakers to follow the expert group’s preferred choice, it proved to be helpful to frame the policy problem in a simple and rather symbolic way. Similar to what Jabko (2006) emphasizes as ‘goal complexity’, to Baumgartner and Jones, too,

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the different implications of a single policy are of importance. People feel more attracted to certain policy dimensions and goals than to others. Thus, the images that are associated with a policy can differ significantly (Baumgartner & Jones 1993: 26). When the problem and a certain understanding of policy goals are framed, the opportunity for strategic action appears. ‘Since a given policy typically has many different implications, it can be linked with many competing images‘ (Baumgartner & Jones 1993: 28). This linking to competing images is an active process – ‘issue definition’ or ‘strategic action’. Or as Hay (2006: 64) puts it: ‘politics is (…) about both fashioning, identification, and rendering actionable of such conceptions.’ Issue definition may alter policy images: Issue definition, then, is the driving force in both stability and instability, primarily because issue definition has the potential for mobilizing the previously disinterested. The structure of political institutions offers more or fewer arenas for raising new issues or redefining old ones – opportunities to change understandings of political conflict. Issue definition and institutional control combine to make possible the alternation between stability and rapid change that characterizes political systems. (Baumgartner & Jones 1993: 16)

This quotation illustrates well that the authors understand the competition between different policy images as the main driver of change. Altering policy images by issue definition is, however, only one option. Apart from the competitiveness argument, there is the possibility that, through issue definition, more than one policy image may be captured, as Jabko’s analysis has shown: competing or even mutual exclusive images or concepts can be comprised under the single term ‘market’. Thus, strategic action does not necessarily aim at creating an image that competes with another image, and therefore is able to implement the concept that is associated with the image. Here, the framing of the problem has to be matched to creating a policy image and offering it as a solution. The following quotation illustrates this: Policy-making is in fact to be analysed as the creation of problems, that is to say, policy-making can be analysed as a set of practices that are meant to process fragmented and contradictory statements to be able to create the sort of problems that institutions can handle and for which solutions can be found. Hence policies are not only devised to solve problems, problems also have to be devised to be able to create policies. (Hajer 1995: 15)

A second option for strategic action could be the attempt to create a policy image that is able to capture many different views as comprehensively as possible, resolving the dilemma of competing issues in order to gain political acceptance.

2.2 Ideas in context – expanding Historical Institutionalism to Constructivist Institutionalism 63 In this case, the match of the policy problem to the creation of the image is not so important, as the image itself is well able to capture solutions to a range of different policy problems. This is where ‘hybrid’ instruments come into play. Their very nature offers room for different policy images to be attached to the instrument. In addition, a WCI is often perceived as a market-based policy instrument – a term with no commonly agreed definition and thus room for interpretation. Since this is crucial for the operationalization of the research, a separate section (2.4) is dedicated to the struggle to define market-based policy instruments. Finally, the policy area under investigation – energy-efficiency policy – offers another opportunity to create policy images. Energy efficiency is, again, a term that comprises multiple purposes and implementation possibilities. The subsection 2.5 about the complexity challenge of energy efficiency further elaborates this. Some authors link issue definition to discourses. Especially when the authors are referring to the process by which ‘whole communities of experts come to accept one causal story‘, the association with policy ‘discourses‘ stands to reason. Schmidt turns it the other way round and points out that the same ideas can be used for different strategic purposes in different contexts and – referring to Fouilleux (2004) – introduces this as ‘double discourse‘ (2008: 312). In this she supports Jabko’s argument and the assumptions that were laid down above.

2.2.3 Policy entrepreneurs as agents of strategic action As explained above, policy decisions can be seen as guided by strategic action. Creating a policy image is understood as strategic action. By making use of policy images that leave room for interpretation, the match between problem and solution can more easily be communicated. But who is the agent of strategic action? While strategic action cannot be exclusively attributed to any particular actor and is, under a constructivist institutionalist approach, the result of complex interaction, for analytical purposes it makes sense to focus on actors that are expected to have a special role in the policy process. In line with Kingdon (1984), in this subsection attention is paid to the role of policy entrepreneurs, since they are assumed to play an outstanding role in the political process. In addition, in the policy area of energy efficiency experts are assumed to play a significant role in shaping the problem and working out solutions. In John Kingdon’s (1984) multiple-stream approach 48 to policymaking, policy entrepreneurs 48

Generally, Kingdon’s multiple stream framework is seen as dissociated from classical American positivist analysis, especially as Kingdon aligns himself with March, Olsen and Cohen’s ‘garbage can’ model (Hill 2005: 153). Zahariadis acknowledges that policymakers are not able to act rationally

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play a crucial role. Kingdon is often cited in this respect (along with elaborations by Zahariadis 2007), and I do so here in order to elucidate the role of policy entrepreneurs. Still, I do not go into the details of his approach since it aims at explaining the macro dynamics of political choice in the agenda-setting phase. Instead, this analysis proceeds from the policy instruments perspective and argues that, other than in the multiple stream framework, the instrument in question embraces a dynamic in the political process of its own throughout the political process including design choices. The term ‘policy entrepreneur‘ is often attributed to Joseph Schumpeter. His concept extends the idea of the entrepreneur to political actors who have the task of convincing opponents that the policy will serve their purposes and interests too, in order to gain their support (e.g. Zito 2000: 37; Moe 1980: 39). Given that policymaking happens in an environment full of uncertainties (e.g. preferences, technological innovations), ‘who pays attention to what and when is critical‘ (Zahariadis 2007: 68). Three sets of streams – problem streams, policy streams, and political streams – interact at a critical moment in time. The time dimension is important since only in so-called policy windows 49 will the confluence of the streams be possible. It is subsequently the policy entrepreneur whose task it is to bring the streams together. ‘Policy entrepreneurs, people who are willing to invest their resources in pushing their pet proposals or problems, are responsible not only for prompting important people to pay attention, but also for coupling solutions to problems and for coupling both problems and solutions to politics‘ (Kingdon 1984: 21). Thus it is the entrepreneurs who use ‘issue definition‘, who ‘[change] the nature of the debate‘ (Majone 1996: 272),or ‘are goal-intending manipulators‘ (Zahariadis 2007: 69) in order to create policy images and make policies popular. 50 in a world of ambiguities. Still, he ascribes rational action to policy entrepreneurs in ‘the narrow pursuit of their pet proposal‘ (2007: 69) in order to fill in the gap in rational acting among policymakers. Even if applied only to this very narrow ‘window of opportunity’, I do not believe that rationality is an outstanding feature of policy entrepreneurs. I acknowledge that information and resources are unequally distributed, as mentioned above. This allows some actors to act as strategic entrepreneurs. However, it does not ascribe outstanding attributes (such as rationality) to one actor (policy entrepreneur) which the other actor (e.g. politician) has not. 49 Kingdon distinguishes two types of problem window and two types of political window (Kingdon 1984: 176). Howlett and Ramesh draw on his work and distinguish four distinct windows: a routinized political window, a discretionary political window, a spillover problem window, and a random problem window (Howlett & Ramesh 2003: 137). Thus, they add what they call ‘cyclical’ characteristics to the appearance of policy windows. The authors argue that there exist windows of opportunity that, rather than appearing randomly, are rather predictable as they recur with the policy cycle. 50 How do entrepreneurs put forward their proposals? Baumgartner and Jones also refer to Kingdon. They have popularized the term ‘venue shopping’50 in relation to policy entrepreneurs: ‘Many venues with only vague or ambiguous constraints on their jurisdictional boundaries create opportunities for strategically minded policy entrepreneurs to shop for the most favorable locus for their policies’ (...)

2.2 Ideas in context – expanding Historical Institutionalism to Constructivist Institutionalism 65 As will be shown below (see section 2.5) experts play a very important role in energy-efficiency policy. Therefore, it is assumed that policy entrepreneurs will be found among the experts. Framing a problem and creating a policy image will not only be important to ‘sell’ a new policy instrument to decision-makers. It will also be an important strategy among experts, who in their areas of expertise influence wider groups of experts.

2.2.4 Unintended outcomes and prevailing tensions Policy entrepreneurs, as understood by Zahariadis (2007), necessarily act strategically and intentionally. However, adding a constructivist-institutionalist perspective acknowledges that strategies are social constructions. This viewpoint allows for explaining unintended outcomes and prevailing tensions. Some historical institutionalists respond to the phenomenon of unintended outcomes. Thelen and Steinmo especially refer to Rothstein (1992) and Immergut (1992) in this regard (1992: 21; 22): They state that Bo Rothstein’s analysis of institutional change points out the possibility of ‘mistaken strategies or “wrong choices”. (…) Where actors hold conflicting preferences, and where it is not clear to them which goals to maximize (short or long-term) or how to best pursue their interests, other factors – such as leadership – appear to play a key role in defining goals and how to pursue them.‘ By showing the importance of unintended effects, Immergut’s analysis takes the same direction as Rothstein’s. Both authors show a dimension which is not covered by a rational-choice institutionalist approach: the emergence of unintended effects and making ‘wrong’ decisions would have not been captured by a deductive approach assuming fixed preferences and well-defined self-interest, which might turn out to be not as clear-cut as presumed. Still, understanding strategic action as social constructs (Jabko 2006) makes it even clearer not only how unintended outcomes come about but also how inconsistencies and tensions can prevail: Strategically minded actors ‘exploit the polyvalence of ideas’ which then creates institutional tensions ‘in the pursuit of complex and multiple goals‘ (Jabko 2006: 40). The link with the significance of policy image creation is obvious – creating a policy image becomes a strategy in order to capture in some cases polyvalent ideas. Here again, the feature of the WCI as a hybrid instrument and the characteristics of the cross-cutting policy area of energy efficiency can be expected to give rise to misconceptions. The hybrid instrument allows for various incentive ‘As issue expanders attempt to attract the attention of a new group of policy-makers, they must explain why the issue is appropriate for consideration with that venue’ (Baumgartner & Jones 1993: 35; 36).

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mechanisms to come into effect, and thus allows for competing concepts to coexist under a single framework term. The same is true of the term ‘market-based’ since there exists no clear-cut definition of what a market-based policy instrument consists of, as shown further below. Finally, the multiple goals and interests that energy efficiency promotes may enhance the probability of misconceptions – the non-specificity of goals or the coexistence of many goals may be a barrier to well-tailored policy solutions, and opens room for strategic actions. The following sections elaborate in more detail on the significance of policy instrument choice for policy change and the interrelation between policy image creation and characteristics of policy instruments.

2.3 Policy instruments and change: tools, indicators, or agents? 2.3.1 Explaining policy instrument choice and change Institutional analysis, as elaborated above, aims at explaining institutional and/or policy change and stability. How does instrument choice as part of the policy process relate to institutional or policy change? The following subsections draw on a separate body of literature explicitly focusing on research into policy instruments. By becoming more focused on policy instruments and applying the theoretical assumptions worked out above to this area of policy study, the analytical framework of the analysis will become shaped in more concrete terms. In a first step, the chapter elaborates on how general insights from historical institutionalism can be adapted to policy instrument choice. In a second step, enriched by literature dedicated to different research questions about policy instruments and policy instrument categorization, we develop more concrete assumptions about policy instrument choice and derive methodological implications. The methodological operationalization is set out in Chapter 3. There is no single definition of policy change; and the relation between policy change and policy instrument change is even more debatable. In classical policy analysis, instrument choice is typically attributed to the implementation phase within the policy cycle (see e.g. Howlett & Ramesh 2003). Seen as a tool 51 51 Voß (2007: 42–54) has compiled a very comprehensive overview of the development of the researcher’s understanding of policy instruments’. Starting with Dahl and Lindblom (1953) ‘he argues that policy instruments have been widely linked to questions of policy steering and seen as introducing a ‘technical rationality’ in policy practice and research. He further argues that many researchers have seen policymakers as picking tools out of a given toolbox to achieve policy goals. These efforts lead to the development of various taxonomies of policy instruments. Trying to establish causal relationship between policy instruments, their effects and context, he ascribes certain (fixed) charac-

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for policymakers to realize policy change, policy instruments are exogenous to the policy process. Instrument choice is then a technical task of properly matching the policy instrument to the problem in question. Both the problem structure and the properties and characteristics of the policy instruments are given, and have to be selected under the constraints of institutional and situational context variables and according to policymakers’ preferences. Assuming that policy instruments are generally substitutable, Doern & Phidd (1983) argue that governments’ first choice would be those policy instruments that are least coercive while still fulfilling governments’ basic purposes. Even if it is acknowledged that policy instrument choice is a political task, the view of policy instruments as technical means helping rational actors to steer policy processes remains rather static and instrumental. Hood has already argued more distinctly that instrument choice is a ‘matter of faith and politics rather than of certainty‘ (1983: 9); and is thus ‘shaped by resource constraints, political pressures, legal constraints, and the lessons learned from past instrument failures‘ as well as the ‘state’s goals and resources and the organisation and capacity of targeted societal actors’ (Howlett & Ramesh 2003: 199 referring to Hood 1986: 118-20, 141-3). This first generation of research on policy instruments marks the ‘ambition to determine distinct means or techniques of modifying societal dynamics. The dominant orientation is towards improving the achievement of policy goals through typologisation, functional analysis and comparative assessment of instruments as a basis for informed policy choices‘ (Voß 2007: 45). In the light of post-positivist accounts of institutionalism, it seems appropriate neither to assign instrument choice to a fixed step in the policy cycle nor to understand instruments as exogenously given tools 52. An oft-cited analysis from a historical institutionalist perspective on the relation between policy instruments and policy change is that by Peter Hall (1989; 1993), who has already been cited. However, since his work explicitly refers to policy instrument choice, it can be teristics to the instruments. With the emerging issue of explaining policy instrument choice, institutional variables such as administrative culture, policy style, or actor networks became more important, leading finally to what Voß calls ‘transcending the toolbox’ (Voß 2007: 49). To him, this implies abandoning the attempt to find causal relationships between instruments and effects, and instead recognizing the complexity of the social world. Governance as an account of a multitude of actors with steering capabilities and their complex interactions becomes a central element of research on policy instruments, according to Voß. This is linked to the rise of new policy instruments, such as those involving procedures and design. Policy instruments are no longer seen as neutral means but may become goals in themselves and thus may frame the interpretation of problems (Voß 2007: 52). 52 Howlett & Ramesh (2003: 197) differentiate between instrument choice following a ‘technical‘ model and that following a ‘political‘ model – a distinction similar to that introduced by Voß. However, unlike Voß, they do not explicitly adopt an underlying post-positivist approach towards instrument choice.

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taken as providing a bridge from historical institutionalism to policy instrument choice. Hall differentiates between different levels of policy change related to the degree of changed beliefs. A medium degree of policy change is, he claims, typically accompanied by a change in policy instruments 53. From this perspective, the policy instrument is an indicator of a certain degree of policy change. Other scholars agree that policy instruments contain more than just certain properties that policymakers can make use of. Lascoumes and Le Galès (2007: 11) 54 argue ‘that every public policy instrument constitutes a condensed and finalized form of knowledge about social control and ways of exercising it’; and Linder and Peters (1989: 45) state that instruments presumably ‘reveal something about the intentions and purposes of the choosers, over and above the influences and constraints of a particular context’. As Palier (2007) puts it, within policy analysis policy instruments may be used as a marker to analyse change; thus, research focusing on instruments is another way of trying to get to the bottom of policy change, or to make visible some of the invisible (Lascoumes & Le Gales 2007:18). Thus, many researchers agree that policy instruments say something about policy change and its drivers. Still, understanding instrument choice and instrument design choice as indicators of policy change implies that instruments are not necessarily endogenous to the process of policy change but rather a phenomenon accompanying policy change. Unlike Hood (1983), who explains instrument choice with the help of variables external to the policy instrument, Linder and Peters (1989) argue that instrument choice is dependent on the features of the policy instrument itself (along the dimensions of resource intensiveness, targeting, political risk, and constraints on state activity), the characteristics of the problem and its context, governments’ experiences in dealing with a problem (thus regulatory tradition), the subjective preferences of the policymaker (which they locate at the administrative level), and finally the reaction of the target group that is affected by the instrument choice (Linder and Peters 1989; see also Howlett & Ramesh 2003: 201; Hill 2005: 141). Linders and Peters’s approach includes a rather comprehensive variety of explanatory factors ranging from the micro level to the meso and the macro levels. For a better understanding, these factors can be subsumed within two categories (Howlett & Ramesh 2003: 201): On the one hand, the state’s capacity to plan and intervene will influence policy instrument choice. On the other hand, subsystem complexity acts as a constraint on the state’s ability to choose instruments from the whole range of options. 53

With his distinction between core beliefs and secondary beliefs, Sabatier has taken up this idea (for more recent explications see e.g. Sabatier and Weible 2007, 194f.). 54 Lascoumes and Le Galès , however, go beyond Hall’s understanding of policy instruments.

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An instrument’s meaning and appeal to decisionmakers can ultimately be traced to individual perceptions and the subjective value that reinforce them. How decisionmakers and their policy advisors perceive the instruments of government policy conditions their views of problem situations, biases their expectations of performance, and shapes their choices. Further, these perceptions operate within a complex ecology of contexts, beginning with the decisionmaker’s immediate organizational circumstances and extending to features of their political system. Understanding instrument meaning and choice, then, will take us beyond cognitive variables to consider their interaction with organizational and systemic factors. (Linder & Peters 1989: 36)

This analysis goes further and understands policy instruments as institutions (see also Bressers & O’Toole 1998: 223): Policy instruments can be understood as a fixed set of rules tailored to influence a specific activity of a target group in order to reach policy objectives. Thus, they constrain and enable future actions. In the light of the theoretical approach elaborated above, this means that policy instrument change (and therefore choice) is an outcome of political processes. The constraining and enabling functions of policy instruments are accordingly dependent on the policy image that has been connected to it in the political process, either narrowing the match between problem and solution 55 or expanding it 56. As van Nispen and Ringeling (1998: 208) put it, a ‘means may also be chosen because it is fashionable. Some tools are ‘in’, other means are ‘out’.’ In addition, policy instrument choice as understood in this analysis goes even beyond governance approaches towards policy instrument change. The latter comprehends instrument choice in the context of growing complexities and a multitude of actors, whereas the underlying approach of institutionalism comprises strategies of instrument choice as social constructs. The process of instrument choice is recursive. It is shaped by the existing institutional context, including existing regulatory choices. But it will also determine future decision-making processes. This dynamic does not unfold in a pre-ordered way but emerges within the decision-making process. The timing of decisions nevertheless influences the outcome. Policy analyses such as that un-

55 Promoting a policy instrument as the perfect solution to a problem makes it more likely to be politicized, as will be explained below 56 The expansion may in turn open the way for the formation of misconceptions, as has been elaborated above. See also van Nispen and Ringeling (1998) who link misconceptions to the metaphors in use: ‘Misleading metaphors easily slip into our analyses wen we use political language. (...) A metaphor may influence the way in which solutions of theses problems are sought. The implementation of the solutions found in that way may lead to unintended and unforeseen problems that overshadow the original problems. (...) The danger of misconception is present every time we use a metaphor’.

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derlying this analysis therefore have to integrate a chronological view of the process. From this perspective, the question of design and the possibility of drafting a policy instrument according to design preferences become increasingly important. Policy instruments are always being strategically framed in the light of expectations about how they would work 57. Policy entrepreneurs, policymakers, and other experts in the field have such expectations. The impact of the policy instrument is, however, influenced by design choice, which is part of the political process but involves a different subset of actors. Accordingly, the political process does not end with choosing a policy instrument. It continues with its implementation, thus making detailed design choices. The subsection 2.4 on marketbased policy instruments is based on the premise that design choices of policy instruments are of major importance in order to encompass effectiveness. As will be shown, it is especially this category of policy instruments that offers many ‘entrance’ points for design choices and accordingly changes to these policy instruments’ modes of action.

2.3.2 Implications of a historical-constructivist institutionalism perspective for models explaining policy instrument choice A distinct model explicitly analysing policy instrument choice has some elements in common with the theoretical perspective elaborated above and is therefore incorporated at this point: Böcher and Töller (2007) contribute to theory development explaining both instrument choice on a micro-level and instrument change on a macro-level in the field of environmental policy. However, Böcher and Töller do not attach much importance to theoretically anchoring the underlying assumptions and the interplay of the different factors. Some of their ideas which are in line with the theoretical speculations elaborated above are referred to in the analysis. Böcher and Töller dissociate themselves from approaches that would explain instrument choice as the naïve picking of an instrument that is adequate solely for solving a specific policy problem, and they also do not believe that instrument choice and change can be solely explained either by public choice theory or by policy diffusion (see also Bressers & Huitema 1999; Howlett

57 Woodside (1998) provides an example for strategic action in policy instrument choice. To him, the visibility of a policy instrument is linked to its acceptance. The strategy would then be to design a policy instrument in a way that is not very visible in order to enhance its acceptability (Woodside 1998: 179).

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2005) 58. They argue that public choice might explain choices on a micro level, but not instrument change on a macro level. Rather, following Kiser and Ostrom’s (1982) 59 framework for institutional analysis, Böcher and Töller identify five explanatory factors that they then combine in order to explain the dynamics of instrument choice. These factors are problem features, institutions, actors and their interactions, the decision-making situation, and finally instrument alternatives and their so-called discourses. Before turning to those elements of Böcher and Töller’s approach that are useful for this analysis, the term ‘discourse’ and its application in this examination are explicated, since a lack of discourse definition occasionally causes irritation among political scientists. No discourse analysis is carried out 60. Rather, it is acknowledged that various discourses are relevant to the topic at hand: discourses of energy efficiency and discourses of policy instrument choice involving different sets of actors. Some of these are dominated by scientists, others are attributed to communities of bureaucrats, policymakers, and practitioners. The analysis assumes that these discourses are important. In policy analysis the term ‘discourse’ is typically defined as a public debate where the values or beliefs of political actors meet expert knowledge, resulting in decision-making (Kerchner 2006: 40f.). In contrast, in this analysis the term ‘discourse’ is based on the reflections of Schmidt (2002). Schmidt distinguishes between ideational and interactive dimensions of discourse. For institutional analysis it is useful to refer especially to the interactive dimension, since it allows the analysis of actors and the formation of discursive or advocacy coalitions, epistemic communities, or other types of policy networks (Fischer 2003: 31). However, neither a discourse analysis is carries out nor does the analysis specifically focus on the role of a specific coalition 61. Rather, the interaction of discourses and the predominant policy instrument image, and their influence on strategic action, are at the core of the investigation. Therefore, for the underlying purpose, ‘discourse’ is understood in its ideational dimension: 58

Bressers and Huitema (1999) similarly show the limits of public choice explanations of instrument choice. They emphasize the importance of the insights of policy studies, especially the institutional context and learning processes in interactions with a multitude of actors, thereby referring to Kiser and Ostrom (1982) and Sabatier and Jenkins-Smith (1993, 1997). Also, Howlett stresses the development of instrument choice theory from investigations of substantive instrument–problem interaction towards including the institutional context such as policy style, implementation constraints, and the interplay of the policy instrument mix. 59 The initial attempt to develop a framework for institutional analysis was made in 1982, and since then Ostrom and others have further developed the approach and published several refinements of it (for an overview see Ostrom 2007). 60 The analysis is a partly a qualitative content analysis, as set out in ’Chapter 3. 61 This is true with reservations since in Chapter 4 a core group of expert is identified which turned out to have a major influence on the WCI image (see section 4.3).

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In ideational terms, discourse supplies policy with substantive arguments, both empirical and normative. These arguments provide the logic and premises of a particular discourse. (...) 62 They serve to define or redefine the actors’ perceptions of both self-interest and the general interest of society. (Fischer 2003: 31)

Section 2.5 on the complexity challenge of energy efficiency sets out the logic and premises inherent in the various discourses of energy efficiency. Böcher and Töller’s paper is linked to the theoretical approach of this analysis by the role they assign to what they call discourses of policy instruments. The authors acknowledge that traditional categories of policy instruments may not reflect their practical application (in terms of design features) since such categories take no account of the increasing number of hybrid policy instruments that are implemented. Nevertheless, Böcher and Töller find that policy instruments are actually attached to and associated with political and scientific discourses often built around those categories or setting up ‘new’ stereotypes of policy instruments. Each of the discourses 63 implies a different set of assumptions about the nature of the problem and its best solution. Especially when it comes to political discourses, norms, ideas, or even moral implications are attached to a certain policy instrument. This, in turn, influences the choice of policy instrument. Similarly, without explicitly mentioning different discourses of policy instruments, Linder and Peters (1989: 37; 55; 56) stress the importance of mapping subjective elements of instrument choice. In order to understand the influences of policy instrument discourses this has to be reflected in the choice of methods: Although it would appear that much of the selection of policy instruments is done through familiarity, political tradition, or professional bias, it is still extremely important to know what decisionmakers believe they are getting when they choose one instrument rather than another. (Linder & Peters 1989:37) (...) Understanding the subjective side of those instruments should also clarify the various meanings assigned to them, their status, and logic (or illogic) behind their selection. (Linder and Peters 1989: 55)

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The original citation includes the following subordinate clause: ‘including statements of its normative appropriateness in terms of broadly held social values.’ Since this is a clear reference to sociological institutionalism, it was decided to omit this part of the quotation in the text to avoid confusion between historical and sociological institutionalism. 63 There may indeed be manifold scientific discourses as well as several political discourses, since policy instruments are typically discussed on more than one arena.

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Böcher and Töller draw a distinction between scientific and political discourses. This distinction is not entirely in line with the theoretical considerations elaborated above. As Fischer argues, ‘The recognition that scientific expertise is itself shaped by power and politics is the first step towards a discursive understanding of the policy process’ (Fischer 2003: 35). Therefore, in reality there exist no self-contained scientific, non-political discourses. However, for analytical purposes it is useful to distinguish between different discourses involving different communities. Accordingly, Böcher and Töller’s distinction emphasizes the importance of examining the expert community that is involved in policy instrument choice and the way its understanding of policy instruments is taken up by political discourses. Turning to experts and accounts of scientific insights is strongly linked to the underlying problem structure and features of the policy area. The problem structure in the field of energy efficiency is outstanding in that this field contains a variety of fragmented actors and solutions require a high level of expert knowledge (see section 2.5). When analysing a policy instrument in the context of one or several discourses of energy efficiency, one certainly has to detect the discourses of the expert community and their interaction with the discourses of policymakers in turn. This is not to deny that the discourses are interwoven, but it allows for analytically grasping the policy process. To obtain some understanding of the ongoing scientific discourses, analysing expert communities is a core requirement. Associated with it is the explanation of the role of knowledge in those communities. In delineations of expert communities and analyses of their influence, the epistemic communities 64 approach of Haas (1992) is often used. However, the understanding of the role of experts and the role of knowledge in this analysis is different from Haas’s. Haas basically argues that epistemic communities exert an influence on policymaking. He states that, even if learning fails to achieve policy coordination, this is because ‘the causal beliefs of epistemic communities demonstrate the need for [such failure]’ (Haas 1992: 30). In contrast, the analysis challenges the distinct ability of knowledge development within expert communities to change policy images once an ideational path has been set. Rather, the analysis is based on the assumption that policy images and knowledge development mutually influence each other, leading to choices and changes of policy instruments and policy instrument designs. Further, it is not the main aim of the analysis to examine the way experts acquire influence or which by which channels knowledge should

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In order to identify epistemic communities, expert communities have to display the following features: a shared value-based rationale, shared causal beliefs, a shared notion of validity, and a common policy enterprise (Haas 1992: 3).

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preferably be diffused, or to differentiate between levels of policy learning 65. These factors have an implicit influence on the analysis. However, the focus of the analysis is on the policy instrument WCI and the factors influencing the choice and design of this policy instrument. It is assumed that the policy image has an effect on the social construction of scientific knowledge, interest formation, and institutional change. Thus, while the development of knowledge in different expert communities is an important element in the analysis, as will further be set out in Chapter 3, theories of knowledge or learning do not play a crucial role here. Böcher and Töller attempt to set the different explanatory factors in a dynamic relation with each other (2007: 311–16). They assume that the process of instrument change can for the most part be divided into distinct analytical steps. Understanding policy instrument choice as influenced by socially constructed strategic action – as it is in this analysis – undermines the recognition of the dynamic interaction between constraints and enablers, and separates institutional change from the process of instrument choice. In the context of the underlying analysis, instruments are understood as institutions which are formed in political processes and which shape political processes at the same time. This has implications for policy goals as well, which can no longer be understood as given entities but as being shaped in political processes that both result in and are the result of institutional and policy change. The central question then becomes how (socially constructed) strategic action can influence the choice of instruments in order to reach goals. In the style of Jabko (2007), the question would be: Can actors, and especially political entrepreneurs, make use of the special characteristics of policy instruments to promote them? Sometimes authors refer to the process of ‘neutralising‘ and ‘depoliticizing‘ policy instruments (Lascoumes & Le Galès 2007: 17; Voß 2007: 59) as a strategy for promoting them as, for example, the only adequate policy instrument to reach a goal such as delivering carbon savings in an economic efficient way 66. Böcher and Töller stress that instrument choice is often implicitly associated with the choice of ideology promoted by discourses 67. This way, instrument choice can become the choice of a political goal itself. As a consequence, strategically framing policy instruments can act at least in two directions: ‘depoliticiz65 Policy learning is usually ascribed a crucial role in studies of the influence of knowledge and expert communities (e.g. Nullmeier 2001; Haas 1992). 66 The underlying assumption here is that pursuing a goal in the most economically efficient way is not a political issue but common sense (which is not necessarily the case, as will be shown in the case studies below). 67 This can serve as an example of unintended strategic action, since following ideational paths may imply the development of a strategy without necessarily reflecting on the association between ideas and strategy.

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ing’ can be utilized to neutralize political conflict, and highlighting an inherent value may turn political instruments into more visible tools to support a political goal. However, since strategic action is a social construct, an attempt to ‘depoliticize’ a policy instrument may fail and turn out to enforce a value-laden image. This is the more likely the less clear-cut the goals present in a political process are. Detecting the hidden agenda becomes a challenge. This is even more difficult when understanding goals not necessarily as given ex ante but exposed to change throughout the political process. Even if it is the strategy of a policy entrepreneur to depoliticize a policy instrument in order to make it more acceptable, from the constructivist institutionalism perspective the political dimension will persist. As developed above, issue framing is one possible way for policy entrepreneurs to match policy instruments to goals. The less clear-cut the goals are, and the more likely they are to be changed in political processes, finding adequate terms that would embrace many possible goals in a wide definition seems to be a promising strategy. In this perspective, rational design and political control are recognised as rhetorical claims rather than actual achievements, but are also seen as productive illusions which can motivate and orient collective action. The mechanical image of control conveyed by the ‘tool’ metaphor might thus exactly be the asset that makes the concept of policy instruments productive in political practice. (Voß 2007: 53) 68

Among others, this is one reason for keeping the awareness of categorizations of political instruments, as is done in this analysis, even if it is generally accepted that policy instruments play a role beyond that of mere tools to pursue clear-cut goals. Another important explanatory factor for dynamic decision-making processes is actors’ ability to learn. Böcher and Töller differentiate between different types of learning: learning about one’s own preferences, learning about tools to realize one’s own preferences, and, finally, learning about political goals. There are various sources of learning, such as one’s own experiences, best practices in other countries, or increasing scientific knowledge about a problem. The authors claim that the dominance of material interest may hinder the ability to learn. This view on learning implies that the objects of learning are exogenously given. It does not tell us anything about the dynamics of learning processes that may lead to a change in goals and thus make them endogenous to the process. It is not the aim of the underlying analysis to differentiate between types of policy learning. 68

Voß refers to ‘reflexive governance’. Although he does not explicitly mention ‘issue framing‘, this quotation nevertheless captures the underlying explanation of issue framing.

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The literature on policy learning has to be separated from research on policy instrument choice, despite some overlaps. Some assumptions and explanations of policy change are offered in separate bodies of literature. Here, it was decided not to add another body of literature to the theoretical framework. However, it should be kept in mind that the recognition of knowledge development during the course of the political process has explanatory power for the analysis, even though the rich literature on policy learning is not displayed here. Process tracing as an analytical method will be able to uncover these dynamics. To summarize, the analysis is based on the following theoretical assumptions: Instrument choice is seen as an example of institutional change in the process of policy change. Policies pursue goals. Ideally, policy instruments are the means to deliver these goals. But, to go beyond this instrumental understanding as a tool of decision-makers, policy instruments shape goals as well and can even become goals themselves. Since policymakers often attribute to a policy instrument not only certain characteristics but also ideas and values, the instrument becomes politicized 69. Being politicized is more than being part of a political process and becoming a matter of politics. Being politicized means that instruments themselves exert an influence on the policymaking process. From a post-positivist perspective, goals are not obvious and cannot be determined ex ante. Rather, they develop endogenously in the political process of, for example, policy instrument choice. Decision-makers and policy entrepreneurs strategically frame the policy instrument. Strategic action as social construction has accordingly to be uncovered in the course of analysing political processes in order to detect the hidden goals of policy entrepreneurs, which may in turn detect causes of unexpected outcomes. This also implies setting issue framing (problem, goals, and solutions) in context, taking into account institutional, actor, and time dimensions. The political process and strategic action do not end with the simple choice of a policy instrument. Rather, design choices belong to the political process and therefore have to be carefully included in the analysis. When one examines white certificate instruments, understanding issue framing requires stripping down the complexity challenge of energy efficiency (problem, goals) and grasping different understandings of hybrid policy instruments (solutions). Tracing learning processes, in the sense of taking up new insights in the political process, can be a helpful complementary part in analysing policy instrument choice. WCIs have been introduced as hybrid policy instruments (see Chapter 1). As shown below, especially in Chapter 8, understanding the WCI as a ‘hybrid instrument’ is established neither among the expert community nor among prac69

Against the background of the theoretical assumptions, there is no possibility of depoliticization in practice – even if this is the intended strategy of the policy entrepreneur.

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titioners. Rather, it is most commonly broadly referred to as a market-based policy instrument. The individual understanding of the nature of the policy instrument turned out to be a major factor in the promotion of the policy instrument. Therefore, section 2.4 gives an overview of the main results from the rich literature about market-based instruments (MBIs). It deals with common misunderstandings of the term ‘market-based instrument’ and finally draws the line between MBI and hybrid instruments.

2.4 Understanding market-based policy instruments WCIs were introduced as hybrid instruments in Chapter 1. It is useful to refer to WCIs as ‘hybrid’ from an analytical viewpoint since they incorporate various incentive mechanisms and may, in turn, differ in effectiveness. The term ‘hybrid’ is not as ideologically charged as the term ‘market-based’, while both terms offer room for interpretation. However, the literature on WCIs usually portrays them as market-based policy instruments (see Chapter 4). Therefore, it is necessary to reflect on the term ‘market-based instruments’ before reconnecting it to the concept of hybrid instruments. Following the distinction elaborated above between on the one hand policy instruments as technical tools and on the other hand as politicized instruments as the result and driver of institutional and policy change, this section is dedicated to two perspectives on market-based policy instruments. The first subsection deals with different taxonomies and categorizations of MBI. This shows the spectrum of understandings of market-based approaches found in theory. The second subsection looks beyond the ‘technical tool’ perspective and elaborates on misconceptions and manifold opportunities for strategic action due to ideadriven understandings of MBIs.

2.4.1 MBIs as ‘technical tools’: a variety of categorizations Understanding policymakers’ and policy entrepreneurs’ strategies for choosing and promoting a policy instrument implies an understanding of those dimensions and categorizations of market-based policy instruments that are described in theory. A good starting point, therefore, is the definitions used by leading international institutions and organizations, such as the EU or the OECD. The EU Commission’s Green Paper on market-based instruments for environmental and related purposes (COM (2007) 140final) states: ‘The EU has increasingly favoured economic or market-based instruments (“MBI”) – such as

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indirect taxation, targeted subsidies or tradable emission rights – for such policy purposes because they provide a flexible and cost-effective means for reaching given policy objectives.” (European Commission 2007b). Furthermore, it is argued that – if applied correctly also with regard to an appropriate policy mix – MBIs have advantages over so-called regulatory instruments: MBIs are said to improve the price signal by internalizing external costs, allow industry to meet targets flexibly, incentivize environmentally friendly innovation, and help to create green jobs. The general OECD (2007) 70 definition of MBIs, similarly to the EU Commission’s understanding, embraces three types of instruments: Market-based instruments seek to address the market failure of ‘environmental externalities’ either by incorporating the external cost of production or consumption activities through taxes or charges on processes or products, or by creating property rights and facilitating the establishment of a proxy market for the use of environmental services.

A report of the European Energy Agency (EEA 2006) adds two types of MBI in environmental policy areas to the list of tradable permits (environmental taxes, environmental charges, environmental subsidies and incentives), namely liability and compensation schemes. They all aim to take into account the hidden costs of production and consumption, and thus potentially address the polluters-pay principle on both the supply side and the demand side 71. Taxes, charges, and auctioned emission permits have an additional advantage – they raise revenues. The EEA report sees two fields of application in energy-related areas. On the one hand, tradable emission permits and fuel taxes may help to tackle climate change. On the other hand, incentives may help to reduce emissions in private households and other end-use sectors. 70

http://stats.oecd.org/glossary/detail.asp?ID=7214 The report stresses not only the advantages of, but also the barriers to, successfully implementing MBIs. Accordingly, they provide a checklist of guidelines for policymakers to help them overcome these barriers or to avoid them from the start. These are: risk being a pioneer in order to create an instrument champion; pick winners; make optimal use of the added value of MBIs by combining them wisely with other policy instruments, such as information; keep it simple and understandable; keep it realistic; give advance notice of the introduction of a new policy instrument; minimize changes; understand the potential trade-offs; keep stakeholders on board; maintain equity; make sure that people can respond; index taxes and charges; and be consistent (EEA 2006: 9–10). Interestingly the report applies some of the insights from political science research on policy instrument choice and the need to see them in context. However, the checklist suggests that decision-makers can control all the listed items, which may be true for some barriers (e.g. giving advance notice of introducing a policy instrument, making sure that people can respond, or understanding potential trade-offs) but not for others (e.g. keeping stakeholders on board while keeping the policy instrument consistent and simple). 71

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Besides the definitions used by international organizations, there exists a huge body of literature on categorizing policy instruments. Still, despite a growing consensus about the nature and features of policy instruments, the dimension and criteria of such attempts at categorization vary substantially (see e.g. Howlett & Ramesh 2003: 87ff.; Hill 2005: 137ff; Hood 1983; Voß 2007; Doern & Phidd, 1983, Salamon 2002, Linders & Peters 1989, Jänicke et al. 2000: 100; Carter 2001: 285ff.). Categorizations are often linked to different rationales of instrument choice to the scientific discipline: Economists have for the most part tended to interpret the choice of policy instrument as, at least in theory, a technical exercise of matching the attributes of specific tools to the job at hand. Political scientists, on the other hand, have tended to argue that instruments are more or less substitutable on a purely technical basis, and have instead focused on the political forces they believe govern instrument selection. (Howlett & Ramesh 2003: 197) 72

The approach of categorizing policy instruments was mainly founded on economics emphasizing the technical, economic, and legal attributes of policy instruments. The match between instruments and policy problems is, for example, an issue mostly addressed by economists (Bresser & O’Toole 1998: 217). In another paper, Bressers and Huitema point to the beginning of the discussions about economic policy instruments where the processes of implementation and policymaking were largely ignored: ‘Economic instruments are often treated in a partial equilibrium analysis; that is they are considered as complete alternatives to so-called command-and-control regulations, while institutional issues are more or less ignored... When institutions are considered at all, they are regarded mainly as barriers to the functioning of market forces’ (Andersen 1994, quoted in Bressers & Huitema 1999: 179). In contrast, political scientists’ characterizations of policy instruments usually distinguish between the degrees of state intervention – ‘Grad der staatlichen Verhaltensdeterminierung’ (Jänicke et al. 2000: 101) – that are involved in the employment of certain policy instruments. As a consequence, policy instruments are often located on the dimension of coercion versus voluntary action. Political scientists typically also take into account the fact that policymakers employ instruments to achieve policy objectives (such as economic growth or a certain environmental quality) (Peters 2005: 355). Carter (2001: 285ff.) refers to the common fourfold categorization of policy instruments and distinguishes market-based policy instruments from regulation and regulatory styles, voluntary action, and government expenditure. When utilizing the term ‘market-based policy instruments’ he refers to other frequently 72

With reference to Peters and van Nispen (1998).

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used terms for this category of policy instruments, namely, ‘economic instruments’ and ‘financial incentives’. To Carter, the distinguishing feature of MBIs is that they provide incentives to reduce emissions below the legal threshold and prevent market failure by applying the polluter-pays principle, which is then transposed into externalizing internal costs. Basically, Carter differentiates between the two MBIs, eco-taxes and tradable permits, acknowledging that ecotaxes are a price-based mechanism whereas tradable permits, as a combination of regulation and financial incentives, count as a rights-based mechanism. While taxes continuously incentivize the reduction of pollution (e.g. emissions of greenhouse gases), tradable permits incentivize this reduction only up to the point where an overall cap or baseline is reached. The advantage of tradable permits, however, is that they leave the price-building for the reduction to the market, thus theoretically rendering the reduction as efficient as possible. Carter cites other advantages of MBIs, such as revenue raising and, as often claimed, being comparatively cheaper and more effective from an administrative point of view. Still, MBIs have flaws, not only political obstacles such as differences between ministries on hypothecation of tax revenues, consumer groups complaining about higher energy prices, environmental groups’ objections to the ‘right to pollute’, or industries fearing threats to the competitiveness, but also economic weaknesses. To set the right tax rate or emissions cap, the policymaker must impute complex, uncertain, and often unavailable information. Besides, implementation is considered especially difficult – there might be ways to circumvent tax burdens, and empirical evidence has shown that MBIs are not necessarily more effective than regulation in protecting the environment. Jänicke et al. (2000) categorize MBIs differently. Besides taxes and certificates, their definition includes charges and subsidies, thus any kind of financial incentive as well as special advantages for certain market actors. The authors ascribe to MBIs a medium degree of behavioural modification as a result of state intervention 73. Bressers and Huitema (1999: 177; 178) distinguish between ‘legal’, ‘communicative’, and ‘economic’ instruments, but emphasize the difference between regulation and economic policy instruments. Sprenger (2000) provides a classification of market-based policy instruments that contrasts them with ‘command-and-control’ instruments. While command-and-control instruments are placing direct constraints on polluters, MBIs act via an economic signal or incentive to which the polluter responds. MBIs are aimed at forcing producers and consumers to take account of the implications for the environment of their action; leaving them the freedom to chose and adapt their ac73

‘Grad der staatlichen Verhaltensdeterminierung’

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tivities; enabling them to apply least-cost solutions; creating a dynamic which encourages the search for and application of better and cheaper means of maintaining and improving environmental quality. (Sprenger 2000: 3)

Sprenger distinguishes the following five categories of MBIs, similar to those by the EEA (2006): (a) charges and taxes, (b) deposit-refund schemes, (c) market creation schemes, (d) subsidies, and (e) liability schemes. The author further distinguishes between tradable permits and joint implementation, which he sees as a preceding phase for tradable permits. Under Sprenger’s definition, ‘[T]radable permits are quotas, allowances or ceilings on pollution or resource use that, once initially allocated by the appropriate authority, can be traded subject to a set of prescribed rules’ (2000: 5). Newell and Paterson (2010: 146) add another perspective to the inherent mode of action of MBIs. While they assimilate cap-and-trade schemes to a ‘governance by quantity’ model which has been introduced to distinctinguish tradable permit schemes from taxes, they argue that ‘project-based mechanisms’ add a ’governance by price’ model to the cap-and-trade scheme: Governance by price is, in emissions trading systems, a logical extension of governing by quantity. Allocating emissions targets, as long as it produces scarcity, creates demand for trading, which will create a price for carbon emissions permits. As in other markets, this price then exerts a governing effect on behaviour, creating an incentive to reduce emissions so as not to have to buy so many permits. Other carbon markets, especially when they are linked to an emissions trading scheme (as in the CDM-EU ETS link) function similar – through the creation of monetary incentives to reduce emissions.

With stand-alone baseline-and-credit schemes, that is, those that are not linked to a cap-and-trade scheme such as the WCI, the price incentive is most relevant for eligible third actors. Depending on the price of certificates, they may find it attractive to implement energy-saving projects and sell the resulting energy savings on the market. Howlett and Ramesh (2003: 97–117) place policy instruments in a scheme using the categorization developed by Hood (1983). This classification is derived from the governments’ tasks and capacities involved in steering through instruments: nodality (providing information and advice), authority (determining standards, bans, and so on), treasury (providing direct financial incentives through grants, loan, taxes, and so on), and finally organization (provision of public services, institutional reorganization, market creation, and so on). Howlett and Ramesh place taxes and tradable permits in different categories. One way to

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create a market is to use its organizational capacity through auctioning property rights after determining a fixed quantity of transferable rights to be allocated 74. To summarize the classifications outlined above, most authors (except Howlett & Ramesh 2003) put taxes and tradable permits in the same category of market-based environmental policy instruments, or at least in the same category of instruments, whether labelled as MBIs, economic instruments, financial incentives, or mixed approaches (e.g. Bailey 2007). For the analysis, however, there exists a significant difference between taxes and tradable permits from the legal and economic 75 viewpoints ‘A[n] ... overlooked principle is the economic equivalence of emissions tax and permit regimes. Both introduce an emissions price as a market mechanism for incentivising pollution reduction; however, one is a tax while the other is a regulation, and they have different legal implication’ (Fischer & Fox 2009: 3). This quotation implicitly indicates the main difficulty of distinguishing between different modes of action of market mechanisms. Especially when referring to instruments making use of mixed modes of actions (e.g. legal instruments accompanied by financial sanctions, economic instruments with a legally binding cap or tax rate), it is more useful to place instruments on a continuum (Bressers & O’Toole 1998). Other than the quotation by Fischer and Fox (2009), most of the literature agrees in contrasting market-based policy instruments with command-andcontrol instruments, often referred to as ‘regulatory instruments’ or ‘regulation’ (e.g. Bressers & Huitema 1999; Carter 2001; Jänicke et al. 2000). To turn to the modes of action found among MBIs, from both international institutions and researchers, three main mechanisms can be identified: ƒ

Market intervention by financial incentives: as subsidies and grants, financial incentives act positively and incentivize voluntary action; as a charge or tax they act as a negative incentive. The latter is in a sense mandatory and coercive as it punishes certain behaviour. Charges may help to internalize external costs; however, this has not necessarily been the reason for setting up such a scheme.

74 They are, however, not very clear-cut when talking about the government option of using regulation to determine who is allowed to use a scarce good. One interpretation is that market creation is not to be placed within only one category ‘organization’ but belongs also to ‘regulation’. Another interpretation is then that market creation is per se a hybrid instrument that involves different kinds of steering modes of action. The latter is not explicitly mentioned by the authors. 75 Different opinions exist as to whether from an economic viewpoint the incentives of tradable permit schemes act in the same way as a tax. As shown in the empirical part (Chapters 4 to 7), practitioners occasionally confuse these incentives.

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ƒ

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Correcting market failure by internalizing external costs: this is the main attribute of economic or market-based instruments. Since it is their aim to reflect the ’true’ costs, setting the correct level of prices directly (defining tax level) or indirectly through quantity (cap or baselines) inherently determines whether the policy instrument will promote its purpose. Making use of the market-mechanism by imitating a market and creating new goods: this is a special way of internalizing external cost by creating a new market. It is believed that within this new market space, demand and supply will lead to the internalization of external cost in a most costeffective way; making use of this mode of action requires rules to be defined in advance. Participation can either be voluntary or mandatory.

Understanding a WCI as a hybrid instrument does not preclude understanding it as an MBI. From an economic point of view, only MBIs can be hybrid instruments, that is, when they make use of a quantity mechanism and a price mechanism (Hepburn 2009). However, this analysis adopts a wider definition of ‘hybrid instrument’ that includes the combination of all sorts of steering mechanisms. The important link here is that, according to the literature cited above, an MBI may comprise different modes of action. Cost-effectiveness, by reflecting the ‘true costs’ of a resource, a service, or activity, is most commonly attributed to MBIs. A hybrid instrument could theoretically embrace all of these modes of action. Indeed, as shown in the section 1.3.4, a variety of steering modes can theoretically be incorporated in the design of a WCI. ‘Hybrid instrument’ is the term that is used from the analytical perspective, whereas the term ‘market-based instrument’ is relevant for the analysis since many experts create the image of a WCI image as a market-based policy instrument, as will be shown in the case studies.

2.4.2 Strategies and misconceptions: Ideas about market and market-based policy instruments Since the term ‘market-based instrument’ comprises different definitions and understandings, the term is prone to cause misunderstandings, but is very useful for strategic policymaking, as shown further below in this section about ideational issues around the term ‘market’. Recent research on policy instrument choice factors in the many variables that determine the effectiveness of a market mechanism imitating the market mechanism, thus creating a quasi-market (market-based approaches emerge often out of existing regulation: a standard is, for example, later combined with a trad-

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ing mechanism; this may lead to slow progression towards the benefits of economic efficiency of these new policy instruments). In addition, hidden but ‘true’ purposes of introducing an instrument (eco-taxes may, for example, be implemented for the purpose of raising revenues) are taken into consideration much more than in the early studies of policy instrument choice (Bressers & Huitema 1999: 180ff.). Design choices change the mode of action and the effectiveness of policy instruments since they are mostly based on decisions taken under uncertainty. Thus, they turn from a technical exercise into a political task. Setting standards requires an already sound knowledge of, for example, available technologies and their market penetration. Setting tax levels seems to be more complex; excluding and exempting actors from tax burdens or compensating them with tax credits or other forms of revenue recycling multiplies complexity. However, designing hybrid instruments seems to be most complex, and energy-saving obligations and tradable white certificates seem to carry this art to extremes (see also in section 1.3.5). Taking the interaction with other (existing) regulations further into account and trying to make use of synergies then becomes a challenging task. In order to understand these processes, a thorough examination of intermediate variables seems to be indispensable: finding smart strategies becomes the more important the more complex the task is, as there will be more implicit goals (not only policy goals but also private goals) that all have to be captured within steering means. Detailed design choices have proven to be a decisive matter of practical policymaking, as empirical insights into the EU Emissions Trading Scheme shows. Peter Zapfel 76 evaluated the different National Allocation Plans (NAPs) for the European Emissions Trading Scheme with reference to the nature of the national designs. According to Zapfel, many of these NAPs show a prevailing regulatory character as they tend to substitute administrative rules for the market. The author gives some examples of design choices reflecting this regulatory tendency and revealing that the policymaker on the national level seems not to ‘put trust into a carefully designed market mechanism’ (Zapfel 2007: 34). Many opportunities to leave design choices to the Member States were thus used to regulate rather than to leave the organization to the market: In the allocation process the prevailing regulatory mindset of the authorities and among stakeholders entered the picture and some of the plans are not simply plans about how many allowances to allocate in total and how to share them out to covered installations, but are supplemented with a set of additional rules that the Directive neither requires nor expressly disallows. 76

DG Environment, European Commission

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Zapfel’s analysis shows well that the EU ETS was originally introduced as the most cost-effective solution to climate protection. However, it was used differently in practice: because of many regulatory elements fixed in the National Allocation Plans of the EU Member States, the certificate’s price probably does not reflect the true costs of carbon abatement (Tänzler & Steuwer 2009; Hausotter et al. 2011). Thus, design choices have diminished the cost-effectiveness of the EU ETS. This empirical phenomenon of the multiple faces of the term ‘market’ has been addressed by several authors. This analysis essentially draws on the work of two scholars: Nicolas Jabko (2006) and Michael Jacobs (1995). The theoretical part of Jabko’s work has already been introduced in the presentation of constructivist institutionalism (2.2). Since his empirical case is centred on the different ideational meanings that the term ‘market’ entails, the empirical part of Jabko’s work provides valuable insights for this section. Jabko shows how various meanings can be used as entry points for strategic action. Jacobs breaks this down to policy instruments implementation and the ideational dimension of policy instruments (which has partly been addressed already above), which can be regarded as a major source of misconceptions. Jabko (2006) explains paradoxes of European integration by showing that the core of the integration – the market – is a highly abstract representation of the world that can draw in practice from a wide repertoire of market ideas (Jabko 2006: 32ff.). He explicates that the market represents for some actors a constraint (people negotiating to trade scarce goods are bound by the market forces), a norm (the promise of superior Pareto efficiency), a space for economic developments (to create new markets and new opportunities), and finally a talisman (the unquestioned persistence of a market whose characteristics range from a free market to forces undermining equity). Exploring these different notions of ‘market’ may help to promote certain goals making use of the term ‘market’, in the knowledge that it means different things to different people. Michael Jacobs (1995: 46) has taken up the importance of different meanings of the word ‘market’, around which he elaborates approaches in environmental economics going beyond stereotypical classifications of policy instruments and environmental governance. He claims that the often propagated ideological divide between what is associated with ‘command-and-control’ policy instruments and so-called economic instruments such as tradable quotas or taxes is not decisive (Jacobs 1995: 55). His rationale (1995: 55) is that ‘[a]ll tools that change behaviour of firms and consumers are economics, since economics is the study of the behaviour of those agents. Behaviour is changed as much by regulation as by taxes and subsidies’, which all operate within a market and shape and

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influence it. As such, they are ‘government interventions in markets’ (emphasis in original). Other aspects, such as the severity of punishment, are in his opinion much more relevant than an artificial right-wing–left-wing association of certain policy instruments. Jacobs therefore prefers the term ‘financial incentives’ (Jacobs 1995: 55). A special case of financial incentives that has given rise to many misconceptions, even among some property rights economics, is tradable quotas. Jacobs stresses that tradable quotas do not create a new market for environmental goods but only a temporary market that permits or limits the use of resources. This, from his perspective, is just governmental intervention – ‘the old regulatory system with the added lubricant of trading attached’ (Jacobs 1995: 57). One of Jacobs’s purposes is to dispel the myth of the ideological difference between policy instruments, including the frequent claim that financial incentives are superior to regulatory instruments in terms of economic efficiency (1995: 57). But his work can also be used to show the opposite case: it is possible to argue for introducing a market-based mechanism in the name of making use of efficient market forces while in practice relying on regulatory intervention as core mode of action within the mechanism. Also, the example by Zapfel (2007) above of Member States’ NAPs can be interpreted as strategic action on the part of Member States to make design choices in such a way that it serves the interests of national incumbents by, among other things, exempting them from certain rules. This highlights the importance of choices concerning the design of market mechanisms. It illustrates that to choose a tradable permit scheme (or an MBI) is to choose a mechanism that does not necessarily rely entirely on market forces but may indeed be rather regulatory in practice 77. This becomes even more important when talking about ‘project-based mechanisms’ such as the WCI. Many more regulatory interventions are needed in order to set up the scheme, as shown in the section 1.3. Newell and Paterson identify another possibility for strategic action and the rise of misconceptions: Beyond the problem of scams and exploitation, carbon markets are rather different to other markets. They do not exist for the sake of it. They are not ends in themselves, but exist as a means to achieve a specific social purpose – to enable societies to reduce GHG emissions. Free-marketeers struggle to understand this aspect of carbon markets, seeing them as neutral and natural social institutions that have no goal 77

Needless to say, every market-based policy instrument includes a regulatory intervention, which in the case of emissions trading is first and foremost the setting of an absolute cap. Here, however, the focus is on detailed design choices which in their sum constitute the character of the mechanism.

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other than enabling market participants to maximise profit, and thus ought not to be interfered with since they know best how to do this. Newell & Paterson (2010: 142; emphasis in original)

The significance of purposeful, goal-driven action as explicated in section 2.2. is thus emphasized yet again. There is also a link to the idea of the costeffectiveness of market mechanisms, while policy instruments in the field of end-use energy efficiency such as the WCI are usually established for climate protection, peak load reduction, or other wider societal goals, as will be shown in section 2.5.

2.4.3 WCI – a hybrid in disguise As shown above, market-based policy instruments can entail different modes of action. Although they commonly share basic incentivizing principles such as the idea of reflecting ‘true’ costs by correcting prices, the term ‘market-based instrument’ embraces quite an impressive number of policy instruments, including cap-and-trade as well as liability schemes. It has been shown that design matters and has an influence on the policy instrument’s mode of action. It stands to reason that one would expect design to influence policy outcomes considerably. This is especially so when one takes into account not only the design choices as features of substantive policy instruments but the institutional context, including existing policy instruments and steering mechanisms. Research on policy instruments proceeded from the question of how substantial policy instruments match certain problems. Apart from procedural instruments that are now increasingly considered (Howlett 2005), ‘new’ policy instruments have emerged that combine different incentives. As presented in Chapter 1, they are typically referred to as ‘hybrid instruments’; ‘smart regulation’ is another term used in this context (e.g. Hepburn 2009). The purpose of hybrid instruments is to implicitly take into account the complex reality of the institutional context and the multitude of actors involved in the policymaking and implementation processes. This is done by providing more than one mode of action. Moreover, historical regulatory patterns, policy styles, and the focus on experts/ political elites and bureaucrats 78 which are included in recent studies of policy instruments (e.g. Bressers & Huitema 1999: 179) add to the complexity of 78 Bressers & Huitema (1999: 188), for example, draw attention to an analysis by Svoboda (1992), which reveals that political elites and the bureaucracy heavily influence the policy-instrument choice processes. They have an interest in maintaining their capacity, or in expanding resources, tasks, and competences.

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instrument choice. What is important here is that the complex reality of instrument choice presents various ‘entry points’ for strategic action and thus increases the probability of influencing an instrument’s mode of action. Usually, hybrid forms of steering are expected to gain more political acceptance, and their adoption and implementation are believed to be more effective: ‘[H]ybrid models have the potential to strengthen decision-making capacity and to improve legitimacy, effectiveness and implementation especially in very contentious and high profile cases” (Hey et al. 2007: 1860; see also Oikonomou et al. 2009: 1972). They do so basically because they allow affected actors to choose the effective mode of action. However, the hypothesis of Hey et al. can be challenged, both in the context of understanding hybrid instruments from an economic viewpoint and from a political science viewpoint. If we use the definition of hybrid instruments that economists usually cite, it can be argued that political acceptance will probably be greater among target groups if both a price mechanism and a quantity mechanism options are available within a single policy instrument. The company may decide which option bears less uncertainty and would be more cost-effective. Nevertheless, if we keep in mind the barriers to end-use energy efficiency, it is not obvious that this holds true also for the policymaker or the general public. Making available money (i.e. through the penalty that the company may prefer to pay instead of delivering energy-saving measures) is not the equivalent of increased implementation of energy-efficiency measures. There have to be actors who are able to carry out energy-efficiency measures in the end uses. This is not guaranteed if actors choose to really make use of the price mechanism (i.e. the buyout). Thus, this analysis assumes that effectiveness is not automatically increased just by the choice of a hybrid instrument as understood by the economist. If hybrid instruments are defined from a political science viewpoint, this consideration becomes relevant: the steering mode along the coercion versus flexibility continuum is also a function of acceptance. Not only does acceptance of the policy instrument by the target group matter; so, too, does acceptance by the policymaker and the implementing bureaucracy. Relevant here is whether the policy instrument serves the predominant interests (does it remove resources from one authority or does it empower a certain agency?); it is also relevant whether sufficient capacity and resources are available for administration, including measurement and verification. This in turn is partly a function of existing institutional structures and regulatory tradition. While a hybrid instrument may be more likely to satisfy various interests, the interests of the bureaucracy and those of the target groups may differ. What might be considered as flexibility by one actor may signify limited flexibility to another. Only a detailed analysis of what the hybrid instrument consists of and to whom it is a hybrid instrument and

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what modes of action really matter in practice will give some hints about its outcome/impact (see also Figure 5). If it gains acceptance by the target group it may be very ineffective if that leads the administrative authority to adopt new steering modes that it just does not have the capacity to cope with. This in turn may lead to counter-incentives for the companies to make use of all available options, and theoretical advantages may turn out to be disadvantages in practice. The companies obliged to meet with the target may formally do so. The mode and effectiveness of compliance, however, may differ considerably depending on design choices that lead to the dominance of a certain steering mechanism of a hybrid instrument. Thus, this analysis also assumes that effectiveness is not automatically increased just by the choice of a hybrid instrument as understood by the political scientist.

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2.5 Energy efficiency – The complexity challenge At least since the oil crises of the 1970s, achieving greater energy efficiency has been an established goal supported by various kinds of policies and measures. Since then there have been considerable achievements in enhancing energy efficiency. These improvements are, however, not sufficient to meet the needs expressed by governmental goals and the projections of ever-increasing energy demand worldwide (Figure 2). Still, it is not only the famous hunger for energy of the emerging economies in India and China. Even in Europe energy efficiency is still high on the agenda of unsolved problems.

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Figure 2: Evolution of world total final energy consumption by region, in Mtoe, 1965–2008 (Source: BP 2009; Author’s illustration) The barriers to increasing in energy efficiency can partly be attributed to the complexity of the problem structure (Fischer & Sohre 2007; Nilsson & Blume 2004; Pehnt 2010; Thomas 2007; Thomas et al. 2002). Applying the factors that influence instrument choice to the specific policy domain necessitates the accentuation of its particularities – in this case those of end-use energy-efficiency policy. Although research on policy instruments nowadays goes beyond the discussion of problem–instrument fit, the problem structure nevertheless remains an important influence on instrument choice. This is especially so in the case of end-use energy efficiency since it implicitly con-

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tains specific context variables: institutions, actors, and features of the problem are highly specific in the field of end-use energy efficiency and are addressed in the present section. This complexity is introduced along the three subsections: multiple goals, multiple solutions, and multiple actors. Definitions The following definitions are taken from the Directive 2006/32/EC on energy end-use efficiency and energy services, Article 3: (b) ‘”energy efficiency”: a ratio between an output of performance, service, goods or energy, and an input of energy;’ (c) ‘”energy efficiency improvement”: an increase in energy end-use efficiency as a result of technological, behavioural and/or economic changes’; (d) ‘”energy savings”: an amount of saved energy determined by measuring and/or estimating consumption before and after implementation of one or more energy efficiency improvement measures, whilst ensuring normalisation for external conditions that affect energy consumption’; (e) ‘”energy service”: the physical benefit, utility or good derived from a combination of energy with energy efficient technology and/or with action, which may include the operations, maintenance and control necessary to deliver the service, which is delivered on the basis of a contract and in normal circumstances has proven to lead to verifiable and measurable or estimable energy efficiency improvement and/or primary energy savings’; (i) ‘”energy service company” (ESCO): a natural or legal person that delivers energy services and/or other energy efficiency improvement measures in a user’s facility or premises, and accepts some degree of financial risk in so doing. The payment for the services delivered is based (either wholly or in part) on the achievement of energy efficiency improvements and on the meeting of the other agreed performance criteria’.

2.5.1 Multiple goals Governments and international organizations often present energy-efficiency improvements as one of their goals within energy policy: ‘Reducing energy consumption and eliminating energy wastage are among the main goals of the European Union (EU)’ 79. However, increasing energy efficiency is better understood as a purpose in the context of superior goals. Attached to separate goals, the

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discussion about energy efficiency can be embedded in the three discourses on liberalization of energy markets, security of energy supply, and climate change.

2.5.1.1 The liberalization of energy markets Liberalization of energy markets comprises a range of different issues that have to be tackled, such as the choice of appropriate measures that would not interfere with the logic of a competitive market and consumer protection issues. Equity problems may arise on both the suppliers’ and the consumers’ side since prices are in theory no longer regulated; but in practice policies and measures interfere with, and may distort, the price-building process of the market where demand creates supply. For energy efficiency the central question is: will the market be able to create demand for energy efficiency? If the market needs policy intervention to stimulate demand for energy efficiency on the demand side in order to reduce the customers’ bills, what policy measure would ensure that neither businesses nor consumer groups are placed at disadvantage? This in turn means that the detailed substance of energy-efficiency measures is of importance since it may have implications for how well it can be distributed and who the beneficiaries are. Furthermore, the structure of energy supply and distribution, the degree of liberalization as well as the main players in the field are usually addressed within this discourse as well. Article 3(2) of Directive 2003/54/EC concerning common rules for the internal market in electricity sets out the conditions under which Member States may intervene in the common electricity market for public services to be delivered. These interventions ’on undertakings operating in the electricity sector’ are referred to as ‘public service obligations’ (PSOs). Energy efficiency is one of the grounds listed on which a PSO justified. 80

80 ‘Having full regard to the relevant provisions of the Treaty, in particular Article 86 thereof, Member States may impose on undertakings operating in the electricity sector, in the general economic interest, public service obligations which may relate to security, including security of supply, regularity, quality and price of supplies and environmental protection, including energy efficiency and climate protection. Such obligations shall be clearly defined, transparent, non discriminatory, verifiable and shall guarantee equality of access for EU electricity companies to national consumers. In relation to security of supply, energy efficiency/demand-side management and for the fulfilment of environmental goals, as referred to in this paragraph, Member States may introduce the implementation of long term planning, taking into account the possibility of third parties seeking access to the system.’ (Article 3 (2) of Directive 2003/54/EC and Article 3 (2) of the revised Directive (2009/72/EC). The equivalent is formulated for the gas market in Article 3 (2) of Directive 2003/55/EC and the revised Directive 2009/73/EC.

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In short, placing energy efficiency in the discourse of the liberalization of energy markets implies understanding policy instruments as re-regulation, since any requirement or incentive would be an intervention into the market.

2.5.1.2 Security of energy supply Securing energy supply may entail different strategies for policymakers, ranging from improving the supply side (diversifying sources of energy supply, improving grid infrastructure) to demand-side management issues or measures that aim at reducing energy demand throughout the whole energy chain (for example, by applying the least-cost planning principle). While some countries believe in competitive energy markets, others are convinced that protecting national energy monopolies is the best way to secure energy supply and match it with existing demand patterns. Placing energy efficiency in the context of the security of energy supply involves understanding instrument choice either as adopting supportive measures for the system that is believed to deliver energy in the most stable way (for example, protecting the national monopolist) or as reducing demand significantly without setting a high value on the kinds of measures or programmes that a policy would produce.

2.5.1.3 Climate change With the emerging 81 climate change discourse, increasing energy efficiency and thus reducing energy demand is perceived as one means to achieve carbon emission reductions in a fast and cost-effective manner. Tradable permits, carbon taxes, and carbon offsets are policy instruments that have gained prominence within the climate change discourse and are often referred to as market-based policy instruments (see also section 2.4). It stands to reason that understanding energy efficiency in the climate policy discourse is associated with finding policy instruments that make use of the same mode of action or that are at least compatible with the main carbon abatement policy instrument, namely, emissions trading. Thus, the three discourses of energy efficiency, formed around the goals of securing energy at affordable prices, maintaining competitiveness and combating climate change imply different problems to be solved. Within each discourse, the 81 In the 1970s, energy efficiency was not discussed in the context of climate change. This has changed only comparatively recently.

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ultimate goals translate into more concrete, shorter-term goals such as reducing CO2 emissions, reducing electricity consumption, reducing gas consumption, reducing the peak load, market penetration of a certain energy-efficiency standards, promoting innovative technology, and so forth. Each perspective offers an understanding of energy efficiency from a slightly different angle, and therefore implies a distinct solution. Protecting the climate and ensuring an affordable supply of energy is, for example, not necessarily related to energy savings but rather to carbon savings through energy efficiency, or securing a comfort level in all households. Choosing instruments to foster end-use energy efficiency therefore has to take into account the particular goals that end-use energy efficiency aims to address. And this goal is typically located in one or several discourses of energy efficiency.

2.5.2 Multiple solutions Despite past achievements with energy efficiency and efforts by governments, recent IEA analysis has demonstrated that significant cost effect potential for energy efficiency still remains untapped. The majority of this potential can be realised through the adoption of technologies which are available today. (IEA 2008: 5–6)

Since many of the solutions are cost-effective, the problem should not be a problem since we are theoretically facing a situation where everybody gains – benefits are distributed in a fair manner. Still, what makes the solutions difficult to access is their fragmentation into many small solutions. Many analyses show graphs displaying the economic potential of various energy efficiency solutions in the end-use sectors similar to the following Figure 3. 82

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The abatement cost curve became very popular after it appeared in a report (2007) for the Federation of German Industry (BDI) by McKinsey & Company (even though the Wuppertal Institute had made use of similar graphs in the field of end-use energy efficiency in 2006). Just mentioning the term ‘McKinsey Curve’ is enough to prompt the audience to release a chain of associations: McKinsey Curve = economic potential of energy efficiency measures; or: energy efficiency measures = win win. Thus, what happened can be regarded as an example of the creation of a policy image. This policy image can, however, be challenged. One argument is that transaction costs due to the problem structure described above, including the information barrier and the need for behavioural change, would have to be imputed into the curve in order to reflect reality.

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Figure 3: Sketch of a cost abatement curve demonstrating the net costs and CO2reduction potential of CO2 abatement measures (Source: McKinsey and Vattenfall; author’s depiction) The abatement cost curve demonstrates that the entirety of the solutions would need to be implemented if significant increases in energy efficiency are to be realized. As well, examination of the individual measures makes it clear that each of them (such as efficient lighting systems) yields very small savings if implemented only on a small scale. Large-scale application of many different measures making use of very different technologies and stemming from different manufacturing sectors is thus required. To find a steering mechanism that allows for these well-distributed potentials to be tapped becomes a very complex task. Designing, for example, subsidies to incentivize the uptake of energy-efficient goods requires information about the market penetration of the best available technologies. The mechanism thus has to be adapted flexibly to the latest technological developments and market trends. Ensuring this for many relatively small measures may raise transaction and administrative costs considerably. Thus, multiple available options to solve a problem and to reach a goal do not

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necessarily imply that the most adequate solution is picked. This renders policy instrument design a rather tricky task. The task becomes even more complex given the many actors involved in the various discourses of energy efficiency and their interests and ideas related to finding the best strategy to increase energy efficiency, as shown below.

2.5.3 Multiple actors Seemingly paradoxically, energy efficiency is a famous topic for Sunday speeches: everybody likes the idea of optimizing the use of energy – energy companies try to minimize losses on the production and transmission side, grid owner like the load-release effect, energy consumers prefer to buy less energy while maintaining or increasing their level of comfort, governments aim to stimulate innovation, and environmental groups like social and environmental protection benefits associated with greater energy efficiency. Energy efficiency means different things to different actors. This is not only due to the two sides of energy efficiency: generation versus end uses, or supply side versus demand side. This analysis focuses on the end-use energy sector and excludes efficiency measures targeting generation and transmission. Even within this subset of enduse energy efficiency, there is considerable complexity. Many different actors are involved and have their own interests: private households displaying the whole range of income levels, equipment manufacturers, retailers, decision-makers on all political levels including local municipalities, public–private energy agencies, environmental associations, consumer protection associations, energy suppliers, and energy generators. This multiplicity of interests is considered to be a significant barrier to end-use energy efficiency (Gruber & Schlomann 2007: 33). To summarize, there is nothing resembling a lobby group for energy efficiency. Energy consumers do not care for energy efficiency per se; their interests lie foremost in having a maximum energy comfort and reducing their energy bills. This may be achieved by various solutions. Those who offer the solutions are often specialists in single fields and do not take into account the whole range of measures. They often also have no access to the customers or are not necessarily in a very trustworthy position. Governments constantly lack the money to launch large-scale information campaigns that would reliably reach a majority of customers. As a consequence, their campaigns are sometimes neither professional nor attractive. In most countries, there exists no national governmental institution – other than for renewable energy or nuclear power –that deals only with energy efficiency issues. Public–private energy agencies sometimes run

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their own programmes, such as the Berliner Energie Agentur 83. Since most such agencies are partly sponsored by energy suppliers (who earn money purely by selling energy), this leads to suggestions that they promote measures that do not disturb the businesses of their sponsors. Manufacturers of energy-efficient goods are often engaged in a whole product branch covering everything from highly energy-efficient goods to less energy-efficient goods that are cheaper in the short term. They do so since they have to respond to a whole range of different consumer groups, each with a specific set of preferences and purchasing habits. They have no natural interest in cooperating with manufacturers of energyefficient products from another branch. Installers are sometimes not trained to install energy-efficient equipment. Micro-cogeneration, for instance, requires technology-focused knowledge and site-specific measurements and calculations. Architects have in the past not been required to take into account energyefficiency design options (notwithstanding some cases in the public sector via tendering procedures). Determining the adequate baseline and references to set up standards and determining the level of necessary state intervention require expert knowledge that is less obvious than in other technology fields since the product variety is so much broader. Policymakers therefore have to rely very heavily on expert knowledge (see subsection 2.2.3). How do these insights now relate to the theoretical models of explaining policy instrument choice? Problem structure as described by Böcher and Töller includes the degree of uncertainty and the distribution of costs and benefits. Uncertainty is strongly dependent on the framing of the problem and thus the policy goal: is it climate change or environmental problems that are addressed by the attempt to increase energy efficiency, or is it security of energy supply that energy-efficiency policy aims to deliver? What characterizes this policy area is also the availability of technical solutions – it is not a lack of technical solutions that inhibits an increase in energy efficiency but the lack of implementation. Furthermore, there is no one big solution to the problem. Rather, the solution consists of implementing many small measures requiring constant update of baselines by experts, which implies a fragmentation of actors and thus interests. And finally big powerful utilities have strong interests in preserving their businesses – which is selling energy – and opposing energy-efficiency measures that go beyond their own cost savings on the generation or transmission side by targeting demand. In an aggregated form, the core of the problem can be summarized as follows:

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2 Theoretical framework Energy efficiency does not necessarily lead to energy savings. There are two sides to the multiple purposes of energy efficiency: the existence of multiple purposes allows for the promotion of energy efficiency in various contexts but it also risks watering down the targets and finding an excuse for not taking other actions, such as investments in infrastructure for renewable energy. The commonly used argument here is that energy efficiency is expected to be most cost-efficient. However, a definition of costs that includes specifications of what kind of costs is imputed and who has to bear them is hard to find. Energy-efficient technologies are available and cost effective in many cases – they are just not taken up on a larger scale since this would require consumer awareness and behavioural change. Enhancing energy efficiency entails the large-scale diffusion of small-scale technological solutions. Despite increasing Sunday speeches, there is obviously a lack of political will to really sort these things out. This has recently been demonstrated at EU level, where a binding energy-saving target has been relegated from the community agenda. Some factors are overarching and independent of the aforementioned discourses such as the aim of reducing costs for energy-efficiency measures. Governmental budget constraints severely limit public expenditure options. When talking about energy-efficiency measures one has to bear in mind that many of the measures that are considered as economically viable, that is, imply net benefits for energy companies, the consumers, or both, are nevertheless not implemented. Implementing the most cost-effective policy instrument then becomes to a certain degree paradoxical: Why not promote all kinds of energy-efficiency and energy-saving measures with all kinds of available policy instruments if the bottom line is beneficial? This leads to suggestions that there is a barrier that renders the measures less beneficial than they appear to be at first sight. Although the higher goals of energy efficiency are acknowledged by governments and international organizations, energy efficiency in practice is sometimes detached from them and pursued as a valued end in itself.

These insights characterize the problem structure and will have to be kept in mind when analysing WCI instrument design choices, actor perceptions, and actor strategies.

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Rebound Effect One of the main challenges with regard to energy savings arising from improved energy efficiency is the so-called rebound effect. This term refers to the observation that improvements in energy efficiency are often accompanied by economic growth. While the technical efficiency of appliances improves over time, the total energy consumption of an economy often overcompensates the savings from efficiency improvements, especially in times of economic boom, for several reasons such as technological advance and the appearance of new products and services, shorter lifespans, and an increase in purchasing power (see e.g. Jackson 2009: 67 ff.). Experts differentiate between the direct and the indirect rebound effect (see especially Sorrell 2009). The direct rebound effect occurs when energy efficiency improvements make the provision of an energy service cheaper since the same output can be produced with less energy. Therefore, the user can afford more of the same service. Alternatively, the saved amount of energy can be spent on other services that use energy. In addition, increases in energy efficiency reduce energy prices, encouraging customers to utilize more energy. These phenomena are referred to as indirect rebound effects. According to Sorrell (2007: vi), the ‘rebound effects are normally expressed as a percentage of the expected energy savings from an energy efficiency improvement, so a rebound effect of 20% means that only 80% of the expected energy savings are achieved’. Estimates vary widely, ranging between values of 10 per cent for direct effects to more than 50 per cent for economy-wide rebound effects, with an upper bound of 80–85 per cent for long-term effects (Sorrell 2007: 24, 29). In order to minimize the rebound effect and actually achieve an absolute decoupling of economic growth from energy use, some experts seek to promote ‘energy sufficiency’ instead of mere ‘energy efficiency’ (e.g. Calwell 2010; Muller 2009). In the underlying thesis, the rebound effect plays a role in evaluations of the effects of the policy instrument WCI. In order to trace the WCI’s effects on energy consumption, the evaluation of additionality should incorporate assumptions about the rebound effect. In practice, however, this is rarely the case.

3 Methodological Operationalization

3.1 Introduction: Two levels of analysis In Chapter 2 assumptions were formulated that demand two levels of analysis, for several reasons. First is the delineation of the research area. To this end, the relevant group of actors has to be identified. The total number of people who are aware of WCIs is limited, since it is a policy instrument whose current targets have limited scope, and is thus rather invisible. In addition, it has been implemented in only three European Member States 84. Thus, in order to understand the WCI it is essential to analyse all three cases. Policy architects and those actors affected by the policy instrument – whether attracted or repelled by its image – are found on the level of the case studies. Since the WCI community under investigation requires a high degree of expertise, it is referred to as an ‘expert community’ 85. The underlying definition of ‘expert’ here includes bureaucrats in the respective ministries and governmental agencies, consultants, academia, and experts in associations and in companies’ research units. It is acknowledged that every actor is biased by, for example, his or her organizational affiliation. But what unites actors is their self-understanding as ‘experts’ rather than as purely political functionaries. The first level of analysis is, accordingly, the case studies, that is, the analysis of the three processes that led to design choices and changes. This comprises an analysis of the historical process including the depiction of its output and impact, the identification and interpretation of experts’ perceptions of the WCI and its energy-efficiency discourses, and the comparison of the results of the case studies. 84

At the time the research topic was decided upon, Britain, France, and Italy were the only EU Member States that implemented or were planning to implement a WCI. The discussion about WCI has broadened and an increasing number of Member States are discussing its implementation. The announcement in March 2011 of the implementation of the EU Energy Efficiency Action Plan included the statement that all Member States should seek to find their own solution to implementing a WCI. 85 Compared with the criteria of Haas (1992), these expert communities are not epistemic communities in a strict sense since the actors do not necessarily share the causal beliefs that will be presented in the analysis.

D. S. Steuwer, Energy Efficiency Governance, DOI 10.1007/978-3-658-00681-5_3, © Springer Fachmedien Wiesbaden 2013

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However, the image of the WCI is created not only by actors on a national level but also by an international research community on the WCI. This research community partly springs from the idea of a Europe-wide WCI, as shown in Chapter 4. The international expert community, which can be delineated rather precisely, grew in parallel with the national expert communities. There are many overlaps between them. However, their discourses are different. While in practical terms political and scientific discourses are interwoven, the role of the international expert community is that of a scientific community with the task of propagating knowledge on the policy instrument. A separate analysis of knowledge development among international experts is useful. The assumption of separate discourses generates insights into the power of policy images. It allows for checking whether the policy image among the international experts (who are typically expected to maintain a scientific detachment from views on the policy instrument) matches the views of the national experts involved in national political processes and facing national institutional and ideational paths when designing and implementing the WCI. Treating the scientific and the political discourses as separate makes it easier to disentangle them. Thus, the second level of analysis traces the development of knowledge of the WCI among the international expert community and, in a final step, compares it with the results of the case studies. Figure 4 presents the research design in a nutshell. At its heart are the three case studies of Britain, France, and Italy, which are composed of similar building blocks (institutional setting, history of WCIs, and view on WCIs). The cases are compared with each other and with the insights gained from the analysis of the international expert community.

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Figure 4: Research design (Source: Author) In order to explain strategic action, the historical process and the output in terms of design choices and design changes are displayed for each of the case studies. The subsequent analytical step is the examination of actors’ perceptions and beliefs concerning the policy instrument: how do they conceptualize the policy instrument? So that we can understand actors’ concepts and beliefs, these have to be placed in context, such as the energy market structure, the regulatory tradition in the field of end-use energy efficiency, and the actor constellation. So that we can understand policy instrument choice on a national level, the different analytical steps must finally be related and compared with each other. Do design choices actually reflect actors’ views of the policy instrument? Answering this question allows us to determine matches and mismatches 86 as well as to point out

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Linder and Peters (1989: 54) point out the challenge facing any investigator in determining whether the instrument matches or fails to match a problem and thus leads to policy success or failure.

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possible interfering variables that may have enabled or deterred the successful pursuit of strategies. Chapter 4 on the international expert community first presents the development of consensual knowledge about WCIs. It also includes a section on individual views which shows that over time there is neither anything like a similar underlying causal belief nor a commonly shared policy image, thus revealing the political dimension of the scientific discourse. The operationalization comprises three methodological elements, which are introduced in more detail below: process tracing (archival research, semistructured interviews), perception tracing (qualitative document analysis with interview transcript, participatory observation) and comparison.

3.2 Process tracing Historical institutionalists aim to explain strategies, goals, and preferences by analysing the institutional context from which they emerged and in which they are emerging. They do so by tracing the history of the political process, capturing actor–institution dynamics over time. It is through process tracing and connecting the subjective ideas attached to policy instruments to the political process, discourses, and the actors involved that strategies can be understood. It is this process that helps to identify the factors that help the strategies to succeed in terms of policy output.

3.2.1 Archival research A variety of documents are used to reconstruct the political process, including secondary literature on regulatory traditions, predominant political actors and their power relations and particular characteristics in the European context. Most of the documents used are, however, primary sources such as legal documents, proceedings of consultation processes, minutes of conference or parliamentary meetings, the timing and topics of conferences as well as research projects. Research project reports are an important source for reconstructing the development of expert knowledge over time as well.

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3.2.2 Semi-structured expert interviews Missing gaps are filled with information provided by experts in semi-structured interviews. The interviews have two objectives. First, they are meant to supply missing information about the political process that is not available otherwise. Second, a special section of the interviews is dedicated to finding out the subjective views of experts on the policy instrument, including its objectives, purposes, and dominant mode of action. Capturing the subjective views of interviewees helps us to understand what actors expect to achieve when pursuing their strategies (Lamnek 1995: 63). In some cases, primary documents are available to support actors’ statements regarding the perception of the policy instrument, such as minutes of parliamentary debates or position papers feeding consultation processes. The available material as well as the type of actor involved in the political process vary from case to case. I therefore postpone further specification about the material to the chapters on the case studies. Nevertheless, the interviewees were selected in the light of certain overarching principles. The issue at hand – enhancing end-use energy efficiency – is a rather technical and complex problem when it comes to the selection of measures and the levels of adequate support from both engineering and economic viewpoints. Therefore, the actors promoting policy instruments and deciding upon detailed design must ideally be experts. How to find those experts 87? The starting point was reading about energysaving obligations and tradable white certificates in the context of European research projects. Reports and papers published at that time (2004-2007) were rather technical, and the authors proved to be experts in their respective fields. I consequently contacted them in order to ask for an expert interview. Also, other journal articles and papers presented at conferences directed me to their authors. Being within the interviewing process, I received further suggestions and conference invitations that led me to the main experts in the field. With 30 interviewees from various organizations and countries, I covered the most important and visible 88 experts (a list of interviewees is found in Annex I). Besides, I got to talk to some other experts at conferences who had no time for an interview but gave me some insights during the breaks. Since some of the interviewees did not want to be named, I clustered the experts within groups. The initial idea was to refer to the relevant group of experts when quoting an expert directly. However, as this 87 In addition to the general identification of experts, a more in-depth identification of international experts was carried out, which is presented in Chapter 4. 88 Visible in terms of their presence at workshops, conferences, and research consortium, and as authors of publications.

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did not in every case protect the expert’s identity, the quotations remain in most cases anonymous. The interviews were held with the help of semi-structured questionnaires containing similar blocks of questions to be directed to every expert (see also Kromrey 1998: 364). Every interviewee was asked to identify the objectives of the policy instruments, the purposes of the design features, and the dominant mode of action, and also to rank what seemed to them to be the most important WCI design features. The final question always addressed the future of the policy instrument: did they believe in the policy instrument’s potential? 89. While the questionnaires were designed to allow for some degree of standardization, there turned out to be limitations to this. Every interview had to be prepared individually since it is the main feature of experts to be specialized in a certain domain (see also Atteslander & Kopp 1995: 164). In order to profit from their insights, the second part of each interview was tailored to the individual expert. This also made it possible to fill gaps in understanding the dynamics of the political process. The interviews were transcribed and served as written text material to be examined partly in the course of the qualitative content analysis, as explained in more detail below.

3.3 Perception tracing The theoretical approach to explaining policy instrument choice has several methodological implications. The assumption that strategic action on the one hand is socially constructed but on the other hand leads to possibly intentional policy instrument choice and implementation leads inevitably to the question: what do those who act strategically think they will achieve when accomplishing their strategies (see also Linder and Peters 1989: 37)? How do actors follow their strategies? What factors makes them succeed in so doing? Tracing the political process and setting subjective perceptions in context helps to reveal how actors use certain information or perceptions to strategically frame the problem and match instruments with problem and context. Tracing the political process in this respect therefore also calls for tracing subjective perceptions of the WCI. Apart from indicators such as the difference between goal and output to signify the tensions between (subjective) expectations and material reality, two other methodological approaches have been utilized in the underlying analysis: qualitative content analysis and participatory observation.

89

Annex III-V give examples of questionnaires.

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3.3.1 Qualitative content analysis Content analysis is usually applied as a quantitative method to analyse written material – for example, to analyse several volumes of newspapers, journal articles, or policy documents. But whereas quantitative content analysis aims at analysing content by counting the appearance of pre-defined categories, qualitative content analysis as developed by Mayring (2007) aims at defining what the content consists of. To Mayring, this undertaking first and foremost entails developing and refining a system of categories to be systematically applied to a body of material under analysis. He further regards this content definition and categorization as the necessary first step of a quantitative content analysis. Qualitative content analysis acknowledges the importance of the full complexity of the causal relationship to be analysed, and is therefore rather inductive in nature. Especially when processes are analysed that usually have a highly individual and case-specific character, qualitative content analysis is better able to capture relevant information and explanations. This methodological approach demands an interpretation of the material that therefore has to be selected and extracted in a way that third persons are able to follow the researchers’ logic. In other words, the analysis of the material, including its interpretation, must allow others to comprehend, follow, and, if possible, reconstruct it. A systematic approach is therefore indispensable 90. Gläser and Laudel (2006) modify Mayring’s approach, emphasizing that qualitative content analysis does not require a large number of texts but can be applied to expert interview transcripts (Gläser & Laudel 2006: 192). These modifications are the foundation of the underlying analysis. Gläser and Laudel do not require that categories be tested but understand the analytical process to be open to refinement. The inductive–deductive process does thus not move in circles, coming back to its starting point, but rather takes place within the analysis as a reciprocal dynamic. Gläser and Laudel do not use the term ‘coding’ but prefer ‘extracting’, which is already seen as an interpretive step: the decision whether a piece of information is relevant or not requires interpretation. However, even 90 The content has to be understood within the communication context (Mayring 2007: 42), and analytical categories have to be modified and adapted to the material under investigation if necessary. The context in this specific case is by definition an expert environment. Interpretation therefore has to take into account the experts’ professional and educational backgrounds, their current position, the situation of the interview, their interests and personal goals (as far as these can be made obvious) as well as the general institutional background shaping the experts’ scope for action, the limits of their knowledge, and their capacity for understanding. In order to understand the material, it is important to proceed with the content analysis according to pre-defined rules and in line with the underlying theory. It is therefore useful to use a flowchart as a guide through the analysis, but it should allow room for necessary adaptations if the material requires modifications.

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these authors – as in Mayring’s approach – ask for guided extraction. In their understanding extraction has to be guided by search patterns that adopt the relevant theoretical assumptions. Spelling out these search patterns helps to make the whole process of analysis comprehensive for other readers. Therefore, where the information is sourced and how the original content is understood have to be made transparent (Gläser & Laudel 2006: 195). Further, it is necessary that all the material is considered as equally important so as to ensure that information that may contradict the expected outcome is not suppressed (Gläser & Laudel 2006: 198). In contrast to Mayring’s, Gläser and Laudel’s method does not abandon analytical categories but only allows for their expansion. This approach ensures that the analysis will always contain the fundamental elements that were derived from theory at the beginning of the analysis. This way, a reference to theory is maintained throughout the analysis. Gläser and Laudel’s principles of qualitative content analysis are applied to the case of WCI in a two-step approach: first, general rules are established; second, search patterns are elaborated in order to scan the material for relevant information.

3.3.1.1 General rules Qualitative content analysis requires interpretation according to pre-defined rules and interpretation aids. Therefore, the following five rules and interpretation aids have been developed for the underlying analysis: (a) check first the explicitly mentioned objectives, purposes, preferences regarding design choices, and so on; (b) look for implicit objectives, purposes, preferences regarding design choices, and so on; (c) place observation in a time dimension; (d) compare information; and (e) identify contradictions and paradoxes. Grasping the subjective understanding of the policy instrument is not a selfexplanatory task, and involves interpretation and uncertainties. To minimize these uncertainties and allow for a comprehensible (if not reproducible) interpretation, the following subsection is dedicated to establishing categories for qualitative content analysis. The idea is to systematically use the categories to analyse the transcripts of the expert interviews in order to allow the reader to follow the author’s interpretive steps.

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3.3.1.2 Establishing search patterns The aim of qualitative content analysis is to make visible non-obvious objectives and factors in the introduction of energy-saving obligations with tradable elements in Britain, France, and Italy. The assumption is that it will not suffice to derive the reasons either from official statements and policy documents or simply from inspections of design choices. Qualitative content analysis is therefore complementary to other approaches to archival research and document analysis. It stresses the importance of experts’ perceptions of the policy instrument. It assumes that it is important to establish the context in which experts set the policy instrument: what they consider to be the important design choices and the relevant mode of action of the policy instrument will reveal additional information about the factors that lead to the choice of the policy instrument. Adapted to the context of this piece of work, the application of theoretical considerations to the building of categories is understood in the following way. Policy instruments have certain features and characteristics through design choices, determining the dominant mode of action. They are often associated and interrelated with certain ideas. As white certificates can be understood as hybrid policy instruments, the room for interpreting important characteristics and features, and thus the relevant mode of action, varies and depends on the actors’ viewpoints. Categories must be able to draw a distinction between different understandings of how this policy instrument works, what its main elements are, and with what kind of ideas it is associated: the subjectively perceived objectives of national end-use energy-efficiency policies in general, the specific purposes that are subjectively attached to the introduction of white certificate instruments, the mode of action that is supposed to be relevant for the implementation of the policy instrument. In addition, the way actors compare alternatives to the instrument under investigation has to be identified: are they comparing white certificate instruments, for example, with standards imposed on energy efficient goods or with energy taxes? This subsequently allows for inferring from these data to discourses. It also reveals prevailing tensions and potential for conflict. Objectives, purposes, modes of action Objectives are overarching long-term goals pursued by one policy (or sometimes several policies) such as environmental protection or securing energy supply. They are characterized by a high level of aggregation associated with general welfare. Policy instruments may help to deliver these objectives. Sometimes objectives are specified by quantifiable targets such as the EU’s target to reduce carbon emissions by 20 per cent by 2020. Objectives are not always expressed explicitly but sometimes have to be derived from the context.

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Purposes, in contrast to objectives, are directed at serving individual interests. Thus, purposes are attached to actors pursuing their individual goals. A mode of action is the way or mechanism by which a certain policy instrument realizes its effectiveness. It takes into account the implicit incentive mechanism but also the delivery mechanism. The mode of action can be located on the coercion–flexibility spectrum. A ban combined with penalties for not respecting the ban would be an example of a coercive mode of action. Hybrid instruments (see section 1.3.4) combine certain features of different policy instruments, and thus their modes of action are not clear-cut per se. Initially, an attempt was made to develop indicators for the categories ‘objectives’, ‘purposes’, ‘mode of action’, and ‘demarcation to other policy instruments’. However, the attempt failed since the interpretation of the indicator depends crucially on the context. It is acknowledged that the transcripts will contain direct and indirect hints for categorizing the perception of the WCIs as coercive or flexible. Direct hints of ‘flexibility’ would include, for example, making use of words and expressions such as ‘flexibility’, ‘freedom of choice’, or ‘market-mechanism’. Expressions such as ‘regulation’, ‘intervention’, or ‘constraints’ would then signify a view of WCIs as coercive. However, this list will never be complete and will have to be expanded throughout the analysis. Indirect indications would include, for example, references to most important design choices. Design choices certainly determine the degree of coerciveness (or, conversely, flexibility). Examples would be: ƒ ƒ ƒ ƒ

‘scope’ (e.g. scope tailored to the objective, which includes the restriction of obliged actors and eligible sectors versus unfocussed scope with as many obliged actors and target sectors as possible) ‘eligible measures’ (e.g. tailored to objective versus open-ended eligibility of measures) ‘baseline definitions’ (e.g. hierarchically determined versus self-reported plausibility proofs) ‘penalty’, ‘buyout price’, or ‘cost recovery.’

There is, however, no direct correlation between design choices and the flexibility of the scheme that could be fixed ex ante, since it is the entirety of design choices that determines the mode of action. It is also not possible to link, for example, the mode of action to certain energy efficiency discourses. Thus, a context-dependent interpretation is indispensable. In order to prevent blindness arising from the over-structuring of possible indicators, it was decided to read through the transcripts with the broad categories in mind.

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3.3.2 Participatory observation In order to link subjective perception to the historical process, participatory observation (Dewalt & Dewalt 2002) at conferences as well as side talks with conference participants are aimed at understanding dynamics and the arguments of actors and how these developed over time. Participatory observation was conducted at three conferences and a summer study. Besides recording comments, statements, and headwords in various situations (such as within the conference, in the coffee breaks, and at lunchtime) and in addition to regular minutes, I attempted to record statements in a more systematic way in two sessions. Accordingly I designed a diagram with clusters of categories to be highlighted: how do actors frame the policy instruments, which words do they use to describe them, what is most important to them in their presentations, and so on 91. As well, I used the conference material in several ways to support some of my observations: ƒ ƒ ƒ

list of participants to delineate expert community presentations by particular persons over time to trace the development of the understanding of certain topics; and agendas of main conferences to trace possible shifts of attention over time.

I acknowledge that each of these pieces of ‘derived’ information probably amounts to no more than a vague indicator. Nevertheless, it is argued that the sum of these pieces of information, presented in the text for instance in the form of vignettes (Dewalt & Dewalt 2002: 182f), helps to complete the picture and collectively has more weight than if regarded as single indicator.

3.4 Putting the pieces together: multidimensional comparison The final section (foremost Chapter 8) puts the pieces together: what did actors perceive, and when, in the political process? Which were the rationales of instrument and design choices, and how do they differ between countries? The comparisons are undertaken along several dimensions. First, the consistency within the cases is checked by comparing initially fixed goals (as stated in official documents) and expected outcomes (perceptions) with actual outcomes (design choices), and by displaying design changes over time. Second, the rationales for choosing and designing WCIs are compared across the three country 91

Annex VI contains an example of such sheets.

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cases. Third, the development of knowledge of the international expert community is compared with the reflection of these insights in design choices or in WCI images in the empirical cases. Finally, a comparative dimension can be seen in cross-checking the results with dynamics in other EU Member States that may implement a WCI or has explicitly decided not to do so. As has been presented in the theoretical chapter, it is assumed that the policy image has an effect on the outcome or impact. The scope of the analysis does not allow an evaluation of the WCIs’ impact in each of the cases. It is, however, assumed that the ‘consistency check’ (matching objectives, perceived objectives, outputs and to a certain extent outcomes) will make it possible for us to estimate the policy instruments’ impact with reference to its objectives and to make statements (though within limits) about its effectiveness. The literature on the policy process includes many ways of utilizing the terms ‘output’, ‘outcome’, and ‘impact’. Since there is a lack in common ground, these terms are defined in the context of the underlying analysis as follows: ƒ ƒ ƒ ƒ

Output is defined as the rules emerging from the political process of choosing and designing the WCIs fixed in legal documents. Outcome is defined as the measures and changes in institutional structure (e.g. creation of institutions providing advice to final customers) that are delivered by the policy instrument. Impact is defined as wider societal effects that can be attributed to the policy instruments’ outcome, such as reduction in carbon dioxide emissions. Effectiveness is defined as the delivery of the policy instruments’ intended objectives.

Figure 5 illustrates the connectedness of the different terms, and impact estimations are operationalized in the analysis of the case studies as well as in the concluding analysis.

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Coherence?

implemented through reflectedy by

Objectives / purposes • Defined or diffuse? • Coherent or competitive?

Measures

• Additional? • Scope of measures? • Type of measures?

implemented through

Mode of action

• Fit regulatory tradition? • Fit purposes? (e.g. promote certain technologies or leave it entirely open to market?)

Outcome • Formal compliance • Mix of delivered measures • Routes of delivery

Impact • CO2 reduction • Market transformation • ...

Intended? Unintended?

Figure 5: Checklist to determine the WCI’s effectiveness (Source: Author) Figure 5 displays those factors and connections that influence WCIs’ effectiveness. It is, for instance, assumed that the policy instrument is more likely to result in intended impacts if the objectives are well-defined and coherent, if the mode of action fits the regulatory tradition, and if the type of measure has been chosen with the objectives in mind. However, Figure 5 should be understood as a guideline only to those reference points that are assumed to have an influence rather than as a depiction of underlying causalities or correlations. Taking into account the elements of the checklist still requires a context-specific interpretation.

4 Research on WCIs

4.1 Introduction: Analysing the WCI expert community As explained in Chapter 2, the choice of policy instrument is facilitated by a match of the policy instruments’ characteristics with scientific and political discourses. Political discourses unravel in the policy processes of policy instrument choice. The political decision-making process leading to the choice of policy instrument and subsequently the choice of design are therefore dealt with in the chapters analysing the three empirical cases for WCI choice. The present chapter deals with the scientific discourse of the WCI. To clarify again: no discourse analysis is carried out. However, it is believed that examining the expert communities’ understanding of the WCI will reveal the prevalent policy image – an element of the scientific discourse. The image is assumed to influence not only agenda setting but also implementation and design choice, and therefore the effectiveness of the policy instrument. Identifying the most controversial topics and those elements that are commonly shared knowledge within a certain expert community reveals the image of the WCI among the expert community. Given that the WCI may operate through different modes of action as it is a hybrid scheme (see section 1.3.4.1 on price versus quantity mechanisms), this hybrid characteristic is expected to encourage policymakers and other actors involved to create various images of the WCI (for example, as a market-based instrument on the one hand or a regulatory intervention on the other). The WCI image among experts may differ from the image of it that is prevalent in individual Member States. Therefore, the comparative part (Chapter 8) will not only compare the results of the case studies with each other but also compare them with the results of the present chapter on WCI knowledge development and image creation among experts. The expert communities’ understanding and perception of the WCI is operationalized as follows. First, the selection of main sources (research projects, literature, conferences/workshops) is presented. Second, the research community is delineated. Third, the three types of sources mentioned above are analysed separately:

D. S. Steuwer, Energy Efficiency Governance, DOI 10.1007/978-3-658-00681-5_4, © Springer Fachmedien Wiesbaden 2013

116 1.

2.

3.

4 Research on WCIs The three existing international research projects on white certificates and their results are presented, including the most prominent topics, the context and motivation of the research on the WCI, and the researchers involved over time. The body of literature on the WCI is identified and introduced. The literature on the WCI is presented, in three main categories: the general features of the WCI, the WCI and trading, and the WCI in comparison with other policy instruments. By putting bigger research projects and the main publications attached to the topics into the historical time line, changes in understanding the policy instrument and the scientific discourse that contains it will unravel and reveal the prevalent WCI image. The author participated in several workshops on white certificates with the opportunity for participatory observation, as introduced in section 3.3.2. This section has to be seen as methodologically separate from the analysis of the written documents. Participatory observation turned out to be especially helpful to grasping the researchers’ perception of the policy instrument. This method has an additional value to expert interviews, namely, the researchers find themselves in situations where they have to defend their viewpoints in response to challenges from the research community. It also makes possible an understanding the rules, terminology and limits of the expert community’s debate about white certificates. Which topics are discussed over and over again? Are there critical issues that are neglected?

4.2 Identifying and selecting sources for analysis 92 Three relevant international research projects have extensively examined solely the WCI and are thus taken into account in the following analysis. The selection of the literature on the WCI was driven also by an attempt to fully account for the entire literature on WCIs. However, discussing each contribution would have required more quantitative analysis, which is not within the scope of this analysis. Therefore, a preselection has been made. First, the literature that aims at explaining the whole of the WCI and its most important design features is presented. This literature is believed to cover the most frequently quoted or most relevant literature on the WCI, giving a broad overview of the policy instrument 93. The authors belong both to the core group, as presented 92

Editorial baseline: December 2010 The author is not aware of other publications generally introducing the WCI, whether containing grey literature or peer reviewed articles, and not belonging to those articles written in the context of the research projects. 93

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below, and others. The aim is to depict the image of the WCI within the existing literature. The image of the WCI is strongly linked to the various perceptions of the mode of action fixed by design choices (such as market-based vs. regulatory; see sections 1.3 and 2.4). To work out the perceived mode of action of the WCI, it stands to reason to examine two topical issues: the issue of trading, and the WCI as distinct from alternative policy instruments. Both policy issues will be of major importance in the analysis of the literature on the WCI. As for the selection of participatory observations, the author took part in several conferences and workshops on the WCI throughout the research period (2007–2010) 94. However, not all conferences turned out to be suitable for participatory observation since some focused mainly on national experiences rather than on general insights into the WCI. In addition, there had been a learning process on how to best methodologically capture the observation and thus make it available for analysis. Templates making use of various research categories were created in the run-up to the workshops, which turned out not to be fully adequate since they did not allow the dynamics of the workshops to be captured. It was possible partly to pre-structure the discussions with the help of the predefined categories. However, in practice, the discussions were usually richer. As a consequence, the material taken from the observation varies with the specific dynamics of the different workshops. Three workshop situations turned out to be especially helpful for the analysis: one workshop organized by the EU Commission in Brussels aiming at identifying whether WCIs are good examples to copy, involving mainly researchers from the core expert group, and two workshops at the summer study of the European Council for an Energy-Efficient Economy (ECEEE) involving both core experts and others. Both ECEEE workshops – one formal and one informal – were general discussions about features of the WCI, not focusing on certain elements. The informal workshop had been organized by the core group members, with researchers from outside this group invited.

4.3 Delineating and characterizing the expert community Why is it important to identify a core expert group 95? It is the aim of the present chapter to identify the image of the WCI in the expert community. Some of these 94

Annex II provides the list of conferences and workshops in which the author participated. As already mentioned in Chapter 2, the core expert group identified here can be regarded neither as an epistemic community nor as an advocacy or discourse coalition. As the analysis will show, the core groups’ experts are not united by shared view on the policy instrument. Also, they do not meet on a regular basis but are rather loosely connected via the same research topics and occasionally meet at conferences. However, the core experts know each other well. 95

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experts turned out to be more active in researching and publishing on the WCI, whereas others were less active and focused solely on particular issues. The core expert group allows for the allocation of what is referred to as common knowledge on the WCI. This group of experts, following the issue over time, is aware of the existing research results. This means that they are assumed to know the research results of those belonging to the core group of experts but also of those who do not belong to it. The knowledge they promote in international debates (such as at conferences) is therefore a selection of all available knowledge. Thus, over time an image of the WCI is created by the group. In the present chapter, this WCI image is accordingly understood as the scientific policy image and serves as a reference for comparison with the national WCI images. In order to obtain an overview with actors in the expert community and to identify a core group of WCI experts, a simple calculation was carried out, as follows 96: The authors of documents that were available on the homepage of the research projects and that were contributing to the summer study of the ECEEE or any of the conferences the author participated in – both papers and presentations – have been listed. In addition, the frequency of their contributions has been counted along with the contexts in which they were made. A total of 172 contributions from 97 contributors have been counted 97. Among these 97, 89 have made only one or two contributions 98. Six experts made contributions on three or four research arenas: Paul Baudry, Paolo Bertoldi, Luc Bodineau, Luis Mundaca, Vlasis Oikonomou, Marcella Pavan, and Silvia Rezessy. Regardless of the context, Luis Mundaca and Antonio Capozza made the most contributions (nine each). Six of Marcella Pavan’s seven contributions were made in different contexts. Thus, there is a core of a little more than 12 experts who frequently contributed to expert debate on white certificate instruments. If researchers with either more than three contributions or more than three arenas are taken into account, a wider core of at least 18 researchers can be identified. It has to be kept

96

Annex VII provides an overview of the calculation results. It has to be added that this is not the entire number of contributions, since sometimes authors have not been listed on all papers. There have been some problems in downloading certain contributions, and finally, some authors appeared more than once with a similar contribution within one project. Although attempts were made to filter this ‘double counting’, no claim to completeness is made. In addition, every contribution at conferences has been counted, even introductory or closing remarks, which although they might not be distinct contributions, indicate which participants were most active in the process. Besides all the limitations of this approach, some names reappeared much more often than others, so that it is argued that this method is an approach towards identifying the core expert community on the WCI. 98 More than two contributions are listed for each of Adnot, Baudry, Bertoldi, Bodineau, Capozza, Farinelli, Grattieri, Labanca, Langniß, Masero, Monjon, Mundaca, Neij, Oikonomou, Pavan, Perrels, Rezessy, and Voogt. 97

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in mind that there are other researchers working on similar issues, but they were just not present at the workshops taken into account 99. The following sections often refer to the core group of experts to make visible their presence in the research area. As has already been clarified, the selection of material for the analysis is, however, not restricted to the research output of the core group. The inclusiveness of the approach is valuable for distinguishing the policy image of the WCI within the core group from other experts’ views on the policy instrument.

4.4 2004–2007: European and international research projects In all, three major research projects focus solely on white certificates as a new policy instrument and involve research partners from several countries. Two of those projects are entirely European, whereas one has been carried out as an international research project under the International Energy Agency’s demandside management scheme (IEA DSM) and therefore also involves other countries in the Organization for Security and Co-operation in Europe. The projects, their initial aims, and their research focuses are presented below in order to reveal the development of expert knowledge over time. The project ‘A Comparison of Market Mechanisms for Energy Efficiency’, in short ‘White and Green’, was funded by the EU project under the Intelligent Energy Europe initiative EU SAVE. The report on the first phase was published in 2004. The final workshop was also conducted in 2004. At that time the EU Directive 2003/87/EC (European Parliament & Council of the European Union 2003c) setting up the EU Emissions Trading Scheme (EU ETS) had already been adopted while the scheme entered into force only in 2005. In April 2005, the kick-off meeting for EuroWhiteCert took place. The project lasted until April 2007. The third project, as part of the IEA DMS research initiative ended in 2006 when the final report was launched (Capozza 2006). While the issue of tradable permit schemes for climate protection had been high on the European agenda, no practical experience of greenhouse gas emissions trading in Europe was available at that time but emerged in about the same period of time. However, by then some European Member States already had a Green Certificate Scheme for renewable energy promotion in place, including Italy and the United Kingdom. At that time two WCIs were considered to be implemented in the EU: the British scheme and the Italian scheme (Oikonomou & Patel 2004: 49ff). 99

Some of the authors were present at the conferences but made no official contribution. Since no complete list of participants was available, mere participation in the workshops is not recorded in this context.

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4.4.1 Research Consortia The research consortium of ‘White and Green’ was composed of four partners mainly from Sweden and the Netherlands, countries both rejecting the implementation of a WCI. 100 Only two researchers are members of the core expert group. Within the IEA DSM Task XIV, ‘Market Mechanisms for White Certificates Trading, was financed by France, Italy, the Netherlands, Norway, Sweden, and the UK. The operating agent of the task was Antonio Capozza from the Cesi Ricerca institute in Italy and a member of the core group of experts. EuroWhiteCert involved many more project partners than the earlier White and Green project. A total of 15 partners from 12 EU states were involved 101, among which was the end-use energy efficiency research group (eERG) located at the Politecnico di Milan, which provided the project coordination; IIEEE in Lund, which had been also a project partner of the White & Green project; ADEME; Ecofys; and the Central European University. The central contact persons were Lorenzo Pagliano and Nicola Labanca 102. A total of seven researchers from this project belong to the core expert group. This core group of experts took part in most of the conferences and formed the basic pool of authors who constantly published on WCI over time.

4.4.2 Objectives and research focus All three research project aimed at contributing to the broad knowledge base about WCIs, with slightly different foci, though.

100

The International Institute for Industrial Environmental Economics at Lund University in Sweden, the Italian Association of Energy Economists AIEE, Utrecht University STS-UU in the Netherlands, and the former Sydkraft AB, which is the second-largest energy company in Sweden and now part of E.ON as E.ON Sverige AB. The project team comprised the following researchers: Ugo Farinelli, Thomas B. Johansson, Luis Mundaca, Kes McCormick, Martin Patel, Vlasis Oikonomou, Kornelis Blok, Federico Santi, Gian Carlo Tosato, Matthias Örtenvik, and Roy Ericsson. 101 The project partners are organizations from Austria, Bulgaria, Finland, France, Germany, Greece, Hungary, Italy, the Netherlands, Portugal, Sweden, and the UK. To obtain an overview of all projects partners, please refer to: http://www.ewc.polimi.it/ppart.php; 102 National contact persons were Elvira Lutter, Dimitar Doukov, Ilian Jeliazkov, Alexander Penchev, Adriaan Perrels, Jérôme Adnot, Bruno Duplessis, Stéphanie Monjon, Ole Langniß, Konstantinos Lytras, Silvia Rezessy, Diana Ürge-Vorsatz, Domenico Gaudioso, Monique Voogt, Paula Fonseca, Lena Neij, Luis Mundaca, and Sonny Masero.

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As stated on the ‘White and Green’ project’s website 103, its initial aim was to suggest how to set up an EU-wide scheme for tradable white certificates. Throughout the project, different energy-efficiency policy instruments with a special focus on market-based mechanisms were analysed. In particular, white certificates for energy efficiency were compared with green certificates for renewable energies. Here, one focus was to include renewable energy technologies in the white certificates scheme that are not covered by an electricity-focused renewable obligation, for instance solar water heating. In addition, options of combining the EU ETS and White Certificates were analysed as part of the project. Finally, the research project addressed how to estimate CO2 savings from the Kyoto Protocols’ flexible mechanism Joint Implementation (JI) and Clean Development Mechanism (CDM) within the EU ETS However, simulations were carried out only for white certificate schemes, green certificate schemes, EU ETS, and carbon taxes; the Kyoto Protocols’ project mechanisms were excluded 104. The IEA DMS project part on WCI was less specific and more empirically oriented. The project’s aim was to collect and compile all available information on white certificate instruments, including first experiences in those countries that had already a WCI scheme in place (UK, Italy 105) and countries that were in the process of policy formulation (France). The final report is thus a rich collection of issues that policymakers and experts may face when implementing a WCI scheme. By including also the Netherlands, the project took into account a country where the introduction of white certificates has been considered but no real efforts to implement such a scheme have been made 106. However, the extensive report also dealt with issues external to the policy instruments’ mechanism such as challenges for WCI schemes in liberalized energy markets, interactions of WCI schemes with other energy efficiency policies and other tradable permit instruments, and finally the question of the best level to implement the policy instrument: should it remain a national policy instrument or is it applicable as an EU-wide trading scheme? 103

http://www.iiiee.lu.se/QuickPlace/whiteandgreen/Main.nsf/h_Toc/695A3DFE0BE56CE1C1256EBA 00356CB1/?OpenDocument, accessed 11 January 2011. The website is not available anymore. 104 The methodological core of the project was making use of MARKAL technical–economic models. In combination with some qualitative data, the marginal costs of saving electricity and gas were analysed, as well as the technologies that are likely to be implemented under a market-based energy efficiency approach. 105 While the Italian scheme had been formally set up at that time, little practical experience had been gained in running the scheme. 106 As addressed below in chapter 9, while initially the discussion in the Netherlands had apparently ceased, it has revived because of the failure the policy instrument chosen, which is based on voluntary action.

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Sources for conducting the study included experts and stakeholders in the broader field of WCI schemes, including those in demand-side management schemes and tradable certificates. Finally, the EuroWhiteCert projects’ main purpose was to support the development of WCI schemes both conceptually and technically. Its origin is very European compared to the IEA DMS project. The quest for key institutional and market conditions was the recurrent theme of the project. This was considered in the light of a potential application on the European level. Therefore, interactions with other tradable permit schemes, such as TGC, EU ETS and JI/CDM, were to be considered during the project. More than in the IEA DSM project, the EuroWhiteCert project partners worked with several methodological approaches, such as the evaluation of early experiences, theoretical analyses, stakeholder observations, and simulation studies.

4.4.3 Results and design recommendations The results of ‘White and Green’ were disseminated in several reports and were discussed and summarized at the final conference in Rome (2004). The key messages are as follows 107: Assumptions were made about the most likely technologies to be employed by a WCI. The experts expected the greatest improvements for natural gas use in space heating and for electricity in lighting improvements. In addition, the experts stated that WCI schemes promote innovative technologies such as heat pumps or solar water heaters. While being considered mainly as a policy instrument in the residential and commercial sectors, the experts pointed to energy efficiency potentials of WCIs in other sectors. Accordingly, they recommended extending the scheme to the business sector as well as examining its application in the transport sector. In order to minimize transaction costs – which are most probably an important cost factor in WCI schemes – the research consortium recommended standardized criteria to calculate baselines and simplification of the scheme wherever possible. They also highlighted the importance of the rebound effect (see section 2.5), which may in practice have a considerable impact and therefore should be accounted for. Referring to experiences with tradable green certificates (TGC) schemes for renewable energy sources, the authors remarked that the role of trading WCIs might be smaller in practice than expected in theory. 107

The results are taken from various reports (Oikonomou & Patel 2004a, 2004b; Farinelli et al. 2005).

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The research consortium recommended setting up EU-wide guidelines for the design and implementation of WCIs. While they recommended monitoring and benchmarking on national and regional levels, they nevertheless highlighted the importance of EU-compatible development of the schemes, especially when more and more countries were deciding to implement similar schemes, in order to preserve the possibility of an EU market. Finally, the experts considered energy service companies to be important actors in TWC schemes. They even recommended that these companies ‘should be the backbone of a WC system, which creates a market for their services’. The IEA project was more comprehensive than the White and Green project. Its main conclusions can be summarized as follows: Rationales for choosing a WCI were identified as the Kyoto commitment, public approval of the necessity for energy savings, expanding existing ETS and TGC markets, as a measurement tool for energy savings (‘certification rules’), and compliance with the EU end-use energy efficiency and energy services directive. Thus, international and in particular European factors relating to climate protection were strong drivers. It was generally agreed that trading as such was not the objective of the scheme. Nevertheless, the report concluded that trading was a major flexibility feature to reduce the costs of the scheme. ‘It makes the White Certificates mechanisms a market-based alternative to the pure obligation of energy savings’ (Capozza 2006: 187). Choosing the obliged actor was considered an essential step in designing the scheme. In principle, all sorts of actors (distributors, suppliers, generators) involved in delivering all sorts of energy (including electricity, natural gas, domestic fuel, heating, or cooling) can be subject to legal obligations under the scheme. However, some experts highlighted possible interferences with competition. This again depended on the perspective (micro or macro) that is adopted: on the one hand the scheme created an artificial demand through the obligation, which had an effect on the relative market position of the obliged companies. On the other hand, new markets were created offering new niches for competition 108. Apart from choosing obliged actors, the definition of third actors eligible for claiming end-use energy savings to be counted towards the target had an influence on who participates in what kind of markets. The report does not especially emphasize the resulting implications on competition. What the report highlights

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While some experts argue that competitiveness might be diminished by imposing an obligation, in this context competition is meant to be generated through the creation of a new market. Thus there are two levels of ‘competitiveness’ which can potentially be addressed when people argue that a WCI is ’compatible with competition’ – a statement rather often employed but rarely put into context.

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is the fact that allowing third parties to be eligible often involves overlapping with other energy-saving policies. While additionality (see Chapter 1.3.5) was recognized as an important element to be monitored in the schemes, the report did not draw general conclusions regarding additionality but primarily described the way additionality was dealt with in each of the schemes. However, these descriptions did not go beyond the officially claims about the efforts of the respective regulator to ensure additionality. Thus, there was no thorough evaluation of all possible spots where additionality of the savings may be challenged. In summarizing the advantages and disadvantages of cross-border trading of white certificates, the expert consortium looked not only at the existing schemes but also at lessons learned from tradable green certificates schemes. The idea of reducing energy consumption where it is cheapest is an argument for crossborder trading. However, the experts raised the point that additional benefits from a wider societal viewpoint can be associated with energy saving projects (such as local employment, and reduction of local environmental pollution). Countries would prefer to prevent ‘benefit leakage’ and to keep the benefits within the boundaries of their nation state. In addition, it was acknowledged that the schemes tended to be already complex on a national scale. According to the researchers, harmonizing the rules on the EU level would probably increase complexity (for example, the need to adopt a harmonized approach to accrediting savings while these savings are heavily dependent on local and regional circumstances, such as climate zones and geographical area). Thus in total, the experts concluded that the disadvantages of cross-national trading outweighed the advantages 109. The additional benefits of energy efficiency were mainly addressed in the context of cross-border trading. Even if restricted to the national level, these additional benefits acted as an incentive and thus had an impact on the functioning of the scheme (see also Mundaca et al. 2008). According to the IEA DSM Task XIV expert team, direct and transaction costs are incurred in many spots of the system (for example, costs to the companies of finding out how to deliver saving most efficiently and to realize these savings; administrative costs, and so on). Hidden transaction costs in particular deserved more attention. Finally, the report contained some conclusions about early lessons from other existing studies and in-field experiences. It was remarked that practical 109 This is, however, not necessarily a rejection of an EU-wide White Certificates Scheme (one could imagine a European directive imposing an obligation on each country without allowing for crossborder trading). However, the likelihood of an EU-wide scheme of whatever nature is reduced by this expert conclusion.

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experiences at that time would not allow for general conclusions. ‘Trading of white certificates represents in general a market-based approach to energy savings problems but need is to discourage improper expectations and ambitions’ (Capozza, 2006: 190). The experts point out that there are different drivers present in the schemes, which lead to different design choices. Energy efficiency is not among the core business activities of the obliged companies, and thus requires extra effort from them. A main challenge considered by the experts was monitoring and verification. Simple schemes with standardized savings were considered to be less costly and sufficiently effective. A main conclusion of this part about other experts’ insights was the widely shared sense that there was still a great need for further research on all different aspects of white certificates schemes. In its final report (Mundaca & Neij 2007) containing the policy recommendations, the authors frankly stated that the EuroWhiteCert project ‘also addresses the underlying policy question of whether this market-based approach is actually justified’. In that they are more in line with ‘White and Green’ whereas the IEA DSM project consortium designed their analysis in a more descriptive way highlighting success conditions of the empirical cases under investigation. As a pre-conclusion, the EuroWhiteCert authors aimed to highlight the country-specific results of the policy instrument and therefore recommended indepths pre-assessments for those countries planning to implement WCIs taking into account the specificities of the respective contexts. They further pointed to the difficulty of modelling some market barriers and imperfections that influenced the effectiveness of the market mechanism. The expert consortium identified pitfalls of the policy instrument’s characteristics which were strongly context-dependent. Transaction costs mostly arise from diverse flexibility options within the policy instrument design. While flexibility may enhance economic efficiency, it involves a variety of costs, such as administrative requirements. Therefore, policymakers have to balance costs to find an optimum. As in the other research projects, trading was given special attention to. Related to that, the experts found that ‘trading is certainly relevant but not an objective per se of TWC schemes’. Sometimes non-trading was associated with cobenefits. Besides, the level of ambition and the remaining potential of costeffective savings were said to be influencing trading activity. Long-term policy objectives allowed market actors to calculate costs and integrate them into their strategies. Finally, the experts concluded that the number of obliged actors as well as those (third) actors who supplied the market with energy savings obviously had an effect on liquidity and thus the functioning of the market mechanism.

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Key to any functioning WCI is the establishment of mandatory energysaving or energy-efficiency targets. The experts further pointed out the importance of carefully setting baselines and estimating energy efficiency potential. In order to put weight on the mandatory character (and thus environmental effectiveness) of the scheme, proper non-compliance rules and effective enforcement mechanisms were formulated. Part of the compliance framework is the establishment of price ceilings 110 that would not avoid individual action occurring. The experts raised the issue of additionality as well, recommending that it had at least to be monitored constantly. With regard to integrating different trading schemes in Europe, such as the EU ETS and WCIs, the authors did not come to an overall conclusion. Under the precondition that integration was properly justified 111, only one-way integration (counting white certificates towards the EU ETS target) combined with a separate quota was conceivable. With regard to interaction between TGCs and TWCs, the experts recommended setting absolute TGC targets. The authors did not reach a conclusion regarding the justification of an EUwide scheme. However, they used very hypothetical language (‘if an EU-wide TWC is justified’) and pointed to the necessity of carefully setting the target. Additional requirements (such as a minimum domestic share) were, among other things, to be taken into account. In the case of an EU-wide WCI, the experts recommended establishing harmonized institutional frameworks, including common methods for energy-saving calculations. Adjusting different domestic policies would also be necessary in order, for example, to avoid double counting. The exercise of harmonization was expected to be a ‘long, challenging and bumpy road for policy makers and stakeholders’. While the experts included a separate section addressing the political feasibility of WCIs, they did not make very specific recommendations in this regard. Rather, they pointed again to the administrative burden that such a scheme might incur and the trade-offs of flexibility, and emphasized the need for a clear and simple framework and thoughtful measurement and verification rules (preferably ex ante) accompanying informational measures on energy efficiency for the target groups as well as the provision of transparent information on the scheme. In total, the EuroWhiteCert experts warned against overestimating the political feasibility of WCI schemes.

110

The terms ‘price ceilings’ and ‘buyout price’ are used interchangeably in the dissertation. The authors did not make any statement on the justification of the integration of the different schemes.

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4.4.4 The three research projects in a nutshell The analysis of the three research projects reveals the following insights. The general starting point of all research projects was the link to tradable permit schemes for climate protection – tradable green certificates and the EU emission-trading scheme – and the aim of exploring the role of trading, especially cross-nationally. While the research projects agreed that a Europe-wide scheme may not be advisable, they did not entirely reject trading or harmonized European approaches. The research projects’ results agreed on a common necessary set of design options and benchmarks: ƒ ƒ ƒ

Setting an obligation: choosing target, target group, delivery agents Flexibility: choosing eligible measures and modes of delivery Additionality: making provisions for ensuring additionality of savings

Some issues remained unresolved. While it was generally agreed that crossborder trading most probably neither enhanced cost effectiveness nor was feasible from a political acceptance viewpoint, there was no clear recommendation with regard to promoting an EU-wide regulation. In general, there was little assessment of the best design options or of the circumstances under which they would be so. While additionality was acknowledged to be crucial for the effectiveness of WCIs, the research projects did not reach a conclusion on how to secure additionality (in terms of minimum requirements). They also did not comment on acceptable or even intended trade-offs between additionality, costs and benefits. Nor did they weigh qualitative benefits against quantitative ones. An examination of the actors involved in the research projects reveals that experts from the core expert group and experts not belonging to it were both involved. However, most of the actors that are in the core expert groups have also been part of one or several of the research projects on WCI. In addition, most of those belonging to both the core group and research projects either come from countries with a WCI in place or have been writing a Ph.D. on the subject. The WCI image that is portrayed by the research projects is very much connected to tradable permit scheme – even if the researchers acknowledge the difficulties in implementation. The projects do not make reference to similar problems with other project-based mechanisms, such as CDM or JI.

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4.5 Major Publications The major publications complete the picture of the existing common knowledge about WCI and how it developed over time. This will help us to understand how the perception and the image of the policy instrument evolved. Due to the more specific character of the publication – often peer-reviewed journals in contrast to the previously introduced grey literature in the context of the research projects – more detailed knowledge is expected to be disclosed. The number of literatures on white certificates is growing. Initially, the main publications originated in the research projects presented above. In addition, three dissertation projects on white certificates, by Luis Mundaca, Vlasis Oikonomou, and Silvia Rezessy, 112 were completed before the editorial deadline. These authors, all members of the core expert group, have published a range of papers with their colleagues on white certificates as part of their dissertation projects. All of the authors were at that time also involved in at least one of the research projects. Besides, the Institute for Environment and Sustainability (IES) of the Joint Research Centre (JRC), 113 which is a Directorate-General (DG) of the European Commission, has put considerable effort into research on white certificate instruments. In particular, Silvia Rezessy and Paolo Bertoldi (both members of the core group of experts) were and are working on different aspects of the topic. Bertoldi is also Editor-in-Chief of the Springer journal Energy Efficiency, in which several papers on white certificates have been published; a special issue has been devoted to on white certificates. Over time, practical experience of the policy instrument has grown. Thus, evaluations have been published at an increasing rate. While the research community is rather concentrated in the three big research projects and the institutes and researchers that were involved, some publications on this policy instrument have originated in other contexts. The following subsections give an account of the existing literature on the most prominent topics. A first body of literature was identified that aims to explain the whole mechanism, focusing on key characteristics. Two topics in particular are tackled by the researchers and are addressed

112 The dissertations have not been available at the time of writing, and have not been analysed as separate documents in this context. This is especially justified given that the researchers are among the main authors of most of the literature on white certificates. In addition, all three researchers have been contacted and interviewed several times in the course of the research for this dissertation project, so their ideas and arguments are believed to be adequately captured in the dissertation. 113 The JRC‘s internet presentation describes the historical transformation of the organization thus: ‘It has transformed itself from a purely research-driven organisation focussing on nuclear energy to a customer-driven, research-based policy support organisation.’ http://ec.europa.eu/dgs/jrc/index.cfm?id=2260

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separately below: the literature on the importance of trading and the literature comparing the WCI with other policy instruments.

4.5.1 Literature presenting the ‘big picture’ Observing the main European and international research projects on white certificates, Bertoldi and Rezessy continuously summarized the state of the debate in papers and articles. The development of their research papers seems to provide a good complementary view to the research projects and to complete the expert community’s insights into the WCI. The following section first analyses the development of knowledge about the WCI as captured by Bertoldi and Rezessy (2006, 2008, 2010). Subsequently, publications by other authors (Labanca & Perrels 2008; Capozza 2006; Mundaca & Neij 2009; Eyre, Bodineau & Pavan 2009) are summarized to complete the big picture on the WCI. In their first 114 paper (2006), Bertoldi and Rezessy place the WCI in the context of existing efforts to save energy and reduce greenhouse gas emissions. They then briefly introduce experience with other trading schemes in climate policy, namely, emissions trading and tradable green certificates. They place the rationale of using tradable permits for end-use energy efficiency in the context of the general rationale of tradable permit schemes, namely, rendering (saving) efforts most cost-efficiently. Already, then, the authors point out the importance of the additionality of energy savings – in their view a policy intervention is justified only if the additionality of savings is ensured (Bertoldi & Rezessy 2006: 37) 115. The authors point out that additionality is strongly linked to setting the baseline by reference to which savings are measured. Further, they identify the crucial design features of the WCI: a target size a little greater than business as usual, choice of accepted policy goal and matching the unit of savings to it (for example, counting CO2 savings for a climate policy goal), choice of obliged actors, defining the length of the commitment period, and defining eligible projects including technologies, delivering actors, and targeted energy carriers. They do not recommend any particular design but point out the advantages and disadvantages of design features. In that sense they dedicate a separate section to arguments for or against open-ended schemes, that is, schemes con-

114

This is not the authors’ first paper on white certificates but their first truly comprehensive one on the subject. The authors also point to possible rebound effects indicating the difference between energy efficiency and energy savings, which are related but differ according to the amount of savings that is offset by an increase in energy consumption elsewhere (Bertoldi & Rezessy 2006: 36).

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taining many choice options 116. While an open-ended scheme potentially enhances economic efficiencies and fosters technology diffusion rather than innovation, a limitation on flexibility may help to reduce transaction and administration costs (Bertoldi & Rezessy 2006: 53 f.). The authors then evaluate the certainty of outcome, the economic efficiency, the required information, and institutional costs compared with energy taxes and mandatory energy saving targets. The economic efficiency is estimated to be much higher than that of mandatory targets, and the certainty of outcome is evaluated as potentially very high – like mandatory saving targets and unlike energy taxes. The information requirements and institutional costs are both estimated to be very high, especially compared with those of the other policy options. It may be observed here that the authors make an important delineation to mandatory energy saving targets and see the policy instrument as being in line with other tradable permit schemes. Their conclusions are based on assuming that trading brings benefits. This assumption has been challenged by several authors (see especially Langniß & Praetorius 2006 and Mundaca et al. 2008). The conception of the WCI in the context of tradable permit schemes in climate policy becomes especially clear in a paragraph in their paper that examines the possible integration of the WCI with other trading schemes such as EU ETS and TGC. Their overall conclusion is that an EU-wide scheme is very unlikely whereas there are some possible ways to integrate a WCI in other trading schemes through one-way trading or set-aside quotas (Bertoldi & Rezessy 2006: 99 ff.). Another article by Bertoldi and Rezessy (2008) contains most of the main elements and arguments expressed in their first (2006) paper. Unlike in their first very comprehensive paper, the authors do not distinguish between the WCI and mandatory saving targets but make it clear that all WCIs have a mandatory saving target. As the authors are able to draw more conclusions on practical applications of the scheme, the article goes more into the details of the existing design features of WCI applications in EU Member States. Thus, knowledge of WCIs has obviously been enriched, especially through acknowledging the crucial role of the mandatory obligation. The co-benefits of energy efficiency projects are given more weight in the 2008 paper than in the earlier one. These co-benefits are mentioned (job creation, fuel poverty alleviation) especially in the context of arguments for and against an open-ended scheme that pursues multiple objectives (2008: 242). It is acknowledged that some co-benefits serve purposes other than just purely exploring the most cost-efficient potential for energy savings from so-called low-hanging fruit. 116

In the course of the dissertation, this is also referred to as ‘flexibility’.

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The questions of ownership of savings and the extension of the WCI scheme to the transport sector are raised as well. In addition, the authors explore options for a voluntary WCI scheme integrated into the carbon market. Thus, they abandon the idea of having a mandatory EU-wide trading scheme for energy efficiency certificates. In their concluding sections, they highlight certain aspects analysed in earlier papers, including the problem of windfall profits in the Italian scheme through flat cost-recovery that does not reflect the true prices for energy savings, and the observation that the main way of delivering of savings is through quasi-subsidies (obliged actors are those who give financial incentives to the customers). Finally, their conclusions reveal certain inconsistencies. As explained in subsection 1.3.4 on the WCI as a hybrid instrument, a range of steering mechanisms might be realized through design options. While some design choices construct a rather flexible WCI (e.g. an open-ended scheme, negligible sanctions, trading), other choice combinations would create a rather coercive instrument (e.g. limited scope, target-group specificity of objective, sanctions). As Figure 5 shows, an incoherent match of objective, design choices and delivery mechanisms is expected to influence the WCI’s impact. Thus, inconsistencies are expected to have an impact on the WCIs’ effectiveness. A number of inconsistencies can be observed in the researchers’ evaluations. On the one hand the core success factor of the British scheme – while not being said not to be a ‘true’ WCI since no certificates are traded – is its limited scope (e.g. its restriction to the household sector). On the other hand the authors regard a liquid market 117 as a precondition for economic efficiency. A limited scope of the well-tailored scheme that is identified as a success factor contradicts the claim about a liquid market, thus these two success factors do not go together. Also, the observation that standardized savings are of the utmost importance for the functioning of the scheme (revealing coercion) does not sit well with the argument for open-ended schemes (revealing flexibility). The authors do not entirely solve this contradiction in the argumentation. In addition, the claim that the British scheme is not a ‘true’ WCI also reveals the significance that is attached to certificate trading as a distinguishing design feature. A more recent paper by the authors has been written with other experts from Britain, France, and Italy (Bertoldi et al. 2010). This paper is more focused than the others on practical experience of WCI applications in the three countries. The underlying assumption is that certain general lessons can be drawn from the details of the schemes. In their conclusion, however, the authors stress that design features largely mirror national policy priorities (Bertoldi et al. 2010: 1468). 117

Liquidity is associated with an open-ended scheme.

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Otherwise, the conclusions are in line with those of the earlier papers: they highlight that standardized measurement and verification reduce transaction and administration costs; they highlight the influence of penalty and cost-recovery mechanisms acting as price incentives supplementing the quota; 118 still, trading is considered to enhance the cost efficiency of the scheme provided the market is liquid and transparent. Finally, the authors express their doubts about the feasibility of EU-wide trading. Publications by other authors complete the big picture on WCIs in the expert community. Labanca and Perrels (2008) summarize the key elements of WCI schemes (application to energy end uses, binding targets, additionality, measurement and verification challenges including the need to define a proper baseline and standardized savings, sanction mechanisms and finally trading aspects, all of which determine effectiveness as well as costs, including administration and transaction costs). Their main contribution to research is clarification of the historical roots of the policy instrument (see also Capozza 2006), which is demand-side management on the one hand and tradable permit schemes on the other. As to trading, the authors identify a number of preconditions for a successful trading mechanism, namely, liquidity, scarcity, banking and borrowing rules, and others. However, the authors do not comment on limited trading incentives due to the very nature of energy efficiency projects, that is, the various additional benefits attached to each energy-efficiency intervention. Thus, while there is increasingly differentiated knowledge about WCI, not all the details are spelled out by the experts (core group members) but are a matter of pre-selection. This in turn enforces the image of the WCI as a market-based instrument with trading as a core element to render the scheme cost-effective. Another article worth mentioning gives a general overview of WCIs. Mundaca and Neij (2009) 119 develop a multi-criteria framework for tradable white certificate schemes. To develop their framework the authors make use of existing insights into the economic theory of WCIs. In addition, the authors participated in the main international research projects and can be regarded as empirically informed about the WCI. The objective of TWC schemes is to achieve mandatory energy savings at the least possible costs. They are also motivated as instruments to reduce governments’ administrative burden and expense. (...) The key theoretical argument for the choice of a TWC scheme has relied on meeting mandatory energy-saving targets costeffectively by granting the obliged parties extensive flexibility (e.g. eligible meas-

118 119

However, the authors do not on such grounds define the WCI as a hybrid scheme. The article was received in April 2008.

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ures, end-use sectors and parties, as well as on banking and trading. (Mundaca & Neij 2009: 4557)

With their initial statement the authors already point to one of the main issues surrounding the WCI: the cost efficiency of the realization of end-use energyefficiency measures. The authors challenge this fixation on cost efficiency and introduce other evaluation criteria, such as energy saving and environmental effectiveness, transaction costs, administrative burdens, political feasibility, and technical change. These criteria allow reflection on the key characteristics of the WCI. The results mainly confirm the expert communities’ knowledge as expressed in other papers (e.g. Bertoldi et al. 2010). Considered to be of importance are the level of ambition, additionality, penalties, standardized savings, the adequate number of eligible technologies, actors, and energy carriers for improving cost effectiveness and minimizing administrative costs. But the distribution of cost and benefits is also raised 120. The relationships between individual design features are examined in a rather detailed way. It would go beyond the scope of this chapter to report each result. The authors repeatedly emphasize the different performances of WCI applications reflecting case- and country-specific conditions (Mundaca & Neij 2009: 4569 ff.). Eyre, Bodineau and Pavan (2009) give an overview of existing WCIs, which they call ‘tradable obligations on energy companies’ (2009: 429) 121. Since their paper is based on empirical findings in France, Britain, and Italy 122, it has a weaker claim than the other papers to be considered as embodying expert theoretical knowledge. However, since the authors bring together three viewpoints on a meta-level, the paper has been judged worthy of mention here. Its main contribution to the debate is that it structures WCI features under key headings in a very clear way, with categorizations reflecting an advanced level of knowledge about the policy instrument. In a section on policy objectives, the authors place the WCI in the context of energy efficiency discourses and outline the main design components that have to be chosen, such as objectives and energy efficiency metrics, compliance, policy scope, obligation holders, delivery agents and trading, and price regulation. In a section on outcomes, the paper points to many qualitative effects of the WCI that have previouslynot been as strongly emphasized (e.g. technical measure, impacts on energy industry structure, white certificate trading markets, con120

This topic is not elaborated in a very detailed manner in most articles about WCIs. The paper was presented at the ECEEE summer study 2009. The workshop discussion is subject to further analysis below. 122 This is partly true also of the other papers since theoretical and practical insights have always evolved in tandem. 121

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sumer issues, and governance). However, the experts mainly communicate those data that are officially reported and disseminated by national authorities 123. Finally, most of the topics in a section on lessons (deemed savings, growing energy efficiency activities, diffusion instead of innovation, behavioural measures to be seen as complementary, price increases to the customers outweighed by benefits but uneven distribution of benefits) have already been dealt with. The most novel aspect in the paper is the search for a common ground for all the schemes. There are some important similarities between the three national systems we have considered. In all cases, the countries have moved from very centralized monopoly energy systems to liberalized markets. Although the emerging systems are very different in terms of ownership and market concentration, it was the establishment of formal regulation in each country that allowed inclusion of energy efficiency obligations within the energy market. In each of the three countries, the primary objective of the obligation has been increase the level of investment in cost effective energy efficiency measures. Although the extent of experience is different in each country, in all cases the policy is seen as successful. (Eyre et al. 2009: 437)

The authors immediately, however, highlight the essential differences between the schemes: ‘However, at the most detailed level of scheme implementation the ability to learn across countries is restricted by the differences in the three schemes, with respect to objectives, scope and design’ (2009: 438). To put it in a nutshell, the literature capturing the core elements and principles of the WCI report a process of knowledge development that is rather consensual. It is less a controversial debate than a process of incrementally differentiating and completing knowledge of the WCI. Initially, WCIs were discussed in the context of tradable permit schemes for climate protection (Bertoldi & Rezessy 2006, 2008). Over time, this focus has changed. In their paper, Perrels and Labanca (2008) highlight the two roots of the WCI: tradable permit schemes and demand-side management. This crucial distinction clarifies that the WCI can be placed within a regulatory tradition other than what is often referred to as a market-based one. In line with that change in illustration is also the change in focus, from the importance of trading to the importance of mandatory energy savings as the common element (Bertoldi et al. 2010; Mundaca et al. 2009; Eyre et al. 2009). The view of trading became more differentiated over time, with Mundaca et al. (2009) challenging the imperative of the cost effectiveness of the WCI as the main outcome, and Eyre et 123

Therefore, this section is not treated in detail here. The national results will appear in the chapter on the practical application of the WCI.

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al. (2009), as well as Bertoldi et al. (2010), identifying additional qualitative benefits of the scheme. However, Bertoldi et al. (2010) still insist that trading enhances the cost effectiveness of the scheme. In other words, there is no consensus on the effects of trading. All papers highlight the country-specificity of the WCI design choices and thus the steering mechanisms that unfold in practice. There is a consensus about the main design choices to be made, while there are no guidelines as to what choices would fit best under which conditions: ƒ ƒ ƒ ƒ ƒ

Fixing target (size, unit, objective) Determining obligated actor, eligible actors Determining standardized measures for eligible technologies Securing additionality via baseline setting (without recommending a principle for baseline setting) Determining sanctions

Since all the authors introduced here who give the broad picture on the WCI belong to the core expert group, their picture of the WCI reveals the image of the WCI among the core experts.

4.5.2 Literature on WCIs and trading As already indicated trading of white certificates is generally seen in the literature and by the projects introduced above as an important design element to enhance cost effectiveness. However, some research challenges this assumption. Rather early in the research process, Langniß and Praetorius (2006) 124 have questioned the benefits of trading in end-use energy efficiency policies. In their article ‘How much market do market-based instruments create?’, the authors theoretically analyse barriers to the efficient implementation of WCIs, making use of transaction-cost economics. These authors do not belong to the core group of experts. The core group of experts has also not taken up their arguments. Their main argument is that, due to the specificity of investments 125, obliged 124

The article has been available online since 17 September 2004. It was published very visibly in the peer- reviewed journal Energy Policy. It is therefore very probable that the core expert group knows about the paper as also confirmed during side talks at conferences and workshops. 125 Their assumption is that the higher the specificity of investment the more ‘hierarchical’ will be the forms of governance applied, whereas with decreasing specificity of investments pure governance by markets will be possible (Langniß & Praetorius 2006: 201). In the context of this dissertation, all external benefits such as environmental protection, security of supply, or strengthening clients’ bonds are referred to as ‘additional’ or ‘unintentional’ (qualitative) benefits. Langniß and Praetorius argue that these external benefits increase the specificity of investments and therefore reduce the incentive

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actors have no incentive for trading 126. In other words, the qualitative benefits of the energy efficiency measure may be advantageous for the actor implementing the measure. Therefore, the obliged actors have an incentive to secure the savings themselves instead of buying certificates on the markets that do not display the additional value of the measure. In addition, Langniß and Praetorius estimate the transaction costs to be critically high for rendering trading inefficient. Transaction costs arise at various points of the scheme, between obliged parties, between obliged parties and third parties (here mostly referred to as ESCOs) and market intermediaries, or between those implementing the energy efficiency measures and the users of these applications (2006: 206). As a consequence, the authors presume that long-term contracts will persist, rather than spot-market activity in the field of end-use energy efficiency markets. They use this argument to point out that the integration of energy efficiency into emissions trading schemes is of limited value, but they also highlight that there might be considerable potential for application due to the benefits of the scheme (2006: 210). Around the same time, evaluations comparing tradable green certificates with feed-in tariffs concluded that the latter were more effective and efficient in supporting renewable energies (Resch et al. 2007). According to an email conversation with David Jacobs 127, Langniß has always been advocating feed-in tariffs in preference to tradable green certificates. Thus, there are hints that the image of the WCI is attached to the actor’s view on trading in general. The discussion about alternative policy instrument is therefore expected to reveal further insights into the WCI image attached to certain research communities. Mundaca et al. (2008) 128 arrive three years later at similar results, although their analysis is mainly based on empirical findings rather than on a theoretical exercise. The main argument in their article on the ‘to-trade-or-not-to-tradedilemma’ emphasizes the rationales and motivation of the obliged actors to implement their own energy-efficiency programmes. The authors show that the different flexibility options that WCI schemes provide are not fully used. Especially in Britain and in France, but also to a certain extent in Italy, trading has been of less importance than expected. The authors identify some ‘commercial benefits of non-trading behaviour for obliged parties’ which are essentially ‘attaining strategic knowledge about energy efficiency’, and ‘increased competitiveness’ by enlarging the customer portfolio (Mundaca et al. 2008: 339). to make use of the trading opportunity. For them, long-term contracts correspond to what they call ‘hierarchical’ form of governance (2006: 205). 126 This dissertation uses a similar argument when referring to ‘additional qualitative benefits’ or ‘unintentional qualitative benefits’ of end-use energy efficiency. 127 Email from David Jacobs, expert on renewable energy policies, on 23 April 2011. 128 The article was submitted to the publishing journal on 11 October 2007.

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4.5.3 Comparing WCIs with other policy instruments An issue frequently addressed by the experts is how the WCI compares with other policy instruments, that is, energy taxes, energy saving funds and – more recently – feed-in tariffs. Already in 2005, Bonneville et al. introduced the white certificate as one of three interacting sustainable energy instruments. Advancing this idea, Oikonomou & Mundaca (2008) analyse what can be learnt from green certificates for the application of white certificates (see also Harrison et al 2005; Sorrell et al. 2008) 129. Other authors have compared the policy instrument to a tax (Perrels 2008; Giraudet & Quirion 2008) and to an energy saving fund (Bürger & Wiegmann 2007). More recently, feed-in tariffs have been suggested as an alternative to the WCI for energy efficiency savings in end-use sectors (Bertoldi et al. 2009; Irrek & Klinski 2008). Perrels (2008) argues from an economic viewpoint that the WCI is an option to correct market imperfections inhibiting the efficiency of an energy tax. According to the author, under certain conditions the WCI can even be more efficient than an energy tax (Perrels 2008: 367) because of the following factors: the tax level (before the introduction of the WCI) and WCI targets, variation across end-use prices, variation across unit-cost levels of energy saving options, degree of market functioning of the WCI system (i.e. achieving lowest possible prices), and responsiveness of end users to price rises in retail energy markets. Giraudet and Quirion (2008) develop a partial equilibrium model to compare the WCI with taxes, subsidies, and what they call regulation. The main evaluation criterion is the relative cost effectiveness with factors such as the rebound effect and the distributive effect taken into consideration. The authors conclude that the superior cost effectiveness of the WCI is given in a case where the individual target corresponds with the company’s energy sales. The cost differences grow with the elasticity of demand. In addition, the model the authors use leads to the conclusion that a WCI has less negative impact on distributive justice. Bürger and Wiegmann (2007) compile existing theoretical insights into and experiences with white certificates and develop ideas on how to adapt a WCI scheme to the German context. In one of their concluding chapters the authors compare a WCI to an energy-saving fund – a policy option that has been on the political agenda in Germany for some time. The authors compare these policy instruments since in their view they are cross-sectoral steering mechanisms making use of different modes of action. They stress that WCI has greater budget independence than an energy saving fund. Similar difficulties are identified in the complexity of the schemes. Both schemes require the determination of eligi129

The authors also analysed the interaction between white certificates and the EU ETS.

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ble measures, the definition of a baseline, monitoring and verification, as well as the establishment of a sanctioning mechanism. The authors generally approve keeping the option of a WCI for Germany since they come to the conclusion that new modes of steering are indispensable in order to tap unexplored potential for energy savings in the end-use sectors. Leprich and Schweiger (2007) also remark on the nature of the WCI as compared with other policy instruments and in the light of a possible application in Germany. They put it very clearly that the policy instrument has two components – the obligation, which is identified as the core of the instrument, and a trading component, to which they attribute importance because of efficiency increases. However, while they evaluate some possible options for a German scheme, they also emphasize that any German WCI would have to be compared with other possible policy instruments, especially with regard to transaction costs (which may outweigh the benefit of savings). In addition, the authors highlight that the policy instrument will mainly help to trigger energy efficiency measures in mass applications rather than in innovative applications. Oikonomou and Mundaca (2008) analyse what can be learnt from tradable green certificates (TGC) for the application of a ’market-based approach to energy efficiency improvement alias tradable white certificate schemes’ (2008: 211). Assessing experiences with TGC in the Netherlands and Sweden, the authors focus especially on what they call ‘key evaluation criteria’, namely, cost and energy effectiveness, administrative burden, technological innovation, political feasibility, and transaction costs. The authors, who are members of the core expert group, identify a range of success factors for TGCs that they expect to help WCIs to succeed. These factors include the expression of a binding long-term target in terms of a policy time frame and certainty, a proper liquid market in order to ensure tradability of certificates, keeping the scheme technology-neutral and transaction costs low, and finally ensuring that the energy-efficiency target not only addresses ‘lowhanging fruit’ but also promotes innovation. However, in the direct comparison between TGCs and WCIs, it becomes implicitly clear that energy efficiency is different from renewable energy. Transferring insights from one policy instrument to the other is possible only within boundaries. Aspects such as additionality of energy savings are much more difficult to measure, and many moreeligible technologies can in principle be identified. Thus, the practicability of their conclusions has to be viewed with scepticism in the light of the specificities of energy efficiency (e.g. qualitative benefits, although not directly mentioned by the authors). This becomes especially clear in the light of analysis that focuses especially on the rationales of non-trading (Langniß & Praetorius 2006; Mundaca et al. 2008).

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Child et al. (2008) analyse interactions of WCIs with other policy instruments existing in Europe. While other analysts focus on aspects of learning from other policy instruments (e.g. Oikonomou & Mundaca 2008) or evaluating the better alternative (e.g. Bürger & Wiegmann 2007; Oikonomou et al. 2009; Giraudet & Quirion 2008), Child et al. mainly focuses on interactions between the WCI and other tradable certificates (see also Harrison et al. 2005; Sorrell et al. 2008) and overlaps with existing regulation such as the Energy Performance of Buildings Directive, as well as taxes, subsidies, and loans. Their main conclusion is that there are many overlaps, some of which may undermine policy objectives while others may activate synergies. All of the possible interactions could be avoided. Thus, with careful consideration of interactions, a WCI could be implemented while preventing unintentional effects. More recently, the idea of establishing a scheme similar to the feed-in tariff (FIT) for renewable energy also in the field of end-use energy efficiency has been entertained by the research community as a separate policy option. Bertoldi et al. (2009) 130 discuss the possible set-up of such a scheme. The underlying mode of action is the provision of fixed financial incentives rewarding the endusers of kWh of saved energy. The policy instrument is portrayed within the classical ‘price versus quantity’ debate. The understanding of both feed-in tariffs and the WCI therefore differs considerably from the understanding of the policy instrument as a hybrid tool: The FIT and energy saving obligations (targets) combined with white certificates represent the classical debate known as ‘prices versus quantities’, or price-driven versus capacity-driven approaches. The former, i.e. FIT, indicates the exact price for awarding a kWh of electricity saved without giving any clear indication as to the exact quantity to be saved at this price. Conversely, the quantity model – energy saving targets – stipulates in advance the exact outcome to be achieved in terms of energy savings (assuming full compliance), without giving indications on the cost of compliance, except that marginal cost of compliance is normally equalized across sources. (...) It needs to be acknowledged that a preference for quantity schemes is related to policy making traditions and styles: neo-liberal supporters are more prone to quotas and tradable certificates. (Bertoldi et al. 2009: 126)

To put it very simply, according to the author the advantage of feed-in tariffs over the WCI is their ability to incentivize innovative action as well. Irrek & Klinski (2008) present a very similar idea in the context of the ’Energiebalance’ project. They consider four ways of rewarding savings: (a) technology-specific credits for the purchase of an innovative, energy-efficient prod130

This paper was discussed at the ECEEE summer study 2009. It is touched upon briefly in discussion below.

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uct; (b) bonuses for producers and importers of energy-efficient goods; (c) flat financial contribution to energy-efficiency packages; and (d) contributions to specific programmes to reduce transmission losses. The authors argue that the main difference between feed-in tariff schemes and the WCI is that it is the actor who is rewarded for the energy saving action and who delivers the saving. A preliminary observation regarding the more focused literature on the two issues of trading and alternative policy instruments concerns the identity of the authors: most of the literature especially discussing the WCI in comparison with policy alternatives does not stem from the core group of experts (Bürger & Wiegmann 2007; Leprich & Schweiger 2007; Irrek & Klinski 2008). The more critical accounts of the WCI in particular come from outside the core group (Langniß & Praetorius 2006), while core group members attempt to present constructive ways of improving the WCI by making adequate design choices. Oikomonou and Mundaca (2009), for instance, aim to show how insights about the TGC can be transferred to WCI design choices. To put it in a nutshell, the literature on trading and the comparison with other policy instruments reveals insights about how the various authors – and members of the core group – perceive the mode of action of the WCI, which is a crucial component of the policy image. Trading is viewed more critically by experts outside the core group. These authors do not stress the more coercive design options within the WCI but are more often in favour of policy instruments that have a different mode of action than those involving trading. Experts belonging to the core group usually write more general accounts of the WCI, in a rather differentiated manner. While integrating all sorts of mode of action, they nevertheless stress the importance of trading for the proper functioning and costeffectiveness of the WCI.

4.6 Knowledge development: Preliminary summary of written material The key design elements of the WCI are generally agreed: objective, unit, scope, trading, choice of obligated actor, eligible technologies, measurement and saving procedures, a penalty and sanction mechanism, and setting the correct baseline. Additionality – would energy efficiency measures be implemented without the WCI? – has been mentioned from the beginning as a critical aspect in order to render the scheme effective and to legitimize policy intervention. However, it became an increasingly critical element in the literature. While initially flexibility aspects dominated the theoretical discussion, including the question of whether it would make sense to have an EU-wide scheme or an integrated scheme within the carbon market (and whether or not trading should be in-

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cluded), more recent publications have pointed out that it is the mandatory saving target that is the core of the scheme, with trading playing only a subordinate role. However, there was little evaluation of the best design choice under given circumstances. The hybrid character of the policy instrument is increasingly described while the term ‘hybrid’ itself is not used in the context of WCI. EUwide trading schemes have been discussed in all possible forms but there is not yet an agreed recommendation. Rather, experts are rather sceptical about going beyond purely national and separate schemes. Still, the option is kept on the agenda. This is an interesting development because the first research projects all had a Europe-wide trading scheme as a common starting point. The main controversy has been acknowledged in all articles but is not yet fully resolved. This concerns trade-offs between flexibility and standardization and limiting the scope of the scheme in order to render it cost-effective. This is linked to the even more ambiguous issue of the role of trading. While some experts believe that practical experience of the Italian scheme highlights the need for an incentive to trade, there are stronger theoretical arguments (see especially Langniß & Praetorius 2004, 2006) which are supported by other interpretations of empirical findings backed with a more targeted research focus on the benefits of trading (Mundaca et al. 2008). Due to the additional benefits of energy efficiency measures, it makes only limited sense for the obliged actors to detach the energy savings from concrete projects by making use of white certificates trading. Additional (qualitative) benefits do not play an important role in the early literature on white certificates, but are of explicit importance only in the more recent literature on the WCI (see especially Eyre et al. 2009). Those who argue that WCIs are comparably cost effective (e.g. Perrels 2008; Bertoldi & Rezessy 2006, 2008) base their argument on insights derived from experience with other tradable permit schemes and from the economic theory of tradable permit schemes. It is agreed even among those who argue for the potentially superior cost effectiveness of WCI schemes (see e.g. Bertoldi & Rezessy 2006, 2008) that such cost effectiveness is diminished by the very nature of energy efficiency in end-uses. However, the trade-offs arising from the special features of the policy area of end-use energy efficiency (section 2.5), such as multiple objectives, and from various barriers are kept apart from the theoretical discussion about the superior cost effectiveness of tradable permits. Thus, inconsistencies remain unresolved by the core group of experts. Either early insights into these inconsistencies are not referred to in the later publications, as in the case of Langniß and Praetorius (2006), or the arguments are incorporated in an add-on manner rather than in an integrative way (Eyre et al. 2009; Bertoldi et al. 2010).

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There remains one important aspect to point out: all articles introducing the general features of the policy instrument consider three examples of practical application of the WCI, namely, Italy, France, and Britain 131. While it is usually made clear that no certificates trading exist in Britain, it is argued that the WCIs are comparable since even the British scheme involves some trading 132. The core group of experts still understand the three schemes to be variations of the same kind of policy instrument, even if one of their main conclusions is that the WCIs in practice differ considerably. The differences comprise objectives, actors, scope, measures, and even incentive mechanisms 133. A possible answer to understand this inconsistency might be to reiterate the outstanding success of the British scheme. Those who wish to promote the WCI have an interest in labelling the British scheme as a WCI.

4.7 Conferences The analysis of conference dynamics via participatory observation adds to the insights elaborated above by adopting the more subjective perspective of the researchers in an interactive environment. These subjective comments are of great importance for this research project as they clearly depict researchers’ (as well as policymakers’) perception and image of the WCI. Most of the conferences and workshops were held under the auspices of the international and European research projects on white certificate instruments, focusing on certain aspects of designing and implementing the WCIs. Otherwise, it is mostly the European Commission that has hosted workshops on the WCI. This section presents the analysis of the workshops as introduced in section 4.2. At a workshop in Brussels, the author systematically carried out participatory observation as introduced in Chapter 3. From the other workshops, only selected minutes of the presentation as well as observations from side talks have been recorded in written form. Since the workshop in Milan mainly focused on the Italian WCI, only general remarks are considered in the following section. 131 Some articles also refer to Denmark, Flanders, New South Wales and sometimes the American Energy Efficiency Resource Standard; all of these articles include the three European examples as the main applications, and most articles base their evaluations on them. Sometimes the French scheme is not treated in as much detail as the British and the Italian, solely because fewer results were available at the respective times of writing. 132 This is also part of the definition of the WCI used in this dissertation. 133 Even though Eyre at al. (2009) also mention some similarities, these seem to be smaller than the differences. Their argument is especially challenged in the following chapters that analyse case studies where the reasons for picking the WCI as a policy intervention to foster end-use energy efficiency are examined.

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4.7.1 IEA workshop on WCIs in Milan The workshop that took place in Milan on 22 October 2008 has to be seen in the context of the wider demand-side management project by the International Energy Agency, IEA 134. Since the workshop focused mainly on the Italian WCI, most of the speakers were professionals engaged in setting up, implementing and running the Italian WCI. However, other experiences were also presented – especially updates about the British WCI and the Australian scheme in New South Wales. Bertoldi and Rezessy, both members of the core group of experts, gave an overview about existing approaches in Europe, connecting the policy instrument to various targets and directives on the EU level. The main question raised was whether there was a need to harmonize the schemes. The schemes were described as very different but rather successful. In their concluding session, the presenters called for more harmonization of measurement and verification, of lifetimes of certificates, of eligible projects, and of technologies. They further recommended an international voluntary certificates market in order to generate credibility for savings through energy efficiency projects and to create demand. However, they also acknowledged the limitations of a mandatory Europe-wide trading scheme. The following group discussion was fully in line with the estimation expressed by Bertoldi and Rezessy in the precedent presentation. In the group discussions as well as in the concluding session of the workshop this issue was taken up and assessed several times, as follows: harmonization of measurement and verification and all kinds of other standardization procedures were perceived to be useful, while doubts were expressed about the usefulness and acceptability of mandatory Europe-wide trading.

4.7.2 JRC Workshop on ‘White ertificates, utility and supplier obligation’ in Brussels The workshop took place in Brussels from 31 March to 1 April 2009. It was organized by the European Commissions’ DG JRC and DG Transport and Energy (TREN), more particularly by Paolo Bertoldi and Silvia Rezessy, both prominent members of the core group. The workshop targeted the whole range of possible stakeholders: energy efficiency policy analysts and experts, energy suppliers and distributors, regulatory bodies and other market actors, as well as environmental groups. Approximately 80 people attended the conference. The 134

The task group was completed at that time.

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context was clearly framed. Three years after the end-use energy efficiency and services directive of 2006 entered into force, the European Commission had to examine whether it would be appropriate to issue a directive for a market-based approach in end-use energy efficiency making use of white certificates. The EU Commission was also asked to assess options for a Europe-wide white certificates trading scheme. As part of the evaluation and assessment process, the Commission invited experts and stakeholders to review and discuss the outcomes and results of existing and emerging white certificate schemes. Several points of departure were identified for the agenda: sectoral coverage of the schemes, obliged actor, importance of trading, cost recovery, and sanctions. Also, the workshop was to compare their cost effectiveness with that of alternative policies. Apart from possibilities of a Europe-wide trading scheme, the question was raised how to integrate voluntary markets for white certificates into existing carbon markets. The workshop was organized into three sessions. Then first was dedicated to a review of existing experience and recent developments with white certificates and supplier obligations. The second session discussed prospects for an EU-wide trading scheme; and the third session addressed ways of integrating voluntary white certificates into the carbon market. Each session was followed by a panel discussion that attempted to express various stakeholder views on the respective topics. While some experts from the ’core group’ were present (Bertoldi, Baudry, Bodineau, (Eyre), Oikonomou, Pavan, Rezessy), so too were national stakeholders and practitioners. This led on the one hand to discussions on very general issues similar to those tackled by the main research projects and the literature about white certificates: how to best ensure additionality of energy savings, how to keep administration and transaction costs low, what kind of measures were to be delivered through the scheme, what the importance of trading was, how to integrate different types of certificates. On the other hand national particularities dominated the first topical session especially. The main subjects were the Italian cost-recovery scheme and the development of an Italian ESCO market, and necessary changes in the schemes’ architecture for forthcoming commitment periods in France, Italy, and Britain. The discussions throughout the session revealed that each scheme followed its own logic, depending amongst other things on national stakeholders, potential patterns of end-use energy efficiency, and national energy infrastructures. This became even more obvious with presentations on recent developments in the United States and Denmark. The presentation about Energy Efficiency Resources Standards in the US was strongly linked to the American tradition of least-cost planning and demand-side management. The presentation on the obligation on Danish distribution companies emphasized an individual

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approach towards the WCI: neither additionality nor standardized measures for the household sectors were of much importance in Denmark; rather, utility-run projects in industrial appliances were conducted largely on the basis of individually negotiated targets for the distribution companies. Thus, the conference discussions were very much more focused on national particularities than the written documents that, while acknowledging case specificities, still attempted to filter out similarities. However, the workshops’ intention was to discuss the options for and limitations of European harmonization. The tension between harmonization attempts and national particularities is illustrated immediately below.

4.7.2.1 European harmonization versus national particularities At the conference, a continuous debate centred on the question of whether national particularities – in terms of WCI design but also of energy market structure – would allow for European harmonization. To illustrate the different dimensions, a brief discussion highlights the national particularities and the interests that lay behind each of the schemes. Moderator to two panellists (both obliged actors): ‘Are you happy with the role of delivering energy efficiency?’ First panellist (from Italy): ‘Yes, I am happy. Ten years ago, I did not like it, but now I am happy.’ Second panellist (from France): ‘But you have cost-recovery!’ First panellist (from Italy): ‘Yes, but you’ve got the monopoly.’ Second panellist (from France): ‘We are happy to be in the EE business, to be in the cycle of energy efficiency. We are not against it. We don’t have necessarily to lose sales, we can reduce the use of gas, and then we have no losses in electricity.’

This short interchange shows the following. Case-specific cost recovery rewards the Italian energy companies for their obligation. The response of the first panellist highlights the advantage the French obliged actors EDF and Gaz de France Suez enjoy – they do have a quasi-monopoly in their respective fields of energy supply. The second panellist also shows that the companies can expand their businesses rather than losing sales. It is left to speculation whether the policy instrument is even helpful in strengthening the incumbents’ front-runner positions since the companies would neither confirm nor deny this assumption. The brief interchange shows that the different schemes have inherent logics that are hardly comparable. Despite obvious national particularities, there was a strong and continuous attempt, especially from the responsible organizer of the workshop, Paolo Ber-

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toldi, to discuss common topics and prospects for harmonization or European approaches such as a Europe-wide trading scheme or integration of white certificates into the carbon market. This is partly to be explained by the EU Commission’s task enshrined in the end-use energy efficiency and energy services directive – and Bertoldi’s being an official of DG JRC. Still, it mirrors also the organizer’s interest in the topic, which he raised also at other occasions even though it was agreed by the research projects introduced above that there was little common ground on which to base a Europe-wide trading scheme for white certificates. The discussions at the workshop confirmed this. At a side talk, an expert said about possible EU-wide schemes: ‘After what we’ve heard today, I don’t believe that people are convinced that this is a good thing to do.’ Still, the experts at the conference did not preclude the integration of white certificates into the carbon market. As shown below, the integration of white certificates into the carbon market clearly treats the WCI as a policy instrument for climate protection. However, not all experts agreed that it was a genuine climate protection instrument.

4.7.2.2 Flexibility versus coercion Apart from the harmonization versus national particularities line of argumentation, the participatory observation paid special attention to two distinct issues in order to grasp the existing images of WCIs. First, where do the actors place the policy instrument on the flexibility–coercion spectrum? To a certain extent this reflects the issue of ‘trading or not’. Second, what objectives and purposes is the policy instrument perceived to realize? The results can be summarized as follows. There was no agreement that the nature of the policy instrument was dominated by coercion versus flexibility provisions. However, no participant made a clear statement that this policy instrument was a true hybrid, combining different incentive modes such as a price and quantity mechanism. The statement ‘this is a flexible instrument with a limited scope’ came closest to defining the WCI as a hybrid instrument. Other experts’ statements illustrated the differing incentive mechanisms within the scheme: ‘the tax credit is the biggest financial contribution, for TWC networking and informational aspects are important. ESC [Energy Saving Certificates] makes it possible for the tax credit to be effective’, or ‘subsidy part of the utility obligation on one end and information on the other end’, or ‘economic instrument that started as a voluntary agreement’ are expressions pointing to various steering mechanisms within the scheme. The hybrid character

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of the WCI was underlined by these statements even if there was no metaperspective portraying the WCI explicitly as a hybrid instrument. The main observation is that the perception and image of the policy instrument were individually specific. In the introductory part of the workshop, an expert made a clear distinction between market-based approaches and supplier obligations, both of which were to be discussed at the conference. This clearly indicated that the presence of tradable certificates was perceived as the main single design element turning the policy instrument into a market-based one. The same expert also talked about ‘this market-based approach’ and said ‘one of the beauties of white certificates is to pick market forces’. Other experts highlighted in their presentations the market-based character of the policy instrument. One expert strongly emphasized the importance of certificates for the scheme and made no reference at all to the coercive elements of the instrument: ‘trading is a central element in the scheme’, ‘if you choose an MBI then leave the market to work’, ‘enhance market liquidity as far as possible’, ‘why put a market mechanism in place if the basic elements of the market don’t work [comment regarding hesitations to introduce certificates on top of the obligation]?’ Similarly, another expert asked: ‘We have all sorts of certificates, black, green, red, why not have white?’, putting the policy instrument in the tradition of tradable permit schemes in the climate debate. Similarly, another expert on the panel expressed her approval of the flexibility of the scheme but also worried about overreaching certain companies, similar to the European Emissions Trading Scheme where many companies benefited from windfall profits. Other panellists’ voices confirmed that they saw a between white certificate schemes and other tradable permit schemes: ‘the benefits of tradable white certificates are fully in line with all other tradable systems’, ‘if there is a common market for ETS, why not for white certificates? What is the difference? I believe in common markets, why don’t you?’ This question already indicates that there was a division among the participants. Apart from industry representatives who had a genuine interest in asserting that the scheme was ‘a real constraint for suppliers’, other voices partly argued with the specific character of energy savings and energy efficiency in end use: ‘market is not useful – TWCs are not a commodity, you produce an added value’, ‘comparing white with green and brown certificates, white certificates are much more complicated’, ‘the trading is not an important aspect to be considered at the EU level – if at all’, ‘the market is of marginal importance, the suppliers do it themselves’, ‘it [obligation on states’ level] allows states to have their own tougher targets, trading would disincentivize this’, or the ‘obligation (...) [as a] result-based approach’.

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The different views on the WCI were not explicitly brought into confrontation with each other. Rather, they were just stated at different times, showing that the participants were to a certain extent talking at cross-purposes. Of the eight participants who clearly viewed the trading and flexibility options as crucial to the functioning of the policy instrument, four were Italian and two Polish. Of the five experts clearly highlighting the coercive elements of the instrument, four were French, independent of their individual stakes as company representative, energy efficiency expert, or administrative bureaucrat. While other experts highlighted other aspects and painted a more differentiated picture, the simple evaluation indicated that there was a divide between the perceptions of the policy instrument. The perceptions seemed to be to a certain extent national views, 135 with an Italian 136 focus on the market-based character of the scheme and French experts highlighting coercive elements. This will be further analysed in the case studies, where a qualitative content analysis is conducted with the interview transcripts.

4.7.2.3 WCI in the context of energy-efficiency discourses The second issue that was given special attention in the context of participatory observation was the linking of the policy instrument to one or several purposes of energy efficiency and its discourses. Placing the WCI in the general discourse on energy policies will enable us to better understand the different perceptions and images of this support instrument. Generally, all possible purposes were mentioned in the workshop. However, the purposes were not spelled out clearly by all presenters or panel speakers, so no clear national divide was observed. Three broad categories of purposes can be identified: liberalization of energy markets, climate change, and economic efficiency. These are addressed in more detail below. In addition, single statements were made that rather related to other aspects such as security of supply – ‘originally the UK wanted to save electricity and not to save carbon’ – or more procedural purposes – ‘reach energy efficiency in diffuse 137 sectors’. Since these were one-off phenomena, they are not addressed here in greater detail. 135

Obviously, the design elements of the different schemes differ, leading to the suggestion that the national experts just mirrored their respective design. However, this was not entirely true, as shown in the case studies below. 136 The Polish experts also strongly emphasized trading and the link to emissions trading schemes. 137 The term ’diffuse sectors’ refers to the fact that the saving potential, especially in the residential sector, is scattered, and can be tapped only by the sum of many but typically small energy-saving measures.

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Liberalization of energy markets was mentioned a couple of times in relation to the WCI. However, the context differed. ‘The purpose is to make sure that utilities implement the same energy efficiency programmes in liberalized energy markets as they did before’: here the link to re-regulation and demand-side management roots of the policy instrument became apparent. Other experts expressed the purposes similarly: ‘They [the utilities] already know integrated least-cost planning’ and ‘all started in 1994 when the energy markets were not yet deregulated’. All these statements were related to the purpose of ensuring that the energy companies remained (if they did not become) actors delivering energy efficiency through utility programmes. Some statements emphasized a different angle of liberalization, namely, their concern that competitiveness might diminish once a WCI was set up. While one expert said she liked the ‘competitiveness of the scheme’, another expert expressed her concerns and doubts that the scheme would be fully compatible with liberalized energy markets. The second energy efficiency discourse of the WCI relates to climate protection. Statements such as ‘The instrument is all about carbon savings’ or ‘white certificates are the only way to reduce carbon emissions and realize energy efficiency’ indicated that the experts saw the WCI as a climate policy instrument. However, there were also clear statements arguing against this perspective, which culminated in one participant’s question to the British presentation: ‘This is an instrument about energy efficiency and you are counting in CO2: can you explain that?’ In another presentation, the presenter made it clear that the policy instrument was ‘only [for] energy security and connection to liberalization of energy markets – not climate change’. In the third session the policy instrument was already placed in the climate discourse by the focus on the integration of white certificates into the carbon market. The understanding of the WCI as a climate protection instrument was the topic of major discussions. While there was no weighing of arguments 138 for or against integration in the carbon market, 138

The minutes of the workshops were sent to the participants. A section listed the arguments against an EU-wide scheme (not explicitly touching the issue of integration into the carbon market) as follows: ‘· Equity issues of implementing savings projects abroad (cross-subsidization). · Lack of a commodity associated with white certificates. · Inherent technical difficulties in harmonizing measurement and verification. · Differences across Member States in terms of levels of energy taxation and experience with demand-side management. · Cross-border energy markets are not yet mature, so even multinational companies under a supplier obligation may not be able to benefit from an EU-wide scheme, at least initially. · The legal framework in some countries prevents investment in heat markets, which would undermine the benefits of a European scheme in its heat part. · Focusing on the European dimension should not reverse the priority list of first and foremost saving energy and, only subsequently, trading.’

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this was one of the most emotionally discussed issues, and therefore probably had an impact on individual perceptions of the issue. One expert expressed his concerns thus: ‘The value of tradable white certificates is economic efficiency, climate protection, energy security. By linking it to CO2 only, it puts the others aside. That’s not good.’ The different purposes of energy efficiency might compete with each other. An example given during one presentation underlined the implications of designing the WCI as a climate protection instrument: ‘Although some measures are cheaper than others, e.g. insulation is cheaper than PV [photovoltaic energy], people have to be convinced to insulate whereas they like PV and are more willing to install PV panels on their roofs’ – cost effectiveness is thus not necessarily given since other, less costly measures are deliberately not chosen. If cost effectiveness was a major criterion for choosing the policy instrument, in this context it would be competing with climate protection. This leads to the third big issue, namely, economic efficiency. It is argued here that the idea of cost-efficient delivery of policy objectives is a separate discourse. WCIs in some presentations were correlated with cost-effectiveness without further explanation. On the opposite side, doubts were raised as to the cost effectiveness of the scheme compared with other schemes or expectations in advance. One expert insisted that it would not matter if the policy instrument were the most efficient instrument as long as it delivered savings. ’The question should be: will harmonized schemes allow us to do more, not cheaper, because all the schemes are cost-effective?’ Responding to the statement, a panellist argued that he did not see that white certificates are the most cost-effective solution. Again, the first expert insisted: ‘But they are all cost effective – we just need them all!” This brief interchange shows very well three arguments in the debate about cost effectiveness. First, there is a general presumption that the scheme is very efficient mainly because of its flexibility provisions. One could even argue that cost efficiency and flexibility go hand in hand in the perception of those actors who favour trading of white certificates. Second, there is the presumption that all end-use energy efficiency actions are cost effective, so any talk about the cost effectiveness of measures to implement end-use energy efficiency is redundant. Third, cost effectiveness is seen as similar to other purposes, such as energy security or climate protection. Any choice of policy instrument therefore has to be driven by cost-effectiveness considerations, with the least-cost option preferred. In sum, the majority of the participants were not very keen on conscripting the WCI into European carbon reduction efforts. Instead, most recommendations went in the direction of leaving the WCI as a national policy for achieving en-

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ergy efficiency. This would allow regions to benefit from the added value of the projects. Even though many similarities and links to carbon markets have been raised, the network of carbon market experts consists of different actors that were not present at the JRC workshop. The idea of learning from the clean development mechanism and joint implementation as the already existing offset mechanism in the carbon market was raised in only one presentation, without any follow-up discussion. The WCI discussion instead remained separate from the carbon market discussion, despite many attempts by policy brokers to integrate them. The WCI was not located within any commonly agreed energy efficiency discourse, and its image varied among the participants. Generally, members of the core group of experts painted a more differentiated picture of the WCI, but they did not promote a clearer understanding of WCI among participants. Generally, there was a divide between those who viewed the WCI as having the same logic as EU ETS and those who viewed it as a means to deliver end-use energy efficiency projects. There was much talking at cross-purposes also when it came to the objectives the WCI was meant to deliver: since some participants did not even ask whether the WCI was a climate policy instrument, others arguing that the WCI was not necessarily a policy instrument promoting climate protection had a hard time make themselves understood. To some, the WCI was an instrument that promotes end-use energy efficiency measures cost effectively, rendering cost effectiveness its most distinguishing feature. To others, similar to all sorts of demand-side management instruments, the WCI was meant to be of service in the wider context of security of energy supply. One conclusion is that those who saw the WCI in the tradition of emissions trading and tradable green certificates strongly linked the trading feature to the purpose of climate protection. To them the WCI is just another part of the carbon market. This somewhat contradicts the aforementioned results that the integration of the WCI in the carbon market should be avoided.

4.7.3 ECEEE summer study 2009 A special occasion for studying the WCI expert community was the ECEEE summer study. Every second year, the European Council for an Energy Efficient Economy (ECEEE) – Europe’s biggest non-profit, independent organization devoted to boosting energy efficiency 139 – organizes a so-called summer study. 139 The summer study lists the partner to realize the event. “Principal Partners” were ADEME, the Danish Energy Agency, Enova, The Research Council of Norway, Senter Novem, the Swedish

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This is especially interesting for the underlying analysis here since the WCI expert community is part of a wider community of end-use energy efficiency policy experts. In 2009, more than 300 energy efficiency experts participated in the one-week event in La Colle sur Loup, near Nice. In eight topical panels almost 200 papers were presented 140. In addition to the formal sessions, there was room for informal and ad hoc working groups on certain issues; these were registered usually one day in advance and accordingly announced in a workshop newspaper available at breakfast-time. This subsection presents and analyses the most controversial topics discussed. The expert community was composed differently from that at other conferences and workshops on white certificates. It had at least eight researchers from the core WCI expert group but many other energy efficiency experts. The summer study provides a networking arena for researchers, public policymakers, representatives of energy utility industries, and non-profit as well as commercial organizations, who are united by their goal of boosting energy efficiency. While the participants belong to organizations with a stake in the energy efficiency business, the whole event is organized in a way that allows the participants to take part as interested individual experts rather than as representatives of particular stakeholders’ views. In total, six officially registered presentations were held on white certificates. In addition, two informal sessions were organized on white certificates. White certificates were discussed not only in those sessions dedicated to the topic; references were made to white certificates and supplier obligations also in some other presentations and discussions. Due to the tight schedule, it was impossible to take part in every event that was related actually or potentially to white certificates. Some events overlapped – two presentations on white certificates were given at the same time 141. Of the official presentations, the session comparing the WCIs of Britain, France, and Italy (by Eyre, Bodineau, and Pavan) attracted much attention, both

Energy Agency, Yellow Strom GmbH; “Partners” were Dansk Energi, EDF, Energy Saving Trust, Leonardo Energy; “Contributors” were Danfoss, Eurima, EuroACE, European Climate Foundation, Netherlands Organisation for Scientific Research, Rockwool, and Velux. 140 For an overview about the topics and the experts presenting the papers, please refer to Broussous & Jover (2009). 141 Unlike with other kinds of workshop, the participants in general fluctuated between parallel sessions. Some sessions took place outside, some were crowded – which made it very difficult to systematically record the discussions. An attempt to make use of the sheets used in Brussels turned out to be unprofitable. Therefore, minutes were taken in the form of statements that appeared to be important in the light of the research topic at hand.

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from participants belonging to the core WCI expert group and from others. Experts from Germany also participated. 142

4.7.3.1 Presentation on WCIs in Italy, Britain, and France At least 60 people attended the entire presentation by Nick Eyre, a large number given that eight parallel sessions were taking place. The title of the presentation, ‘Energy company obligations to save energy in Italy, the UK, and France: what have we learnt?’, indicates the common element of the three case presentations: the obligation on energy companies, whether suppliers or distributors. Many experts from the core expert group were present, as were other experts such as Wolfgang Irrek from Wuppertal Institute and the emissions trading expert Regina Betz from the Australian School of Business. A different kind of discussion could be expected from that in the core group of experts and practitioners. In his presentation the speaker attempted to explain why Italy, the UK, and France had all chosen the same policy instrument, adding a new element to the debate. To him, the energy structure was strongly monopolized before liberalization, which he saw as a reason why state actors could oblige them to save energy 143. While he did not address at the problem of additionality and other problematic issues, he presented the scheme as a success. ‘This single policy instrument is now saving more than 1% energy.’ He pointed to the market development, stating that in Italy there ‘is more a market like the EU ETS or TGC’. Market development in Italy was mainly attributed to the different obliged actor, namely, the distributor. The subsequent discussions focused on the core issues of additionality, cream-skimming, and the costs and benefits of WCIs. Additionality turned out to be a major concern of the participants who did not belong to the core group of 142 Certain presentations on the WCI at the summer study are not covered here, for several reasons. Two presentations and one informal session were dedicated solely to the French WCI and recent developments. The participants were mostly experts who knew the previous French scheme. Since participatory observation was interested in more general discussions on WCI, these sessions are not treated in this section. One presentation was focused on lessons from green certificates for a white certificate market, which attracted little attention; another, titled ’White certificates in an oligopoly market: closer to reality?’ was a highly economic discussion. Neither presentation, therefore, was very valuable for further analysis. The presentation about a possible extension of white certificate schemes to the transport sector could not be attended because of session overlaps. 143 This explanation can be challenged. First, the obligation is imposed on different groups of actors, namely, energy suppliers in France and Britain and distributors in Italy. Second, some other countries such as Denmark decided to establish an obligation even with energy market structure that differed considerably. Third, some countries with energy monopolies decided not to implement the policy instrument.

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experts. However, the answers lacked detail and were unconvincing. The risk of cream skimming 144 which was perceived as a matter of standard setting – the tougher the regulatory authority setting the standards, the more ambitious cream skimming would be. Linked to that issue was the ability of the WCI to support innovation, which was regarded as limited if the scheme involved a high degree of standardization. The audience was interested also in detailed information on the costs and benefits resulting from the WCI scheme and the various incentives within it. The questions were formulated in a rather critical way, expressing some mistrust. The presenter pointed out that the schemes differed in the ways they achieved their targets. While in the UK it suppliers often gave away premiums of 100–400 € to final customers to facilitate their agreements to carry out the energy efficiency measure, the French suppliers (and to a certain extent also the Italian distributors) relied considerably on existing tax credits in order to persuade their customers to implement the measures. According to the presenter, energy efficiency measures still had considerable potential. However, during the discussion there was no common understanding of ‘costs’ and how they related to prices, in particular certificate or energy prices. The extent to which the different cost–benefit analyses of the three schemes were comparable also remained unclear as a result of methodological differences. The discussions revealed considerable interest in the topic and also in other critical issues such as detailed conditions for additionality. These concerns were partly addressed in the informal discussion, introduced below. Most issues (additionality, costs, and benefits) remained unresolved in that there was no common view among the experts. Another observation was the lack of a structured discussion. There was no discussion of broad categories but rather of different topics of interest raised by the audience. This was very different from the much more focused informal discussion, as the following subsection demonstrates. Other than in the literature debate or at other workshops, the role of trading was not extensively discussed in this session. Rather, the focus was on costs and additionality. However, by challenging the cost effectiveness and additionality of savings, the key mode of action involving trading of certificates was indirectly questioned, since trading was supposed to deliver savings in the most costeffective way. Additionality, in contrast, was supposed to be best secured by strict measurement and verification. The more flexible and the less coercive and straightforward the schemes, the more difficult was the estimation of additional-

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‘Cream-skimming’ refers to the preference of obliged actors to deliver savings which can easily and cost-efficiently be implemented and which are typically neither innovative nor high-quality. The most common example of cream-skimming is the distribution of compact fluorescent light bulbs.

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ity of savings. Seen that way, the discussion indirectly touched upon the underlying mode of action of the WCI.

4.7.3.2 Informational session on recent news on WCIs The informational session is of interest for the analysis since the event’s setting differed from those of other workshops on white certificates. An ad hoc group of people met gathered who were interested in most current updates on experience with the schemes and in the identification of topics that would possibly be relevant in the future. All participants 145 had actively participated in past events on white certificates and could be counted among a broader core expert group. There was, however, one exception: the German researcher Stefan Thomas from the Wuppertal Institute, an expert known as an advocate for an energy efficiency fund, which is often depicted as an alternative policy instrument to the WCI (Bürger & Wiegmann 2007; Irrek 2008). The meeting was initiated by Paolo Bertoldi and Silvia Rezessy, both from DG JRC. The participants knew each other well and there was little in the way of introduction before details were discussed. The session was thus more focused on the latest empirical news. While generally the topics did not greatly change, the issues were discussed more openly. The mere setting of this informal meeting showed that there existed a core group of experts on WCI that was advocating for the scheme – although for different reasons, as the case studies show. The discussion began with a simple exchange of information about recent updates on the WCI. Some aspects of the schemes in Britain and France were discussed. In Britain, a possible expansion to the commercial sector was believed to be under consideration. However, while the official answer to that question was that the government wanted to preclude cross-subsidization, with the household customers paying for energy efficiency improvements in the commercial sector, the unofficial reason was the government’s aim to tackle fuel poverty primarily via insulation measures in the residential sector. Additionality was the single most intensely debated issue. It was widely admitted that there was still no reliable estimate on the additionality of savings especially when it came to the Italian scheme. The underlying baselines were said to be ‘not credible’ and the most prominent example raised in this context was the distribution of compact fluorescent light bulbs, CFLs, (see sections 6.2 and 7.2). However, some defended the Italian regulatory authority AEEG as 145

The participants again fluctuated somewhat, as more and more people joined the group. A core of at least ten persons was present. Among them were Paolo Bertoldi, Nick Eyre, Silvia Rezessy, Luis Mundaca, Vlasis Oikonomou, Nicola Labanca, Eoin Lees, and Lorenzo Pagliano

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taking its tasks seriously and trying hard to optimize the scheme. Some elements of the scheme, including the targets, had been updated throughout the current commitment period in response to some of the shortcomings in additionality, transparency, and market liquidity. The following statement underlines the support and clemency for the Italian scheme when shortcomings of the scheme were addressed: ’I am a big fan of the Italian white certificates.’ There was not much debate on the nature of the policy instrument other than a remark that trading admittedly did not render the scheme more cost effective. This was not only a theoretical consideration but also observed in the Italian case, where cost recovery diminished the cost effectiveness of the scheme. The following statement attracted much sympathy: ’There is not a lot of trading but a lot of tendering.’ Linking to the main incentive mechanism and to the nature of the policy instrument one discussion about possible alternatives of the scheme was prompted. The centrepiece of the discussion was the innovation potential of the policy instrument. Stefan Thomas argued that an energy-saving fund would be more flexible than a long list of standardized measures, as in France, or the restriction to a few measures, as in the UK. The only comment by the core group of expert on this was that innovation would be more easily stimulated via a feed-in tariff scheme. It remained unclear whether all group members fully understood how the energy saving fund was supposed to work. From an observational viewpoint it remains to be noted that the informal session pointed much more frankly to the problematic and unresolved issues of the WCI in practice than did any of the earlier workshops. This came out most strongly when the additionality of the Italian scheme was questioned. Even though the experts were more open to critical unresolved aspects of the WCI, they also encouraged each other and pointed to the general success of the WCI in practice.

4.7.4 Exchanging knowledge at conferences: Summary The topics discussed at the workshops repeatedly focused on the main key design aspects (target, scope, actors, measures), practical experience, and critical issues such as additionality, transaction costs, enforcement including measurement and verification, and trading. However, two levels of discussion could be observed that depended on the composition of the group. The audience of the various workshops on white certificates could be separated in two groups. The first group comprised members of the core expert

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group. The second group comprised national stakeholders including practitioners – they were also experts in the field but did not belong to the initially identified core expert group. The core group experts were also largely engaged in research projects and were publishing papers on white certificates in peer-reviewed journals. Discussions among those experts focused on rather specific topics, finetuning the design and open research questions. The informal discussions at the ECEEE summer study showed that even among the core group of mostly scientific experts more critical views were expressed, such as doubts about the additionality of savings delivered through the scheme 146. In the discussion with mixed groups of researchers, national stakeholders, and practitioners, more issues were repeatedly raised on a rather general level. Such topics included design choices (sectoral coverage, obliged actors, trading, cost recovery, sanctions, transaction costs, additionality). While these topics were also discussed among the core experts, there was more disagreement in the mixed groups. There was no consensus on whether the WCI was a climate policy instrument, whether it worked like other trading schemes such as the EU ETS, and whether flexibility enhanced or diminished the cost effectiveness of the schemes. Within the groups, disagreement was not observed between experts on the one hand and stakeholders on the other. Rather, the presence of stakeholders, practitioners and experts who were not yet familiar with the topic allowed for a more general debate, which revealed some major divisions among experts of all kinds. A third actor should be mentioned who was highly visible at the workshops: Paolo Bertoldi from the DG JRC 147. He not only gave many presentations but also appeared to be key contact person for most of the experts and stakeholders. He initiated the informal ECEEE session, he set the agenda for the workshop in Brussels, and he gave the comprehensive presentation on white certificates in general and future topics in Milan. From side talks with many other experts, it became clear that he was seen as the main advocate for the white certificate scheme and potential EU harmonization. This explains the astonished statement: ’Paolo, in former days you always pushed white certificates, now you are pushing feed-in tariffs!’ In line with the underlying research assumptions 148, the three schemes in Britain, France, and Italy were always discussed as the three examples of the 146

Cleary, additionality is everywhere a critical issue. It was, however, more openly discussed in the informal session. In the formal presentation, the WCIs were reported to be a success. Additionality was treated as a critical factor for the success of the scheme but believed to be under control through existing mechanisms in the three cases. 147 Another, less prominent, actor was Silvia Rezessy, also from DG JRC. 148 To remind the reader, the two guiding assumptions as set out in Chapter 1 are as follows:

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WCI. In every workshop these three schemes were compared, and – depending on the workshop – one or a few other similar schemes were discussed as well. More recently, the Danish scheme 149 was also taken up as an example of a WCI. While assuming similarities, the presentations pointed out the differences between the schemes. As the in-depth case studies show, the schemes make use of different mode of actions, deliver different kind of measures and target different end-use sectors. However, while the differences were clearly pointed out from the very beginning, the experts persisted in comparing the schemes. The most controversial points of the discussions were the significance of trading to (not) enhance cost-effectiveness, whether the policy instrument was to be employed as a climate policy instrument, and how many of the savings arose additionally to business as usual. The presentations on the national schemes all came to the conclusion that the policy instrument was a very successful scheme 150. The idea of a European scheme was not entirely dropped, and integration into the carbon market remained an issue that was repeatedly discussed at the conferences without any significant new insights. It is noteworthy that the policy architects and the practitioners of the national schemes do not belong to the ‘carbon offset community’. To them, this is a different reality they do not relate to. Similarities with the clean development mechanism or joint implementation are only very seldom spelled out, despite their comparatively high theoretical proximity. Finally, the presence of topics around the WCI at the ECEEE summer study showed that this new policy instrument was a well-established topic among the energy-efficiency expert community.

4.8 Concluding analysis Research on the WCI can be considered to be rather advanced. With insights from three international and European research projects, a growing body of eco‘The three schemes indeed share key characteristics that make them examples of a single instrument: the saving obligation, the involvement of energy companies as agents delivering energy efficiency projects, and the budget independence of the WCI as a financing tool for energy efficiency projects.’ ‘Promoting a hybrid scheme as one type of policy instrument to solve a range of pressing problems increases the political acceptability of political intervention. Uniting different schemes that are apparently successfully implemented in different EU Member States tells a success story to be followed by other EU states.’ 149 While having a longer history of incremental change, Denmark’s changes in 2010 prompted experts to consider the scheme as a WCI. 150 As the case studies show, companies indeed comply with the rules. However, the extent to which the savings are additional (tracing back to the WCI), the extent to which they serve the objective they are meant to serve, and whether they are the most appropriate policy solution remains rather unclear.

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nomic literature, and evaluation of practical experiences, a differentiated set of key issues around establishing this new policy instrument have been agreed: ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ

adjusting the target to the type and number of obliged actors adjusting the target to eligible actors and target sectors determining an administrative authority determining eligible measures and their respective baselines determining trading rules and possibly cost recovery determining enforcement rules including rules for measurement and verification, and sanctions acknowledging the importance of standardization and simplification to reducing administrative and transaction costs setting up provisions to take into account additionality of energy savings and distributional impacts of cost and benefits

4.8.1 Focal issues over time The development of knowledge is best be traced with reference to the results of the big research projects and the literature that has emerged over time. Economic research and practical application emerged in tandem. Accordingly, a strong interrelation between practical experience and advancement of theoretical knowledge can be observed. The development of knowledge among the core group of experts can be characterized as an incremental process rather than a revision of existing knowledge. This has implications for the image of the WCI. The core group of expert grew out of the European research projects, which had a similar starting point. The research questions were whether and how to harmonize white certificate schemes, to create an EU-wide scheme, or to integrate tradable white certificates into the carbon market. Thus, the projects were driven from a European perspective making use of insights from other emerging tradable permit schemes. At that time, some countries, such as the UK and Italy, already had experience of tradable green certificates. Parallel to the research projects, the European Emissions Trading Scheme took practical shape. In addition to these experiences, the research projects were based on the economic theory of tradable permit schemes. Thus, the WCI image can be placed in the discourses of tradable permit schemes for climate protection. The practical application of the WCI advanced during the time of the projects, which could therefore integrate practical insights. The researchers had already from 2004 been defining the key design issues of the WCI and picking out the most critical issues. However, the insights had to be increasingly refined

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as well. The results from White & Green (Oikonomou & Patel 2004) had already identified as critical issues transaction costs 151, the difficulty in estimating additionality, and the possible impact of the rebound effect. Therefore, simplification and standardization were recommended. These issues were given more and more attention to over time. However, trading itself was not yet much questioned. The researchers also did not challenge the overall cost effectiveness of the scheme. They also believed that a wide sectoral coverage was beneficial and that the scheme could also be designed to deliver innovation. The latter conclusions were much more critically discussed in the light of increasing practical experience. Thus, the core group of experts retained an image of the WCI image that reflected the logic of the theoretical advantages of tradable permit schemes while admitting that there were some limitations to this logic due to transaction costs and additionality requirements. The IEA DSM project on white certificates draws its 2006 conclusions mainly from empirical insights derived from Britain, France, and Italy. The report covers all key aspects in a rather detailed way, including the various purposes that WCIs potentially serve. Like the White & Green project, it highlights the importance of measurement, verification, and standardization. However, the report does not critically and systematically assess issues such as additionality. It only describes how additionality is treated within the respective rules of the three cases. Regarding trading, transfer of learning from TGC to white certificates is suggested. Trading is reported as the main design element to turn the obligation into a market-based scheme and thus enhance cost effectiveness. The WCI image in the discourse of tradable permit schemes for climate protection is reinforced. The research project with the most recent findings is EuroWhiteCert. It touches on similar issues to those in other reports but links the individual issues in a more comprehensive way. While proceeding from a tradable permit perspective, the research team acknowledges that the various transaction costs diminish the theoretical cost effectiveness of the scheme. Trade-offs are therefore believed to occur. The research consortium describes also the benefits of non-trading and the case- and country- specificity of the results. Therefore, harmonization is viewed sceptically while integration of white certificates into the carbon market is treated less sceptically; however, the project does not preclude possible benefits of a European scheme or harmonization across Europe of some elements. The project identifies the mandatory target to be key for the success of the scheme and thus the most important design element. Thus, the idea of cost effectiveness arising from flexibility provisions and trading has not been abandoned, 151

Note that the paper by Langniß and Praetorius first became available in 2004.

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even with growing insights challenging the superiority of the policy instrument in terms of cost effectiveness. The newly acquired knowledge can therefore be characterized as amended incrementally in an add-on manner. Most of the literature and workshops are more recent than the research projects. The research projects started their investigations with insights about tradable permit schemes and their possible transfer to end-use energy efficiency. The more recent literature also explicitly spells out the second origin of the WCI, namely demand-side management, and points out additional benefits of energyefficiency projects for society as well as for the delivering agent (Labanca & Perrels 2008; Mundaca et al. 2008; Bertoldi et al. 2010). This challenges the cost-effectiveness argument of the policy instrument, which was formerly believed to lie within certificate trading. The co-benefits of trading are associated with purposes other than the mere cost effectiveness of the scheme. Fuel poverty, for instance, may not be eradicated with a scheme covering a wide range of measures and target sectors. Also, there are additional benefits to the obliged actors in delivering the energy efficiency projects either alone or with close partners – it helps them to expand their portfolio into the energy services business and to strengthen customer bonds. Trading is, then, not the optimal choice for maximizing the benefits of the scheme. In contrast, the administrative and transaction costs of providing a flexible and open-ended scheme may be very high. While the policy instrument was initially linked to other tradable permit schemes or compared with the alternative instrument of taxation, more recently comparisons with other policy instruments have been made, especially by experts who do not belong to the core group of experts (Leprich & Schweiger 2007; Bürger & Wiegmann 2007; Irrek et al. 2008; Bertoldi et al. 2009). The debate is especially advanced in Germany. There, the establishment of an energy saving fund or a feed-in tariff scheme is discussed at an expert level as an alternative to a WCI. This reflects the ideological divide between advocates for pricebased mechanisms and advocates for quantity-based mechanisms (see also Bertoldi et al. 2009). To sum up, the literature on the WCI has become richer over time with experts other than those belonging to the core group challenging the alleged advantages of the WCI, especially its cost effectiveness. Accordingly, additionality and flexibility via trading have been most frequently challenged. However, the literature also paints a more differentiated picture not only of the costs but also of the (qualitative) benefits of the scheme (see especially Eyre et al. 2009). The argument challenging the cost efficiency of the scheme is thereby put into perspective. The development of knowledge among the core experts can be characterized as a consensual, incremental process rather than as a result of debate. This is

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important, since it has led the core group to integrate sometimes contradictory ideas and insights such as the role of trading for cost effectiveness on the one hand and the role of standardization and the limited scope of eligible measures on the other. In this way they defend the image of the WCI (in terms of cost effectiveness and success) while not denying its flaws or possible trade-offs. This can also be seen as an attempt to depoliticize the WCI image, which becomes apparent from comparing the core group’s perception of the policy instruments with the perception of those who do not belong to the core group and who advocate other policy instruments (such as energy saving fund, taxes, and feed-in tariffs). Yet the core group does not offer any solutions to persistent inconsistencies. The parallelism of theoretical analysis and WCIs emergence in practice reinforces this tendency as a result of considerable overlaps among actors. Those engaged in setting up a national WCI will tend to defend ‘their’ policy instrument also in the international or European context. This is further elaborated in the concluding Chapters 8 and 9, which also take into account the results of the case studies. What is also important to understand is that the core group of experts on the WCI does not belong to the community of experts on the carbon market. While the core group was at least initially driven by the idea of integrated carbon markets, or at least a harmonized EU WCI market, there was no link to this expert community. Thus, the idea of harmonized scheme was never a serious item on the European agenda. Participatory observation at various workshops on the WCI allows some additional conclusions to be drawn regarding the difference between the core group of experts’ image of the WCI and other experts’ image of it. Knowledge about the WCI over time has grown evenly among the core group of experts, in that the core experts take on board critical issues addressed especially by experts outside the core group while retaining their general image of the WCI image. In contrast, the discussions especially among mixed groups of experts reveal some major and persistent differences in understandings of the policy instrument. Apparently, individual framings of the policy instrument and the purposes it is believed to serve vary. Discussion about the WCI reveals that its purpose is a critical and nonconsensual issue. At least two views can be distinguished. First, the WCI is meant to deliver energy savings in a cost-effective way. Cost effectiveness through the mechanism (flexibility provisions; trading) became a purpose since it is discussed as a main criterion for preferring this policy instrument to others. Given the additional benefits associated with savings, estimating cost effectiveness turns out to be more complicated.

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Second, a group of experts see the WCI as a climate policy instrument, while others refuse to see it in the climate context. The inherent problem is similar to that with cost-effectiveness. Comprehending the WCI as a climate policy instrument opens the debate to the argument that the measure itself does not matter as long as it delivers CO2 savings. Here again, other purposes relating to additional benefits or co-benefits of energy efficiency projects might then be overlooked. While the written documents on white certificates have over time increasingly emphasized the various co-benefits of energy efficiency projects and the benefits of non-trading, the discussions in the conferences remain on a very general level. Apparently, different views about the nature and the purposes of the policy instrument seem to reflect an ideological divide. If, however, the additional benefits of specific energy-efficiency projects are considered to be important, the question arises of whether the WCI could help to stimulate or at least diffuse innovations. While this issue did not attract much attention in the first research projects, it turned out to be a major argument, especially among experts outside the core group, against the introduction of the WCI as opposed to other policy instruments. In this regard, the topic of the relative advantage or disadvantage of the WCI, energy saving funds, and feed-in tariffs has reached the agenda of debate. Since there has been much ideologically tinged debate about the best steering mechanism for renewable energy (Jacobs 2011: 5 ff.), transferring this debate to energy efficiency can be interpreted as the politicization of the WCI. In addition, controversies around placing the WCI in the climate context or promoting it as the most cost-effective policy solution for end-use energy savings reveal that attempts to depoliticize the WCI image have not really worked. Any piece of research on white certificate instruments comprises at least three practical applications – the British, the French, and the Italian energy saving obligation. All the examples are reported to be successful, creating an image of the WCI as a successful policy instrument. However, the schemes differ considerably. Experts increasingly point to the national particularities. There are differences in the architecture, starting with differing legal anchoring, administrative responsibility, obliged actors, cost-recovery mechanisms, sanction provisions and eligibility measures and target sectors, and finally differences in the trading mechanisms, with no certificate trading at all in Britain. The question of the common denominator to be counted as a WCI seems not to be important as long as the policy instrument appears to be innovative and successful enough. While the amount of literature and discussion about policy instruments has increased over time, countries that have not yet decided to implement such a scheme remain rather sceptical. The scepticism of the German researchers is only

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one example. At the ECEEE summer study it also became obvious that the experts outside the core group were more doubtful about the alleged benefits of the WCI; but their arguments were only partly taken up by the core group. The attempt of one of the major policy advocates – Paolo Bertoldi – to foster some sort of Europe-wide harmonization of, for example, measurement and verification tools, or to foster integration in the carbon market (despite increasing scepticism about comprehending the WCI as a climate policy instrument) via a voluntary mechanism can be interpreted in the light of the desire to create a European success story. Also, his latest attempt to promote an alternative instrument, namely, a feed-in tariff scheme (which from an ideological point of view is the opposite instrument to the saving obligation), reveals his motivation to act as a policy entrepreneur, as an agenda-setter in order to create a European success story.

4.8.2 Preliminary conclusions With reference once again to the guiding assumptions for the research process, a number of conclusions can be drawn. 1.

The three WCI schemes indeed share key characteristics which make the scheme a common scheme: the saving obligation, the involvement of energy companies as agents delivering energy efficiency projects, and the budgetary independence 152 of the WCI as a financing tool for energy efficiency projects.

While it is generally agreed that the three practical applications of the policy instrument under investigation share the mandatory saving obligation on energy companies, the experts’ emphasis on national particularities is increasing, so it stands to reason that the three empirical cases are rather different and the first guiding assumption cannot be retained without further elaboration. This is further examined in the case studies.

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Budgetary independence means that the WCI does not involve or affect the treasury.

4.8 Concluding analysis 2.

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The policy instrument is a hybrid scheme. Therefore, it is unnecessary to say that they unfold differently in practice. A hybrid scheme allows for the adaptation of the policy instrument to national circumstances, such as nationally pressing objectives, regulatory and ideational paths, or the specific composition of the actors with their distinct interest-based agendas.

While there are many theoretical arguments for characterizing the WCI as a hybrid scheme, policy actors do not clearly do so. Rather, they stick to the ideological divide between the quota (which they often refer to as market-based policy instrument) and other policy instruments such as feed-in tariffs, subsidies, or energy-saving funds. The role of trading can be regarded as a cornerstone of the WCI image. The experts frame the WCI in an add-on manner, accepting the importance of trading for enhancing cost-effectiveness but acknowledging that there are limits to the usefulness of flexibility (the importance of standardization, penalties, and so on). Therefore it stands to reason that the idea of trading was the starting point of the core expert group gradually adjusting their insights but not abandoning the initial image of what are often referred to as market-based instruments (MBIs). In that respect the third guiding assumption is supported: policy actors believe that WCIs are MBIs, whose cost-effectiveness operates through flexibility provisions such as trading. 3.

There are misunderstandings regarding the nature of the policy instrument and thus its key characteristics. Policy actors believe that WCIs are so-called market-based instruments, revealing their costeffectiveness through flexibility provisions such as trading. The schemes are believed to be united by this element.

Even though the literature about the WCI has become more differentiated over time, the core group of experts has not resolved certain misunderstandings or inconsistencies, even if experts outside the core group have challenged the costeffectiveness of the scheme. However, while the literature still takes up the criticisms to complete the picture of the WCI, participatory observation reveals that misunderstandings still persist among experts and much of the discussion at conferences and workshops is at cross purposes. The case studies shed further light on this guiding assumption as well.

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4 Research on WCIs 4.

Promoting a hybrid scheme as one type of policy instrument to solve a range of pressing problems increases the political acceptability of political intervention. Uniting different schemes that are apparently successfully implemented 153 in different EU Member States tells a success story to be followed by other EU states.

Despite depicting inconsistencies in WCI design choices, purposes, and discourses, and acknowledging the national rationales of the individual schemes, the core group of experts – and especially Paolo Bertoldi – continue to report the WCI as a success, grouping the practical applications under the heading of a distinct mechanism, which is often referred to as ‘energy saving obligations and white certificate schemes’. While this title is more complex than the bald term ‘white certificate instrument’, its conjunction of two terms still supports the idea that it refers to a single distinct mechanism that successfully achieves energy savings in end-use sectors. There are thus many arguments that support the fourth guiding assumption.

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Successful implementation does not by itself mean that the scheme is effective.

5 France

5.1 The French energy structure France has no significant fossil fuel resources. In order to meet French energy demand and reduce its dependence on energy imports, the French government, responding to the energy crisis in the 1970s, decided that large, centralized, stateowned nuclear power plants (the first of which – Chinon-A1 – had been connected to the grid in France in 1963 under the then President, Charles de Gaulle,) 154 would be the most effective response to rising energy demand (Hadjilambrinos 2000: 1115). Following the Programme Électronucléaire of 1974, nuclear electricity production has increased from 15 TWh in 1973 to 439 TWh in 2007 (Eurostat 2009b; MEEDDAT 2008a). With the help of 63,260 MW 155 installed nuclear capacity in 2007, energy dependency was kept relatively stable, fluctuating around 50 per cent 156 since the turn of the 21st century (Eurostat 2009a). France’s dependence on petroleum and gas imports is close to 100 per cent (Eurostat 2009b). Figure 6 shows the typical demand profile of an industrialized country. It illustrates that final energy demand has been rather stable in recent years, with a growth trend especially in the transport sector, whereas the industry sector’s consumption has been falling slightly. While the household sector’s energy consumption had been increasing since 1997, this trend was reversed after 2005. A range of possible factors, such as increasing energy prices, may help to explain this trend.

154 The data has been taken from the IAEA Power Reactor Information System (PRIS), http://www.iaea.org/programmes/a2/, accessed 27 April 2011. 155 To set the number into perspective, in 2007 Germany, the second largest producer of nuclear electricity in Europe, had an installed nuclear capacity of 20,208 MW (Eurostat 2009b). 156 +/– 1.5 percentage point.

D. S. Steuwer, Energy Efficiency Governance, DOI 10.1007/978-3-658-00681-5_5, © Springer Fachmedien Wiesbaden 2013

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60000

in 1000 toe

50000

Household

40000

Industry

30000

Transport

20000

Agriculture

10000

Services Others 2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

0

Figure 6: Final energy demand in 1000 toe, 1996–2007 (Source: Eurostat 2009f) Overall energy intensity has decreased continuously since 2000 in France, with improvements especially in the industry sector. However, considerable potential remains to be tapped, and has been addressed by French energy policy initiatives. Two main frameworks determine French energy policy 157: the energy framework law of 2005, Loi no 2005-781 du 13 juillet 2005 de programme fixant les orientations de la politique énergétique (loi POPE) (French Authorities 2005) and the perennial programmes for investment in the energy sector. Separate plans are reported to the parliament for electricity, heat and gas, namely, the multi-year energy investments for electricity and heat (Programmations pluriannuelles des investissements, PPI) and the indicative investment plans for gas (Plan Indicatif Pluriannuel des Investissements, PIP) (MINEFI 2006a, 2006b). These plans were launched in 2006, shortly after the loi POPE was adopted, referring partly to scenarios before the loi POPE and partly to objectives, road maps, and concrete measures already embedded in the framework law. They reflect the government’s intentions and are therefore a valuable reference when analysing the introduction of a policy instrument at that time. The multi-year plans were updated and rewritten in 2009 (MEEDDM 2009a, 2009b). The changes mainly reflect the focus of the new legal reference framework of the

157

These documents were relevant at the time of the agenda-setting of the WCI.

5.1 The French energy structure

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Grenelle de l’Environnement 158 on climate and environmental protection. In the following sections, the significance of the multi-year investment plans will be explicated.

5.1.1 Energy savings in the 2006 investment plans The PPI 2006 (MINEFI 2006a) emphasizes the importance of energy savings. It highlights in particular that electricity savings would be achieved not solely in order to protect the climate but also to economize on uranium resources and to minimize nuclear waste. 159 The PPI sets out the necessary investments by the French government in energy infrastructure and capacity160. New investments will target not only new capacity; energy-saving efforts are expected to have an effect on demand as well. In the plan different energy demand scenarios are discussed with varying expectations about future energy intensity rates. The recommendations are based neither on the most optimistic scenario nor on the scenario that would correspond to the goals of the loi POPE, but on the most conservative figures that do not assume any major effects from energy savings. In order to avoid the risk of running into a power gap 161, it was decided to take the most conservative energy saving assumption scenario as the basis for the investment recommendations. It is explicitly stated that the more ambitious scenarios for energy savings mark a historic rupture that forms too risky a basis for the PPI. 162 Thus, while the PPI generally emphasizes the role of energy savings and strongly encourages an increase in saving efforts, it also gives reason to question the seriousness of existing efforts. 158 Grenelle Environnement is a political forum under the leadership of the environmental ministry, where long-term measures promoting sustainable development are decided. 159 ’Cependant, la limitation des émissions de gaz à effet de serre n’est pas le seul objectif : on peut également citer les objectifs visant à ne pas épuiser trop vite les réserves d’uranium, à limiter le volume de déchets nucléaires et à limiter la pollution atmosphérique’ (MINEFI 2006a: 30). 160 The PPI has not only a prospective character. If investments are not occurring in accordance with the plan, the government may launch tendering procedures in order to incentivize the investments. The plan has an indicative rather than a prescriptive character. 161 The PPI pointed to the difference between the energy demand figures adjusted to take into account climatic conditions and the unadjusted gross demand for energy. This difference was too big to be reliably covered by energy saving effects alone. 162 ‘Conformément à la loi de programme fixant les orientations de la politique énergétique, tous les scénarios de demande électrique étudiés comportent des actions de maîtrise de la consommation. Bien que le scénario le plus bas du bilan prévisionnel de RTE soit souhaitable au regard des objectifs en matière d’économie d’énergie, la PPI 2006 ne retient pas ce scénario. Celui-ci marque en effet une rupture par rapport à l’historique qui est apparue comme trop importante pour constituer la base de calcul dimensionnant les investissements en moyens de production” (MINEFI 2006a: 5).

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The PIP 2006 (MINEFI 2006b) emphasizes the role of energy savings in security of supply, though not as much as the PPI. While in the electricity context energy savings are always mentioned upfront, in the PIP they appear only in subsections. Whereas the PPI dedicates a whole paragraph to the newly established French WCI, the PIP only briefly mentions the accumulated savings supposedly achieved by the existing policy instruments: ‘Taking into account energy saving certificates and thermal standards – the new thermal regulation RT 2005 will enter into force in the second half of 2006 – leads to annual average reductions of specific consumption of 0.7% in the residential sector and 0.4% in the services sector’ (MINEFI 2006b: 35) 163.

5.1.2 Energy savings in the 2009 investment plans Energy savings play an important role in the scenario that is actually pursued by the new law of the Grenelle de l’environnement, which at the time of writing is in the adoption process. The priority of energy savings 164 is particularly emphasized for the existing building stock (demand reduction of 38 per cent) and will be achieved in the transport sector by a market transition to electric vehicles. In addition, the expected increases in gas demand are to be entirely offset by savings, thus stabilizing gas demand in the time horizon until 2020. Further, the PPI 2009 (MEEDDAT 2008a) spells out the share of renewable energies in the future energy mixture in France. In total, 23 per cent of energy demand will be met by renewable energy sources in 2020, as fixed by the renewable energy directive 2009/28/EC of the European Union (European Parliament & Council of the European Union 2009). In view of the slow development of renewable energy production in France, these targets are considered to be rather ambitious. According to these plans, nuclear energy will remain the main pillar of French electricity production and supply. The average age of nuclear plants in operation was 22 years in 2009. The PPI 2009 sets out the strategy to prolong the operation of the plants beyond a 40-year lifetime under the assumption that safety requirements can be met. In addition, two advanced pressurized water reactors of the so-called Generation III+ under construction, initially intended to start operating in 2012, are now expected to do so in 2014 (Flamanville) and 2017 (Penly) (EDF 2010, 2011). However, given experience with the develop163

Own translation of ‘La prise en compte des certificats d’économie d’énergie et des réglementations thermiques – la nouvelle réglementation thermique (RT 2005) entrera en vigueur au second semestre 2006 – conduisent à des baisses des consommations unitaires de 0,7 % par an dans le résidentiel et de 0,4 % par an dans le tertiaire en moyenne’. 164 ‘[P]rimauté de la maîtrise de la demande en énergie.’

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ment of nuclear capacity over time, this is an uncertain prognosis as the average age of nuclear power plants in use is less than 30 years and there is hardly any experience with plants older than 40 years (IAEA in Matthes & KallenbachHerbert 2006: 9). Up to 2005, 110 generating units had been shut down, only ten of which were older than 40 years. These ten units were smaller British nuclear power plants (Matthes & Kallenbach-Herbert 2006: 8f). Thus, it seems to be necessary to increase expenditures to maintain the nuclear power plants in France for the coming decades. Current statistics provided by Eurostat also show a negative net balance of installed capacity in France. Since 2004, the installed capacity in France has declined by about 1,558 MW 165, so that France is the only big European Member State to have experienced a negative change of installed capacity Goerten & Clement 2007a: 4). Still, France remains the most important exporter of electricity in Europe, with almost 57 TWh of net electricity exports in 2007 (Goerten & Clement 2007a: 5; Eurostat 2009b). The PIP 2009 (MEEDDM 2009a) for the gas sector does not place as much emphasis on energy savings as the PPI 2009. This is revealed by the structure of the text as well as by the language: ‘La primauté de la maîtrise de la demande en énergie’ (MEEDDAT 2008a: 12) versus ‘Les économies d’énergie et la protection de l’environnement, en particulier la maîtrise des emissions de gaz à effet de serre (GES), constituent désormais un des piliers de la politique énergétique européenne et française’ (MEEDDM 2009b: 19, emphasis added). To summarize, greater importance has been attached to the energy efficiency of electricity than to that of gas. Electricity is generated mainly by nuclear capacity. Since the nuclear power plants are growing older, energy savings through energy efficiency have become one of France’s strategies to meet future demand. However, at the time the white certificate scheme was adopted, statements and scenarios in the PPI 2006 urged careful consideration of the potential of the efforts to save energy to significantly reduce demand.

5.1.3 Slowly liberalizing energy markets Another important feature of the French energy structure is the dominance of the incumbents and France’s stance towards the liberalization of energy markets. The French government was the strongest opponent of European reforms liberalizing energy markets. As a consequence, French markets are only slowly opening for competition, with the main incumbents, Électricité de France (EDF) and Gaz de France Suez (GDF Suez), owning major market shares. Despite some 165

In 2007 there was a slight increase in installed capacity amounting to 116,284 MW (Eurostat 2009b).

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privatization efforts, EDF is still 84.4 per cent state-owned 166. After the merger of Gaz de France with Suez in 2008, the French state remained the major shareholder with 35.7 per cent 167. During the analysis it turned out that the liberalization process had a major influence on the setting up of the white certificate scheme. It is therefore addressed in more detail in subsection 5.3.1. To summarize, from the particularities of the French energy market one would expect two factors to play a dominant role in energy efficiency policy: the need for security of energy supply in the light of an ageing nuclear investment resulting in a decreasing net capacity, and the slowly liberalizing energy markets. However, the investment plans give ambivalent signals as to how seriously energy efficiency effects are expected to contribute to security of energy supply. As shown further below, the argument from ageing nuclear power plant has been cited to justify setting up the WCI. However, it somehow almost disappeared during the process.

5.2 History of White Certificate Instruments in France This section deals with the WCI in France, the most important design choices and design changes over time. It draws not on policymakers’ perceptions as revealed during interviews and participatory observation, but rather on a mixture of materials. On the one hand, it analyses government documents (primary and secondary legislation, information from governmental actors including first evaluations and regular publications on the scheme) as well as material written by other actors such as a detailed brochure 168 on the French WCI provided by the Association Technique Energie Environnement (ATEE). 169 Since the political process and the policy instrument in France have neither existed as long as the British equivalents nor been analysed as extensively at the time of writing, this case study draws also on insights provided by interviews with experts. However, 166

http://www.boursier.com/vals/FR/FR0010242511-profil-edf.html, accessed 2 July 2011 http://www.boursier.com/vals/FR/FR0010208488-information-gdf+suez.html, accessed 2 July 2011 168 This brochure is a manual with an introduction on the main features of the policy instrument. It compiles all the main legal documents (passages in the law, decrees and orders) and sets out in detail the first measures that have been approved as eligible under the scheme. 169 ATEE comprises all economic actors in the field of energy and environment, that is, representatives of small and big companies (energy suppliers, manufacturers, and so on), energy service companies, public entities, and universities. However, according to emailed information from LouisGaetan Giraudet, public entities and universities play a minor role in the association. ATEE, and later the accordingly created suborganisation Club C2E, were significantly involved in defining eligible measures and their baselines. 167

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these insights are used as sources of information on the process without revealing the interviewees’ individual viewpoints. The first period of the French WCI began on 1 July 2006 and ended on 30 June 2009. After a transition period, the second period started only in January 2011. Since changes occurred mainly during the writing process, the underlying analysis will focus mainly on the political process of the first commitment period. However, a brief chapter on the ongoing political process and decisions highlights issues that (re-)entered the agenda, as well as the main changes.

5.2.1 Existing measures in end-use energy efficiency The WCI is listed in the French national energy efficiency action plan (NEEAP). The NEEAP can be seen as an indicator of the regulatory tradition in the field of energy efficiency policy. The plan classifies the policies into three categories: regulation, tax measures, and ‘other market-based instruments and state aid’ 170. The French government first handed in a draft NEEAP to the EU Commission in 2007. The final version (French Authorities 2008), 171 submitted in 2008, contains certain changes that affect the presentation of the WCI, and emphasizes the outstanding role of the WCI by mentioning it in several sections. Before setting out concrete measures, the French NEEAP gives an overview of ongoing legal processes regarding energy efficiency policies, energy demand projections, and methods of verifying energy savings. There, it is explained that the typical French method in France is a top-down account of savings that aggregates basic statistical information from sources like inquiries on energy consumption in the different sectors combined with indicators such as those of industrial production. The following quotation shows clearly that with the implementation of the WCI the French authorities were breaking new ground in the calculation of energy savings: ‘France favours the “top-down” method; it recently used the “bottom-up” method for implementation of energy savings certificates’ (French Authorities 2008: 12). The majority of measures come under the heading of regulation, including energy performance assessment for new and existing buildings, thermal regulations for new constructions (RT 2005), high energy performance labels for new 170 In addition, the plan contains short paragraphs on the role of the public service sector, resting on the regulatory level of ‘circulaire’ and ‘plans’ and the development of guidelines for public procurement. Finally, the French NEEAP concludes with short sections on the role of research and development and on campaigns to sensitize the general public about climate change (French Authorities 2008). 171 Unless otherwise indicated, references are to this final version of 2008

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construction, and requirements for the renovation of buildings with high energysaving potential. Most of the regulations target the residential and tertiary sectors; very few target industry (minimum boiler efficiency and periodic combustion plant inspections and standardization projects) or the transport sector (compulsory CO2-emission labels for private cars). It has to be said that some of the regulations mainly transpose EU regulation into national law. In addition, every advertisement by a company selling energy or energy services has to include the message: ‘L’énergie est notre avenir, économisons-la!’ 172 – The only crosssectoral regulation listed in the plan. Tax measures make up the second building block of energy efficiency measures in France. Most important are the tax credits for energy-efficient equipment and the reduction in VAT for heating networks. The Climate Plans 173 introduced tax credits for energy-efficient products with rates ranging from 15 per cent to 50 per cent of investment costs. The scheme grew until 2008, when 1.6 million households benefited from a total of €2.8 billion (Clerc et al. 2010). As shown later in the analysis, there is an overlap in incentives: measures that are eligible under the WCI are also eligible for tax credits (such as double glazing, insulation, efficient boilers, or heat pumps), which weakens policy additionality. This is addressed in a section below. Despite some regulations, the transport sector is predominantly addressed by tax measures mainly consisting of an extra tax on vehicles exceeding CO2 emissions of 200g/km and tax credits for the purchase of vehicles fuelled by electricity, natural gas, or liquefied petroleum gas. No single instrument receives as much attention in the plan as the WCI. A whole paragraph – the longest paragraph on a single measure – introduces the policy instrument as a measure that, unlike those in the first two categories, is based on the establishment of a market. It provides information about the ‘new’ bottom-up calculation method employed by the WCI. In addition, the WCI is mentioned specifically in the section on national energy efficiency targets. The plan first refers to general targets mentioned in the loi POPE. It then explains the energy-intensity target and finally dedicates a whole section to the separate energy efficiency target under the WCI. Three other instruments are mentioned in the section: a separate domestic offset programme to reduce CO2 emissions, the sustainable development account, and state aids through special budgets for Agence de l’Environnement et de la Maîtrise de l’Energie (ADEME), the French energy and environmental agency, to be distributed also by local and regional authorities. 172 173

‘Energy is our future – don’t waste it!’, as it appears in the English version of the French NEEAP. ‘Plan Climat’

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To summarize, the NEEAP’s snapshot of policy instruments for energy efficiency in France reveals the predominance of tax incentives (tax credits, tax reductions and surtaxes) and regulation in France. The WCI is categorized separately from these policy instruments and can thus be regarded as an instrument that lies outside the regulatory tradition in France in the field of end-use energy efficiency. This is supported by the separate listing of the WCI in other sections (calculation methods and national target) since the target itself (54TWh in a three-year 174 period covered by more than 2,000 suppliers) is not very ambitious and will not deliver the bulk of energy savings in France.

5.2.2 First period Agenda-setting: Choosing a market-based policy instrument According to an interviewed expert, the idea of introducing a WCI in France originated with François Moisan, director of the strategy and communication unit of ADEME. Moisan presented the idea in a meeting with the Department of Energy of Climate (former DGEMP, now DGEC) 175, where the idea was further developed and accordingly took shape. ADEME wrote a memorandum to introduce the system and organized meetings with British experts to report on the British Energy Efficiency Commitment. The Economics Ministry became interested in the idea and started to negotiate with suppliers, whose acceptance was said to be a precondition for moving on with the scheme. The establishment of the general framework for French national energy policy (loi POPE) on 13 July 2005 laid the legal foundations for the implementation of a tradable white certificates scheme in France (French Authorities 2005). The content of the law with regard to the white certificates scheme was basically fixed by staff from the DGEMP taking into account consultations and negotiations with industries, ATEE and ADEME. The introduction of the WCI was also discussed at length in the National Assembly and in Senate committees, and changed accordingly (Poignant & Revol 2005). The changes affected a few fundamental elements of the new instrument but mostly consisted of editorial modifications.

174 The target was raised significantly in the second commitment period. This was not clear though when the French government was drafting the NEEAP in the end of 2007/ beginning 2008. 175 The department was called Direction Générale de l’Énergie et des Matières Premières (DGEMP) under the lead management of the Economics Ministry, Ministère de l’Économie, des Finances et de l’Industrie (MINEFI). Since 2007 it has been under the lead management of two ministries: the Ministry of Economy, Finance and Industry and the Environmental Ministry, Ministère de l’Écologie, du Développement Durable, Transport, and Logement (formerly MEEDDM and MEEDDAT). It was renamed Direction Générale de l’Énergie et du Climat (DGEC).

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A detailed examination of the minutes and reports of parliamentary and Senate debates reveal a more detailed picture of the critical discussions. Here, the policy instrument was basically promoted as a marked-based policy instrument in line with other European approaches to tackling climate change. On a very general level, the debate in both chambers was largely an ideological one about the perceived neoliberal spirit of the new policy instrument. Phrases like ’Market, that’s freedom’ 176 were repeatedly utilized in the readings of the French National Assembly, mainly by representatives of the Union pour un Movement Populaire (UMP). Also, the senate discussions were characterized by rather ideological claims. Referring to its application in the United Kingdom, its advocates pointed out the instrument’s compatibility with liberalized energy markets (Poignant 2005). It was promoted as a policy instrument suiting the Zeitgeist of European policymaking – something that France urgently needed to show as a country well-known for its non-liberalized energy markets. Nicolas Sarkozy expressed the necessity for an intervention in order to prepare France’s ‘national champions’ EDF and GDF Suez for the opening of European energy markets in 2004 177. Patrick Devedjian, at that time state secretary for industry, expressed his understanding of the new policy instrument in the Senate discussions as follows: What is the purpose of this mechanism? It is a question of achieving reductions in CO2 emissions. To this end, quotas are fixed in order to achieve, each year, a fixed reduction of these emissions. (…) The origin of that reduction in CO2 emissions in the stratosphere has no importance for the greenhouse effect! What is of importance, however, is that there are fewer emissions and that this reduction should be respected. (…) Thanks to the market, we realize this equality since the market is an instrument of equality. 178

While the minutes reveal the ideological dimension of the debate, including the connection with liberalized energy markets as well as climate policy and carbon 176 ’Le marché, c’est la liberté!’, spoken by the delegated ministry of industry during the second reading of the law in the general assembly on 29 March 2005 (Assemblée Nationale 2005). 177 Sarkozy was Minister for Economy, Finance and Industry at that time; General Assembly Reading of 18 Mai 2004 of the ‘loi POPE’ (Assemblée Nationale 2004). 178 ’Quel est le but de cette disposition ? Il s'agit d'obtenir une réduction des émissions de CO2. A cette fin, des quotas sont fixés afin d'obtenir, chaque année, une réduction déterminée de ces émissions. (…) L'origine de cette réduction d'émissions de CO2 dans la stratosphère n'a aucune importance pour l'effet de serre ! Ce qui est important en revanche, c'est qu'il y ait moins d'émissions et que ce quantum du moins soit respecté. (…) Grâce au marché, nous réalisons cette égalité, car le marché est un instrument de l'égalité.’ (Patrick Devedjian, then delegate minister for industry and member of the UMP, during the Senate debate on the ‘project de loi d’orientation sur l’énergie’, Article 2, 10 June 2004 (Sénat 2004).

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emissions reduction, interviews revealed that – at least in retrospect – ADEME and the ministry had their own agenda. For ADEME, the scheme was expected to reach the widespread energy efficiency potential in the residential sector; for the ministry, the scheme was an opportunity to reduce electricity, thus postponing investment in nuclear facilities (see also section 5.3).

5.2.2.1 Design choices: regulating the details When the framework law was adopted, only the basic components of the scheme were outlined, and the next steps were delegated to secondary legislation. However, as a result of the readings of the loi POPE in the National Assembly and the Senate, some design choices have already been made. The original idea was to let retailers of, for example, electric appliances, such as DARTY, participate in the scheme by allowing them to run their own saving programmes. This was not approved in the political process. Rather, two conditions were imposed for the eligibility of third actors: they could make no profits in implementing energy-saving programmes, and energy savings should not be their main business. Further, it was specified that local authorities were eligible under the scheme. The uptake of fuel switching from a non-renewable source to a heating system making use of renewable energy as an eligible action was included in the primary legislation after the readings – the most concrete detail of the scheme. ADEME and ATEE were especially involved in determining the exact targets and creating the list of eligible, standardized measures – a process that turned out to be longer than expected and involved some dissent over detailed technical procedures to determine the savings. The loi POPE is the general framework for the national energy policy and in its first part presents the national energy strategy (‘stratégie énergétique nationale’). Part of the energy strategy is to restrain national energy demand: ‘Maîtriser la demande d´énergie’ is among the targets, though it is seen as the first ‘axis’ of national energy policy. This piece of legislation enshrines as an objective a reduction of energy intensity 179 of two per cent annually until 2015, and of 2.5 per cent from 2015 to 2030. Other targets of the loi POPE include the diversification of energy sources, the development of research activities in the field of energy, and the provision of means to transport and store energy. The second article of the national energy strategy explains in greater detail minimizing health impacts as well as environmental pollution. France aims to reduce its greenhouse gas emissions by three per cent a year and supports the international 179

‘intensité énergétique finale’.

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goal of halving greenhouse gas emissions worldwide by 2050 (French Authorities 2005). Under the Act, in reducing energy demand voluntary agreements and market-based instruments are to be preferred. Still, the Act is largely silent on the establishment of measures in practice. Its most tangible initiative is setting up a WCI 180. The operation modes and rules of this new policy instrument, the socalled certificats d´économie d´énergie, are set out in Articles 13–17 of Act 2005-781 as well as in secondary legislation. Legal entities that sell electricity, natural gas, heating, or cooling to the final energy consumer and that annually exceed a certain amount of supplied energy, as well as natural physical persons or legal entities selling heating oil to domestic end-consumers, are obliged to save energy. To meet their obligations, they may, directly or indirectly, save energy or buy tradable white certificates 181. Secondary legislation determines the overall compulsory target and distributes it among individual actors. Over a period of three years (1 July 2006–30 June 2009) the actors had to generate certificates documenting energy savings of 54 TWh. The unit of the certificates is the kilowatt hour (kWh) cumac 182 – it is thus counted in final energy units. The target is decided by a decree of the Conseil d’État 183 and then distributed among the actors according to their market share 184. The sectoral targets for the first compliance period are displayed in Table 2.

180 In addition to the general framework law, tax credits (crédit d’impôts) were introduced via financial laws in 2005, 2006, and 2009. 181 ‘certificats d'économies d'énergie’ 182 Energy savings are counted in ‘kWh cumac’, which means that the energy savings documented by certificates take into account the savings accumulated throughout the lifetime of a measure, including an update of the savings due to aging technologies by applying a discount factor of four percent (MINEFI 2006d) 183 The ‘décrets’ are decided by the government and do not require parliamentary resolution. 184 The division of the target and its distribution among the actors is fixed per ‘arrêté’ and is thus decided upon within the ministerial administration and not by governmental resolution (Arrêté ‘répartition de l’obligation par énergie’ du 26 septembre 2006) (MINEFI 2006f).

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Table 2: Energy saving targets by sector, 2006–2009 Energy source

Total target in kWh

Percentage of global target (rounded values)

Electricity

30,997,466,117

57

Natural gas

13,939,395,360

26

Domestic fuel

6,842,301,575

13

LNG

1,531,130,288

3

689,706,660

1

Heating/ Cooling All energy sources

54,000,000,000

100

Source: MINEFI 2006f; Authors calculations There is a minimal threshold for the companies indicating their liability under the scheme. The threshold values of energy sales that a company has to achieve at least to receive a compulsory target under the decree (MINEFI 2006c)185 are as follows: ƒ ƒ ƒ ƒ

Electricity: 400 GWh per year of final energy Natural gas: 400 GWh calorific value per year of final energy Liquefied natural gas: 100 GWh calorific value per year of final energy Heating and cooling: 400 GWh per year of final energy

There is no threshold for domestic fuel suppliers. Each supplier has to participate in the scheme. To comply with their obligations, these actors are permitted to regroup themselves to collectively realize energy-efficiency improvement projects or to acquire tradable white certificates. The certificates are calendared in a national registry. In principle, every legal entity is allowed to open an account in the national registry. The regional services of the Ministry of Economy, Finance and Industry (MINEFI), Directions Régionales de l’Industrie, de la Recherché et de l’Environnement (DRIRE), are responsible for verifying the energy savings claimed and distributing the certificates accordingly. They are given three months to issue certificates for standardized operations 186 and six months for special operations 187. The regional services are expected to seek advice at the

185

Décret 2006-600 du 23 mai 2006 relatif aux obligations d’économies d’énergie. Opérations standardisées. 187 Opérations spécifiques. 186

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regional offices of ADEME and the Direction de la Demande et des Marchés Énergétiques (DIDEME) 188 of MINEFI. The actors have until 30 June each year to declare the annual amounts of energy sales (type of energy, expressed in units of end-use energy), broken down into sectors (private households, commerce, hotel and catering industry). The replacement of a non-renewable heating system by a renewable energy facility in a building is generally eligible for the generation of TWC, whereas the mere replacement by another non-renewable system is not eligible. Energy savings from measures under the European Emissions Trading Scheme (L 229-5 of the environmental code) and energy savings respecting only regulation already in place are also not eligible for certification. Standardized measures. Article 14 of the loi POPE sets out three possible ways for obliged and eligible actors to acquire certificates (French Authorities 2005). First, obliged parties can implement measures either on their own sites (buildings and installations) 189 or directly at their clients’ places, for example by running programmes that financially subsidize equipment to save energy. A total of five orders adopted throughout the first commitment period establish a list of standardized measures, 190 with associated savings. This catalogue of measures represents the range of strategic choices available to the obliged actors to fulfil their commitment. To each of these (initially) 93 standardized measures, a fixed value of energy savings is ascribed by default with reference to a product’s or a service’s performance baseline. For instance, in the case of the performance of thermal insulation or of a building’s thermal equipment, the reference point is the general performance of the existing building stock and the general level of material and equipment quality. The catalogue of standardized measures addresses different target sectors. Most of the measures are listed for residential and other buildings in the service sector (72). In addition, nine measures are envisaged for the industry sector, eight for the improvement of grids and four targeting the transport sector. These measures cover insulation, the energyrelated improvement of heating systems (change of boilers, heat pumps, solar thermal heating, utilization of biomass in residential heating systems, ventilation 188 DIDEME ceased to exist as a result of the reshuffling of the energy and climate responsibilities among the ministries in 2007. 189 It is important to note that improvement only of those installations that are not eligible under the EU ETS may count towards the target. 190 Arrêté ‘opérations standardisées d’économies d’énergie’ du 19 juin 2006 (MINEFI 2006e) and Arrêté ‘opérations standardisées d’économies d’énergie’ du 19 décembre 2006 (MINEFI 2006g), Arrêté du 22 novembre 2007 définissant les opérations standardisées d’économies d’énergie (MEDAD 2007b), arrêté du 21 juillet 2008 définissant les opérations standardisées d’économies d’énergie (MEEDDAT 2008b) and arrêté du 23 janvier 2009 définissant les opérations standardisées d’économies d’énergie (MEEDDAT 2009d).

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systems), energy-efficient lighting (especially in the services sector) and appliances 191. The first list of standardized operations includes the pilot project of an educational measure for business managers, employees, and manufacturers. Savings were counted as educational costs divided by a default value of 2€ct/kWh for the additional savings. Measures in the industry sector comprise mainly lighting systems and efficient motors. Measures improving grid insulation and the production of renewable heat fed into the grid are eligible for generating TWCs. In the transport sector, two measures target public transport staff, training them to utilize their vehicles economically. Additional orders. During the first commitment period, three new orders 192 were agreed upon, modifying in total 39 updates of existing measures. A total of 89 new measures were added to the catalogue of measures, to each of which were attached detailed conditions for application and calculation of energy savings. At the end of the first commitment period in June 2009, there were 180 standardized operations from which the eligible actors could choose their actions 193. The number of measures is large for several reasons. France has several climatic zones, especially reflecting the several overseas islands and territories (départements d'outre-mer and territoires d'outre-mer or DOM-TOM). These regions differ not only in terms of climatic conditions but also in terms of the existing building stock and energy-using products and appliances. Since the regions are also targeted by the WCI, some additional measures and baselines implemented. Further, the French scheme distinguishes every measure according not only to climatic zone but also to the target sector. Every specific application is counted as a single measure and is again differentiated and adapted to the special circumstances. While some measures are similar (for example, heat pumps or certain insulation measures for the residential sector and for the tertiary sector), the savings are calculated differently since the integration in buildings’ energy systems varies 194. This results, for example, in different expected lifetimes of the same type of heat pump: 16 years in the residential sector and 20 191 The eligibility of electric appliances has been much more limited than that of heating measures. For the residential sector, only A+ refrigeration systems were eligible. 192 In addition to the first two orders before the scheme started, the following three orders have been established, making a total of five: Arrêtés définissant les operations standardisées du 22 novembre 2007(MEDAD 2007b), 21 julliet 2008 (MEEDDAT 2008b), and 23 janvier 2009 (MEEDDAT 2009d). 193 On 7 April 2011 Louis-Gaetan Giraudet indicated in an email that there are more than 200 standardized measures. 194 One differentiating feature determining the energy system is the building size. Huge office buildings and a special user profile have different energy requirements from those of residential buildings.

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years in the tertiary sector. Accordingly, the resulting savings differ and the measure appears twice on the list of standardized operations. Newly added measures in the industry sector include traction engines, climatized computers, and standby cut-off switches. While most of the measures are technical energy-efficiency improvements, there are some exceptions within the scheme. First, the employment of renewable energy is eligible under the scheme. This relates to solar thermal heating systems as well as heating with biomass and wood. With the new ordinances, micro-CHP 195 systems are also eligible under the scheme despite being a generation technology. Second, there are some additional pilot projects. One concerns accompanying system engineering for enterprises and manufacturers that aim to carry out energy-related improvements of the building stock. It mainly involves the creation of technical documents to guide planners and installers. This special measure has been implemented with special reference to the Grenelle de l’environnement. A pilot committee has been set up to determine a list of necessary documents. The other new measure is car-sharing from work to home and vice versa, and thus goes beyond technical-efficiency improvement to target behavioural change. Actors claiming savings have to hand a standardized dossier. Among other things, the energy-saving actions have to be described and the associated savings listed according to the references determined in the respective orders. The savings do not have to be approved ex ante; savings can be claimed only ex post. Non-standardized measures. The second way to generate certificates is to make use of measures others than those listed as standardized measures. Energyefficiency improvements or energy-saving measures that are not standardized may be eligible for TWC only if the energy savings offset the investment costs after a maximum of three years. When claiming the savings through their dossiers, actors have to present their savings estimates and the methods by which they have calculated them. The general rule validating the savings for these nonstandardized measures is analogous to the validation of standardized measures: a reference baseline is set reflecting the state of the technology and state of the market for the product or service. Wherever possible, estimates and baselines derived from standardized measures are to be taken into account. If this is not possible, regional offices of ADEME must give their opinion; DIDEME is to be informed and DRIRE accordingly takes a decision. If further expertise is needed, the additional costs have to be borne by the actor demanding the savings. Buying certificates. A third way to acquire certificates is to use their character as tradable commodities and buy them from other obliged or eligible parties that possess excess certificates. Article 15 of the loi POPE (French Authori195

Only small micro-CHP installations not covered by the EU ETS or feed-in tariffs are eligible.

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ties 2005) allows for third actors to generate white certificates and sell them to suppliers on the condition that carrying out these energy saving projects is not part of their usual business and does not directly increase the actors’ profits 196. A third actor has to give prove in his dossier that he meets this condition. These conditions exclude energy service companies (ESCOs) as well as retailers of electric appliances, since it is these actors’ business to sell energy services and energy-efficient appliances. They are expected not to have any incentive to make the savings other than to make profits. Local authorities such as municipalities or regional departments are exempted from this rule; all threes actors’ efforts to save energy are eligible to create white certificates. In other words, only third actors (other than public authorities) have to give prove of the additionality of their action. Obliged actors do not have to prove additionality since promoting energy savings is considered to conflict with their core business of selling energy. However, some additionality criteria are reflected in the baselines in that the measures have to be meet higher standards than those of the legally fixed product. To claim certificates, energy savings of at least 1 GWh cumac have to be achieved, which is again spelt out in detail in secondary legislation 197. A national registry has been set up. Trading is allowed only bilaterally; it takes place on the ‘Emmy’ trading platform 198. White certificates have to be submitted for the first time one year after publication of the Act. The state will publish a triennial report about the ongoing WCI and evaluate the transaction that took place in the respective period. Penalties to be paid to the treasury after expiration may amount to 2 €ct per kWh. If the liable actor is not able to prove its inability to buy the missing certificates on the market, the penalty may be doubled 199. For each semester’s delay of payment, the penalty may be increased by ten per cent. Fraud (and attempted fraud) in terms of unauthorized acquisition of white certificates are forbidden. In

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To establish whether carrying out energy efficiency measures is part of an actor’s main business, reference is made to the code Activité Principale de l’Entreprise (APE) of the Nomenclature des Activités Français (NAF), similar to the EU code NACE (‘Nomenclature statistique des activités économiques dans la Communauté européenne’). 197 According to Arrêté du 30 mai 2006 ‘modalités d’application’ (MINEFI 2006d). 198 https://www.emmy.fr/front/accueil.jsf 199 The first commitment period is an exemption from this rule: the penalty doubling is not envisaged during 2006–2009.

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order to allow for punishment 200 reference is made to the applicable legal basis. 201

5.2.2.2 Outcomes In May 2009, when the second commitment period was discussed in the Senate, the environmental minister Borloo ‘announces the success of the energy efficiency certificates and the expansion of the current scheme in compliance with the direction given by the Grenelle Environnement’ (MEEDDAT 2009a; italics added) 202. As with other schemes, the French WCI has exceeded the required savings in the first commitment period. The Direction Générale de l’Énergie et du Climat (DGEC) publishes a bimonthly newsletter 203 on the progress of the WCI in terms of the savings achieved, and general updates of the scheme. A total of 1822 decisions have been made, awarding savings of 98.2TWh cumac to 443 beneficiaries. Most of the savings (96.3 TWh cumac) have been realized through standardized measures. Only 1.9 TWh cumac were granted to savings resulting from non-standardized measures. There has been a strong focus on the residential building sector, where 886.3 per cent of the savings have been achieved. Another 5.3 per cent have been achieved in buildings of the tertiary sector; industry projects amounted to 6.3 per cent. Almost half of the measures have been achieved by different types of boiler replacements. Around 11 per cent of the savings stem from heat pumps and another 11 per cent from insulation measures. Electrical motors are responsible for 2.6 per cent of savings (DGEC 2010). Thus, the majority of savings stems from heating fuel, especially gas. The big suppliers EDF and GDF Suez worked out individual strategies to comply with the target and developed their own programmes, relying heavily on a network of (newly established) partnerships. These companies are generally taking several routes to deliver savings. EDF launched a big media campaign advertising its energy efficiency brand ‘bleu ciel’. According to an expert the 200

Not only are the possible penalties specified; it is also set out who is allowed to control and effect investigations and punishment. Hampering actors empowered to implement penalties or to investigate possible fraud will be penalized by six months’ imprisonment and a monetary fine of 7,500 €. 201 The legal procedure is fixed in articles 121-2, 441-6, 441-10, 441-12 of the code penal (penalty code) and article L 226-2, L 226-3, L 226-5 and L 226-10 of the environmental code. 202 Author’s translation of ‘Jean-Louis Borloo annonce le succès des certificats d’économies d’énergie et le renforcement de ce dispositif, conformément aux orientations du Grenelle Environnement.’ http://www.developpement-durable.gouv.fr/26-05-09-Jean-Louis-BORLOO-annonce.html In mid-2010, ‘Grenelle 2’, an environmental framework law, was drafted, which also fixed the target for the second commitment period. At the time the press statement was launched, the second law stemming from this working group was discussed in the French Senate. 203 ‘Lettre d’information Certificates d’Économie d’Énergie’

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aim of the campaign was to familiarize 60–70 per cent of the population with the new logo in a period of six months. A study conducted for ADEME concludes that most of the suppliers offer as part of their delivery strategy some kind of advice, at least on their web sites (MEEDDAT 2009b). Many suppliers carry out energy assessments with their own staff. A widespread approach is the provision of low-interest loans (1–4 per cent). Sometimes, suppliers make grants of up to 1,000 euros. Instead of financing whole measures, the role of EDF was in many cases to raise customers’ awareness, providing them with advice and pointing out existing tax credit schemes. Generally, changes in the suppliers’ strategies in order to make use of existing tax credits could be observed over time. However, the effect of the WCI on the uptake of tax credits is not entirely clear (Bodineau 2009). Little trading of certificates has been observed. Up to January 2009, the registered trading volume amounted to 1.4 TWh cumac – less than three per cent of the overall target has been traded as white certificates. The average value of a white certificate in these transactions was 0.32 €ct/kWh cumac and so far below the buyout price of 2€ct/kWh cumac, and the price range was between 0.3 and 1 €ct/kWh cumac (Bodineau 2009).

5.2.3 Second period The first commitment period ended in July 2009. Subsequently, the scheme entered into a transition period without a quantified target since the new commitment period was not expected to start before 2010. During this transitional period it was possible to accredit achieved savings towards the new target in the second commitment period, which initially was intended to start in January 2010. This is meant to circumvent a start–stop dynamic that could hinder actors’ long-term planning. However, the whole process was delayed further, and the legislative basis for the second period, set by the so-called law Grenelle 2, was decided only in July 2010 and the second commitment period did not start before January 2011 204. Four executive orders of December 2010 spelled out the operational modalities of the second commitment period. As a consequence, the second period started in January 2011 (Leinekugel le Cocq 2011). The decision about the second period, taken not under the energy framework law but under the environmental framework law, marks a change in the policy instrument’s institutional anchorage. This institutional change had already begun in 2008: the former General Directorate for Energy and Raw Materials (DGEMP) under the 204

The relevant ministerial order was adopted in July 2009 (MEEDDM 2009c)

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former Ministry of Economy, Finance and Industry (MINEFI) turned into the General Directorate for Energy and Climate (DCEC), under the head of the Ministry of Ecology, Energy, Sustainable Development and Spatial Planning (MEEDDAT), in between named the Ministry of Ecology, Energy, Sustainable Development and the Sea (MEEDDM) and currently 205 called Ministry of Ecology, Sustainable Development, Transport and Housing (MEDDTL) (MEDDTL 2011) and under the head of the Ministry of Economy, Finance and Industry (MINEFI) (MINEFI 2011). The word ‘energy’ no longer appears in the ministries’ names. The shift in responsibilities not only led to a new law for environment and climate protection. As well, the investment plans PPI and PIP as described in subsection 5.1.1 reflect these changes by setting new priorities and comprehending energy policy generally in the context of climate policy. The synthesis report of all three investment plans (PPI electricity, PPI heat, and PIP gas 2009) illustrates this by introducing French energy policy as follows: The adoption of the European climate and energy package in December 2008 as well as the initiatives by the ‘Grenelle de l'environnement’ commit France to enter the era of energy efficiency and carbon mitigation. We have to start our energy transition and become engaged in planning carbon-free energy equipment. The PPI and PIP constitute our road map for developing infrastructure and energy production until 2020. 206

The Second Environmental Framework law (Grenelle 2) covers six topics: buildings 207 and urbanism, transport, energy and climate, biodiversity, public health and risk, and governance. The second period of the WCI (January 2011– December 2013) is fixed in the first chapter, in the section ‘Energy and climate’, which is called ‘reduction of energy consumption and prevention of greenhouse

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15 March 2011 Author’s translation of ‚Dans la droite ligne de l'adoption du paquet européen énergie-climat en décembre 2008 et du Grenelle de l'environnement qui doivent permettre à la France d'entrer dans l'ère de l'efficacité énergétique et de la sobriété carbone, il s'agit de mettre en oeuvre notre transition énergétique et d'engager un vaste plan d'équipement en énergies non carbonées. Les PPI et PIP constituent ainsi notre feuille de route en terme de développement des infrastructures et des installations de production à l'horizon 2020’ (MEEDDM 2009b:1). 207 Article 5 of Grenelle 2 determines a specific target for energy savings in buildings – a reduction of 38% of energy consumption of existing buildings until 2020 (base year 2008). This can be considered as a rather ambitious target. However, an economic analysis carried out by Giraudet, Guivarch and Quirion (forthcoming in 2011) comes to the conclusion that existing and foreseen policy mixes will not result in this target being met. 206

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gas emissions’ 208. Article 78 sets out the following modifications of article 14 and 15 of loi POPE, which are further developed in executive orders: 209 ƒ ƒ ƒ ƒ ƒ ƒ ƒ

ƒ

The overall target for the whole period is fixed at 345 TWh cumac. Legal obligations are extended to transport fuel suppliers in the second commitment period. Part of the savings have to be realized in low-income households (‘situation de précarité énergétique’). Those who have not generated certificates by their own activity are obliged to acquire the necessary number of certificates. Further restrictions are imposed on the list of eligible participants: apart from energy suppliers, only local and regional authorities as well as social landlords and the national agency for housing (ANAH 210) are eligible. Secondary legislation established a detailed list of formal requirements to be reported to the authorities in order to claim certification. The list differentiates between standardized and special (that is, non-standardized) actions. Eligible actions are further specified by secondary legislation: eligible actors have to show their direct contribution to savings before the measure can be implemented. The measure has to be an individualized action directed at the final consumer. Direct contribution may take different forms such as provision of financial incentives, assessing work quality, or organizing a network of qualified contractors. Information, formation, and innovation are eligible actions but ring-fenced to an amount of 25TWh accumulated savings throughout the second commitment period.

To summarize, the target for the second commitment period is significantly higher, with saving targets of more than 100 TWh cumac per year. The scheme places the obligations on all fuel suppliers (i.e. the whole transport sector), so it 208

Author’s translation of ‘réduction de la consummation énergétique et prévention des gaz à effet de serre’. 209 Besides the legal documents (Arrêté du 29 décembre 2010 fixant la liste des éléments d’une demande de certificats d’économies d’énergie et la composition d’une demande d’agrément d’un plan d’actions d’économies d’énergie (MEDDTL 2010c); Arrêté du 23 décembre 2010 fixant le montant des frais de tenue de compte du registre national des certificats d’économies d’énergie (MEDDTL 2010d), Arrêté du 29 décembre 2010 relatif aux modalités d’application du dispositif des certificats d’économies d’énergie (MEDDTL 2010e), Décret no 2010-1664 du 29 décembre 2010 relatif aux certificats d’économies d’énergie (MEDDTL 2010b), Décret no 2010-1663 du 29 décembre 2010 relatif aux obligations d’économies d’énergie dans le cadre du dispositif des certificats d’économies d’énergie (MEDDTL 2010a)), reference is made to the presentation of the scheme by Thibaut Leinekugel le Cocq (2011). 210 L’Agence national de l’Habitat.

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is more open-ended than before. The extension of actors under obligation sets the new target in perspective – the fuel suppliers have to bear part of the obligation. Still, the contribution of electricity and gas suppliers to delivering the target has increased significantly. Further, the WCI will finance actions against fuel poverty, programmes to educate professionals in the building sector, or low-carbon vehicles. There is a significant chance also of the inclusion of non-material measures, that is, measures not improving technical energy efficiency but delivering energy savings, for instance through behavioral change: information, formation, and innovation 211.

5.2.4 Preliminary conclusions on the history of WCI in France From the history of the WCI in France it is clear that the policy instrument has to be seen in the context of the liberalized European energy market. The debates in the National Assembly and the Senate were in parts highly influenced by ideology: while some politicians object that the liberal market character of the new policy instrument puts social and environmental targets at risk, others defend the instrument because it leaves actors freedom to develop their own (efficient) approaches to energy efficiency improvements and thus potentially gives them new business opportunities. Since the market structure is not yet fully competitive and is strongly dominated by large incumbents, especially EDF and GDF Suez, it is these large actors that have mainly delivered the targeted energy savings. Comparing agenda-setting with the policy’s output reveals inconsistencies. As shown in sections on design choices (5.2.2.2), the policy instrument does not encourage third actors (except local authorities) to benefit from the scheme through generating savings and selling them to suppliers. This, however, would be expected if the scheme’s purpose was to support liberalized energy markets, competition, and European legislation that promotes energy services such as the Directive 2006/32/EC (European Parliament & Council of the European Union 2006). In addition, other inconsistencies suggest that various interests had to be balanced: The objective set out in the parliamentary debate was climate protection, but the objective communicated by the ministry as well as in interviews was reductions in electricity consumption. Indeed, as will be shown especially in section 5.4, some interviewees emphasized that the French WCI is not a climate policy instrument. While the major share of savings is left to electricity suppliers, they are free to choose which type of energy to save. The outcomes show 211

While a couple of non-material measures were included in the first commitment period, the second period puts forward this option more explicitly. To compare: the British supplier obligation had similar provisions but it was decided to narrow down this option (see chapter 6).

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that most savings have been achieved in the gas sector. However, the current analysis does not provide insights into whether these kinds of measure have been intended or unintended. ADEME communicated that it was the aim of the French WCIs to reach the sectors with dispersed energy use such as households. However, in theory the system is principally open to any kind of end-use measures even though most measures have been designed and implemented in the residential sector. However, setting up baselines for other sectors and leaving the scheme rather open involves costs and is not entirely consistent with the aim of reducing energy consumption mainly in the residential sector. Finally, it was one of the aims of the French WCI to create a market for white certificates. However, in limiting the number of third actors eligible to participate in the scheme, the policy architects have left energy saving delivery to the incumbents. The following section will analyse the significance of understanding this policy instrument in the discourse of liberalizing energy markets – in what way the outcomes and inconsistencies have been intended or unintended, and the underlying (hidden) purposes of the policy instrument (agenda-setting and design choices). In addition, the WCI is briefly portrayed within the environmental and climate policy discourse. Especially with the new legal initiative of the Grenelle de l’environnement, energy efficiency is increasingly discussed in the context of climate protection. Section 5.4 addresses the interviewed experts’ subjective views of the policy instrument. A summary shows how interests, the institutionalized structure of the energy markets and their main actors, as well as dynamics within the processes, determined the agenda-setting and the output.

5.3 The discourses of energy efficiency in France Two discourses of energy efficiency are relevant for WCI choice and its implementation. First, it has to be placed in the context of liberalized energy markets. Second, it has to be placed in the context of France’s climate protection efforts. A third discourse is emerging with recent changes in the scheme towards combating fuel poverty. However, there is not yet a whole discourse around this issue, so there is accordingly no separate section.

5.3.1 Liberalization of energy markets – Protecting the incumbent and creating business opportunities The French WCI was introduced to enhance security of energy supply. This is the main rationale of the loi POPE; it is also reflected in the experts’ perception

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of the policy instrument. Security of supply is closely related to the energy market structure. France relies heavily on central nuclear power plants operated by (mostly) state-owned incumbents. Discussion of France’s energy structure has therefore to take into account the tension between traditional regulatory approaches strengthening national enterprises and European energy policy aiming to create a single European market. This section accordingly analyses the introduction of the WCI within the discourse of liberalization of energy markets. The French WCI has been set up in an energy market that is dominated by regulated tariffs. The Member States of the European Union responded differently to the liberalization of energy markets induced by directives of the European Community (European Parliament & Council of the European Union 1996, 1998, 2003a, 2003b) 212. France is in several ways an outstanding Member State in terms of the process and results of liberalizing its energy markets. The indicators for the liberalization of both electricity and gas markets show pathdependent development in French energy policy. From 2003 to 2005, four electricity companies produced 95 per cent of net electricity in France. Three of these companies produced less than five per cent of it (Goerten & Clement 2007a: 2). Thus, one big company, the former stateowned monopoly EDF, was – and still is – responsible for producing more than 80 per cent of net electricity in France 213. A similar situation holds with electricity supply. Although there were 166 electricity suppliers on the French electricity market in 2005, only one retailer reached a market share of more than five per cent (Goerten & Clement 2007a: 6). The tariff structure in France changed with the opening of the electricity and gas markets in 2007. Since that date, consumers have been able to change supplier and purchase energy at market prices. Still, France retains the option for its consumers to buy energy at regulated energy prices, usually by maintaining their contracts with EDF or GDF. These tariffs are fixed by the public authorities, which keep them at or below the rate of inflation (FNCCR 2007). Consequently, prices are artificially low, so reducing incentives for customers to switch suppliers 214. Also, the regulated tariffs are still considerably lower than the European average (European Commission 2007a). However, EDF and GDF, which are partly privatized, also offer tariffs in line with market prices, as they will in the long run participate in fully liberalized energy markets. Customers may choose to return to regulated tariffs even if they had previously changed to non-regulated tariffs. 212 Liberalisation of the European Electricity Markets: 1. Directive 96/92/EC, 2. 2003/54/EC. Liberalisation of the European Gas Market: 1. Directive 98/30/EG, 2. Directive 2003/55/EC. 213 Electrabel-Suez (4% of installed capacity) and SNET (2% of installed capacity), a group of Endesa, are other ‚bigger’ electricity companies in France (European Commission 2007a). 214 This was confirmed by a French expert at a workshop in Varese on 27 January 2011.

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Surveys indicate that French customers usually decide not to switch suppliers. For instance, several studies based on telephone surveys have been carried out by LH2 for the French regulatory authority (Commission de régulation de l’Énergie, CRE). The surveys resemble: in 2009 almost 60 per cent of the sample did not know that they could change their energy suppliers. Most people were aware of the presence only of the incumbents (100 per cent knew EDF as an electricity supplier, 98 per cent knew GDF as a gas supplier) 215. Only six per cent of respondents were seriously considering changing their gas supplier; the figure for electricity was nine per cent (LH2 2009). Thus, liberalization indicators show hardly any evidence of competition in the French electricity market. Also, the developments of the electricity tariff structure reveal a tendency to prohibit competition by protecting the former state monopoly EDF and even by re-regulating tariffs. France also had difficulties liberalizing the gas market, as some indicators show. Under European Union directives, gas markets had to be liberalized by July 2007. Most Member States opened their gas markets before the deadline. In October 2006, only five Member States had a smaller percentage of liberalized gas markets than France (70 per cent). Most of the larger Member States at that time had opened their markets completely, including Germany, the United Kingdom, Spain, and Italy (Goerten & Clement 2007b: 1). Of the 13 producers or importers of natural gas in France in 2005, only three companies were in possession of at least five per cent of the gas market share each. Thirty-six natural gas retailers were operating in the French market in 2005, three of which were each responsible for at least five per cent of the total volume sold (Goerten & Clement 2007b: 5) and had a cumulative market share of about 95 per cent (Goerten & Clement 2007b: 6). The most important gas importer, wholesaler, distributor, and supplier is Gaz de France (GDF) 216. One purposeof liberalizing the energy markets was to partly transfer the state’s power to control the energy market to an independent regulatory authority, the CRE. Each national regulatory authority in the European Union has welldefined tasks and competences with different scopes. The French CRE is less powerful than other independent regulators: in France the government still fixes the prices of regulated tariffs. The main competence of the CRE is to manage the system. Its sanctioning capacity is limited; it has no power to regulate directly, but only to make propositions 217. The CRE, unlike the equivalent authorities in Britain or Italy, has been given no specific role in administering the WCI. In 215 Basically around 50% of the consumers surveyed in the sample knew that there are at least four suppliers of electricity and gas, including EDF and GDF as suppliers of both. 216 Others include Altergaz, Total, Powéo, and Electrabel. 217 http://www.cre.fr/en/presentations/pouvoirs

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France the ministry is solely responsible for administering the scheme. This also illustrates the strong link between incumbents and the government. Thus, in France there has traditionally been a very limited preparedness to delegate power to independent authorities, while incumbents have been protected as long as possible under European legislation. How does the introduction of a policy instrument that is perceived as a scheme in the spirit of liberalization and enhancing competitiveness fit into the slow process of liberalizing energy markets in France? There are at least two possible explanations. First, French policymakers have acknowledged European regulatory tendencies but still perceive it as inevitable to continue with their own tradition of strengthening and protecting their incumbents, often referred to as ‘national champions’. Since Britain, perceived as the most market-liberal economy in Europe, introduced a similar scheme, French policymakers have had reason to believe that this policy instrument is especially compatible with liberalized energy markets. They believe that this policy instrument is a good way to promote liberalized energy markets by stressing its flexibility provisions and its successful implementation in Britain. Second, French policymakers, wanting to be innovative and to explore new markets, have thought they were creating a new market for suppliers (especially the incumbents) while at the same time promoting energy efficiency. They have believed that market creation itself would liberalize energy markets. The underlying rationale could be the intention to create new business opportunities for incumbents; alternatively, if it was truly believed that the new policy instrument was set up in the spirit of liberalized energy markets, the rationale was a paradigm shift in France towards open markets and enhanced competitiveness. The empirical material provides evidence to support both hypotheses. Section 5.4 about framing the policy instrument will explore in more detail actors’ strategies to ‘make them compatible’ with ongoing discourses. Also, against the theoretical background it seems useful to see all possible explanations as one part of the whole puzzle. Before that, a second discourse will be worked out. During the political process leading to the second commitment period, the Grenelle de l’Environnement gained influence.

5.3.2 Energy efficiency in the discourse of the Grenelle de l’Environnement: Environmental and social objectives enter the stage The interviews clearly show that the WCI, while defended and adopted as a carbon abatement instrument in the Senate and the National Assembly, is not per-

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ceived as a climate policy instrument on the expert level (see section 5.4). There are indications that this may change. Climate change may become more important as a discourse of energy efficiency policies including the WCI. During the first commitment period of the WCI, institutional reorganization took place. The DGEMP as a former subunit of the economics ministry MINEFI merged with the environmental ministry MEEDDAT. Under the new ministry MEEDDM, energy policy is included in environmental and climate policy. Accordingly the Directorate General responsible for energy efficiency matters such as the WCI is now called ‘DG energy and climate’. Again, the name of the ministry changed twice and is currently 218 ‘Ministry of Ecology, Sustainable Development, Transport and Housing’ (MEDDTL). Even though energy is leadmanaged by MEDDTL, the word ‘energy’ no longer appears in the ministry’s name. This shuffling of ministries and subunits has taken place in parallel with ongoing initiatives of the Grenelle de l’environnment. The grenelle was created in July 2007 (MEDAD 2007a). It is envisioned as a panel for state and societal actors to identify concrete measures to be taken in the field of the environment and sustainability. This initiative is perceived as a rupture in environmental policymaking in France. Not least, the name ‘grenelle’ suggests the French government’s serious intention, for the term marks historical policy changes 219. Six broad topics are discussed in separate working groups 220. The first working group, headed by Jean Jouzel and Nicolas Stern, is dedicated to combatting climate change and controlling the demand for energy 221. The group includes more than 50 people, from state actors, (environmental) non-governmental organizations, employees’ and employers’ associations, representatives of municipalities’ as well as other professional associations such as the renewable energy association and the association for public transport. In 2009 the first legal initiative 218

As of 15 March 2011. The French ministry of labour is located in the rue de grenelle (Grenelle = 59. district of Paris, located in the 7ème arrondissement). The term grenelle is used synonymously with ‘ministry’. A meeting at the ministry of labour in May 1968 is regarded as a turning point for the student and worker protests in that year. (There are voices challenging the significance of the grenelle in 1968; the term was however formulated back then.) Since then, grenelle has signified important political negotiations with high-level representatives from state and society: an initiative to solve urgent problems and provide an arena for discussion. http://www.arte.tv/de/Alle-Rubriken/1929648.html, accessed 13 April 2011. 220 ‘lutter contre les changements climatiques et maîtriser la demande d’énergie’, ‘préserver la biodiversité et les ressources naturelles’, ‘instaurer un environnement respectueux de la santé’, ’adopter des modes de production et de consommation durables’, ‘construire une démocratie écologique’, ‘promouvoir des modes de développement écologiques favorables à l’emploi et à la compétitivité’ 221 Author’s translation of ‘lutter contre les changements climatiques et maîtriser la demande d’énergie’. 219

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proposed by the Grenelle was adopted (Assemblée Nationale & Sénat 2009). The second legal proposal, the so-called Grenelle 2 ‘Engagement national pour l’environnement’, was adopted by the Senate and returned to the National Assembly on 9 October 2009, where it was finally adopted in July 2010 (Assemblée Nationale & Sénat 2010). With this second law, the legal provisions for the continuation of the WCI have shifted from the general energy policy framework law to the general environmental and sustainable development framework law. All experts mentioned the increasing influence of the Grenelle de l’Environnement and suspected that the focus of all instruments, including the WCI, might accordingly change in the future. The changes for the second period, however, do not yet admit such significant conclusions. On the one hand, there seems to be a tendency towards a more flexible scheme (allowing non-material measures to count towards the target; obligating petrol suppliers). On the other hand, some design changes suggest that the scheme will be more restrictive and less flexible, but more tailored to certain targets such as enhancing administrative efficiency and equity (incentivizing measures in low-income households; establishing a minimum threshold of fuel sold to customers for actors to be obliged; eligibility of measures of local authorities restricted to their own sites 222). To what extent this transposes into a practical focus on carbon emission reduction as opposed to increasing energy efficiency for other purposes remains to be seen. As is clear from the historical analysis of the political process introducing the WCI, general goals fixed in framework laws have some influence. Nevertheless, many details are fixed in secondary legislation. Here, the responsibilities and competences remained similar to those in the first period. In that respect a radical change in outcomes cannot be expected. The WCI broaches another discourse by including provisions for the primacy of implementing measures in households that suffer from fuel poverty. However, as no documents emphasize this design element, it remains speculative to expect significant improvement in this respect from this policy instrument.

5.4 Perceptions on the WCI and the policy process – the policy image This section is drawing on the expert interviews 223 that were carried out during in autumn 2007 and spring 2008. The perceptions revealed throughout the analysis are structured around the headlines “objectives and hidden purposes”, “mode

222

This rule incentivizes energy-efficiency improvement in the public building stock. It also ensures that municipalities will not interfere in with the private-household customer segment of incumbents. 223 A total of nine experts from France were interviewed.

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of action in demarcation to other policy instruments”, and “design choices and political conflict”.

5.4.1 Objective (and hidden) purposes All experts but one agreed that the introduction of the WCI was at first driven by ’energy’ and security of supply. They regard climate protection as a side effect arising from obligations imposed not only on electricity suppliers but also on the gas and domestic heating sector. Three experts explicitly mentioned the importance of the goal of saving nuclear electricity: EDF is responsible for around half of the saving target, which illustrates that the aim of saving nuclear electricity is reflected in design choices. Six out of nine experts mentioned explicitly the role of the grenelle de l’environnement. While this initiative has had little or no influence on the current scheme, the experts presumed that it will have major effects on future schemes. To them it was not clear at the time 224 what a more influential grenelle would mean in practical terms. What seems to be clear is that environmental aspects would play a greater role in future schemes. Besides these general objectives, the experts mentioned a couple of (hidden) purposes and benefits of the scheme. The most prominent purpose of the scheme among the experts was to reach the widespread energy efficiency potential in the residential sector. In order to reach this sector, the activation of a ‘new’ actor in this field – the energy suppliers – was suggested. At least three experts mentioned that by involving suppliers this policy instrument may offer a way for expanding their energy services business 225 – a sector in which that EDF and GDF Suez were already active before introducing the WCI. One expert stressed the role of business development thus: ‘There was the idea that this profession could decide to modernize itself.’ 226 Likewise, another expert said: ’In addition, the industry body MEDEF also said: we would also be able to benefit from this new system.’ 227 This quotation shows that the WCI was perceived to be beneficial for some actors. These statements also indicate that the interviewees attribute qualitative benefits to this policy instrument. All experts mentioned at least one qualitative benefit, be it from the viewpoint of the supplier, the eligible actors, or 224

Most of the interviews were carried out in November 2007. Two other experts statements can be interpreted in this direction as well: ‘moderniser’ (modernize), ‘rentre les systems plus performants’ (increase systems’ performance). 226 Author’s translation of ‘il y avait eu cette idée que cette profession peut-être obligé de se moderniser.’ 227 Author’s translation of ‘Et puis, les industriels, le MEDEF a dit également, nous, on voudrait également pouvoir bénéficier de ce nouveau système.’ 225

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the general society. Among these benefits the following were cited: ‘market transformation’, ‘raising customers’ awareness’, ‘decentralization’, ‘co-benefits of investments’, ‘valuing performing technology’, ‘opportunities to explore new markets’. It is, however, not possible to say whether these benefits were anticipated or are observed only now the scheme has started operating. Three experts explicitly acknowledged that the policy instrument was preferable to a tax. In that regard the WCI can be seen as a way to forestall a tax. This was perceived as especially true for domestic fuel suppliers: ’The professional associations were fighting to prevent it being a tax. They entered the political process of energy efficiency certificates to make sure that this was regulated by the profession and not by the state.’ 228 In addition, three experts pointed to the financial situation of the public budget. The WCI does not require the government to spend money on huge subsidy programmes, and therefore was perceived as the most cost-effective and politically acceptable alternative.

5.4.2 Mode of action and demarcation from other policy instruments As discussed in the previous section (5.2.2.1), the WCI was debated in the Senate and the National Assembly as a market-based policy instrument. First results, however, reveal that trading and the flexibility of the scheme were not of major importance. In order to gain a better understanding of this particular issue, the experts were asked to explain the dominant mode of action. ‘At the beginning of the system, many actors were thinking of trading: OK, we are going to make a market. And now, ADEME and also the government, they realized that the first objective is to save energy, that trading is complex, and is not crucial.’ Another expert put it even more frankly, with a different connotation: ‘It’s for the marketing of the instrument. Some people from the government and industry didn’t really understand the instrument. At the moment, it is easier to discuss a marketbased instrument, they have the impression that it’s less regulation, but it’s just regulation.’ And again another quotation points to the main ambivalence of the policy instrument, on the one hand aiming at pursuing certain measures and on the other hand realizing cost efficiency through flexibility and trading:

228

Author’s translation of ‘Les syndicats professionnelles se sont battus pour que ce ne soit pas une taxe (…); il rentre dans le processus des certificats d’économie d’énergie pour que se soit gérer par la profession et pas l’état.’

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So in the economy, you have an [oligopoly] 229, so this makes the situation difficult, but by our commercial offer, we are generating certificates. And the public authorities asked . . . us to deliver energy savings. So our first concern is to implement a system, and to deliver – not to buy. Maybe, certainly, we buy some, but it’s not our priority. Our priority is to deliver.

These statements illustrate the different modes of actions associated with the policy instrument: actors locate the WCI at different points on the market– regulation spectrum. The market mechanism again is viewed differently – on the one hand the delivery mode could be to buy certificates on the market, on the other hand the suppliers could choose to carry out their own saving programmes. By linking the fact that the market is an oligopoly to the fact that companies decided to deliver savings (i.e. not to buy certificates), the quotation is even more revealing 230. It shows that delivering savings is associated with a competitive advantage. Given the unequal market conditions, with only two suppliers being responsible for 80 per cent of the obligation, this argument reveals that delivering savings could help to strengthen a supplier’s market position. Trying to take into account a balanced approach to ensure competitiveness in a noncompetitive environment is intrinsically paradoxical. Finally, the quotation hints that the delivery of savings (as opposed to making use of the buy-out or trading mechanism) has been pre-negotiated with the suppliers – this makes trading obsolete from the first. It is also confirmed by another actor, saying: If it is too hard, we prefer to pay the tax [buyout price]. Look, this is the situation. (...) The public authorities can only go up to a certain point. If they go too far, we will stop. This is neither in the interest of the public authorities nor in our interest. Because if they go too far, this means that we can do nothing to achieve it [the savings]. And if we don’t achieve it because it is a tax, everybody will stop taking action. 231

The expert here points out that there are two modes of actions (i.e. the French WCI is a hybrid instrument in the strict economic sense) that the supplier is in principle free to choose between: he can either comply with the quantity mecha229

The expert used the term ‘oligopson’, but in this context, only ‘oligopoly’ makes sense that’s why this term had been changed in the quote. 230 In the chapter on the scientific discourse the section about literature about trading (4.5.2) further elaborates on these arguments. 231 Author’s translation of ‘si c’est trop dure, on préfère payer la taxe. Voyez, c’est la situation (…) Donc les pouvoirs publics, ils peuvent aller jusqu’à un certain point. Et s’ils vont trop loin, on arrête. C’est pas l’intérêt des pouvoirs publics, c’est pas notre intérêt. Parce que s’ils vont trop loin, ça veut dire que derrière, on ne peut rien faire parce qu’on n’y arriverait pas. Et si on y arriverai pas, parce que c’est une taxe tout le monde s’arrête.’

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nism or make use of the price mechanism. In that the government wants the supplier to deliver savings through the quantity mechanism, it becomes clear that the measures have a value on their own that cannot be realized by a pure price mechanism. Experts’ responses to questions about the nature and most important characteristics of the WCI can be summarized as follows. All experts mentioned that the WCI is a market-based policy instrument. Most of them regard this as equally significant as the fact that the WCI makes use of more than one mode of action (i.e. command-and-control, tax, subsidy). In that respect it is perceived as innovative and very new in the context of France’s regulatory traditions. However, all but one expert stressed that currently actors make little use of the flexibility provisions; in particular, the role of trading is perceived to be negligible. All but two do not preclude the possibility that this could change in the future – with increased targets they presume that trading may become more important. In addition, three experts highlighted complexity as a decisive characteristic of the WCI. By establishing a very complex and well-regulated scheme, it has many of the traditional regulatory features of French policymaking. This is supported by the following statement: In addition, this is a system of liberal spirit which is not necessarily in line with traditional energy policy in France. But it can be considered that in the design process of the instrument, there are some very French characteristics. (…) Especially in its complexity, in the quantity of rules, the rules defined ex ante. The legislator and the administration nevertheless wanted to fix everything in the texts, regulate everything a little bit and foresee all possible cases, eligibility, the actions, etc., etc. In order to prevent the system to be too experimental they wanted to fix everything in the concept. So in the end it is a very French scheme 232.

Another expert used the term ‘technocratic’ to describe the scheme in practice. And as has already been noted, one expert explicitly referred to the marketing strategy in order to sell this policy instrument as an innovative market-based policy instrument while in practice it is dominated by well regulated rules. In order to understand the way the WCI is perceived and supposed to enfold effectiveness, it is useful to analyse how it is related to alternative policy instru232

Author’s translation of ‘En plus, c’est un système d’inspiration libérale, c’est pas forcément dans les traditions de politiques énergétiques françcaises et puis également, enfin, c’est pas français, mais on peut quand même estimer que dans la construction du dispositif, il y a des caractéristiques bien françaises. (…)notamment dans sa complexité, dans la quantité de règles, des règles écrites à priori. Donc le législateur et l’administration ont quand même voulu écrire dans le texte, réglementer un peu tout et prévoir tous les cas possibles, l’éligibilité, les actions, etc.,etc. Avant que le dispositif ne soit pas expérimenté (…), ils ont volonté de tout écrire sur les concepts. Donc enfin, elle est très française.’

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ments. What are the functional equivalents to the WCI? Functional equivalents can relate either to the overall objectives (such as reduction of CO2 emissions) or to the more differentiated outcomes/ benefits in practice. While the introduction of the WCI and its acceptance among suppliers are partly related to the most disliked policy alternative, namely, taxes, the WCI is also compared to other kinds of policy instruments in terms of its outcomes. The expert referred mostly to standards and tax credits as complementary policy instruments. Labels and subsidy schemes are also mentioned here. The experts are not entirely clear on how to delineate the WCI from other policy instruments, and sometimes use substitutes to describe the mode of action: as three experts put it, ‘that’s a tax in disguise’ 233, ‘the added value is not in the subsidy’, ‘that’s a tax’ 234. The latter expression has been used to explain the incentive to use the penalty as a buyout option in the event that the targets become too high. The reference to the subsidy scheme mainly reflects the fact that the suppliers implemented their own subsidy schemes in order to encourage customers to take up energy efficiency technology more quickly. Table 3 shows all references in the transcripts that can be attributed either to the term ‘coercion’, or ‘flexibility’. By putting them in the table, the results are more transparent. In order to understand the table it is important to set the quotes in context. The context is explained in the notes. They reveal that flexibility is very much associated with the policy instrument. However, there are also many hints, that the scheme is perceived as coercion. Sometimes, the same interviewee gave ambivalent answers. The sum of the references is even more contradictory ranging from statements of ‘it’s just regulation’ and ‘the market is not the purpose of the scheme’ to ‘we are going to make a market’. Taking into account also the context of the quotes, it also shows that the interviewees changed their view on the WCI, most of them initially believed it to be more flexible than it turned out to be. This reveals that there is a tension in the French scheme with regard to the predominant mode of action.

233 234

‘c’est une taxe déguisée’. ‘c’est une taxe.’

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Table 3: ‘Coercion’ and ‘flexibility’ in the transcripts of interviews Coercion

Flexibility

quota, based on a quantified obligation, you don’t need trading

market instrument for financing [energy efficiency]e

complexity, quantity of rules, rules determined ex antea

not yet a market-based instrumente

regulated tariffsa

beginning: idea that market instruments are smartf

currently, there is no market for certificates

we are going to make a marketf

it [flexibility] is not yet in placeb very different from emissions tradingc

instruments adapted to competitive markets

it is just regulationc

scheme with a liberal spiritg

the market is not purpose of the schemed

MBI

trading not crucialf

Exchange system, market Market to achieve regulatory standardsh It allows several things, more flexibilityi It gives more flexibility Creating competition instrument of tradable certificatesj choice of strategies possible MBIk Open-ended schemek Source: Author Notes: a

The expert was describing the system as one with a liberal market spirit. The expert was describing the system’s architecture as very flexible. The expert said that the WCI was initially understood as similar to emissions trading and that the trading component was established for marketing the instrument. d The expert said that the WCI was generally a market-based policy instrument. e The expert was using different expressions to describe the policy instruments: he said that it was a market instrument, than he said twice that it was not yet a market instrument. In addition, he substituted the word ‘tax’ for the WCI, but in another passage he said that it was not a tax. b c

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f

The expert set his explanation in a time context: initially it was thought of as a market-based instrument where trading plays an important role; actors were learning over time and seeing that trading was not important. g The expert acknowledged that the way it has been set up (complex, standardized rules) is rather coercive (and French). h It is categorized as rather flexible since the expert was describing the system as very new, and he first characterized the WCI as market creating. i The same expert acknowledged that the flexibility did not matter much in practice. j The expert put the perception of the WCI in time context, saying that it was initially perceived as similar to emissions trading while the expert understood this policy instrument just as regulation. k The expert said that the market was not the purpose of the scheme.

5.4.3 Design choices and political conflict A different set of actors is involved in the French WCI from those in the British scheme. In France, the ministry in charge of energy issues (formerly DGEMP, now DGEC) is responsible for determining the overall target and the targets for the different sectors and the individual companies. It is its task to decide on the eligibility of measures as well as their baselines. Its regional dependencies (DRIRE) are responsible for verifying energy savings and issuing certificates. ADEME and ATEE both make recommendations on measures, baselines, and updates as well as other changes concerning the design of the WCI. In addition to ATEE, the association of energy companies and manufacturers, installers, and so forth, and also the incumbents negotiated design choices with the ministry. The domestic heating oil suppliers asked to be included in the scheme. Once included, they founded a new association, Ecofioul, to aggregate the voices of all heating oil suppliers and negotiate more effectively. According to the experts, the political process can be divided in two conflictual phases: first, the issues to be adopted within the loi POPE, especially those determining the obliged and eligible actors, and second, negotiating the details laid down in secondary legislation.

5.4.3.1 Negotiating primary legislation The general architecture of the scheme was negotiated between the ministries and the companies and also during the readings in the National Assembly and the Senate. ADEME was the first actor to present and propose the scheme. An expert observed that the British scheme had served as very useful inspiration after being intensively studied and evaluated:

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According to the experts interviewed, the suppliers generally accepted the policy instrument comparatively quickly because some kind of measure was unavoidable. The WCI was the most preferred policy option. The WCI was especially well received by EDF and GDF, which were now facing principally complete competitive markets. They believed that this policy instrument could be especially interesting in a competitive market, expanding their portfolios and advertising their brand. Related to the competitiveness issue is the role of other actors participating in energy efficiency markets. The question of the eligibility and inclusion of third actors was mainly one of who profits from the scheme, whom the government and the respective competitors allow to make profits. In France, the discussion went beyond just the question of allowing third actors to generate certificates in order to increase the liquidity of the market, to the question whether these actors should be under an obligation to generate certificates. Energy service companies are under no obligation to save energy because of lobbying: ‘In fact, the first period is a political compromise. (…) It’s because their [the ESCOs’] representatives have lobbied arguing that there is no need for an obligation since it is their profession to save energy.” 235 At a conference, a French expert mentioned in a fringe talk that French authorities were going to require ESCOs in the second commitment period to deliver a certain amount of energy savings as well. However, this did not happen. But ESCOs will also not be allowed to generate white certificates in future schemes. Only local authorities are eligible to participate in the scheme. Some flexibility conditions are enshrined in the French WCI that allow energy service companies and those actors involved in the energy efficiency retail business to benefit from the scheme. It was hoped thereby to stimulate additional energy savings. One expert exemplified this for the French case: At the beginning of the system, we imagined that DARTY – DARTY is a big chain of sellers of electric appliances, fridges, etc. – (…) that these actors could be eligible. One objective [against inclusion] was to limit the windfall effect. Sure, but why not? Imagine something, maybe a campaign organized by DARTY, and if they

235

Author’s translation of ‘En fait, dans la première période, ça résulte d’un compromis, d’une discussion politique. (…) c’est parce que la profession a fait du lobby en disant qu’il ne faillait pas soumise à des obligations d’économies d’énergies, alors que c’est leur métier.’

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prove e.g. that they don’t make profits with that, why don’t [they] get (…) certificates?

The Senate in particular debated who should be eligible. After the first reading, a provision was inserted in the legislation stipulating that only those actors that save energy on top of what they do professionally were eligible to generate white certificates 236. Another new provision stipulated that there must be a separate decree specifying the conditions of additionality of measures in general. One expert explained that ESCOs and other companies while not eligible to generate white certificates and sell them on the market, can make contracts ex ante with obligedactors to carry out saving projects. Initially, the Senate debated whether the legislation should apply to transport fuel suppliers. The fuel supplies were strongly opposed to the idea. Their main argument was that the targets of WCIs were private households and the residential building sector. In contrast, measures imposed in the transport sector would be of a different category. One expert explained the suppliers’ different viewpoint on of the benefits associated with the scheme: EDF can profit – well, it’s an obligation, they are very sensitive on some points – but they could profit a little from that obligation, because you have competition and you can have a better image. Today all the advertisements of EDF are about energy efficiency. The fuel suppliers, their position was they could not profit from that because there are not very many measures in the transportation sector. We developed maybe two or three measures on transport, but it’s very anecdotal. So they could not profit like EDF or GDF from this new instrument.

It had already been decided not to include transport fuel suppliers before the text was delivered to be read in the National Assembly and the Senate. The reverse situation, however, applied in the case of domestic heating fuel suppliers. While the transport fuel suppliers lobbied strenuously to be excluded from the legislation, the domestic heating oil suppliers lobbied to be part of the scheme. All experts but two 237 agreed that the inclusion of so many small actors does not make much sense; one said it was ‘ridiculous to include so many actors’. Responding to my question why these actors were so determined to be included, the experts agreed that the reasons were twofold. First, it was better than the other policy instruments under discussion, such as an additional tax. Second, the fuel suppliers feared that they could lose market shares to GDF and 236

The French text explicating this: ‘toute autre personne morale dont l’action, additionelle par rapport à son activité habituelle, permet la realisation d’économies d’énergie’ (Loi POPE, Article 15, first section; emphasis added). 237 Those two experts did not position themselves towards this issue.

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other gas suppliers, which are modernizing their customers’ boilers under the WCI and are therefore competing with the oil suppliers. Regarded separately, this argument is not entirely consistent since oil suppliers would generally be free to approach their customers voluntarily and carry out energy saving projects. However, in the light of regulatory pressure – some policy instrument would be imposed on these actors – the WCI seemed to be less harmful as it also suggests that gas and heating oil suppliers competed at eye level. Another expert identified why no minimum threshold was imposed on the group of domestic heating fuel suppliers. Their association argued that it was difficult to divide these suppliers in subgroups in order to apply different targets since the group of smaller suppliers is rather homogeneous. Any attempt to impose a threshold for suppliers to have an obligation would distort competitiveness among domestic fuel suppliers. One expert explicitly estimated that the inclusion of this group of actors in the legislation has mostly favoured the strongest enterprises. Finally, the treatment of new entrants (energy suppliers) had also been an issue for eligibility and thus a source of political conflict. One expert described it thus: ‘You have new entrants in France due to liberalization of energy market. And at the beginning, some new entrants should be constrained, should be in the system and finally for the first period they were excluded because they explained that their customers were only industry and generally big industry.’ This quotation indicates again that new market entrants have no easy access to residential customers. One issue explicitly raised throughout the expert interviews which gained more importance through the political process when the loi POPE was negotiated was the eligibility of renewable energy within the WCI. ‘I would add a third issue which is implicitly part of the scheme, even if it is not presented thus: the upgrading of efficient technologies, in particular of renewable energy technologies, to be very precise, solar water heating, generates many certificates.’ 238 It was an initiative of the National Assembly to explicitly mention the eligibility of substituting fossil fuel resources with renewable energy sources for heating, including water heating. The Senate changed the wording on eligibility regarding not only heat but also renewable electricity. The National Assembly rejected this change in the second reading, again insisting that renewable heating systems and renewable water heating should be eligible. The two bodies finally reached a compromise to the effect that the substitution of renewable fuel for fossil fuel was eligible for renewable heating in buildings. While this was the only contro-

238

Author’s translation of: ‘J’ajouterais un troisième point, que c’est aussi un élément à l’intérieur, même si ce n’était pas présenté comme ça, de valorisation des technologies performantes, en particulier des ENR, pour être très précis, un chauffe-eau solaire, ça vaut beaucoup de certificats.’

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versial issue that divided the National Assembly and the Senate 239, anticipating the results reveals that solar thermal installations, as the most prominent measure substituting fossil fuels with renewable sources in domestic heating, have in practice amounted to less than 2.4 per cent of the measures 240. Thus the debates in the National Assembly and the Senate have not been very relevant for the practical application of the scheme. The question of imposing penalties on actors that do not comply with their obligation was also raised during the readings in the National Assembly and the Senate. The initial draft did envisage a penalty for every kWh of savings not delivered that was equal the market price of white certificates. This was changed to a fixed penalty of 0.02 € per kWh of savings not delivered. If the actor was unable to show that he couldn’t buy a white certificate on the market, the penalty would be doubled. While the Senate did not amend this provision in the first reading, the second reading included a separate paragraph proposing a reduced penalty of 0.01 € per kWh. During the first commitment period, the penalty would not double if the supplier was unable to show that it was impossible to buy certificates on the market. The National Assembly changed this again to a penalty of 0.02 € per kWh. In addition, for the first commitment period, the penalty would not double if the supplier was not able to show its effort to deliver certificates. There is no provision in the law stating that the obliged party has to fulfil the saving obligation whether or not he was able to deliver it in time. Therefore, the penalty becomes a functional equivalent of a ’buyout’ price, indicating the maximum price of a white certificate.

5.4.3.2 Negotiating secondary legislation Several experts claimed that the political process of negotiating the details of the scheme as very long and rather difficult. Each single measure was up for debate between ADEME, ATEE, the companies, and the ministry. Two experts explained the procedure in detail: The ministry in charge of energy, in effect the subunit Climate and Energy Efficiency 241 of DGEC was requesting ATEE to 239

Generally, there has been a very intense debate about the appropriateness of the policy instrument. The politicians perceived the policy instrument as strongly embodying market liberal ideas, which generated much controversy among the different parties. Members of the Communist Party and of the UMP in particular have been involved in these ideological debates, as shown in section 5.2.2.1. 240 The share of solar thermal installations is constantly decreasing and have not been listed among the ten most popular measures in the newsletter of the ministry anymore since March 2009.The measures most often used were non-renewable heating measures (around 50% excluding heat pumps), the last measure on the list was boilers fuelled by wood (2.4%) (MEEDDAT 2009c). 241 ’Climat et efficacité énergétique’.

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make propositions. Effectively, the whole system is based on proposition made by ATEE. EDF and GDF Suez are the most active actors lobbying ATEE. However, they also negotiated separately and individually for particular measures. ADEME acted as engineering consulting and planning office for the ministry. Its task was to evaluate the proposals and give an opinion. Initially the contact was mostly bilateral between ATEE and ADEME. According to both experts, the typical situation was that ADEME and ATEE came up with different proposals on a certain measure and then the ministry took the decision. On a more general level, the principle of setting baselines for each individual measure was a topic of lively debate, which one expert explained in detail: While representatives of ADEME generally aimed for stricter targets and baselines, the companies aimed to keep the baselines low, arguing that they had no previous experience with this kind of scheme. Instead of agreeing to a baseline representing the market average of energy-efficient products, as demanded by ADEME, the ministry finally decided that the average investment was to be the underlying reference scenario. An expert explained that the trade-off here was that savings were fully accredited only if best available technology (BAT) was used. In the case of technology falling between the standard and BAT, only 50 per cent of the savings are accredited. The reference baseline is renegotiated for the second period; as an expert reported, ’We discuss again the rules, the rules, for example, for defining the baselines, what kind of reference scenario do we want to use: the existing investment, the market average, or the existing level of standards?’ 242 An expert commented on the general process of negotiations: For myself, I found the negotiations very complicated, very very long, very complicated because (…) it is more refined and complex than the British scheme, because behind the scenes there are energy-saving actions of which we pushed a lot the replacement of boilers, thermal insulation and solar heating, which works well. 243

Another expert described the negotiations like this: Very many negotiations. Too many, sometimes. Each point was separately negotiated. Not very strategically, no packages were discussed, but each point separately. Each measure, the evaluation of each measure. For the moment there are more than 242

Author’s translation of ‘Rediscuter aussi les règles, des règles p.ex. pour definir les baselines, estce qu’on prend des scenario de référence des donnés de parc, des donnés de marché ou des niveaux réglementaires.’ 243 Author’s translation of ‘Moi je trouve que la négociation était très compliquée, très très longue, très compliquée (…), il est plus complexe et plus fin que le système anglais, parce que derrière on a des opérations d’économie d’énergie où nous, on pousse beaucoup de remplacement chaudière, l’isolation thermique, le solaire qui marche bien.’

5.4 Perceptions on the WCI and the policy process – the policy image

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100 measures. We begin maybe with 40 or 50 measures. Each with ATEE and ADEME. Sometimes you don’t agree, then the government will decide, then the prime minister must decide. I think the global target was much discussed, but decided upon it very quickly. 54 – we don’t change it, but everything else, but everything is connected. Once the objective was decided, the government didn’t want to open up this discussion again.

And again, another voice describes the negotiations as Very tough negotiations, windfall profits had to be prevented. So everybody negotiated. They said when you replace a heating system with a heating system at low temperature condensation, this is worth so many savings. We said, no, it is worth more savings. And they said, no, it is worth less to prevent what is called ‘recycling’. 244

According to the experts, the main motivation for the suppliers was not only to make sure that they generated the maximum savings out of their preferred measures. They were also very concerned that competitors would not find it easier to deliver savings. ‘Keeping a level playing field’ was the main argument used. This also implies that the suppliers attempted to limit the influence of those third actors that might choose the same measures that the supplier chose to implement. This can be explained only by the additional value that the supplier attaches to certain measures, such as strengthening customer ties. The result of the scheme was trade-offs regarding the original aim of the WCI, which is illustrated by the following quotation: The primary goals was households, insulations, homes, it was the first goal. When you see it now: you have more measures on industry. You [do not] have (...) control [over] which measures will be met 245. And it depends on the strategy of the obliged [parties]. It’s just the choice of the obliged [parties]. But it was a condition to make the system acceptable. Now the system is here and we can work on it and how to adjust. The most important was to begin the system and it’s why (...) the first objective is not very ambitious. But we will see. Yes, the French system is very open. The role of the eligible actors should be very [small] (...). But it’s the result of the negotiations.

244

Author’s translation of ‘Négociations très dures, il faut éviter l’effet d’aubaine. (…) Donc tout le monde négocie. Ils disent quand on remplace une chaudière à une chaudière à basse condensation, ça vaut tant. Nous répondons ça vaut plus. Et ils disent: non, ça vaut moins pour éviter ce qu’on appelle le recyclage.’ Recycling can be understood as double counting, resulting in diminishing additionality. 245 This remark is interpreted as follows: Due to the open-endedness of measures leaving free choice of the obligated party, the government theoretically cannot determine which kind of measures will be delivered.

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Another expert partly agreed with this: while he acknowledged that it was no longer the scheme that ADEME originally wanted to set up, it still was not as flexible as it appeared to be. He referred to the fact that the suppliers were negotiating to get those measures they preferred and which they were actually carrying out 246: While the system looked flexible, the suppliers did not intend to really exploit this flexibility. An exception to this was a strategy of the suppliers to make use of existing tax credits. Here, the suppliers did not subsidize a particular measure but called the customers’ attention to existing tax credits. The costs that the supplier had to bear to generate certificates was limited to the search costs involved in finding customers willing to make use of the tax credits and helping them to do so. As the first results show, it was a rather important strategy and was initially not foreseen 247. At a conference 248, this issue was much debated after a presentation. It turned out that the experts had not made up their minds yet whether this trend was supportable. The question of whether (or to what extent) these tax credits would have been made use of without the suppliers pushing for it under their WCI obligation remains unanswered. As briefly mentioned above, the obliged actors were very sensitive regarding a balanced approach. One expert spent a quarter of the interview explaining the different competitive dimensions of the WCI. On the one hand, the suppliers competed regarding the fuel used to heat the houses: electricity, gas, oil, and renewable energy. Valuing a certain kind of fuel puts the other fuel suppliers at a competitive disadvantage. That explains why pure substitution of one fossil fuel by another fossil fuel is not eligible. But it is not only the fuel that is affected by the measures. Some technologies can be delivered only by a limited group of manufacturers and installers. Micro-CHP installations, for instance, or solar heating require expertise to be adequately adapted to the client’s demand profile. The expert described it as follows: ‘If you stress only thermal insulation – who is closest to thermal insulation? – It’s EDF. (...) We are concerned to stress the importance of the balances of measures since there is a market for windows, a market for insulation equipment, or a market for heating systems – that’s interests.’ 249 And this made the negotiations of every measure very complicated. It confirms that each measure is associated with a market and therefore that the interests of manufacturers lie in expanding their markets. Also the suppliers have 246 There is certainly also some trial and error within the obliged companies, as they seek the best working strategies. But the frame within which this is happening seems to be quite well regulated. 247 It was unexpected by the governmental actors. 248 The discussion took place at a workshop on the ECEEE summer school 2009 in France. 249 Author’s translation of: ‘Si vous mettez tous sur l’isolation – qui est-ce qui est plus proche d’isolation? C’est EDF. (…) Nous on est concerné pour dire il faut que ça soit équilibré, puis derrière vous avez un marché de fenêtres, un marché d’isolation, vous avez un marché de chaudière – c’est l’intérêt.”

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different interests in supporting certain technologies – a gas supplier would rather implement efficient gas boilers than replace old boiler with renewable energy heating systems. On the determination of eligibility, ‘EDF and GDF played a big role, that’s evident’, as an expert who followed the negotiations very closely remarked. To conclude, the expert perception of the policy instrument was mostly coherent with respect to the political process. All experts agreed that the discussion on the WCI’s system design was especially complicated, compared with previous experience with other schemes. They saw the main difficulties as lying in finding proper measures, a balanced mixture of measures and acceptable baselines. While climate protection was also one goal, the experts mostly agreed that the WCI was not first and foremost a climate policy instrument. Many of them stressed additional purposes such as keeping the governmental budget untouched and providing suppliers with new business opportunities. On the mode of action, the experts had a wider repertoire of answers. They agreed that this was a very innovative policy instrument in France. They tended to characterize it as a market-based policy instrument but acknowledged that there is as yet no real marketbased policy instrument.

5.5 Conclusion: The French WCI between market and regulatory practice If one reviews the political process as portrayed by the main documents as well as individual perceptions of the policy instrument and the politics involved, it becomes obvious that at least two different dimensions were relevant to shaping the WCI and initial outcomes. On the one hand, there was an influential initial debate about an innovative, market-based approach. On the other hand, those new ideas were dealt with in a rather ’traditional’ regulatory fashion in practice. The WCI was much debated during the readings of the general framework law. Even certain details were inserted at this stage to ensure that they were not overlooked by secondary legislation. The debate was politically boosted by discussing the policy instrument along ideological dimensions. Left-wing politicians denounced the rise of market liberalism and representatives of the UMP defended the freedom that markets provided for business to develop while externalities were automatically integrated in prices, correcting market failure and rendering the scheme cost-effective. French policymakers thought that a good way to promote the WCI was to stress its flexibility provisions and its successful implementation in Britain. Framing it (whether strategically intended or unintended) as innovative and conforming to market-liberal ideas helped it to gain acceptance in both chambers of

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the parliament. Such a market-based policy instrument was associated with ideas like ‘freedom’, ‘flexibility’, and ‘business opportunities’, which were valued also by the main obliged actors. The main characteristics of the scheme and the effective mode of action were not decided in parliament or fixed in primary legislation. Rather, ministerial decrees and other secondary legislation (so-called arrêtés) determined the catalogue of measures, conditions of eligibility and additionality, and the detailed administrative procedures for claiming certificates. The choice of measures was heavily influenced by the preferences of the main obliged actors. ATEE, representing the profession, basically proposed all the measures. In that respect, old market structures were to a certain degree preserved. Also, the determination of baselines was usually a trade-off between the initial objective of the scheme and particular interests. The original target of 54 TWh cumac was not changed once it was fixed, despite some compromises within the measures catalogue. One compromise concerns the overall reference for setting up the baseline: all measures above the legal minimum are eligible for at least some savings. Another compromise concerns the original purpose. While it was initially intended to target only household consumption, this purpose was watered down by including measures in the transport and industry sectors. The range of measures is potentially higher; the target of 54 TWh can be spread among all end-use sectors and is not necessarily achieved in the residential sector. Here it also becomes obvious that the WCI in its current design will most probably not have significant effects in enhancing security of energy supply by reducing the need for replacement of nuclear capacity. Industrial interests were not the only influence on the design of the scheme: administrative structures were influential, too. It was decided not to provide the regulatory authority with new powers. Rather, the ministry decided on the scheme proposed and prepared by ATEE and ADEME. As a result, and in a ‘French‘ manner, every detail of the scheme was fixed in secondary legislation. In addition, many of the flexibility provisions seemed to be obsolete since the suppliers had pre-negotiated the measures (still, the routes of delivery varied and several ways were exploited). Trading played an especially negligible role in the French scheme. The analysis of the French case supports two trends that were previously analysed in the context of French energy policy under European regulatory requirements. First, Szarka confirms the ‘dual policy style’ which Hayward has already observed (Szarka 2003: 94 f.). The duality here is understood as the authoritarian policy style with a strong central government making top-down decisions on the one hand, and state-entrepreneurial negotiations about the implementation of policies on the other. Szarka calls the latter a ‘bilateral, meso-

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corporatist deal between government officials and sectoral representatives’ (Szarka 2003: 95). Second, Bauby and Varone (2007) highlight another aspect of this policy style with regard to European regulation, showing that the French response of complying with EU legislation in the field of liberalization of energy markets leads to a consolidation of the institutional structure of French energy policy: technocratic élites and the two partly state-owned incumbents (Bauby & Varone 2007: 1058). The WCI can be interpreted as another example of this phenomenon. While it seems that French policymakers and policy architects realized a dual strategy – they could promote a new and innovative policy instrument and at the same time implement it in line with old regulatory practices and policy styles – the reality might be somewhat different. In the expert interviews, in side talks at conferences and in the course of discussions in international expert forums, it was frequently suggested that many of the effects were actually not anticipated. Many actors, including companies and policy architects, expected the flexibility provisions to play a greater role and still think that such provisions, including trading, might play an important role in future schemes. To the extent that the logic of the scheme rules out incentives to trade, these beliefs are based on misconceptions and lead to unexpected complexities, such as the certification process, the maintenance of the registry, and the administrative procedures. In addition, attempts on the one hand to keep the scheme open-ended in terms of choice of measures while on the other hand restricting participation results in a very complex scheme without enhancing environmental effectiveness or cost effectiveness, for example by increasing liquidity. A common (mis-) conception was that market creation itself would be consistent with liberalized energy markets; in fact it is just a market intervention like any other incentive (subsidy, tax) for energy efficiency projects 250. Even if there were fewer misconceptions than suggested by the expert interviews and participatory observation, old policy styles nevertheless shaped the innovative ideas to make them consistent with regulatory traditions. This implies the appearance of conflicts. These conflicts are especially relevant in view of the original purpose of making use of a flexible and quantity-based mode of action to enhance cost effectiveness while retaining the certainty of meeting the target: detailed rules made it to some extent to a rather well-regulated (and restrictive, command-and-control) policy instrument that provided the option of making use of a price mechanism (‘buyout’). Still, the scheme is very open-ended, with cross-sector obliged actors and measures most probably rendering the scheme 250

Economic theory maintains that these measures are all taken to correct market failures. In that sense, all the measures are compatible with competitive energy markets. From the companies’ perspective, they are interventions or even distortions.

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ineffective. Taken together, the pre-negotiation of the measures and their baselines among energy suppliers, ADEME, and the ministries is almost the functional equivalent of voluntary agreements under the umbrella of an overall target.

6 Britain

6.1 The British energy structure The United Kingdom (UK) is one of Europe’s major producers of gas and oil. In the 1980s, the UK had an image as the ‘dirty man’ in Europe because its electricity sector was coal-based (Helm 2004; Collier 1998). After electricity privatization, the market share of British coal was no longer guaranteed and gas became attractive – the ‘dash for gas’ began. Combined-cycle gas turbines with efficiencies of around 50 per cent were installed 251. Between 1991 and 2006 the share of gross electricity generated by coal decreased from 64 per cent to 28 per cent, the share generated by gas increased from one per cent to 35 per cent (Eurostat 2009b: 98). 30

in per cent

20 10 0 -10 -20 -30

Figure 7: Import dependence of primary energy in the UK, 1996–2007 (Source: Eurostat 2009a)

251 These plants did not operate in the combined heat and power modus, however. Gas had several advantages: first, the UK was a net producer of gas at that time; second, building gas power stations was the most economic way for competitors to enter the market; third, with gas, the requirements of the Large Combustion Plant Directive circumvented the modernization of coal-fired plants Collier 1998).

D. S. Steuwer, Energy Efficiency Governance, DOI 10.1007/978-3-658-00681-5_6, © Springer Fachmedien Wiesbaden 2013

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The production of North Sea oil peaked in 1999–2000 (Eurostat 2009b: 97) and the United Kingdom became a net importer of primary energy between 2003 and 2004. There are no extensive district heating grids in Britain; however, the gas network is better developed since gas is the most important fuel for domestic heating. While nuclear power capacity stabilized between 1991 and 2006, the renewable energy capacity is slowly only growing, with a gross inland consumption of two per cent of total consumption in 2006 (Eurostat 2009b: 97–98). Overall energy intensities fell in the UK between 1991 and 2006 by about 29 per cent. The industry sector in particular decreased its share of energy consumption. While industry accounts for only 22 per cent of final energy consumption, the transport sector has the greatest share, at 31 per cent, while the household sector is located in between (Eurostat 2009b: 99). Figure 8 shows a decrease in household energy consumption since 2004. It should be added here that over the same period energy prices have been rising, which may explain this decrease. As for electricity consumption, in 2006 industry’s share was 34 per cent and the service sector’s share 26 per cent (Eurostat 2009b: 99).

60000 50000

in 1000 toe

Household 40000

Industry 30000

Transport Agriculture

20000 10000

Services Others

0

Figure 8: Final energy consumption in the United Kingdom by sector, 1996– 2007 (Source: Eurostat 2009f)

6.1 The British energy structure

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While energy intensities decreased, per capita consumption increased; in particular, final electricity consumption increased significantly between 1990 and 2005 (see Figure 8). Since the start of the new millennium, concern has been growing in the United Kingdom about a future power gap, basically because coal-fired power plants that are not able to meet the requirements of the Large Combustion Plant Directive 2001/80/EC (European Parliament & Council of the European Union 2001) are being shut down, but also because aging nuclear power plants are expected to close by 2016 (Sinclair, Grant and Steele 2006). The Energy Review Report of 2006 takes up these concerns. ‘It is likely we will need up to 25GW of new generating capacity over the next two decades, to fill the “generation gap” left by closing coal and nuclear stations and to meet future electricity demand’ (DTI 2006a: 94). While acknowledging that there might be a shortfall in power provision in 2016, the report concludes that the risk is not great enough to justify costly intervention measures (DTI 2006a). 125 120 115

Gross energy consumption in toe per capita

110 105

Final electricity consumption in kWh per capita

100 95 90 1990

1995

2000

2005

Figure 9: Indexed development of energy consumption per capita in Britain, 1990–2005 (1990 = 100) (Source: Eurostat 2007)

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What then is the message? There have been considerable improvements in energy efficiency in the British industry sector 252 and household sector since 2000. Energy consumption in the transport sector is still growing significantly. It is not entirely clear whether rising energy prices or policy effects explain the small drop in energy consumption in the household sector. Per capita electricity consumption increased sharply after 1990, and increased less steeply after 200 when per capita gross energy consumption even dropped. It is not yet clear how serious the expected shortfalls in power production will be by 2016. As well, the United Kingdom became a net importer of energy at the start of the millennium. The expansion of renewable energies had a slow start. With all these uncertainties taken together, increasing energy efficiency has become increasingly important in complementing energy supply incentives, and remains a key pillar of British energy policy 253.

6.2 History of White Certificate Instruments in Britain The British supplier obligation is the oldest and most studied example of a WCI. Evaluations have been continuously carried out over more than a decade and are made available by the British government and the regulatory authority. The more detailed historical analysis draws on several sources. The primary sources are the legal and governmental documents 254 including the relevant Orders and their amendments. Secondary literature on British energy policy is cited to set the political process in context. The most comprehensive study, by Dieter Helm (2004), provides background information about energy policy in Britain. In addition, the analysis draws on grey literature, regular evaluation and updates of the WCI scheme reported by the environmental ministry or the regulatory authority, and material about different stakeholder positions, especially documentation of the consultation processes of the different phases of the WCI. Expert interviews are used to fill gaps in information about the political process and the role of the main actors.

252

Basically, the UK evolved from an industry-based to a service-based society. Climate policy did not play a major role in the United Kingdom when energy efficiency policies were adopted. It is therefore not covered in the introductory section in detail. The growing importance of climate protection turned out to be an important driver for changes in policy instrument. Therefore, a whole section is dedicated to climate policy in Britain. 254 HM Government 1986 (Gas Act 1986), HM Government 1989 (Electricity Act 1989), HM Government 2000 (Utility Act 2000), DETR 2000 (Climate Change Programme 2000), DTI 2003, 2007 (Energy White Papers of 2003 and 2007), HM Government 2006 (Climate Change Programme 2006), HM Government 2008 (Climate Change Act). 253

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British energy policy in recent decades has been shaped mainly by privatization and the liberalization of energy markets. As shown below, liberalization has had several effects on the environmental performance of the energy sector, both positive effects (e.g. the ‘dash for gas’) and negative effects (e.g. combined cycle gas turbines (CCGTs) without combined heat and power (CHP), no support for expansion of small-scale CHP plants). Unlike in other European countries, it was widely agreed that a main focus of a more sustainable energy policy had to be energy efficiency (Collier 1998: 105). Already in the 1980s, government interventions to support energy efficiency were justified on different grounds, such as the existence of barriers to implementing end-use energy efficiency measures, the lack of internalization of environmental damage in energy prices, and the fuel poverty suffered by low-income households. These early interventions mainly took the form of informational schemes, and did not make use of price incentives. In the follow-up to the liberalization of the energy market, intervention assumed new forms, of which the supplier obligation was the most prominent example (Helm 2004: 347-348). The British National Energy Efficiency Action Plan (NEEAP) (DEFRA 2007), unlike its equivalents in France and Italy, plays only a minor role since other resources are available and will be included in the analysis of the political process. Therefore, no separate chapter is dedicated to the NEEAP. However, a glance at the document reveals that the WCI plays a prominent role in the plan. The different commitment periods of the WCI constitute the instrument generating the most savings; other instruments include the climate change levy, building codes, and future agreements in the transport sector (excluding the EU ETS) (DEFRA 2007: 14). The legal basis for implementing an energy saving obligation was laid down in the legislation sanctioning the privatization of the energy sector, particularly Section 33BC of the Gas Act from 1986 and Section 41 A of the Electricity Act from 1989. These documents do not foresee the introduction of tradable white certificates as the ‘currency’ of the quota. This formally distinguishes the British WCI from other WCIs. However, this formal exclusion of tradable certificates does not preclude trading per se. In fact, the current WCI allows for the trading of obligations and energy savings among suppliers 255. Therefore, in practice, the British WCI shares some similarities with those of France and Italy. The British white certificate instrument was introduced in three stages. Shortly after the privatization of the British energy sector began, the Energy Efficiency Standards of Performance (EESoP) for public electricity suppliers 255

The NERA study (Radov et al. 2006) considers also the possibility of carrying over savings from one commitment period to another as a form of trading. The British WCI allows for this ‘banking’ of energy savings.

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was introduced in 1994. The British government renamed the EESoP in 2002, and marked the second stage in the history of this policy instrument with the launch of the Energy Efficiency Commitment (EEC). In the gas sector, a similar mechanism, the E Factor, was introduced in 1992; however, it acquired little political importance as a precursor of the EEC – the actual start of the British WCI. Currently, the policy instrument is in once again in flux. The government wants to retain some kind of supplier obligation. The shape and scope of the next generation of WCI have not yet been decided. To begin with, the new name of the transitional instrument Carbon Emissions Reduction Target (CERT) already indicates the policy instruments’ goal – carbon reduction – which may also suggest future directions. The introduction of CERT is dealt with as the third stage in the history of this policy instrument.

6.2.1 First phase: Energy Efficiency Standards of Performance (EESoP) and the E Factor: preparing agenda-setting Before the privatization of the electricity sector, there was little governmental support for energy efficiency and energy savings (Holt 1995). When it became clear in 1992 that there was neither demand for nor supply of energy efficiency programmes, the British government decided to implement such programmes. The 1992 Earth Summit in Rio de Janeiro certainly helped to trigger the decision to introduce energy efficiency support. The establishment of the Energy Saving Trust (EST) in 1993 and the EST’s significant involvement in setting up the Energy Efficiency Standard of Performance (EESoP) are regarded as the beginning of a more serious energy efficiency policy in Britain (Helm 2004: 352), signalling the governments’ intention to make energy efficiency improvement a ‘cornerstone’ of its climate policy (Collier 1998: 105). Basically two mechanisms were foreseen to deliver energy efficiency in electricity: the introduction of EESoP for the monopolized electricity supply and incentive-based regulation for the rest of the electricity supply. At the same time, energy markets were opened step by step to competition. In the context of the privatization of the energy sector, separate regulatory authorities were set up for gas (Office for gas supply, Ofgas) and electricity (Office for electricity regulation, Offer). Each was headed by a director-general with extensive authority to act (Stephen Littlechild at Offer, James McKinnon, Clare Spottiswoode, and Callum McCarthy at Ofgas). Decisions were, however, taken in conjunction with the minister, who appointed the directors-general and also had the power to dismiss them. Back then, the directors-general strongly believed in market forces: increased privatization and opening of markets would

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automatically create and balance demand and supply for energy efficiency. Additional support for energy efficiency was therefore not considered (Holt 1995: 2). Unlike the scheme that succeeded it, EESoP was introduced by the regulatory authority Offer. The Electricity and Gas Act gave the regulatory authorities the power to intervene in the market and impose a public service obligation. Standards were set in line with advice from the EST, which strongly advocated this scheme (Offer 1998a). Since the gas and electricity sectors still had their own regulatory authorities, the energy saving target expressed by EESoP was binding only on the public electricity suppliers. In 1994, competition for the customer segment with electricity consumption of less than 100kW had not yet been introduced. It was this group of end users that EESoP was originally meant to address. In greater detail, the scheme was set up as follows. In 1994 Offer’s directorgeneral imposed an EESoP on the 12 electricity suppliers in England and Wales (the two remaining Scottish suppliers were included from 1995 on) in the context of the annual price regulation. The underlying assumption was that electricity consumption offered considerable potential for energy efficiency. Since this market segment was not yet liberalized, customers were not expected to be able to gain a realistic overview of energy efficiency measures, their potentials and existing offers on the market. Since competition could have no effect in the energy efficiency sector, an additional incentive was believed to help people to access energy efficiency measures (Ofgem 1999a). EESoP was also expected to overcome the barrier of the high investment costs of energy efficiency measures. Offer used EESoP to impose a surcharge on electricity prices of one pound sterling 256 per annum per customer. With that amount of money, EESoP was meant to save 6.103 TWh electricity in the period 1994–98. In order to deal with the unequal distribution of benefits (everybody pays, few benefit), the amount of the surcharge was kept rather low. In addition, the introduction of certain criteria for implementing the measures – such as focusing on the elderly, the handicapped, low-income households or the rural population – was supposed to enhance distributive justice. However, at that time no separate binding target was formulated for these groups. An evaluation estimated that around 30 per cent of the EESoP 1 257 projects were targeted to low-income households. Around 3 million household benefited from energy saving programmes under EESoP 1, mainly in the field of insulation and lighting (Ofgem & EST 2003). 256 This corresponds to € 1.4308. Note that in the dissertation, the conversions in € are indicated in footnotes making use of historical average exchange rates of the relevant periods in order to reflect a historically realistic approximation. Calculations are made with reference to the set of data provided by oanda: http://www.oanda.com/lang/de/currency/historical-rates/ 257 EESoP incrementally grew throughout three phases of application.

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It was the EST’s task not only to evaluate the programmes that companies intended to implement in order to comply with their targets, by establishing a system for pre-assessing the cost-effectiveness measures and ensuring that their benefits outweighed their costs. It was also a key partner of the companies in advising, developing and implementing the programmes. Practically, it was the EST that carried out most of the projects, which involved primarily efficient lighting systems and household appliances (energy-efficient refrigerators, fridgefreezers, upright freezers, chest freezers, and washing machines). EESoP was the basic means of funding for the EST rebate programmes (Ofgem 2000: 11; Lipp 2000: 3). Similarly to EESoP, Ofgas introduced as early as 1992 the so-called E Factor under James McKinnon as director-general. The statutory duty to impose such a standard of performance was enshrined in the Competition and Services (Utilities) Act 1992 258. It was a reaction to customers wasting gas. These customers aimed to become eligible for market contracts with lower gas prices by escaping the regulated tariffs through increased consumption (Prosser 1997: 110). This small levy allowed cost recovery for energy efficiency projects for the customers segment under tariff regulation. In contrast to EESoP, no specific targets were set and its scope remained comparatively limited. Two schemes were funded under the scheme with £2 million 259 each: the promotion of highefficiency condensing boilers and a programme supporting residential CHP installations (Ofgem & EST 2003). When Clare Spottiswoode replaced McKinnon in 1993, she questioned the legality of the E Factor. She disapproved of intervention for social purposes and claimed that the E Factor was a regressive tax benefiting the wealthy. After she spoke before the House of Commons’ Environment Select Committee, McKinnon, the former director-general, strongly rebutted her complaints. Also, the Councel’s opinion did not support her claim, which she accordingly withdrew (Prosser 1997: 112). Officially, the E Factor was operating throughout 1997, until competition was introduced for all customer segments. While the E Factor was legitimized, the Councel allowed her to rule out projects if they were too costly (Helm 2004: 276; 368). Spottiswoode accordingly rejected funding for almost all of the further energy efficiency proposals from British Gas that were prepared by the EST (Prosser 1997: 112), ‘leaving the EST with an immense funding shortfall’ (Collier 1998) 260. 258

The Act is an amendment to the Gas Act of 1986, chapter 44, section 33, and became accordingly section 33A. € 2.9 million 260 The EST in the meantime proposed that the Secretary of State should have the statutory power to support energy efficiency schemes. This was taken up by the parliamentary Environment Select 259

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The WCI in Britain is usually referred to as the successor of EESoP. In retrospect, the E Factor has not gained so much important as a precursor for the WCI. Prosser (1997: 113) saw the differences between the interventionist approaches of the electricity and gas regulators as an illustration of the discretionary power given to the directors-general. The controversy emerging around this policy instrument shows the underlying conflict over the regulatory authorities’ discretion to determine the extent of necessary intervention in the newly liberalized gas market. When the regulatory authorities merged in 1998, this question was revived by the government’s intention to raise the target and respectively the cost of the intervention. As shown below, with the Utility Act 2000 the government was given the statutory power to determine energy saving targets. In 1998, when competition was finally introduced also in the market segments with electricity demand of less than 100 kW, the first EESoP ended. It was then up for debate whether a new EESoP was required under the new market conditions. Some suppliers claimed that in the newly established competitive environment costs could not be passed on to the customer. At about the same time, the government changed in 1997 and ‘New Labour’ came into power. ‘The advent of New Labour, with its much broader social democratic agenda, merely helped to reinforce the regulatory trend, introducing social and environmental objectives alongside those of economic efficiency’ (Helm 2004: 273). The next subsection covers the post-election changes to energy efficiency regulation in more detail. In order to deal with the transition to complete competition, the second EESoP was limited to the household sector, with a focus on those customers who would profit least from the emerging competition. The overall target and the share of this target (ranging from 60 per cent to 80 per cent) to be implemented in the low-income customer segment were negotiated for each individual company. In this transition period, the financing mechanism was maintained (Offer 1998b; Ofgem 1999a). The costs were kept stable at one pound per annum per customer for the period of EESoP II (1998–2000). With EESoP II suppliers were able to propose a mixture of measure that would be better adapted to regional variations and the housing stock of their customers. To put it in numbers, 39 per cent of the measures were for lighting, 41 per cent for insulation. The remaining 20 per cent of measures were delivered through efficient appliances and in other ways (Ofgem & EST 2003). In order to secure a smooth transition to the new instrument, the so-called Energy Efficiency Commitment (EEC), the newly established Office of gas and electricity markets (Ofgem) introduced a third EESoP (2000–2002). During the consultation process of EESoP III, two explicit objecCommittee as a proposal that the government should impose an energy efficiency levy on gas. These proposals were, however, not taken up by the 1995 Act (Prosser 1997: 112).

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tives of the policy instrument were highlighted: combating fuel poverty and combating climate change. The two objectives were meant to be aligned with each other (Ofgem 1999b). In the final decision to implement EESoP III, the objectives are explicated in greater detail. Here, consumer protection with a special focus on combating fuel poverty was put in first place. Protecting the climate is mentioned thereafter: An important feature of the policy is to maintain a strong focus on disadvantaged customers, particularly the fuel poor. The Government and Ofgem place great importance on social issues concerning disadvantaged customers, including those in fuel poverty. (…) In addition to providing significant help to customers suffering fuel poverty, the Standards will contribute to the Government’s Climate Change targets. (Ofgem 2000)

In total, 11,125 TWh had to be saved during EESoP III, 4,981 TWh in electricity and 6,144 TWh in gas. The targets were negotiated with individual companies, with their size and their ability to achieve low-cost savings through economies of scale taken into account (Thomas et al. 2002). The targets are indicative, calculated from the budget of £1.2 261 that suppliers spent per customer per year for energy efficiency measures. The suppliers were, however, not required to spend a fixed amount of money on energy efficiency projects. Usually, savings were accredited in relation to the contribution of the supplier to finance energy efficiency measures in the end uses. Energy service schemes allowed the supplier to claim all the savings regardless of their cost contribution. Through such energy service schemes under EESoP III, approximately 500,000 compact fluorescent light bulbs (CFLs) and 5,000 condensing boilers have been installed (EST & Ofgem 2003: 34). Generally, if the suppliers reached their targets without spending the total amount of money, they were allowed to spend the surplus on flexibility projects including ground source heat pumps, solar water heating, or energy awareness training. Under EESoP around 0.5 per cent of the suppliers’ expenditure was on monitoring. There was an additional fund for research and development. The amount of money for that fund was, however, ring-fenced. Less than 0.5 per cent of the suppliers’ expenditure was spent on research and development. Suppliers were now for the first time implementing their projects on a national level, expanding their own customer base. A list of measures with eligible energy saving programmes was compiled, amounting to seven different measures (Ofgem 2000); it was, however, not binding. Still, the suppliers agreed to deliver at least 12 per cent of the savings through appliances. Insulation was increasingly used as a measure to comply with the target in EESoP III. Only a 261

€ 1.92

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small percentage of savings was achieved at non-residential sites, especially through lighting of farms, schools, and churches. Innovative technologies were likewise not used to any great extent. Approximately 900 dwellings received a small-scale CHP installation. In this the suppliers were, unlike in EESoP I and II, not required to spent a certain amount of money; they were allowed to carry additional savings over to the next scheme, the first Energy Efficiency Commitment (Ofgem & EST 2003). Monitoring was carried out by sampling around five per cent of the heating and insulation measures. The EST continuously played a major role in endorsing the suppliers’ project proposals, predetermining the ex ante assessments and reporting and consenting to the projects after completion for approval by Ofgem. All suppliers overachieved their savings. Besides the quantity of savings, the evaluation of EESoP emphasized certain qualitative benefits of the scheme. It stated that suppliers learned to work on different kinds of energy efficiency projects with different delivery methodologies. ‘Throughout the EESoP schemes suppliers worked with social housing providers to provide insulation and heating solutions to their housing stock. This trend has increased significantly in the EEC and suppliers are beginning to develop large-scale alliances to deliver their targets’ (Ofgem & EST 2003: 47).

6.2.2 Second phase: Energy Efficiency Commitment (EEC) 6.2.2.1 Agenda-setting With the elections in 1997 the New Labour government replaced the Conservative government. General restructuring measures were adopted in 1998 that also affected the regulatory authorities. The measures resulted in a merger of Offer and Ofgas to a single Office of Gas and Electricity Markets (Ofgem). Callum McCarthy was appointed its director-general. In 2000, the general competences of the director-general were weakened, which led to new decision-making processes within Ofgem. Since 2000, the Gas and Electricity Market Authority, with its five executive and five non-executive directors, became the main decisionmaking body. While one of the tasks of the regulatory authorities had been to represent consumer interests, 2000 also marked a change in this regard. The task of consumer representation was officially assigned to a newly created organization ‘Energywatch’ 262. The restructure was accompanied by a budget increase 262 Energywatch merged on 1 October 2008 with Postwatch and the Welsh, Scottish and National Consumer Councils to form Consumer Focus, http://www.consumerdirect.gov.uk/

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amounting to £34 million 263 a year as well as an increase in staff to 330. For regulation alone this meant an approximately increase in resources of about 50 per cent (Thomas 2002b: 5). While consumer protection was formally no longer the task of Ofgem, the regulatory authorities tasks strongly affect consumer interests, so that consumer protection remains one of the core principles. This is reflected on Ofgem’s official website. Also, the interviewed experts on several occasions mentioned Ofgem’s duty to protect consumer interests. One of the initial activities of the Labour government was to take stock of the existing policy instruments. This inspection revealed EESoP to be a successful policy instrument. Debates about the general appropriateness of intervention in energy markets resumed. According to an interviewee, the regulatory authority could not justify imposing any further cost burden on the final customers. A significantly greater obligation would automatically lead to higher costs, and the benefits would not reach the majority of households. The regulatory authority therefore aimed to avoid determining the target but left it up to the government. Accordingly, the British government announced it would take over determining the energy saving quota from the middle of 2000. The Department for Environment, Food, and Rural Affairs (DEFRA) – the environmental ministry, at that time still called Department of Environment, Transport and the Regions (DETR) – put to the vote the question of whether Ofgem should retain the lead management or whether a ministry should assume that role (Ofgem 1999a). Section 103 of the Utility Act 2000 provided the legal basis. Since then the environmental minister has determined the targets as well as general rules and measures. The reorganization of competences not only led to a shift of power from the regulator to the ministry; Ofgem began to administer the scheme and took over tasks that were formerly carried out by the EST. The more independent regulatory authority Ofgem apportions the overall target to the individual obliged companies according to the rules established by DEFRA (now Department of Energy and Climate Change, DECC). It frames the detailed measures that are eligible to count towards the target and assigns an energy saving value to each measure. The suppliers are in principle free to choose their savings measures from a list with standardized savings fixed ex ante. Further, Ofgem approves schemes proposed by the obliged suppliers and verifies the savings accordingly. It is also within the competence of the regulator to apply sanctions to the suppliers in the event that they do not comply with their targets. The EST consults Ofgem on technical matters. The Trust also still gives advice on the future development of the scheme. On the one hand, the EST has lost considerable influence on a political level and its activity is mainly restricted to 263

€ 55.76 million

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operational tasks. On the other hand, the EST remains a strong advocate for the supplier obligation. This can also be traced back to the ideational roots of the policy instrument to be found within the EST. One name in particular is associated with it: Eoin Lees was Chief Executive at the EST from 1993 to 2003, developing and designing the Energy Efficiency Standard of Performance and the Energy Efficiency Commitment. Also, at the time of writing, he is one of the major consultants to Ofgem and DECC regarding the supplier obligation. He has drafted several reports evaluating the British WCI.

6.2.2.2 Design choices Many design features of EESoP were inherited by the EEC. The obliged actors in Britain remained electricity and gas suppliers. Under EEC 1, 12 suppliers had an obligation counted in final energy savings 264 reflecting the carbon content of the fuel. Since the beginning of privatization the number of suppliers has decreased; with the beginning of CERT only six suppliers have an obligation. Target setting generally reflects the government’s assumption that suppliers will make use of funding from third parties as well (Ofgem & EST 2003). Facing an increase in targets (62 TWh in EEC 1; 130 TWC in EEC 2), suppliers complained that compliance was becoming increasingly difficult (Ofgem 2008a). Accordingly, the threshold to oblige a supplier increased throughout the scheme from 15,000 to 50,000 customers in order to remove a disproportional burden on smaller suppliers. The scheme continuously addresses savings potential in the household sector. The target of EEC 1 (2002–2005) and that of EEC 2 (2005–2008) were divided into separate targets. Half of the target accordingly had to be reached through measures among customers of the so-called Priority Group, that is, lowincome households especially at risk of suffering from fuel poverty. Originally inserted as an element of social minimum, with the beginning of EEC, the goal of comfortable housing for all income groups became a constitutive objective of the policy instrument. Customers belong to the priority group if they are recipients of certain benefits (income or disability benefit or tax/pension credits) 265. Initially, the British WCI had a rather limited number of measures with a strong focus on insulation (DEFRA 2005: 11) 266. While under EEC 1 only savings at264

The savings are fuel standardized in order to reflect the carbon content of the fuel. Details are set out in Article 2, Schedule 3 of the Electricity and Gas (Carbon Emissions Reduction) Order 2008. 266 Since EESoP was imposed on electricity suppliers, insulation was not a focus of the former schemes. 265

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tached to measures (‘by default’) were eligible, under EEC 2 ‘innovative actions’ (including micro-cogeneration < 50kWel), were accredited a 50 per cent uplift and counted up to 10 per cent towards the supplier’s target (Ofgem 2005a). The suppliers are not required to spend any particular amount of money on energy saving projects. They are incentivized by the overall target and given a certain freedom of choice of measures. With the EEC, therefore, the policy instrument has turned into a market-based one. Trading of obligations and energy savings among suppliers is permitted under the EEC, but trading of white certificates and third-party access to trading are not allowed. The legal basis does not allow for trading of white certificates; the public service obligation is seen rather as a regulatory intervention. The flexibility provisions were originally not associated with this policy instrument. In addition, a study carried out in 2005 concluded that there is limited evidence for the additional value of trading other than those trading options already included in the scheme. The study concludes that vertical trading (banking of energy savings to carry them over into the next commitment period) has probably been the most important trading feature of the scheme (Radov, Klevnas & Sorrell 2006). In the follow-up, policymakers did not seek to change the legal basis in order to allow for increased trading of white certificates in EEC 2 or CERT. The EEC was not implemented to promote innovative energy efficiency projects. Rather, it was seen as a tool to implement business-as-usual energy efficiency projects required to be at least above the minimum product standard. However, the suppliers had to ‘clearly demonstrate’ that the savings they claimed would not have been made without their funding (Ofgem & EST 2003: 42). Ofgem could approve this additionality at its discretion. Since the market standards of efficient products improve over time, measures that were eligible under EESoP such as B-rated appliances are no longer eligible under the EEC.

6.2.2.3 Outcome The overall target of EEC 1 was overachieved, including the priority group’s target. Fifty-six per cent of the savings were achieved mostly through cavity wall and loft insulation (Ofgem 2005b). The patterns of implementing savings did not change significantly throughout EEC 2; the targets were again overachieved (187 TWh in total) including the priority group’s target. Around two-thirds of the savings were achieved in gas (EEC 1: 44 per cent), another third (EEC 1: 49 per cent) in electricity (mainly insulation in electrically heated properties, CFLs, and efficient appliances) (Ofgem 2008c, 2008d). Almost one quarter of the EEC 2 target was achieved by the savings surplus from EEC 1 (Ofgem 2005b). Almost

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60 per cent of the new savings were achieved through insulation measures; lighting contributed 12 per cent), appliances 5 per cent and heating measures 7 per cent including CHP. Around 1,750,000 households benefited from loft insulation; 1,700,000 benefited from cavity wall insulation. Lighting measures consisted of 100 million CFLs and luminaires as well as of approximately 370,000 other measures. As part of the heating measures, around 2 million A-rated boilers were delivered throughout EEC 2. Sixty-four per cent of the 22 million efficient appliances were delivered through innovative action, while no supplier reached the 10 per cent cap of innovative action (Ofgem 2008d). Some of the suppliers were more interested than others in innovative action. This caused the installation of micro-CHP and savings due to consumer electronics (A-rated appliances and larger integrated digital televisions) (Ofgem 2008d). Ofgem calculated that saving losses due to the uplift factor do not exceed 4.7 TWh. Different routes of delivery were observed under the British EEC. According to Ofgem, the most successful delivery route was through direct contact with customers. British suppliers also promoted measures with social housing providers, retailers, and manufacturers. Another important synergy that emerged is combining the projects under the EEC with the Warm Front Scheme 267 designed to alleviate fuel poverty. Working in cooperation with boiler manufacturers helped to transform the market: a new regulation required the installation of at least B-rated boilers. The suppliers helped promote and install A-rated boilers instead (Ofgem 2008d). The bulk of the measures were delivered by ‘market push’ and not by ‘demand pull’, as Ofgem concluded in its report to the government. Still, Ofgem observes consumer demand for energy efficiency starting to increase due to higher energy prices and environmental awareness. Overall (horizontal) trading activity remained low, if not negligible. Still, competitive biddings to subcontracted insulation measures have been made, creating a market value for insulation measures and leading usually to long-term partnerships (Mundaca et al. 2008; see also Radov, Klevnas & Sorrell 2006).

6.2.3 Third phase: Carbon Emission Reduction Target (CERT): Recasting the obligation 6.2.3.1 Agenda-setting According to the energy suppliers and their associations, it became increasingly difficult to reach the priority group with adequate measures. Throughout EEC 1 267

The supplier typically pays for the insulation whereas the government finances the heating measures through the Warm Front scheme.

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and EEC 2 much of the low-hanging fruit was picked, and those customers willing to implement energy saving measures were grazed. The consultation process for the EEC’s successors, the Carbon Emission Reduction Target (CERT) and any kind of ‘supplier obligation’ post 2011, is therefore dominated by a call for a better-focused objective. In concrete terms, the suppliers ask for a split of objectives and accordingly the establishment of two separate instruments for carbon emissions reduction on the one hand and combating fuel poverty on the other. These requests are already reflected in the design of CERT, as the following subsection shows.

6.2.3.2 Design choices The overall target of the WCI has doubled again, and the current CERT target, including the amendments of 2009, is 185 MtCO2 lifetime savings. Also, the absolute target for the Priority Group has increased again. However, the share of the Priority Groups’ target in CERT is fixed at 40 per cent, as against 50 per cent in the EEC. The definition of the Priority Group widened with the entering into force of CERT in 2008. Also households with members over the age of 70 are now comprised in this group. Further, the suppliers may achieve up to 12.5 per cent of their Priority Group target by making use of a so-called flexibility mechanism, which basically increases by a certain percentage the savings awarded for installing ground source heat pumps and solid wall insulation. In the consultation procedure some respondents claimed that the flexibility mechanism actually reduced the Priority Group’s target to 35 per cent (Ofgem 2008a: 3). There were also calls (expressed in the consultation and in interviews) to take the Priority Group out of the scheme and create a separate scheme to tackle fuel poverty. In 2009 the ministry established such an additional obligation for suppliers and electricity generators, the so-called community energy saving programme (CESP). With a ‘whole house approach’ it aims especially at those areas inhabited by low-income consumers. However, the new scheme neither replaces CERT nor eliminates the Priority Group. In 2009 CERT was amended, leading to an increase in targets. The share of the Priority Group target remained 40 per cent. The government clearly expressed that it wanted to keep the fuel poverty target within the scheme (DECC 2009: 1; 2). The possibilities of accounting innovative action have been expanded under CERT. There are now two types of ‘innovative action’: ’market transformation actions’ and ’demonstration projects’. Like EEC 2, market transformation is uplifted by a factor of 50 per cent for micro-cogeneration and solid wall insulation, or for any measure not included under EEC 2 or CERT. This means that savings are valued 50 per cent more than

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the actual savings would be to give suppliers an additional incentive to implement a market transformation measure. Demonstration action accredits savings achieved through new types of measures including behavioural change. Innovative action is capped at 6 per cent of the overall target (or 8 per cent if at least 2 per cent are fulfilled via microgeneration) (Ofgem 2008c). Further, some changes are made with regard to the saving value of certain measures. Some kinds of CFLs and big IDTVs are no longer eligible to count towards the target, the savings for cavity wall insulation have been reduced, and an uplift factor of 50 per cent has been introduced to solid wall insulation instead. These changes have influenced the suppliers’ choice of which measures to carry over from EEC to CERT in order to maximize savings. The amendments of 2009 again expanded the flexibility of the scheme. The cap for innovative action was set at 10 per cent respectively 12 per cent if at least 2 per cent are fulfilled via microgeneration. Moreover, two more measures were added as qualifying actions: real time displays and home energy advice packages (Ofgem 2009a). In sum, the scheme developed from a rather narrowly tailored scheme into a more flexible scheme, giving increasing scope for innovative action to be granted savings. With the change from EEC to CERT, the unit of savings changed as well. While under the EEC savings were counted in final energy (kWh) per year, savings towards compliance under CERT are now measured in CO2 emissions. The 2009 amendments of the Electricity and Gas Act stipulated an increase in the overall target from original 156 MtCO2 lifetime savings to 185 MtCO2 lifetime savings to be delivered during the CERT period. Estimates in the annual progress report on fuel poverty from 2008 claim that the updated target will lead to additional expenditures of £560 million 268. A little more than half of the money (approximately £300 million 269) is estimated to be spent on the Priority Group. In July 2010 amendments were adopted that extend CERT throughout 2012 and – despite earlier indications – restrict the flexibility of the scheme. They involve three distinct obligations – a carbon emissions reduction obligation, an insulation obligation, and a Super Priority Group obligation. To put it in numbers, the target has been raised again with an additional 108 MtCO2 lifetime savings adding up to a total of 293 MtCO2 at the end of 2012. Of these additional savings, 73.4 MtCO2 (68 per cent) must be achieved solely by insulation measures, which are further defined by the order. Another 16.2 MtCO2 (15 per cent) must be achieved by the so-called Super Priority Group, a subgroup of the Priority Group, in order to ensure that those most vulnerable to fuel poverty will bene268 269

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fit from the measures. Since these groups are most difficult to reach, the costs are comparatively higher than in households more prone to install energy-efficient equipment. Thus, because of competing policy objectives, the WCI is not delivering the most cost-effective solution. DECC is expecting cost impacts of an additional £9 on customers for 2012, which means annual total costs for the scheme of around £50 270. In addition, CFLs and halogens are no longer rewarded under the scheme, and microgeneration is limited to the Super Priority Group (Secretary of State 2010). It is beyond the scope of the analysis to include outcomes of the CERT scheme since the commitment period will end only in December 2012. The permanent reporting by Ofgem suggests, however, that even in CERT the suppliers will reach their target. In February 2011, 58 per cent of the amended target had already been achieved (Ofgem 2011). Finally, progress has been made to monitor the data of installed insulation. Under a voluntary agreement between DECC, EST and obliged suppliers, the suppliers report every six month to the EST. The data are made available on the EST website and updated every six months 271.

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€ 10.62, and € 59 respectively See http://www.energysavingtrust.org.uk/business/Business/Information/Homes-EnergyEfficiency-Database-HEED/CERT-reports-from-HEED

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Table 4: Development of the scope of the British WCI EESo P1

EESo P2

EESoP 3

EEC 1

EEC 2

CERT

6,103 TWh

2,713 TWh

11,125 TWh (4,982 TWh electricity, 6,144 TWh gas)

62 TWh (1.1 MtCO2/ a) (0.4 MtC/a) (EESoP Review)

130 TWh

156 MtCO2 lifetime savings, updated to 185 MtCO2 (4,2 MtCO2/ a), respectively 293 MtCO2

Costs 272 per customer and year and fuel

£1

£1

£ 1.2

£ 3.60 (indicativ e)

Costs 273 for supplier

£ 101.7 million

Target

(indicativ e, reflecting target setting) £ 48.1 million

£ 110 million (indicativ e)

£ 500 million (indicativ e)

(1.8 MtCO2/ a)

£ 9 (indicativ e)

£ 18–20 (indicative)

£ 2.4- 3.7 billion (indicative) 274, 8.3 MtCO2 annually by 2013

Source: Author’s compilation

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€ 1.43 (EESoP I & EESoP II), € 1.92 (EESoP III), € 5.36 (EEC 1), € 12.6 (EEC 2), and around € 22.23 (CERT) 273 € 150 million (EESoP I), € 75 million (EESoP II), € 176 million (EESoP III), € 745 million (EEC 1), and € 10 billion (CERT) 274 DECC 2010; however, in a presentation by Alan Clifford (DECC) at the workshop in Varese on 31 January 2011, he expected the suppliers to spend £5 billion, or around € 5.9 billion.

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6.2.4 Summary The British WCI emerged from rather small and politically low-level policy instruments with targets determined by the regulatory authorities (EESoP, and, to a lesser extent, E Factor). With a change of government, institutional changes took place and the governance of the scheme changed accordingly. The Energy Saving Trust, which had played a major role in setting up the scheme and determining the measures carried out under EESoP, lost influence. Ofgem, while losing its formal power to determine the target, nevertheless gained influence in that it is now responsible for administering the scheme and preparing the way for future changes. Tracing the process of WCI choice in Britain made clear that the WCI is most prominently placed in the liberalization discourse of energy efficiency, as further analysed in subsection6.3.1. The Utility Act can be regarded as a legally fixed upgrade of the policy instrument. The new environmental department is responsible for setting the overall target and direction. Under the Labour government, social and environmental objectives gained more weight in energy policy. The name of the new environmental department (Department of Energy and Climate Change, DECC) reflects a general trend to subsume energy policy within the realm of climate policy. This second important discourse of energy efficiency can also be inferred from the historical process tracing. However, while one of several instruments for climate protection, the WCI is to a certain extent an exception, as will be addressed below (see section 6.2). The latest amendments show that the straightforward objective to tackle fuel poverty is transforming the WCI into an insulation programme rather than a flexible openended policy instrument. The overall results suggest that the scheme is quite successful in achieving the targets. Reports on the British WCI agree on its success (NAO 2008; Lees 2008; Ofgem 2008d; Eyre et al. 2009). While the topic of introducing white certificates appeared on the agenda again, it is not so much bound to the current WCI. Rather, new and additional instruments such as the Community Energy Saving Programme (CESP) and the CRC Energy Efficiency Scheme (CRC) 275 are being discussed. The WCI remains a regulatory intervention to deliver rather clear-cut objectives.

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6.3 Discourses of energy efficiency in Britain Tracing the introduction of the British WCI reveals the two relevant discourses within which the supplier obligation and, more generally, end-use energy efficiency can be placed: liberalization of energy markets and climate protection. Tracing the WCI from the angle of these two discourses helps to reveal the WCI image.

6.3.1 The discourse of liberalizing energy markets and tackling fuel poverty The Conservative Thatcher government’s Gas Act of 1986 and the Electricity Act of 1989 created the legal basis for liberalizing energy markets and successively introducing competition to all customer segments 276. The succeeding wave of privatization in the energy market in the 1990s was accompanied by the government’s hope that increasing competition would decrease energy prices. Privatization in Britain became the model (widely known as the ‘British model’) for liberalizing energy markets in many other countries, such as Hungary or Brazil (Thomas 2004: 4) 277. In Britain, privatization had been extended into core monopolies and the idea of turning the state monopolies from producer- to consumer-driven businesses had immense appeal. It was natural extension to widen the domain of consumer choice. In this general defense of consumer choice and markets, the particular features of energy markets were downplayed. The old assumptions of the post-war period that market failures necessitated a planned approach were inverted: now it was government failure which was the main problem. (…) This general presumption in favour of markets led the architects of privatization in electricity and gas to avoid some of the practicalities of introducing domestic competition, and to give virtually no thought to the longer-term consequences of liberalization. (Helm 2004: 258–9)

While studies revealed a temporary average decrease in prices of about five per cent, they also demonstrated the limits of the benefits of privatization. Comparisons of prices with those in non-privatized markets showed that British energy 276

The UK has three rather independently operating energy markets: in England and Wales, Scotland, and Northern Ireland. While the markets in England, Scotland and Wales are fully open to competition, the household sector in Northern Ireland is still closed (Eurostat 2009b: 99). 277 Thomas mentions the four components that characterize the British model: creation of a spot market, competition in supply, strict unbundling of monopolies (such as grid operation) and competitive areas such as supply, and, finally, unbundling of generation and supply.

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prices were not necessarily the lowest. Studies focusing on equity aspects concluded that decreased prices were not evenly distributed among customer groups (Hall 2004: 1). Hall cites studies (Branston 2000; Newbery and Pollitt 1997, in Hall 2004) showing that electricity prices would have been up to 10–20 per cent lower without privatization. In order to understand the effects of privatization on the development on energy prices, this subsection brings out the most important steps in privatizing/liberalizing British energy markets. Generally, competition was introduced in three steps for customer groups of different size. For the largest 5,000 consumers (representing 30 per cent of the demand), competition started immediately, in 1990, followed by the 50,000 next largest customers in 1994 (representing another 20 per cent of the market). Only in 1998 was competition established in all customer segments. Besides allowing for competition on British energy markets, British governments sold public shares of energy companies to private investors 278 and introduced incentivebased regulation for the remaining monopoly segment (Thomas 2004: 4). The political will to fully liberalize and privatize the energy market was, however, limited by the protectionist attitude towards nuclear energy. It was believed to be necessary to support British Energy as the company operating most of the British nuclear reactors 279. Therefore, the monopoly was maintained for nuclear power production (Thomas 2004: 6). As indicated above, the market for private households with a market share of about 50 per cent remained monopolized until 1998, when it was split into 14 regions in England, Scotland, and Wales. Business areas were not unbundled in sequence; distribution and supply remained unbundled; only accounting was hived off 280. After the regulator’s review in 1997, many of the owners of the regional electricity companies decided to separate the business areas. Shortly after, supply was bought by generators (Thomas 2004: 9f). Accordingly, the incentives for suppliers to establish an energy efficiency business and to decouple energy sales from returns were diminished. To summa-

278

‘One of the weaknesses of the initial structure, that the generation sector was dominated by a “duopoly”, National Power and Powergen (80 per cent of generation at privatisation), has been overcome and generation is now split between more than ten companies, with no company having more than 15 per cent of the market’ (Thomas 2002b: 3). 279 The government helped British Energy financially several times in order to save it from bankruptcy (Moss 2002; see also Helm 2004: 199ff). 280 ‘There were serious practical problems from metering and data processing in the first 18 months in both cases [first steps of privatization], but consumers soon found that their bills could be reduced and most now change supplier annually or renegotiate better terms with their existing supplier. However, it was the plan to allow all consumers choice from 1998 that caused the worst practical problems. The process was only completed a year after the scheduled date and the cost to consumers over five years of the systems needed to allow them to switch was £726m: four or five times the amount expected’ (Thomas 2002b: 11).

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rize, liberalization of energy markets 281 faced diverse limitations: the protectionist attitude of the British government towards a bankrupt nuclear energy industry 282, the slow unbundling of business sectors, and the transitional maintenance of the monopoly supply to private households until 1998 283. One consequence of the imperfect liberalization of the electricity market was the unequal distribution of energy prices among consumers. A publication by Offer from 1997 demonstrated that the comparatively high costs of coal 284 were allocated to the monopolized customer segment, whereas industrial customers benefited from energy cost reductions driven by competition (Offer 1997). Nevertheless, without any serious attempts to assess the costs and benefits of supply competition, Littlechild was convinced of the advantages of pressing on with the liberalization of the electricity market in 1998. He concluded in the classic Austrian style in early 1995 that ‘experience to date in electricity, and in other utilities where competition had been introduced, suggests that all groups of customers, including domestic customers, will wish to take advantage of the opportunities to exercise choice’ [italics added] (Offer 1995a: para 2., p.3). (Helm 2004: 264)

Paradoxically, after the introduction of fully fledged competition after 1998, no decreases in prices could be observed for private households. On the contrary, the companies were now in a situation without price regulation. They could not only recover all their costs but increase the profit margin (Thomas 2002a: 5 f.) 285. Very closely linked to the comparative disadvantages for the households segment of customers resulting from the liberalization and privatization in the British energy market is the phenomenon of fuel poverty. An analysis of the introduction of the British WCI against the background of the liberalization discourse must therefore include this particular problem in greater detail. 281

Here, electricity was taken as an example. For a detailed presentation of the flaws in British energy market liberalization, including protectionist measures for coal, see Thomas (2004). 283 The following quotation also stresses this: ‘If we look at generation, the market appears competitive (…). Eight companies have more than 3 per cent of the market and no company has more than 15 per cent of the market. However, closer examination shows a much less healthy picture. 40 per cent of the capacity is owned by companies that are bankrupt or has been repossessed by banks from bankrupt companies or is held by companies that have been trying to sell the plants for at least a year at distress prices. Much of the 9.2 GW of plant that is owned by “others” is part-owned by the integrated companies or is contracted long-term to them’ (Thomas 2004: 8). 284 Compared with subsidized nuclear electricity. 285 “Since 1999, the wholesale electricity price has fallen by about 35 per cent. However, the price paid by large consumers for generation has only fallen by 20 per cent and the price paid by small consumers has actually increased by 5 per cent”. 282

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A household is commonly defined as fuel poor ‘if it needs to spend more than 10% of its income on fuel to maintain a satisfactory heating regime (usually 21 degrees for the main living area, and 18 degrees for other occupied rooms)’ 286. According to the UK fuel poverty strategy (DETR & DTI 2001), no household should suffer from fuel poverty by 2018 at the latest. Numerous measures have been launched under the fuel poverty strategy (BERR & DEFRA 2008). After a short-term decrease in the fuel poor from 6.5 million to 2.5 million households between 1996 and 2005 (BERR & DEFRA 2007), fuel poverty steadily increased to 4.5 million households in 2008, 18 per cent of all households in the UK (National Statistics & DECC 2010: 9). This increase can largely be attributed to rising energy prices. First observed as a problem in the 1970s, fuel poverty was defined in the 1980s. But only in 1991 was a lack in energy efficiency recognized as one reason for fuel poverty (SEI 2003: 10). Besides low income and increasing energy prices, fuel poverty can be largely attributed to badly insulated houses, a particular problem in Britain. It was only after the Second World War that houses were constructed with cavity walls; from 1964 it became a universal practice. Since 1969, new buildings must by law have heating systems capable of reaching a minimum temperature of 18°C in the living area and 13°C in the kitchen and circulating space (WMPHO 2005). With the adoption of energy efficiency policy, especially at the beginning of the 1990s, combating fuel poverty became a political goal. In 1999, following meetings of the inter-ministerial working group on fuel poverty, a range of programmes and initiatives were launched. To put it in numbers, since 2000 the British government has spent more than £20 million 287 on fuel poverty benefits and programmes. Among the wide range of programmes are the so-called winter fuel payments to around 12 million age pensioners, the municipalities’ Decent Home Standards and Warm Front (England) with budget increases in 2008 of £74 million 288 for two years, and the Home Energy Efficiency Scheme (Wales). High value has always been attributed to the Energy Efficiency Commitment and its successor, CERT. Of the approximate total of £3.7 billion 289 spent by suppliers under CERT in 2008–11 on energy efficiency programmes for households, about £1.5 billion 290 are expected to be spent on the Priority Group during this three-year period. In particular, cavity wall insulation was expected to be provided under CERT for around 1.23 286

See for example http://www.berr.gov.uk/energy/fuel-poverty/index.html, assessed 30 June 2011 € 29.6 million € 87.32 million 289 € 4.33 billion 290 € 1.77 billion 287 288

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million homes out of 2.9 million without it (BERR & DEFRA 2008). The figures further increased with the CERT amendment order of 2010 requiring 68 per cent of the additional 108 MtCO2 lifetime saving target to be realized through insulation measures. Ofgem’s Social Action Strategy sets out how the regulator will enhance competitiveness in energy markets while complying with its social targets such as helping the government to tackle fuel poverty. In 2008 Ofgem in response to consumers’ concerns about the competitiveness on the electricity and gas market launched an in-depth investigation of the energy market structure. Part of this investigation is dedicated to evaluating different payment methods. In Britain a pre-payment meter is one way to pay for gas and electricity, besides paying by standard credit or direct debit. 291 About 18 per cent of the fuel poor pay this way for electricity and about 12 per cent for gas. Pre-payment prices are typically considerably higher due to extra administrative costs and the costs of the meter itself 292. Typically, customers using meters pay around £55 293 more than if they paid by standard credit and around £144 294 more than if they paid by direct debit. Low-income households are less able and probably less willing to agree on a payment method that deducts the money in advance from their bank account. In addition, pre-payment meters incur a loss from efforts to monitor those customers who do not consume energy. To conclude, placing the WCI in the discourse of liberalizing energy markets creates an image of the WCI as intervention against the drawbacks of liberalization. It is strongly driven by equity concerns. In that respect, combating fuel poverty is an important element in this discourse. Implementing the WCI is a straightforward reaction to liberalization in order to counteract market imperfections that liberalization has not resolved (or has even exacerbated).

6.3.2 Energy efficiency in the climate change discourse Energy efficiency policy has always been an element of British climate policy (Collier 1998: 105). The third phase of the British WCI marked a further shift of 291 ‘[A] a pre-determined amount taken directly from the consumer’s bank account’ (Thomas 2004: 22). 292 In recent years, the use of pre-payment meters and standard credit has significantly increased compared with direct debit, which suggests that these increases may not necessarily purely reflect costs. Ofgem is demanding from the suppliers a clear explanation of the advantages of different payment methods. Should the investigation show that customer groups are treated unfairly, Ofgem intends to take appropriate countermeasures. 293 € 69.3 294 € 181.44

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focus towards climate change. The dominant objective is emphasized by renaming it a Carbon Emissions Reduction Target. In order to understand the shift in objectives, it is important to place the WCI in the context of the development of climate policy in Britain. Britain recognized the global threat of climate change comparatively early. Two documents influenced the development of the instruments of British climate policy from 1990: The Pearce Report (Pearce, Markandya & Barbier 1989) and the Marshall Report (Marshall 1998). While stemming from the 1970s, the discussion about energy taxes gained prominence through the Pearce Report to the environmental ministry. Well-known as the ‘Blueprint for a Green Economy’, the report praised the cost-effectiveness of taxes and their ability to internalize external costs as compared with tradition command-and-control regulation. The Marshall Report also concluded that economic instruments would play a major role in climate policy alongside more traditional regulatory approaches. Lord Marshall identified two leading options: emission trading schemes and taxes. In the follow-up, the Conservative government introduced a value added tax (VAT) on domestic fuels (with a tax level from zero to eight per cent) in 1993. The decision encountered serious opposition claiming that the tax would disproportionately burden the fuel poor. As a consequence, a planned further increase of the tax level from eight per cent to 17.5 per cent was abandoned. While the UK is often seen as a front-runner in the use of MBIs, not least because of these two influential reports, an analysis by Jordan et al. (2003) revealed that throughout the 1990s the uptake of these policy instruments was not as advanced as often thought: Until very recently, there was very little interest in and use of MBIs. The idea that MBIs might one day be designed and adopted at a central government level, jarred with the founding precepts of UK policy, which are pragmatism, legalism, secrecy, decentralism and informality. These institutional barriers could have been overcome if the political pressure to change had been there, but it was not. In the 1990s, the small amount of political and institutional space available was used by the Treasury and the DETR to implement ‘implicit’ taxes. These had more to do with raising revenues than protecting the environment. (Jordan et al. 2003: 195)

The following paragraphs address the role of energy efficiency in climate policy, starting with the creation of the Energy Saving Trust in 1993, and include recent developments. The creation of the EST right after the Rio Summit can be interpreted as a first practical reaction in the field of end-use energy efficiency to newly accepted

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insights about the damaging effects of greenhouse gases 295. Already back in 1993, one of the EST’s aims was to reduce carbon dioxide. Hence, the reduction of energy consumption had the connotation of protecting the climate. However, it was only in 2000 that Britain launched a climate change programme, three years after the Kyoto Protocol was adopted (DETR 2000). In addition to the UK’s commitment of reducing CO2 emissions by 12.5 per cent in the Kyoto period (2008–12) within the EU Burden Sharing Agreement 296, the UK agreed to raise its national target to a reduction of CO2 emissions by 20 per cent by 2010. In its Energy White Paper 2003 it further announced the longterm goal of reducing CO2 emissions by 60 per cent by 2050. The first climate change programme draws special attention to the positive side effects of climate protection. It emphasizes cost savings due to energy efficiency and its benefits in combating fuel poverty. A range of policy measures are subsumed under the first climate policy programme. For non-domestic energy customers (excluding electricity generation), the government announced the Climate Change Levy (CCL) in 1999 and implemented it in 2001. Bearing in mind the strong opposition to the VAT increases, the ruling Labour Party promised during its election campaign of 2001 not to impose a tax on final customers. While it was therefore impossible to impose a tax on domestic energy use at that time, the CCL could be imposed on non-domestic customers making concessions though (Jordan et al. 2003: 189): Energy-intensive industries can be exempted from this taxation by up to 80 per cent on the condition that they accept the voluntary so-called Climate Change Agreements. Tax revenues will mostly be rebated to industry in the form of a reduction of 0.3 per cent in the National Insurance contributions that the companies pay for their employees. 297 Part of the rebate is earmarked for spending on energy efficiency programmes, of which £130 million 298 went to finance the Carbon Trust. Private companies and public institutions can make use of the Carbon Trusts funds in carrying out projects for a sustainable energy supply. Instead of increasing VAT on domestic fuel, the new government decided to reduce VAT on energy saving devices to five per cent, the EU’s minimum rate (Jordan et al. 2003: 187).

295

See e.g. http://www.eceee.org/MembersForum/Energy_Saving_Trust The Burden Sharing Agreement imposes a carbon reduction obligation on each EU Member State in order to allow the EU to comply with its overall Kyoto Protocol target. The baseline year is 1990. 297 Since the National Insurance contribution was raised by one percentage point in 2002, the positive effect of the revenue rebates has diminished. As well, the tax is neutral only with respect to the overall economy. On the business level, non-energy-intensive companies with many employees are net beneficiaries of the CCL (The House of Commons Environmental Committee 2008). 298 € 202 million 296

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The industry mainly advocated an emissions trading scheme (ETS) in preference to a carbon energy tax and formed an emissions trading group in 1999. This initiative mainly influenced agenda-setting, taking the government by surprise (Jordan et al. 2003: 187). Accordingly, the environment ministry also took up the introduction of a national emissions trading scheme in its first climate change programme. Apart from these market-based incentives, energy labels and product standards are listed as measures under the first climate change programme (DETR 2000). On the electricity production side, the share of renewable electricity was to be raised to ten per cent by 2010; the capacity of cogeneration was to be at least doubled. In the transport sector, the programme applied to EU agreements. Besides, an additional £180 million 299 was to be provided for investment in transport management and public transport for a ten-year period. The agricultural sector has not been tackled with concrete measures. The programme emphasized the public sector’s role in setting a good example by reducing greenhouse gas emissions. Targets, numbers or fixed budgets were imposed on neither the agricultural nor public sector. The first climate change programme has been evaluated continuously, and the results were synthesized and published in 2006 (DEFRA 2006a). The evaluation was the background against which the new climate change programme (DEFRA 2006b) was framed. It concluded that the sectors’ contributions to reducing greenhouse gas emissions differed 300. Following publication of the results, the business sector contributed with reductions of 32 per cent, private households with 17 per cent, and the transport sector with 23 per cent. The report stated that the household sector was dominated by regulatory policy instruments (building codes and the EEC) whereas the business sector was subject to a wide policy mix. In this context, the EEC is not understood as a hybrid policy instrument combining different modes of action, but portrayed as a regulation (DEFRA 2006a: 5). Of the £80 million 301 that were spent on climate change measures in the context of the climate change programme, 50 per cent was dedicated to building regulation. The EEC was highlighted as a reliable and cost-efficient policy instrument, especially when compared with voluntary commitments. As soon as it became clear that the British government would have problems reaching its Kyoto target with the measures foreseen in the first climate

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€ 282.6 million The EU emissions trading scheme was not subject to evaluation since it was not part of the first climate change programme despite its relative importance in current national climate change efforts. 301 € 116 million 300

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change programme 302, it updated its catalogue of measures and launched a second climate change programme in 2006 (DEFRA 2006b). On the supply side, carbon reductions were meant to be reduced mainly through the EU emissions trading scheme and the renewable energy quota. In addition, £80 million 303 was allocated over a three- years period to support micro energy systems. Another £35 million 304 was to be spent on research, especially on ‘carbon capture and storage’ (CCS). The role of CHP within the national allocation plan for the EU ETS was to be analysed. The ‘renewable fuel obligation’, announced for 2008, was to make an important contribution to carbon reduction in the transport sector (in addition to integrating aviation in the EU ETS). No new policy instruments were added in the household sector. The government relied on existing policy instruments but with tightened targets. The contribution of the private household sector to carbon dioxide reduction in the first climate change programme reveals the importance of the British WCI. Among the end-use sectors, the domestic sector was responsible for about 27 per cent of total CO2 emissions in 2004. With the new programme, a reduction of 16 per cent on the 1990 level is expected in the domestic sector. Already with existing measures of the old climate change programme, carbon savings of 3.6 million tonnes were expected to be achieved by 2010 in the domestic sector. The EEC was expected to contribute about 44 per cent, the building codes 41 per cent and fuel poverty programmes the rest. The new climate change programme of 2006 focuses on strengthening the targets of existing measures. Apart from an update of the building regulation, the EEC’s successor is the main policy instrument for this sector, ‘seeking to achieve substantially higher carbon savings from the Energy Efficiency Commitment in 2008–11. We will consider with stakeholders how to provide as much flexibility as possible in the range of measures that can be employed’ (DEFRA 2006b). This passage emphasizes two aspects. First there exists a strong commitment to continuing and strengthening the WCI. It is mentioned as the first measure in the list and is expected to deliver most of the additional savings. Second, the WCI will be designed in consultation with the affected stakeholders in order to ensure increased flexibility. Several comments can be made about the policy instruments available to combat climate change in Britain. The first climate change programme basically subsumed major policy instruments that already existed for various reasons but 302 ‘Although we have made significant progress, higher than anticipated levels of economic growth and the recent rise in global energy prices (…) have led to increases in our carbon dioxide emissions in recent years’ (DEFRA 2006b: 3). 303 € 116 million 304 € 51.1 million

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that had a carbon-reducing effect. The evaluation showed that it still fell short of the national objectives, so the instrument mix was enriched in the second climate change programme of 2006 with some new instruments and stricter targets. Regulations in the building sector are achieving the highest share of CO2 savings in the country. Energy efficiency plays a comparatively big role, with concrete targets and policy instruments attached to it. The EEC outperforms the oftmentioned Climate Change Levy in terms of its monetary impact as well as carbon savings. Apart from regulation in the building sector, UK climate policy is dominated by economic instruments such as emissions trading, taxes, renewable energy quota and a couple of subsidies. Interestingly, within this context the EEC has been perceived as a case of ‘regulation’ rather than one of the policy instruments working with flexibility and a combination of carrots and sticks. As already mentioned, the NEEAP (2007), too, discusses the role of the WCI in the mix of policy instruments – the WCI is categorized as an ‘EEC subsidy’ under ‘grant/subsidy’ (DEFRA 2007: 19). The entire NEEAP is placed in the discourse of climate change. It says that ‘Using energy more efficiently is the fastest and most cost effective way of cutting carbon dioxide emissions’ (DEFRA 2007: 5) and in a separate column lists other objectives of energy efficiency, namely, security of supply, maintaining competition, and tackling fuel poverty (DEFRA 2007: 8). The British climate policy discourse is characterized by a major governmental decision to frame all major policy decisions that potentially affect climate change under the rubric of climate change. Thus, what happened in the UK goes beyond integrating climate policy into environmental and energy policy; rather, climate protection has become an umbrella policy. This decision was underlined by major structural changes. In October 2008 the Department of Energy and Climate Change (DECC) has was created. All competences related to energy and climate were transferred from the Ministry of the Economy (from the Department for Business, Enterprises and Regulatory Reform, BERR, which merged in June 2009 with the Department for Innovation, Universities and Skills into the Department for Business, Innovation and Skills, BIS) and the Environmental Ministry (DEFRA) to DECC. In 2008, the Energy Act and the Climate Change Act were adopted and entered into force. The Climate Change Act (HM Government 2008) imposes binding long-term targets for carbon emission reduction of 80 per cent below the 1990 level by 2050. The agreed mid-term reduction target is 34 per cent by 2020. With these targets, the UK is a front-runner among European countries. In order to make reaching these targets a realistic prospect, the Act sets out a road map in the form of carbon budgets for certain time periods. Policies and

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measures have to be adjusted in light of these budgets. With regard to the issue under investigation, the Climate Change Act prescribes the establishment of trading schemes relating to greenhouse gas emissions. Its general aim is to establish the power to hasten the implementation of domestic trading schemes through secondary legislation. As it has been mentioned above, trading provisions for certificates were not foreseen under the Acts that liberalized energy markets. The British supplier obligation therefore could not become a fully fledged tradable white certificate scheme. This has changed under the Climate Change Act. Part Three of the Act is dedicated to defining the activities to which trading schemes may be applied and to determining the requirements of the regulation (including the general procedure for establishing regulations) and the responsibilities for setting up and administering possible trading schemes. The Act’s definition of the trading mechanism as a scheme ‘encouraging activities that consist of, or that cause or contribute, directly or indirectly, to reductions in greenhouse gas emissions or the removal of greenhouse gas from the atmosphere’ (HM Government 2008, 44(2)b) 305 would also apply to trading schemes in the field of energy efficiency. Further, activities might be targeted by a trading scheme if they are related to the ‘consumption of energy’ (45(1)a) or ‘the production or supply of anything whose subsequent use directly causes or contributes to greenhouse gas emissions’ (45(1)d). The Act further sets out that ‘Correspondingly, for the purposes of this Part activities are regarded as indirectly causing or contributing to the reduction of greenhouse gas emissions if they involve a reduction under any of those heads’ (45(2)). Thus, activities that cause a reduction in the consumption or the supply of energy are eligible to be regulated via trading schemes. A tradable white certificate scheme would fall under this definition. Another part of the Climate Change Act is dedicated to defining new powers for extending the existing CERT scheme to electricity generators through Schedule 8 (cf. section 79). The Act determines a new group of obliged actors apart from energy suppliers. It prescribes that more than one obligation can be imposed. The latter provision allows for the introduction of separate obligations for different sectors and actor groups. It further entails the creation of a new trading scheme to start operating in April 2010, the so-called Carbon Reduction Commitment, currently renamed CRC Energy Efficiency Scheme. It is a mandatory cap-and-trade scheme for non-residential low energy-intensive electricity consumers consuming more than 6,000 MWh annually. It is thus filling the gap between EU emissions trading and the supplier obligation for the domestic sec305

Section 44(2)a defines a trading mechanism as a scheme ’limiting or encouraging the limitation of activities that consist of the emission of greenhouse gas or that cause or contribute, directly or indirectly, to such emissions’; that is, this part of the definition refers to limiting negative activity, whereas Section 44(2)b refers to encouraging positive activity, like increasing energy efficiency.

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tor. While addressing the demand side, the CRC is, unlike the WCI, a cap-andtrade scheme that does not involve the implementation of particular measures. The target is to reduce carbon emissions by 1.2 million tons by 2020 306, which is thus considerably smaller than the target to be reached with the WCI. Finally, the latest changes flowing from the Electricity and Gas (Carbon Emissions Reduction) (Amendment) Order 2009 (Secretary of State 2009), have led to the imposition of a separate energy saving obligation on suppliers and generators. In total, 19.25 million tons of carbon savings have to be reached in the domestic sector via ‘a whole house, street by street approach’ (Ofgem 2009b) between 1 October 2009 and 31 December 2012. By the ‘whole house’ and ‘street by street approach’ it is intended to significantly improve energy efficiency standards, especially in low-income regions. Even if this is a new WCI, this research project does not go into the details of this new policy instrument, since the programme started only recently. The Energy Act implemented legal aspects of the 2007 Energy White Paper. It deals not with energy efficiency (except smart metering) but with topics such as CCS, the offshore gas supply infrastructure, renewable energy support through a strengthening of the obligation, and additional feed-in tariffs. Since CERT is explicitly taken up by the Climate Change Act and not by the Energy Act, it becomes clear that the focus of the policy instrument and any future version is unambiguously on tackling climate change. However, the following passage shows that in practice the purposes remain twofold: ‘CERT’s primary aim is reductions in carbon dioxide emissions in the domestic sector, but as it brings about a general improvement of the housing stock, it can also help to future proof homes against fuel poverty’ (BERR & DEFRA 2008). To sum up, the WCI can be placed in two discourses, both of which contribute to the policy instrument’s image creation. On the one hand, the very initiation of the WCI has to be seen as an intervention against the drawbacks of liberalization, and thus reflects a power struggle at the beginning of the 1990s over how much regulatory intervention is possible and necessary. Equity concerns (securing energy efficiency availability for all and combating fuel poverty) are the main reasons given for the intervention. On the other hand, within the climate protection discourse other aspects of the WCI are emphasized. Energy efficiency has been one of the cornerstones of British climate policy from the start. Climate policy instruments – thus the preferred mode of action – have had different rationales from that of the policy process of setting up the WCI. As a result of the trend-setting reports of Pearce et al. (1989) and Marshall (1998), taxes and emissions trading were perceived as 306

http://www.carbonreductioncommitment.info/

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more efficient instruments than command-and-control ones. While the WCI is an exception to that preference, it is retained since it is the single most important policy instrument in the field of energy efficiency. However, as depicted above, the scheme became more flexible (even if the flexibility provisions played never a big role in practice) over time. More recently, the Climate Change Act 2008 has provided the legal background to introducing trading schemes in all climaterelevant policy areas. However, the extension of the British WCI until 2012 is more in line with its origin: for equity reasons, the focus is strongly on insulation with priority given to targeting low-income households. The new rules are much more regulatory than flexible in character, the scheme more straightforwardly designed. Thus, while a climate policy instrument and therefore typically associated with economic instruments such as taxes and tradable permit schemes, the WCI has more regulatory roots – and a corresponding image. Do the perceptions of policy architects fit into the discourses of energy efficiency in Britain? What are the subjective views of the purposes and the dominant mode of action of the WCI – and accordingly its image? These questions are being addressed in the next section.

6.4 Perceptions of the WCI and the policy process – the policy image The interviews carried out with British experts together paint a very coherent picture of the supplier obligation in Britain. As shown below, some special features are addressed by particular actors highlighting certain aspects. All experts agreed, however, on the most important characteristics of the scheme.

6.4.1 Objective and (hidden) purposes The experts clearly expressed the overall objective of the policy instrument: to deliver carbon savings for climate protection. Each expert further articulated alleviating fuel poverty as another objective of the WCI. Asked to rank the objectives, all but one agreed that climate protection had priority over alleviating fuel poverty. The one exception still says that the focus of the policy instrument has shifted: I think it is interesting that CERT is kind of moving on, CERT now, the fact that it’s now a carbon reduction target as opposed to an energy efficiency which a lot of us were saying the EEC needed to reflect if it was a carbon emission measure rather than an energy efficiency measure. (…) It’s interesting to see that DEFRA moved from kind a position – no we don’t want to change – to now: OK.

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The other actors share the observation of a shift in objective from alleviating fuel poverty, which was emphasized in the beginning of the scheme, towards climate protection. Especially after CERT entered into force, it became entirely clear that climate protection was the primary goal and would continue to be so in the future. One expert speculated on the future focus of the programme: ‘It has to be climate change because the government is thinking not only about measures any more, it’s actually thinking about constraining what the utility suppliers are allowed to supply to the customers.’ However, another passage also argues that alleviating fuel poverty is the foremost objective: ‘The Priority Group is probably the most costly single element of the whole frame, it was originally introduced for equity reasons, just to make sure that people on low incomes got benefits, but has since sort of merged pretty imperceptibly into a fully-fledged fuel poverty measure.’ In addition to the overarching objectives, the experts explained the introduction of other, ’hidden’ purposes. The policy instrument was immediately approved of for being budget neutral. Four experts stated explicitly that the government saw it as a way of raising money without either raising taxes or spending money on grants or subsidies. Others made the same point by saying that the policy instrument was invisible. In the expert interviews’ transcripts, a total of seven statements are related to the policy instruments’ budgetary independence: ‘no tax required’, ‘raising revenue without taxation’, ‘does not appear on governments books’, ‘you never know the costs’, ‘big programme but invisible’, ‘very invisible’, ‘government being able to deliver energy efficiency improvements without the government paying for it’. One expert pointed to some economic considerations that made him believe that the WCI was superior to tax as a way to deliver the target: It would cost consumers three times more to deliver the savings through a pricebased mechanism than it would through a sort of more targeted instrument. And the figures were pretty robust, on both the business side and the household side. (…) further, the administration costs of the EEC and CERT are very very low.

One expert stated that market transformation was another purpose of the policy instrument.

6.4.2

Mode of action distinct from other policy instruments

The changing objectives are well reflected in the fact that the perceived modes of action of the policy instrument are rather restrictive rather than flexible. Generally, the experts agreed that this instrument was characterized as a rather restric-

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tive regulatory intervention. ’I mean this is a programme, which is highly regulated to be sure that it does what it says.’ Several experts set the mode of action in the context of its historical roots: ‘Implementing energy efficiency particular in low-income households‘ to offset market failures due to liberalization, Pre-privatization (…) we should have some demand-side programme, but because of market failures, that’s not going to happen so we need to intervene. Postprivatization (...) that became a way to make sure that the private companies that are now the energy suppliers continue to engage with their customers on this sort of energy demand side.

Mostly indirectly, the experts agreed that the Labour government saw it as a chance from behind to take over an already well-established mechanism and to use it to achieve higher targets. One expert expressed it like this: I think the companies see that there is quite a big risk associated with this. They have to meet the target and if they don’t meet the target, they will be fined. It’s a pretty brutal instrument, isn’t it really? And I think that’s sort of the disbelieving part of it, really, you are twisting someone’s arm on their back and just pushing it a bit further. But I think one of your related questions is: why is it a success? The fact that a penalty can be imposed on the energy companies means that there is no escape from this mechanism, you have to comply.

Similarly, another expert pointed to the main success factor of the policy instrument: ‘I mean this is a programme which is highly regulated to be sure that it does what is says. And customers are really benefiting from it as a result.’ Mostly acknowledging that the policy instrument contains both carrots and sticks, another expert stated that the WCI was, however, ‘far from being an MBI’. In his comprehensive study of British energy policy, Dieter Helm also commented on the mode of action of the Energy Efficiency Commitment, in line with the way it was perceived by the interviewed experts (Helm 2004: 368): ‘After some considerable debate, the EEC was set up as “son of EESoPs” – in essence, a further tax on customers.’ Asked what the most important design characteristic of the policy instrument was, all of the experts said – directly or indirectly – that it was the imposition of a mandatory obligation on the suppliers. Some actors mentioned the flexibility of the scheme, which allowed the obliged actors to choose the most cost-efficient way to comply with the target. This, however, was not perceived to be a decisive feature of the policy instrument, which is also reflected in the actual design of the policy instrument: it is restricted to the household sector, it does not allow for certificates trading, it is more or less restricted to a well-defined list of measures, and part of the target

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has to be fulfilled in the so-called Priority Group, or, to quote another expert: ‘the strength of it is that it uses a small portfolio of standard measures (…). But if you moved to the business sector, suddenly the relevant measures would become much broader.’ A lively debate going on in Britain about the characteristics of the post2011 scheme, with some of the experts demanding greater flexibility: ‘So we’re quite keen that if you are adding more flexibility and innovation you put it in the right place to really drive it.’ Half of the experts already observed that the scheme had become more flexible. Three experts mentioned the inclusion of demonstration projects and microgeneration technologies as enhancing flexibility. Others interpreted the expanded definition of the Priority Group and the relative reduction of the Priority Group as a sign of move towards a less coercive scheme. One expert put it like this: To be honest, because innovation was never part of the EEC, it was just straightforward: here are the measures, go ahead and do them. Then, just in the most recent one, which is the CERT, which is from 2008, that has now got a small innovative element. It’s really just starting to become an issue.

Issues in the current debate also suggest that more flexible elements will be introduced into the scheme. As well, the introduction of tradable white certificates is being raised and discussed again; meanwhile the legal basis for introducing tradable white certificates has been laid. Further, moving future schemes towards a cap-and-trade scheme was an issue in the consultation procedure. Interestingly, this idea was raised and advertised by two suppliers, as one expert reported: I mean the driver for this came from the Scottish and Southern Energy, from Ian Marchant, two years ago. And he was the one who really sold the political vision to ministers, of companies that would make money by selling less energy, sort of, this is brave new world. And, if anything, Scottish and Southern have pulled back slightly in their sort of enthusiasm for it. (...) [The other one] is definitely E.ON, who wants to sort of get straight into cap-and-trade, but with (...) sort of automatic funding to help the insulation measures. And then the other four. EDF is then the three, sort of the next in line, then npower, and then Scottish Power and then British Gas saying, let’s keep going with sort of measures-based, sort of better the devil you know than the devil you don’t. And I don’t know why. (...) Some of it is pressure, and they are all part of European conglomerates now, Scottish Power’s attitude has changed visibly since their merger with Iberdrola. And it’s clearly some sort of pressure from the wind [energy], sort of do less on the social and environmental side and that feeds down to sort of our level (...) to these sorts of policy instruments.

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The decision about a cap versus a measures-based scheme involves a set of questions such as the incentives for suppliers, the steering capacity of governments and trade-offs between different costs and benefits. While there is no buyout in the current scheme forcing the government to set rather moderate targets, a capand-trade scheme would require some sort of buyout. This, as mentioned above, would in turn incentivize suppliers not to implement measures but rather to pay the buyout price if no certificates are available on the market. An expert expresses this dilemma thus: But equally, at the moment, because we have no buyout, they will only have a very high penalty (…) up to 10 per cent of turnovers, that’s a very big fine, we have to set the target quite conservatively because it has to be achievable at reasonable costs, from a sort of balance of measures. And actually we could probably set a higher target if there’s a buy-out.

One expert connects future options for a scheme utilizing a cap with the dominant focus on climate protection: The focus will be climate change, I mean, the previous Prime Minister Tony Blair went on record saying that climate change is the biggest threat to mankind, or whatever he said, you know, very grandiose statement. And it’s an energy efficiency programme; climate change would be the key part of it. I think you are aware of potential changes from a measures-based programme into a cap. I think the focus really, you know, a measures-based programme to delivering to a cap on the absolute amount of electricity that can be supplied is, you know, it’s got to be quite a change.

Some experts depicted the British WCI as distinct from other policy instruments. Generally, two perspectives are taken here. On the one hand, the WCI is compared with other possible interventions in order to achieve a generally higher quantity of energy savings. It is mostly referred to as a tax in this context and is spoken about as follows: ‘in effect, this is a tax.’ Regarding future options, it is referred to a cap-and-trade rather than a measures-based scheme, as discussed in greater detail above. On the other hand, experts compared this policy instrument with regard to its ability to support certain measures, thus supporting more qualitative aspects. Here, the role of the appropriate actor has typically been raised: for example, whether an energy-saving trust would be involved in determining the projects. Also, subsidy schemes and feed-in tariffs are alternative policy instruments that experts have mentioned.

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Table 5: ‘Coercion’ and ‘flexibility’ in the transcripts of interviews Coercion

Flexibility

Impose obligation

Complete choice of measures – it makes the scheme more successfulc

If they don’t meet the target, they will be fineda

Free market arrangementsd

Pretty brutal instrument No escape They have to do it, it’s an obligation No need for liquidity Key thing is to have an obligation Highly regulatedb No competitive market Bold scheme: forcing activity to occur Does need to be an obligation Residential sector obligation Less pressure to have a tradable compliance mechanism here Far from being an MBI, it has a lot to do with regulation Very engineering approach In effect, it’s a tax It’s a penalty The thing that it makes such a success is the penalty To be honest, it’s regulation Source: Author Notes a

The same expert said that the policy instrument is more successful because of the free choice of measures. b The same expert said that the policy instrument is a free-market arrangement.

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The same expert said that the precondition for success is the penalty. The same expert said that it is on the other hand a highly regulated scheme.

d

Table 5 collects all statements found in the expert interview transcripts on the mode of action being either coercive or flexible. All experts perceived this policy instrument as one of the most important and successful climate policy instruments in the UK (apart from emissions trading) and as the most important instrument for the household sectors. As one expert put it: ‘It’s the most, I mean, it’s the only measure we have that is actually trying to improve energy efficiency at the domestic sector, so it’s probably the most important energy efficiency measure, we have.’ The experts usually illustrate their opinions with figures indicating the overall cost of the programme, that is, the estimated budget to be spent on energy efficiency measures under the three-years period under CERT 307: ’I mean for all the supplier companies in the next financial years, it says to make about £900 million 308 [not taking into consideration the current update of the target]. It’s a lot of money. They have to take it very seriously so.’

6.4.3 Design choices and political conflict Several contentious decisions had to be taken throughout the whole political process of creating and shaping the WCI. Since the entire instrument was created as a rather small intervention whose purpose was to not disproportionately burden consumers but still get suppliers engaged in end-use energy efficiency, agenda-setting was not much debated between companies and policymakers. Instead, the general question of whether the regulator should intervene in order to ensure a minimum level of energy efficiency was very much debated. Suppliers increasingly raised issues of design and target setting of the EESoP successor schemes for negotiation during the consultation processes. According to three experts, among the most important design feature of the British WCI is the choice of energy suppliers as obliged actor. Two experts explained that putting the supplier in charge of delivering end-use energy efficiency in the residential sector has the advantage of making use of an actor who not only is close to their customers but also knows how to work in a competitive 307

The total amount of money to be spent by the suppliers is only an approximation, since there is no fixed cost-recovery. With the target increase of CERT introduced in 2009, some estimate cost increases of around £500 million (€ 585 million) in addition to the £900 million–£1,000 million (€ 1053 million - € 1178 million) already projected. 308 € 1053 million

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environment, use and develop business opportunities and thus implement measures in the most cost-efficient way. Nevertheless, it was not always clear that the supplier should be the main delivery agent. Distributors were also considered to be a possible obliged actor; as an expert stated: ‘There has been a lot of debate in the past whether it should be an obligation for distributors or suppliers or both.’ The arguments for choosing the suppliers were, according to the interviewees, the proximity of the suppliers to their final customers, their ability to operate in competitive markets, and, last but not least, the side effect that the costs would not appear in any governmental budget statistics. According to the experts, the overall target was not so much a source of conflict. All experts agreed that it was, rather, the Priority Group’s target was a matter of dispute throughout the negotiations every time a new target was discussed. When a change in governing structure of the policy instrument put the environment ministry in charge of setting the target, the scope of the policy instrument in terms of target size and the overall amount of money to be spent under the scheme also changed. The resulting budget for low-income households arising from the separate Priority Group target was more visible than before, and fuel poverty was perceived as the main issue. In the subsequent negotiations the suppliers asked the government to separate the target. The Priority Group is harder to access, and search costs are considerably higher for these low-income households. In addition, the more the low-cost savings have been exploited, the more costly additional savings would be. Doubling the target therefore meant an increase in costs by a factor of more than two. During the political process, especially throughout the consultation process for CERT, this issue had repeatedly been raised and apparently changed the definition of the Priority Group and the eligibility of measures in the direction of more flexibility for the supplier. A nongovernmental expert described the consultation process thus: In fairness to DEFRA, I think they have handled the whole consultation process extremely well. They don’t do it from written consultation however. (...) And they have, DEFRA have undoubtedly changed the shape of the programmes as a result of the consultations, both the written consultations and the consultation meetings. And the primary example of that, if you like, is there was a lot of concern that the Priority Group’s sales up until now have been 50 per cent of the target. DEFRA indicates in the initial consultation that it will be 40 per cent in CERT, or, initially they didn’t say and then they said: probably 40 per cent. And suppliers felt (...) that would be impossible to achieve. As a result, DEFRA confirmed that it would be 40 per cent but also included where somebody is 70 years of age and above which adds about 2.5 million households to the Priority Group pool which makes the whole thing far more achievable for the suppliers. And that came as a result of pressure through the consultation process.

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Another expert questioned the difficulties that the suppliers face under stricter targets: ‘Historically, the suppliers have always said that it’s impossible to achieve and then they over-deliver. I think you always get the industry saying it’s too much, it’s too much, and then they are able to demonstrate that they can do it.’ The type of eligible measures was also a matter of extensive discussion. Many issues regarding the determination of measures and baselines to estimate ex ante savings were negotiated primarily between teams of experts from all kinds of actor groups, especially from the environment ministry, Ofgem, and the Energy Saving Trust. Generally, the Treasury and the business department (BERR) also followed the scheme with interest and participated in a crossdepartmental working group to discuss future schemes. The whole scheme is continuously negotiated very closely with the suppliers. One expert working for a governmental institution answered the question about the frequency of contact between the suppliers and governmental institutions as follows: [We have meetings] all the time. Yeah, I mean, some of them [suppliers] for more to sort of discuss the target or the Priority Group or the illustrative mix, and quite a lot of just informal contact, either with them as a group or bilaterally with each supplier, so yes, pretty extensive.

However, besides this more technical cooperation, some very general political concerns became manifest in the discussion about eligible measures. The underlying fear of suppliers was that the choice of eligible measures and the attached saving value could put them at a disadvantage vis-à-vis their competitors 309. Some examples illustrate this: British Gas, for instance, which is the main gas supplier in Britain, has a heating business, has a business to install heating equipment at consumers’ homes. Where the EEC favours heating measures, or is expanded to include heating measures, the other utility companies find that difficult because British Gas has already set up a business to do this sort of measures. They may find that a bit of a disadvantage. It’ll be fair to say that the companies are very mindful of that sort of thing where the other companies are positioned, where there could be a disadvantage to them. 309

One aspect some interviewee claimed to have an influence on the suppliers’ energy efficiency activity is the so called ’20 days rule’. Since customers may terminate a contract with energy suppliers within 28 days, suppliers claim that customers would benefit from energy efficiency projects but then switch to another supplier. However, suppliers may be engaged in long-term contracts that include the provision of energy services, and erect put reasonable barriers against customers who want to terminate their contracts. Thus, the 28 days rule is not expected to prevent suppliers from strengthening customer ties through energy efficiency measures.

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Other examples involve third actors from the economic sector supplying energy efficiency goods and services which do not link to the suppliers directly. A governmental actor mentioned the important role of the insulation industry: ‘The insulation industry, they come in quite regularly.’ Since the whole scheme leads to the installation mainly of insulation (from around 50 per cent of the measures in the EESoP to more than 70 per cent in the EEC; 61.8 per cent is the latest figure for CERT), the insulation industry became an important actor within the scheme. The government aims to support insulation further as the main kind of measure under the supplier obligation. While there has been much cavity wall and loft insulation in the previous schemes, now solid wall insulation is more incentivized. Generally, insulation pays off as a measure since lifetime savings are taken into account. A governmental expert confirmed this observation: ’And that’s how it gets the very high scores in the EEC and CERT as we are having lifetime carbon benefits. And just from a sort of strategic point of view, we really want to see those measures rolled out strongly across the whole housing sector and don’t want to shift away from that.’ Another expert further explicates the inherent conflict of this purpose: And certainly the insulation industry, and certainly a lot of other people felt as well that to do the whole-house approach, you know, while you are there you might as well do the loft insulation as well otherwise at some stage of the future you’ll have to go back. But the argument against it is, well it is all about carbon saving, primarily about carbon saving, and if you are going to include that in the scheme, you, in effect, are losing carbon savings. Because when you are building the costs of it into the theoretical scheme mix, than you will put the cost of customers up by a lot [more] than effectually [doing carbon savings].

This quotation shows that there is always an inherent trade-off in choosing measures. Some kinds of measure may seem desirable from the perspective of particular industries and manufacturers. Instead of insulating part of the house, one could insulate the whole house; this would save transaction and search costs for the companies and the households, but does not necessarily lead to the most cost-effective carbon and energy savings. In addition, the energy saving benefits are more concentrated this way, while the costs are spread equally among society. It might also provoke resistance from other industries that also would like to profit from the scheme. It thus remains important to maintain a balance of measures and to weigh all possible benefits against each other. A pure cap with a trading mechanism will not be able to deliver the qualitative benefit that a baseline-and-credit WCI delivers. There exists a strong political commitment to continue with the scheme

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for both environmental and social purposes. The quoted passages show that insulation measures in particular are meant to be delivered through the scheme. The government was not as decisive regarding the appropriate policy instrument to support microgeneration technologies, which also caused some controversy in the WCI negotiations. While being eligible under the EEC, less than seven per cent of the savings under EEC have been delivered through heating measures and micro-CHP (Ofgem 2008b). Implementation of other microgeneration technologies was negligible, and only solar thermal and heat pumps were eligible under EEC 310. Apart from the supplier obligations, there have been other support mechanisms for microgeneration technologies, such as a five per cent VAT rate for most of them, grant schemes, research funds, or eligibility under the renewable obligation. The major microgeneration grant scheme, the Low Carbon Buildings Programme 311, officially expired in March 2008 but some money was left unspent at that time, as an expert emphasized in an interview. These untapped funds illustrate that there seem to be barriers against implementing these new technologies 312. While the former industry ministry, the Department of Trade and Industry (DTI), set out the microgeneration strategy (DTI 2006b), the discussion about adequately supporting these technologies was also spurred by the environment ministry – DEFRA at that time. While micro-CHP has been realized in the EEC mainly through the energy service route, its percentage has remained low. Several interviewed British experts are of the opinion that microgeneration technologies might have a potential in future schemes, the more so as other, more cost-effective potential is tapped. They agree, however, on their estimation that under the current scheme microgeneration will account for only a minor share of the savings. Microgeneration technologies are now generally eligible under CERT. According to an expert working in close collaboration with the microgeneration industry, there exist strong fears among their 310

A few companies operate in micro-CHP employing significant numbers. While micro-CHP is already an established industry in Britain, other microgeneration technologies lack manufacturing capacity and are importing equipment from abroad, such as ground source heat pumps from Sweden. In the absence of a market for microgeneration technologies, investment in large-scale manufacturing is unlikely. The microgeneration strategy emphasizes that, unlike the construction and household product industries, microgeneration (except micro-CHP) lacks established brands. However, the DTI microgeneration strategy (2006b) reports changes in this regard due to the growing interest of large companies such as energy suppliers like Centrica and Scottish and Southern, or Worcester Bosch. 311 The Low Carbon Buildings Programme was the successor of the Clear Skies Initiative and the Major PV Demonstration Programme. 312 In 2009 the scheme was given an extra budget of £ 45 million (€ 50.4 million) for the household sector and was extended until 2010. It is administered by the Energy Saving Trust and grants up to £2,500 (€ 2,800) per property, however, in May 2010, the scheme was closed for new applications due to departmental spending cuts. http://www.lowcarbonbuildings.org.uk/Microgeneration-for-yourhome/Closure-of-the-Low-Carbon-Buildings-Programme

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representatives that they would lose all other forms of support by making this technology fully eligible under CERT. Also, two other experts expressed similar concerns. Because it’s so expensive, the cost–benefit. I mean, they have been economically rational the way they work out the marginal abatement cost curve. Given enough time, microgeneration will become the sort of next measure that suppliers have to use. But I am worried about the way the costs will distribute amongst householders, unless they can go down a sort of energy services type model. With some way of making sure that the house owner pays the costs (…) it shouldn’t be hidden in the energy costs of all customers. (…) But why push microgeneration beforehand? In a sense we are intervening in an economically inefficient way, well that’s how some people would see it. And other people would say, well we have to do this sooner or later, so let’s just get going with it, there are the costs and there are other benefits as well, let’s say consumers’ engagement. People with energy applications in their homes tend to be more energy aware, that’s the ideal way to get engagement with householders. (Expert from governmental institution)

This expert statement also illustrates the main controversies surrounding the WCI. On the one hand it is meant to deliver a large amount of carbon savings and is thus a quantity-driven instrument. On the other hand it aims at incentivizing certain technologies. By doing so, the cost-efficiency of the individual measures has to be considered and judged in the light of the distribution of benefits within society. Therefore, some measures are preferred to others, partly for practical reasons. While CFLs are nowadays considered as too low-hanging fruit, other measures are valued more highly. Insulation (shifting from cavity wall and loft insulation to solid wall insulation) and microgeneration technologies are examples of measures that are more highly ranked qualitatively. As microgeneration technologies are more costly and cannot be distributed on as large a scale as insulation measures, their employment is capped in order to keep the costs of the whole scheme reasonable. Following the expert interviews, it seems to be commonly agreed that the British WCI is not the optimal way to increase microgeneration technology employment rates. Also, the renewable obligation is not considered to be the answer since it implies too high transaction costs for too uncertain results for these technologies. As a consequence, since 2010 a feed-in tariff for microgeneration technologies has been available in Britain 313. 313 See e.g. http://www.energysavingtrust.org.uk/Generate-your-own-energy/Sell-your-ownenergy/Feed-in-Tariff-scheme, or: http://www.decc.gov.uk/en/content/cms/what_we_do/uk_supply/energy_mix/renewable/feedin_tariff /feedin_tariff.aspx, accessed 24 April 2011.

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The discussion about the future shape of the supplier obligation is very much one about weighing the benefits that the current scheme delivers against the ever-increasing costs. Two suppliers have requested a cap for energy supply. Throughout the ongoing consultation process both suppliers as well as the regulators refrained from pursuing this option. An expert mentioned an unpublished detailed economic study by DEFRA economists, which revealed that replacing the current WCI with a cap-and-trade scheme would lead to suppliers just passing on costs and generate windfall profits, while trying to prevent the implementation of any kind of measure and just paying the buyout price or buying certificates on the market. So the economic incentive not to invest in measures is huge and they would use almost every penalty or buyout and pay it and just pass the costs on with huge costs for the consumers. And they will just sort of rely on that price effect to meet any demand reduction, so it will be very economically inefficient.

Initially some suppliers asked for an absolute cap on energy to be delivered to the final customers, as the consultation process for a post-2011 supplier obligation revealed. The idea has been abandoned for now. Also, the suppliers backpedaled from their call for a cap. Still, according to interviewed experts, the negotiations between governmental agents, suppliers, and associations are shaped by the idea of implementing what they call a ‘hybrid policy instrument’ rather than simply continuing with the existing scheme. To sum up, the expert interviews painted a rather coherent picture of the British WCI. The scheme was perceived to be driven by climate change objectives. A significant but secondary objective was the reduction of fuel poverty. The experts agreed that there was a slow shift in objectives from fuel poverty towards climate protection. This is confirmed by the main political conflict – the Priority Group’s target. Here, the overall target was not discussed; rather, the equity aspect was negotiated. Theoretically, weakening the role of the Priority Group would accordingly lead not to less climate protection but to more costeffective savings. Also, the discussion about future schemes revealed controversial topics. The general mode of action is set into question – suppliers were at some stage of the consultation process even prepared to have an overall cap on the energy supplied rather than a measurement-based scheme. This corresponds well with the experts’ perception of the policy instrument as highly regulatory rather than flexible. Thus two main issues dominated the expert interviews: competition between the objectives of consumer protection and climate protection, and the perception of the WCI as a regulatory intervention (and the attempt to make it more flexible). Other controversies have arisen over the measures to be covered by the scheme. The role of insulation versus lighting and the role of

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innovation (corresponding to demonstration and market transformation action including microgeneration technologies) were raised several times as contentious issues. The way the interviewees report these issues reveals, nevertheless, that these have been of only minor importance. Similarly, neither baseline setting nor additionality in more general terms was highlighted during the interviews as an especially difficult issue.

6.5 Conclusion: re-regulation and competition of objectives British energy policy is conducted in an environment of increasing import dependence, a phasing out of inefficient coal-powered plants, still rather small fractions of renewable energy and a commitment to energy efficiency. While energy efficiency has always been the cornerstone of climate protection, the introduction of the British WCI dates back to the liberalization of energy markets at the beginning of the 1990s – before climate policy was established as a mainstream policy objective. While climate protection has been cited as an official objective, back in 1994 the main drivers for the policy instrument were combating fuel poverty and allowing end consumers to access end-user energy efficiency measures. The directors-general of the regulatory authorities had considerable power to decide on the level of intervention. Implementing and continuing the precursor of the WCI can be interpreted in terms of a power struggle over how much regulatory intervention would still be possible in liberalized energy markets. Once established, the WCI became institutionalized and constitutes a new path of energy efficiency policy; it proved to work. As a result of another external factor – the change of government in 1997 – coming into play, the policy instrument gained further support. Since the policy instrument was accepted and successful with an appropriate cost-benefit ratio, the government could easily develop in an incremental way. The discussion about whether such an intervention was within the logic of market liberalization faded away, displaced by design questions. Insulation was the measure that the government wanted (and wants) to see spread throughout the country, especially targeting low-income households. The energy savings also led to carbon emission reductions. Two goals seemed to be pursued by one policy instrument without touching the governmental budget and without the Treasury being involved at all. However, the two goals require different things from energy efficiency: customer protection and decreasing fuel poverty demand measures to increase comfort and lower energy bills; climate protection does not demand any particular measure so long as it delivers carbon savings – preferably cost-effectively.

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Here, the climate protection discourse of energy efficiency comes into play. With the advancement of climate policy in Britain, manifested not only in the restructuring of governmental tasks but also in a variety of programmes, White Papers, and finally the Climate Change Act of 2008, carbon reduction became a core objective of energy policy. While there is no statistically proven correlation between the type of instruments and the policy objective in question, the historical analysis of climate change policy suggests that climate policy is associated with a certain kind of instrumentation that makes use of economic tools such as tradable permit schemes and taxes. Two prominent reports by Pearce (1989) and Marshall (1998) helped to promote the idea. The legal provisions changed and explicitly focused on trading schemes as the main delivery mechanism for carbon savings. Even though the UK ETS no longer applies to new direct participants, in 2010 two other domestic trading schemes (CRC, CESP) started in addition to the EU ETS and not considering the WCI. Thus there are reasons to suggest that, alongside the increasing importance of climate change, the role of trading and flexible elements of the instruments are becoming increasingly important. The development of design choices confirms this development for the WCI – yet only until the most recent amendment of the schemes in 2010. The first WCI targets were expressed in final energy (TWh) savings. CERT targets are now counted in CO2 savings. With that change not only are standardized measures eligible but the percentage of ‘innovative action’ increased steadily. The consultation about future supplier obligations as well as the expert interviews revealed that actors among all groups even asked for an overall cap and more flexibility within the scheme to achieve the target 314. After being initially rejected, the introduction of a fully fledged white certificates market returned to the government’s agenda. However, the most recent amendments to the WCI considerably restrict the scheme’s scope, again turning it into an insulation implementation scheme. Both objective (combating fuel poverty) and design (a well-tailored range of measures and sub-obligations to implement insulation in very vulnerable households) are more straightforward than ever before. Why is that important? End-use energy efficiency, especially in the residential sector, has to be placed at the intersection of at least two objectives: improving life quality by providing specific measures on the one hand and simply reducing large quantities of carbon emissions on the other. The WCI as a hybrid instrument aims at integrating these objectives. Evaluations of the policy instrument show that qualitative effects are highly valuable and justify the persistence of the scheme: under EEC 2, more than 1.7 million households had their homes insulated and increased their living comfort. In contrast, mere carbon reductions 314

According to several interviewees this idea was eventually abandoned.

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do not necessarily require the installation of high-quality insulation measures. Thus, instead of focusing on the kind of measures the scheme aims at delivering, the idea of capping emissions seems to be much more pragmatic and costeffective for climate protection purposes and has therefore increasingly entered the debate. As a consequence, the political discussion about the WCI has centered increasingly on trade-offs between qualitative and quantitative benefits. In fact, the design changes with the introduction of CERT already increasingly reflect the diverse interests allowing suppliers more flexibility in complying with their objective. The more flexible the scheme becomes, the more complicated it will be to administer. Every supplier has its own portfolio and thus strategy; in addition, every measure is connected to an industry with an interest in promoting these measures. The scheme runs the risk of not delivering either objective to a satisfactory level since a variety of interests will enter the debate: The more flexible the scheme, the more entry points will be created for negotiating the conditions of flexibility – so allowing more particular interests to join in. The qualitative content analysis of the interview transcripts largely confirms these conclusions. The negotiation of baselines has not been the most contentious issue in Britain. Also, neither setting the overall target nor determining the obliged actor was very controversial. Rather, the sub-obligation for the Priority Group has been the single most controversial issue. It is the most strongly regulated part of the scheme, involving high costs. It shows that, with increased flexibility, equity aspects would be sacrificed. In contrast, additionality, another element that would require strong monitoring and verification as well as strict baselines, has not been as controversial. It was a political decision to keep the costs of measurement and verification low and rather to compute an estimation of non-additional savings on top of the overall saving target. To put this into perspective, it is noteworthy that early evaluations of EEC 1 and EEC 2 in particular stem from Eoin Lees, who was formerly very much involved in setting up the scheme for the EST, which suggests that his identification with the scheme might partly explain his motivation in promoting its success. It was commonly agreed among the interviewees that competition between objectives will make inconsistencies and decreasing effectiveness more likely. Throughout the expert interviews it became clear that questions regarding the future objective, and, coming along with it, the mode of action increasingly dominate the debate and had already influenced on the previous round of negotiations. The initial design choices were rather restrictive. In an incremental way changes in design choices allowed suppliers a diversification in choice of strategy. In particular, changes in CERT’s objectives and framing the policy instrument in the light of climate policy provided suppliers with a lever to argue for a

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more flexible scheme. British authorities were well aware of the tensions and decided to narrow the flexibility options of the scheme and even insert into the scheme a sub-obligation to roll out insulation and combat fuel poverty. The competition of objectives was thus resolved in consultation with the suppliers, allowing for a well-tailored design of the scheme. To put it in a nutshell, the debate about the WCI as a case of re-regulation was triggered by fuel poverty and a governmental change. There are two competing paths, depending on the discourses within which the policy instrument is understood. While initially targeting customer protection in the context of liberalized energy markets, the WCI is understood and promoted in all recent documents as a climate policy instrument. The image of the policy instrument became more diverse, especially with the rebranding of it as CERT. Since then it has not been purely associated with ’regulation’; ‘flexibility’ and ‘trading’ are more often also discussed in conjunction with the WCI. To recall the experts’ perceptions as revealed through the interviews, the climate protection ‘stamp’ does not change the image of the WCI as ‘regulation’ (many of them use comparisons such as ‘tax’ or ‘penalty’ in order to emphasize the WCI’s dominant mode of action and reveal its image), nor does it change the other objective of the policy instrument: decreasing fuel poverty. But it makes it increasingly difficult for the government to maintain its ambition of increasing the comfort of low-income households in particular and raising the targets and accordingly the costs of the scheme. With the most recent amendments of the scheme, the government took the decision to regulate the scheme more rigorously and to accept increasing costs for a clear-cut objective: rolling out insulation all over Britain.

7 Italy

7.1 The Italian energy structure Analysing the introduction of the Italian white certificates scheme faces several barriers because of language problems, a general lack of documented material, and a lack of transparency in the decision-making process. Many of the available experts either were not following agenda setting or were not able to reconstruct the decision-making process in detail, especially regarding decision making where the relevant ministry is involved. Nevertheless, thanks especially to the interviews as a whole, a picture of the rationales behind implementing the WCI in Italy can be reconstructed. This chapter draws further on written material such as presentations at conferences but also primary and secondary legislation. Further, press statements by policy architects are taken into account in analyses of the political process that led to agenda setting and design choices over time 315. The period between 1962 and 1999 was one of nationalization of the electricity sector. Some decisions taken during that time turned out not to be very viable. Italy has no significant fossil energy resources on its own territory. Italy decided to use oil and nuclear power as fuels to generate electricity. A moratorium led to the shutdown of all existing nuclear power plants in 1988 (Eurostat 2009b). The high sulphur content of the oil breached the requirements of the European Large Combustion Plant Directive (Council of the European Union 1988, 1994; European Parliament & Council of the European Union 2001). 316 Italy accordingly opted to use multi-fuel plants that would allow for electricity generation from oil and coal – an option that turned out not to be economically viable. Italy also stopped domestic coal production at an early stage. Since then its import dependence is relatively stable at more than 80 per cent; in 2007 it was 85 per cent (Eurostat 2009c). During the 1990s natural gas became increasingly important in Italy as an energy carrier, largely replacing oil. In 2008 Italy 315

Special thanks are due to my Italian colleagues Daniele Russolillo, Luca Ballestra, and Nicola Labanca, who helped with translation. 316 The first directive regulating large combustion plants dates back to November 1988 (Directive 88/609/EEC). It was amended in 1994 by Council Directive 94/66/EC. The current Large Combustion Plant Directive, often referred to as LCPD, is Directive (2001/80/EC) by the European Parliament and of the Council as of 23 October 2001.

D. S. Steuwer, Energy Efficiency Governance, DOI 10.1007/978-3-658-00681-5_7, © Springer Fachmedien Wiesbaden 2013

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sourced a little more than 10 per cent of its natural gas consumption from domestic supplies (IEA 2011) 317. While the Italian natural gas sector exhibits major structural differences from the electricity sector, the two sectors are intertwined because of the importance of natural gas for electricity generation (Di Nucci 2004a: 101). Security of supply has been a crucial issue in Italian energy policy since the widespread blackouts in the summer of 2003 (Di Nucci 2004a: 102). Apart from the high level of dependency on fuel imports, a comparatively high tax level as well as rather inefficient and old power plants have resulted in comparatively high energy prices in Italy (IEA 2003: 39). Even post-privatization electricity 318 prices remained higher than those in other European countries; the difference is particularly obvious for private households (Eurostat 2009e). The main transit routes for gas and power are on Italian territory, and Italy is an important European–Mediterranean trading hub for natural gas. Although the carbon intensity of the Italian economy has fallen with the substitution of oil by gas, it remains above the EU average as in 2006 more than 90 per cent of gross inland energy consumption was accounted for by fossil fuels. In the same year renewable energy sources (mainly hydropower and, increasingly, biomass, geothermal, solar thermal and solar PV) accounted for seven per cent of gross inland consumption (Eurostat 2009c). With regard to the high dependence on imported energy– especially when compared with other European countries that are much less dependent on energy imports, such as Britain and France 319 – energy security is one of the major goals of Italian energy policy. In order to comply with European legislation – Directive 2009/28/EC (European Parliament & Council of the European Union 2009) – , Italy must increase the share of renewable energy in gross final consumption to 17 per cent by 2020. Effective support mechanisms therefore seem indispensable to the effort to reach this target. Current figures are neither close to European targets nor a sufficient contribution to addressing security of supply. Statistics show that energy intensities are comparatively low in Italy due to Italy’s low energy-intensive industrial structure. However, while energy intensities in the EU continuously decreased, energy intensity in Italy temporarily increased and consumption grew steadily (Eurostat 2011; Di Nucci 2007, Enerdata 2011). 317

The number does not display the subtraction of exports or stock changes but rests solely on the supply numbers for domestic production and imports. In 2003, domestic natural gas supply was still estimated to account for 17 per cent of Italians’ natural gas sources (Di Nucci 2004b). 318 Also gas prices are among the highest in Europe. However, other countries such as France, Germany or Spain have had similar or even higher gas prices for private households since 2000 (Eurostat 2009d). 319 This is true only if nuclear power counts as a domestic energy source, thus neglecting the import of uranium.

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Final energy consumption increased by around 15 per cent between 1996 and 2007. Also, primary energy consumption increased in Italy throughout this period by about 13 per cent (Eurostat 2009f) 320. Figure 10 shows final energy consumption by sectors in Italy between 1996 and 2007. The services and the transport sectors are mainly responsible for the increase; the industry sector is to a lesser extent. Carbon emissions from Italy’s industry sector are lower than in other European countries because of the country’s comparatively low energyintensive industrial structure (IEA 2003: 57). But household consumption also increased until 2005, dropping only recently. The increase was greatest in electricity consumption (up 44 per cent between 1990 and 2007) (Eurostat 2009b; ENEA 2009) 321. In order to reach political targets, much potential remains to be tapped. 50000 45000 40000

in 1000 toe

35000

Household

30000

Industry

25000

Transport

20000

Agriculture

15000 10000 5000

Services Others

0

Figure 10: Final energy consumption in Italy by sector (1996–2007) in toe 1000s (Source: Eurostat 2009f)

320

Eurostat statistics display the absolute numbers (114.644 Mtoe of final energy consumption in 1998 and 132.058 Mtoe in 2007; 161.551 Mtoe of gross energy consumption in 1996 and 183.452 Mtoe in 2007). 321 Between 1990 and 2007, electricity consumption rose by 44.2 per cent, followed by gas, 37.0 per cent, and a small growth in oil product consumption of 5.1 per cent. Coal consumption decreased during the same period by 9.6 per cent, with recent increases due to demand by steel and non metallic mineral branches (ENEA 2009).

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Of special importance to the analysis is the structure of the distribution segment of the energy market. Concessions are granted to distribution grids in municipalities following a tendering procedure. Tendering procedures are followed for both natural gas and electricity distributors. The whole post-war period from the 1950s to the beginning of the 1990s can be characterized as one of extended state control, the concessions procedures being just one example of the state protecting an incumbent monopoly (OECD 2001: 5 f.) 322. The concessions played an important role in setting up the WCI in Italy, as shown below. As Di Nucci (2004a) illustrates, electricity distribution is characterized by a strong concentration of the ten biggest companies and 150 smaller distributors that together have less than one per cent of the market share. This is somewhat different for the distribution of natural gas. While primary distribution is dominated by Snam Rete Gas, an affiliated company of ENI, secondary distribution is less concentrated, with several hundred 323 local operators (Di Nucci 2004b: 595). To sum up, with no significant improvements in energy intensities that would have led to major reductions in final energy consumption, the end-use sectors remain among the fields for energy policies to address in order to reach national and European policy goals. In the light of Italy’s high dependence on energy imports, improving end-use energy efficiency would be expected to be a priority. The National Energy Efficiency Action Plan aims to put together a feasible mix of measures to translate European energy efficiency goals 324 into the following figures in the Italian context: Italy intends to save 9.6 per cent energy consumption through end-use energy savings as set out in the National Energy Efficiency Action Plan (Ministry of Economic Development 2007). Three per cent of savings were envisaged to be achieved by 2010, amounting to a total of about 35.6 TWh savings annually. In the action plan, the saving targets for energy companies under the WCI were 2.9 Mtoe annually by the end of 2009. The conversion factor as set out in the Document DCO 2/08 325 indicates that this target would accordingly amount to final energy savings of around 15 TWh per year in 2009. Extrapolated to 2010 326, this means that the WCI is intended to 322

As the OECD report states, ’by the end of 1997, Italy still was one of the most regulated countries in the OECD, a result of decades of anti-competitive regulatory practices’. Among others, Italy ranked very high on the administrative burden on business (OECD 2001: 10). From 1997 to 1999, privatization accelerated significantly (OECD 2001: 11). 323 The numbers have varied over time. Di Nucci refers to around 700 operators (2004b: 595). 324 The relevant European targets are the indicative targets of 20 per cent primary energy reduction by 2020 as expressed in the EU 20-20-20 climate package, and the nine per cent final energy reduction as foreseen in the end-use energy efficiency and energy services Directive 2006/32/EC. 325 According to this document, the factor to convert primary energy savings into final energy savings (to be regularly updated thoughout) is 0.187 toe/ MWh. 326 If we use the same conversion factor for the updated target of the White Certificate Scheme, the WCI would deliver 32 TWh by 2012, which almost corresponds to the entire target of 2010.

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account for half of the savings proposed by the Italian Energy Efficiency Action Plan (Ministry of Economic Development 2007). Since the target of the energy saving obligation was increased in the meantime, the savings delivered by the WCI would be even greater. The plan foresees that until 2010 about half of the savings are to be delivered by measures in the residential sector, especially efficient heating ones. But efficient lighting, insulation and appliances are also said to contribute to meeting the savings target. The residential and tertiary sectors together are forecast to contribute two thirds of the savings of the end-use sectors before 2016. Savings stemming from the industry sector and the transport sector will each contribute half of the remaining third (Ministry of Economic Development 2007). In brief, according to the official documents the Italian WCI is expected to deliver half of the savings in the end uses, and so the policy instrument is accorded a major role in Italy’s energy efficiency policy.

7.2 History of White Certificate Instruments in Italy 7.2.1 Existing policies and measures to increase energy efficiency in end-use sectors Since 1975, Italy has had a strategic plan setting out medium-term targets for energy policy. This national energy plan, Piano Energetico Nazionale (PEN), has been regularly updated and revised in 1980, 1988, and 1995. PEN 1988 sets out targets for 2000 for implementing policies on energy savings, the rational use of energy, and the development of national energy sources. The plan shows that Italy’s strategy of phasing out nuclear energy is to rely on energy conservation rather than the development of renewable energies (Di Nucci 2007: 318). In 1991, a framework law was enacted to implement the plan 327. The law provides for tax relief and payments by local authorities as financial incentives to support the most efficient technological solutions in buildings and heating plants. More recent documents set out the Italian policy instrument mix for energy efficiency: The Italian Energy Efficiency Action Plan of 2007 sets out existing measures in the field of end-use energy efficiency. Major savings are to be achieved by measures imposed by European regulation, especially the Ecodesign (2005/32/EC) and the Energy Performance of Buildings Directive 2002/91/EC

327

Law No. 10 of 9 January 1991, Norme per l’attuazione del piano energetic nazionale in material di uso razionale dell’ energia, di risparmio energetic e di sviluppo delle fonti rinnovabili di energia.

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(European Parliament & Council of the European Union 2002) 328. Other national initiatives make use of a mix of measures. Besides the WCI, this mix includes tax deductions, especially for the residential and tertiary sectors, and the setting up of new funds for the industry sector (‘Competitiveness Fund’; ‘Business Finance Fund’). Measures for the transport sector focus mainly on the promotion and utilization of biofuels. However, these national measures listed in the action plan are rather recent or not yet implemented. A general overview of the mix of measures in all end-use sectors provided by ENEA (2009) shows that informational measures and financial and fiscal incentives have primarily been utilized to improve energy efficiency. For the residential sector, 9 of the 26 measures are informational measures, including labelling, 13 are some kind of command-and-control instrument, including product standards, and the remaining 4 measures are financial incentives. The early initiatives in particular are informational or financial measures. Financial and fiscal incentives are also mainly granted for the industry sector (9 out of 14 measures). In the tertiary sector, design norms predominate in the catalogue of measures, while the transport sector is dominated by infrastructural measures (10 out of 23). The category of ‘market-based’ policy instruments was introduced only when cross-cutting measures were analysed. With five of eight measures listed 329, market-based policy instruments predominate among the cross-sectoral measures since they were first introduced in the period 1996– 2001 (ENEA 2009: 29). The results of the ENEA report are reflected also in the country profiles of the Odyssee project and the MURE database (Mure & Odyssee 2011) 330. While many of the labels and norms have their origins in European legislation, the main national support schemes have been financial incentives and informational measures. This is especially true for the early schemes dating back to the beginning of the 1990s. Even before then, financial incentives were provided. Italy implemented its first law on energy efficiency and renewable energy support in 1982 (308/82) in response to the energy crises of 1973 and 1978 (Glorioso et al. 2007) 331. This law basically provided grants for new investments 332. 328 A reform of the Energy Performance of Buildings Directive was agreed on 17 November 2009 between Parliament, Council and Commission of the European Union. For a summary of major changes please refer to the following website: http://www.eceee.org/buildings/EPBD_Recast/. 329 It is, however, not entirely clear what ‘market-based’ means in this context. Setting the energy tariffs via the CIP 6/92 scheme is listed under market-based policy instruments in the cross-sectoral section, whereas it is listed as a financial incentive in the section for industry measures. 330 http://www.isisrome.com/mure/, accessed 16 April 2011 331 see also database of IEA for the World Energy Outlook: http://www.iea.org/textbase/pm/?mode=weo&action=view&country=Italy 332 The grants initially amounted to 30% of the investments; with the law 10/91 of the year 1991, the grants increased to up to 50%. These grants are no longer in force.

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New forms of governmental intervention were introduced in a period 1998– 2004. In the ENEA report these measures are referred to as ‘market-based’ policy instruments. One of these market-based schemes is the renewables obligation with tradable green certificates. Italy is well known for its strong support for a renewables energy obligation with tradable green certificates in preference to following many other European Member States in making use of feed-in tariffs to support renewable energies. However, the Italian government has adjusted its support schemes. While its support for tradable green certificates was strongest at the beginning of the current century, Italy introduced a feed-in tariff for PV in 2005 333 with several updates in the following years (Tilli et al. 2008). In the context of energy efficiency, the reports identify the Italian WCI as the most important and the most innovative policy instrument: ‘The most innovative energy efficiency measure is the Energy Efficiency Certificates, known as white certificates system’ (ENEA 2009: 29), or ‘The most significant instrument adopted for energy efficiency promotion is the system of so-called White Certificates aimed at incentivizing energy saving in a cost-effective manner and conforming to the liberalisation of the internal electricity and gas market brought about by Community Directives’ (Ministry of Economic Development 2007: 21). Even a report by a research consortium evaluating the National Energy Efficiency Action Plans mentions the outstanding importance of the WCI in the Italian context (Schüle et al. 2009). In the light of the reports’ inventories of policy instruments to enhance energy efficiency, the introduction of the WCI is presented as a change in instrumentation. The WCI’s mode of action is portrayed as more innovative than existing financial and fiscal stimuli.

7.2.2 First period 7.2.2.1 Agenda-setting What was the main driver for choosing a WCI in Italy? Given Italy’s high level of import dependence and comparatively high energy prices, it stands to reason that energy efficiency is mainly driven by considerations of security of supply. In addition, improving end-use energy efficiency so that actual savings in final consumption offset some of the demand would make it easier and more costefficient to reach not only the GHG emissions targets (i.e. Kyoto targets) but also the required share of renewable energy production (IEA 2003: 37; see also Pavan 333

In 1992 Italy already had a first feed-in tariff in place (Jacobs 2011: 44); however, with the introduction of the renewable energy obligation the main support instrument changed.

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2002, Pavan 2005, Capozza 2006) 334. It seemed to be unthinkable not to have any new energy efficiency policy in place, which was confirmed in the expert interviews. The question thus became: what kind of policy instrument would be appropriate? The contemporaneous policy instrument choice of tradable green certificates and the WCIs is striking, and displays some explanatory power. As already mentioned, in 1999 the Italian government issued a ministerial executive order to establish a renewables obligation with tradable green certificates as a support mechanism for renewable electricity. Formally, the scheme entered into force in 2002. An expert working on the Italian WCI since it came into force explained the connection between the renewables obligation and the WCI as follows: ‘I just think that they wanted to follow the same direction, in other words to use a market-based mechanism in order to combine the certainty of results of an energy efficiency obligation with the economic efficiency of a market-based instrument.’ Each policy instrument should be seen as a policy project of the then newly elected centre-left government 335. Part of this reform process was the Bassanini decree of 1998, which attempted to promote deregulation, privatization and egovernment – the weaknesses of the traditional command-and-control approach were to be left behind (OECD 2001). The legal basis for implementing the WCI as a public service obligation has been laid by legislative decrees No. 79/1999 – Bersani Decree – (Parlamento Italiano 1999) and No. 164/2000 – Letta Decree – (Parlamento Italiano 2000) transposing the European directives on the liberalization of the energy market 336. Both decrees specify that granting concessions to companies to distribute electricity and gas must be accompanied by measures setting quantitative targets for improving energy efficiency in end uses (IEA 2004: 181). With two ministerial orders in 2001 the government decided to impose a mandatory energy-saving target with white certificates, the so-called Tituli di efficienza energetica (TEE) or Certificati Bianchi, as a public service obligation on companies distributing electricity and gas (Parlamento Italiano 1999, 2000). These ministerial executive orders established the overall energy-saving target for electricity and gas distributors back in 2001. However, the WCI did not come 334

In presentations by representatives of AEEG, in reports (especially IEA DSM Task XIV final report), and on the official WCI websites, three main drivers of this policy instrument are usually cited: Italy’s Kyoto Commitment, compatibility with liberalization of energy markets, and security of supply. 335 Prodi, D’Alema, Amato, 1996-2001 336 Directives 96/92/EC and 98/30/EC (European Parliament & Council of the European Union 1996 and 1998); Articles 3 (2) of the directives allow Member States to impose public service obligations on energy companies.

7.2 History of White Certificate Instruments in Italy

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into force in 2001, for at least two reasons. First, in 2001 the centre-left coalition government left office. While it had reform intentions and launched the initiatives spelled out above, the political process stagnated. Second, at the same time a constitutional reform led to the first redefinition of central and regional competences since 1948, when the Italian constitution was adopted 337. As a result, the regions gained considerable power. The Parliament on its own can legislate only in a restricted field of policies, such as foreign policy or the currency 338. Energy is among those policy areas that require concurrent legislation by both the regions and the national government 339. While there have been some attempts to involve the regions more in the WCI, there were no significant activities in this regard between the constitutional reform and the coming into force of the WCI in Italy 340. However, the ministerial executive orders setting up the Italian WCI were formally adjusted and allowed the regions greater involvement. After technical revisions throughout 2002 and 2003, two new ministerial executive orders were adopted in July 2004, and the Italian WCI came into force on 1 January 2005. To summarize, there is a multitude of rationales for introducing a policy instrument in the field of end-use energy efficiency. As indicated by the simultaneous adoption of the renewable energy quota and the WCI in Italy, the centreleft government (as distinct from more conservative governments) was crucial to the choice of these policy instruments, which can be regarded as a break with traditional regulatory approaches in energy policy. This has been confirmed by the expert interviews. Also, the slowing down of the policy process with the change of government is an indicator of the role of the former government in promoting these policy instruments. There is, however, little information avail337

The Italian system, being neither centralist nor federal, suffered from inefficiencies due to complicated power-distribution relationships between the state, regional and local levels. The national government enjoyed considerable power by claiming to act in the ‘national interest’. As a result of pressure especially from the Lega Nord, the party of the wealthier northern part of Italy, constitutional reform was pushed in the 1990s. Shortly before the end of the Parliament under the centre-left government, the constitutional reform was approved and adopted in a referendum (Groppi & Scattone 2006: 132). 338 The details are set out in the Article 117, paragraph 2, of the Italian Constitution. 339 The policy areas to be legislated by shared or concurrent legislation are set out in Article 117, paragraph 3 of the Italian Constitution. An Italian expert explained that, especially when EU legislation on energy efficiency is transposed into Italian law, each region adopts its own regulation. This is true, for example of the directive on the performance of buildings. The national government may become active only if there is no regional regulation. 340 Also, the IEA pointed out the need for capacity development in the regions in order to implement the proposed devolution. In addition, the analysis points out the different objectives of the national government and the regions, while Italy is obliged to comply with Kyoto targets or other targets imposed by the EU level. As well, security of supply is not as salient an objective on the regional level as it is on the national level (IEA 2003: 13).

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able about any discussion of alternative policy instruments. This leads to the suggestion that the introduction of the Italian WCI has been inspired mainly by renewables energy policy and the general preference for tradable permit schemes at the end of the 1990s and the beginning of the new millennium.

7.2.2.2 Design choices: creating a market The Ministry for Industry 341 is, in cooperation with the Ministry of the Environment 342, responsible for determining the general architecture of the scheme, including target setting, eligibility definition, trading options, and general enforcement principles. The regulatory authority Autorità per l’Energie Elettrica e il Gas (AEEG) is responsible for designing technical rules 343 and for administering and monitoring the scheme. The enforcement and day-to-day administration of the WCI is also among the regulatory authority’s responsibilities, including certification, verification and application of sanctions. In total, four persons from AEEG – including Marcella Pavan, the head of the energy efficiency unit – are working on the WCI. The Italian Energy Agency, ENEA 344, has been legally assigned to assist AEEG with technical expertise, especially regarding project evaluation (Pavan 2011: 15, AEEG 2011: 14) 345. The overall target for the WCI was set by the Ministry for Industry in cooperation with the Minister of the Environment in 2001 in the form of executive orders (Ministero dell’industria, del commercio e dell’artigianato 2001a, 2001b). The obliged actor and the threshold are determined by the Ministry of Economic Development in cooperation with the Ministry of the Environment. In Italy, gas and electricity distribution companies (initially those with more than 100,000 customers) are obliged to carry out end-use energy efficiency projects. Accordingly 35 distribution companies were so obliged at the beginning of the first commitment period. The regulatory authority publishes annually a list of obliged

341

Ministro dell’industria, del commercio e dell‘artigianato. Ministro dell’ambiente e della tutela del territorio. 343 Other actors also participated, such as Cesi Ricerca, partly (51%) owned by the Italian energy agency ENEA, which was assigned to develop procedures to evaluate the savings resulting from energy efficiency measures. Such proposals are subject to stakeholder consultation (expert interview). 344 Agenzia nazionale per le nuove tecnologie, l’energia e lo sviluppo economico sostenibile, or Italian National Agency for New Technologies, Energy and Sustainable Economic Development. 345 The legal references are the resolution from 11 January 2006 (no. 4/06) and the resolution from 26 May 2009 (GOP 26/09) building on the Decree n. 115/08. 342

7.2 History of White Certificate Instruments in Italy

273

actors 346 and their individual targets, in line with the regulation set out by the ministerial order. According to the 2011 annual report (AEEG 2011: 22), Enel 347 had to deliver 86.9 per cent of the 2009 electricity saving targets. Responsibility for meeting the gas sector’s target was more widely dispersed among the companies: 23.3 per cent of the 2009 target had to be fulfilled by a company belonging to ENI/Italgas 348, and another 11.9 per cent by Enel Rete Gas. As Table 6 shows, the overall cumulative target to be achieved after five years remained the same for both electricity and gas distribution companies in the updated order of 2004 (Ministero delle attivita’ produttive 2004a , 2004b) 349. The division of the targets among the individual years changed so that the bulk of savings had to be realized in the final years of the commitment period.

346

At the time of writing, the most recent list published is the list displaying obliged actors and their targets for the year 2011, http://www.autorita.energia.it/allegati/docs/10/018-10eentab.pdf, accessed 1 July 2011 347 31.2% of the shares of ENEL are still hold by the Italian treasury, http://www.enel.com/itIT/investor/shareholders/, accessed 5 May 2011 348 Società Italiana per il Gas per Azioni, Torino. The share of the Italian state in ENI amounts to around 30%, with 3.93% direct shares of the treasury and 26.37% owned by the Cassa Depositi e Prestiti S.p.A., http://www.eni.com/en_IT/faq/shareholders/relative-majority-shareholder/faqshareholders4-majority-size-stake.shtml, accessed 5 May 2011 349 The responsible minstries changed denomination: Minstro delle attivita’ produttive in cooperation with the Ministro dell’ambiente e della tutela del territorio.

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Table 6: Overall target of the Italian WCI for electricity and gas distribution companies set out in the ministerial executive orders of 2001 and 2004 respectively Year

Targets for electricity distribution companies set out in the ministerial order of 2001, in Mtoe per year

Targets for electricity distribution companies set out in the ministerial order of 2004, in Mtoe per year

First

0.1

0.1

Second

0.5

0.2

Third

0.9

0.4

Fourth

1.2

0.8

Fifth

1.6

1.6

Year

Targets for natural gas distribution companies set out in the Ministerial Order of 2001

Targets for natural gas distribution companies set out in the Ministerial Order of 2004

First

0.1

0.1

Second

0.4

0.2

Third

0.7

0.4

Fourth

1.0

0.7

Fifth

1.3

1.3

Source: Ministero dell’industria, del commercio e dell’artigianato 2001a, 2001b, Ministero delle attivita’ produttive 2004a, 2004b; Author’s visualisation During the first commitment period, the target was updated again at the end of 2007 (Ministero dello sviluppo economic 2007) 350. By 2012, annual savings of 6 Mtoe per year have to be achieved (see subsection 7.2.2.3). Generally, the certificates have to be delivered annually. Early savings (from measures carried out since 2001) are eligible to count towards the target. It was argued that the companies were expecting the scheme to come into force earlier and were accordingly carrying out energy saving projects. 350 The responsible ministries are now called Ministro dello sviluppo economico and Ministro dell’ambiente e della tutela del territorio e del mare.

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The target is expressed in terms of primary energy (toe). In the ministerial executive orders, a conversion factor is fixed to calculate the corresponding amount of savings in final energy (kWh). The conversion factor has been determined by reference to the average efficiency of the thermo-electrical installation mix in 2000 351. In the ministerial executive decree of 2004, the conversion factor was fixed thus: 1kWh equals 0.22 times 10-3 toe. It applied for the first year after the WCI came into force, and thereafter could be changed by AEEG. In April 2008 a new conversion factor of 0.187 times 10-3 toe came into force, reflecting new statistical data (AEEG 2008b). The difference in numbers that a change in conversion factors causes is considerable. The 2012 cumulative target (6 Mtoe) can be converted into final energy. Under the first conversion factor, the target would correspond to final energy savings of 32 TWh. Under the new conversion factor, the resultant final energy savings amount to only 27 TWh in 2012 – a difference of 5 TWh. Since the measures are carried out in the end-use sectors and are therefore most prominently counted in final energy units, the amount of accredited savings will differ according to the conversion factor applied. The target has become more stringent since the application of the new conversion factor leads to a smaller amount of savings – it accordingly requires more savings to achieve the target. The savings do not represent lifetime savings. This example shows that the devil is in the detail of design choices, which may considerably influence the policy instrument’s impact. There are several delivery routes for the savings. The obliged actors may carry out projects on their own sites. They may implement energy efficiency measures at the end-use site themselves or involve other actors who help to carry out the projects or agree to buy white certificates. The architects of the scheme integrated into it trading via an electronic market platform operated by the Gestore del Mercato Elettrico (GME) 352. By allowing the involvement of third actors, in particular energy service companies to generate white certificates and sell them to the obliged actors, it was hoped that the obligation could be fulfilled in the most cost-efficient way. White certificates can be traded either bilaterally 351

‘Il valore del fattore di conversione dei kWh in tep adottato dai decreti ministeriali 20 luglio 2004 per il primo anno di attuazione dei decreti stessi equivale ad un rendimento medio del parco termoelettrico nazionale pari al 39%, valore che in base ai dati statistici pubblicati dalla società Terna S.p.a. è stato registrato nell'anno precedente a quello di pubblicazione dei decreti ministeriali 24 aprile 2001 (anno 2000)’. (AEEG 2008b) 352 Gestore Mercato Elettrico was set up by the National Power Grid Manager Gestore della Rete di Trasmissione Nazionale S.p.A. (GRTN) which is now Gestore dei Servizi Energetici S.p.A. (GSE)). GRTN was founded in the follow-up of the Bersani Decree in order to ensure neutrality. GME is organizing and managing transactions in the electricity market under criteria of neutrality, transparency, objectivity and competition between producers, as well as of ensuring the management of an adequate availability of reserve capacity. http://www.mercatoelettrico.org/En/Default.aspx

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or via the electronic market platform where regular auctions take place. Initially, there were three types of certificates in the Italian WCI, one certifying electricity savings (type I), one certifying gas savings (type II), and a third type certifying other fuel savings (type III). This corresponds to the initially differentiated obligation: each distributor had to fulfill at least 50 per cent of its target by energy efficiency measures targeting the fuel type it was distributing (i.e. gas distributors had to realize at least 50 per cent of their targets via reductions in gas consumption, electricity suppliers in electricity consumption). This requirement was abandoned in 2007 (see below). Finally, the obliged distribution companies may choose to pay a penalty. While the application of sanctions is the task of the regulatory authority (see below), the sanction itself is fixed in the ministerial executive order. Initially, the level of sanction was described only vaguely. In the event of non-delivery, the regulatory authority was empowered to impose an ‘appropriate’ sanction greater than the costs that would have been incurred if savings had been delivered on target. The money was earmarked for a fund for energy efficiency campaigns and incentives. Distributors operating in a non-competitive environment with tariff regulation were initially granted a flat cost recovery of 100€/toe after certifying their savings. The money is collected via a tariff surcharge. While the level of the cost recovery was fixed by the regulatory authority, the mechanism itself was already prescribed in the ministerial order. The cost recovery is granted until the annual saving target is reached. It is difficult to measure the savings of each project carried out under the scheme. Designed as an open-ended scheme, measures in addition to the standardized list are eligible to count towards the target, principally small photovoltaic and cogeneration and other projects requiring (some) on-site measurement 353. There are accordingly three distinct approaches to measuring energy savings. First, ex ante estimations result in a list of standardized measures (the ‘deemed saving approach’ without on-site measurements). Second, an engineering approach makes use of certain models that require partial on-site measurements. Finally, energy monitoring plans help determine energy savings with extensive on-site measurements before and after the intervention. Projects making use of the latter method are subject to approval by the ministry. AEEG is responsible for determining the deemed savings, which are regularly updated. The regulatory authority also approves other measuring approaches and therefore

353

Generation technologies other than PV and co-generation are not eligible under the Italian WCI.

7.2 History of White Certificate Instruments in Italy

277

has considerable steering power. At the beginning of the scheme, 18 354 measures with deemed savings had been developed (e.g. compact fluorescent lamps, replacement of electric water heaters with gas water heaters in the residential sector, double glazing, wall insulation, small PV plants in residential offices, commercial buildings, hospitals and schools, thermal solar water heating, electric appliances (‘white goods’), low-flow water taps, heat pumps, air conditioning). In addition, initially four engineering estimates were made available (natural gas decompression, inverter application on hydraulic systems, combined heat and power, and district heating) (AEEG 2007, 2008a). The ministerial executive order already goes into detail regarding the appropriate baselines and references to be adopted. The most detailed prescriptions are set out for heat from biomass. Another example is the minimum requirement for domestic appliances, which have to be at least A-rated to be eligible under the scheme. Behavioural measures or any other kind of measure that is not associated with implementing a ‘hard’ technology are not eligible in the Italian WCI. However, as already indicated, AEEG has considerable definitional power. It defines the baseline technology and accordingly the efficient technology, while formulating the major assumptions for the application. The following examples are provided by AEEG (Pavan 2005): For incandescent light bulbs, the compact fluorescent lamp (CFL) is the efficient technology. AEEG assumes that a maximum of three lamps would be replaced by each household and estimates the probability of actual installation (i.e. screwing in the CFL) as well as the number of hours of use of the lamp per year and room and the corresponding power demand. The amount of savings accredited is the difference in power between the baseline technology and the efficient technology as a weighted average. Similarly, the deemed savings for domestic refrigerators is estimated. Here, the baseline technology is the average efficiency standard of installed fridges which amount to a certain level of energy consumption (weighted average of 417.8 kWh/ year). All A-rated fridges are defined as incorporating eligible efficient technology. However, the amount of savings accredited depends on whether A, A+, or A++ appliances are (newly) purchased or replaced, each of which has different saving attached (299.6 kWh/ year (A); 237.9 kWh/ year (A+); 169.9 kWh/ year (A++)). Besides the energy consumption and the energy efficiency class, assumptions are made about the volume. Analogously, the baseline technology for electric outside air heat pumps are one- or two-stars gas boilers with an efficiency of 80 per cent, which corresponds to almost all the boilers sold on the domestic market. The efficient heat pump has a performance coefficient of 354

The most recent list of measures contains 27 measures – 22 ‘deemed savings’ and 5 engineering estimates formulae (http://www.autorita.energia.it/it/ee/schede.htm, accessed 1 July 2011). Individual measures in the list were subject to several revisions and updates.

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between 3 and 4.5. The pumps are eligible only if installed in buildings that meet national insulation standards. In order to calculate the difference between energy consumption of the baseline and that of the efficient technology, parameters such as seasonal demand, average size of apartments, climatic zone and others are estimated. The examples show that the procedure of baseline setting is a rather complex task, incorporating a set of assumptions. As well as being a highly technical task, the decision for certain assumptions and thus baselines is also a political task since the baseline level affects the interests of energy companies, energy service providers, or manufacturers of energy-efficient goods. Linked to the baseline definition is the additionality of savings. The general statement in presentations about additionality of savings in the Italian WCI is as follows: ‘Only additional savings are considered, i.e. over and above spontaneous market trends and/or legislative requirements’ (Pavan 2011: 17). Additionality in the Italian system is basically realized via the baselines and their updates. Ambitious baselines would thus mean strong additionality, while non-ambitious baselines weaken additionality.

7.2.2.3 Updates in design Many experts claim that trading activity and volumes traded via the spot market have been lower than expected in the first years of the WCI’s implementation. Thus they fear that scheme will not be as cost-effective as hoped. In response to these shortcomings of the market, some design features were changed and adjusted through a ministerial executive order in December 2007 (Ministero dello sviluppo economic 2007) and through subsequent amendments by AEEG throughout 2008. First, in response to AEEG’s recommendation, the ministry raised the overall target. The new decision changed the targets of the ongoing commitment period and established targets until 2012 with an automatic adjustment mechanism in case the target is overshot. The new targets are displayed in Table 7 Annual savings of 6 Mtoe per year have to be achieved by 2012.

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Table 7: Overall target of the Italian WCI for electricity and gas distribution companies from 2008 to 2012 set out in the ministerial executive order of 2007 Year

Targets for electricity distribution companies set out in the ministerial order of 2007 in Mtoe per year

Targets for natural gas Distribution Companies set out in the ministerial order of 2007 in Mtoe per year

2008

1.2

1

2009

1.8

1.4

2010

2.4

1.9

2011

3.1

2.2

2012

3.5

2.5

Source: Ministero dello sviluppo economic 2007; Author’s visualisation The update of 2007 not only set goals for three more years but also changed the target of the ongoing period so that by 2009 annual savings of 3.2 Mtoe had to be achieved – 0.3 Mtoe more than originally foreseen. In addition, the new executive order gives AEEG the power to adjust the target in the event that it is overshot by at least 5 per cent. If the regulatory authority decides to increase the target accordingly, this has to be announced by 30 June at the latest in the respective year. Second, the targets are no longer bound to the type of certificate. This change was introduced to raise the overall certificates price and incentivize a more liquid certificates market. In 2009 (AEEG 2009b) the third type of certificate was modified and a fourth type created. Since then, eligible actors have been able to acquire four types of certificate: a third for savings other than in electricity, natural gas and transport fuels, and a fourth for savings in the transport sector other than in electricity and natural gas. Third, lowering the minimum threshold for distributors to be obliged under the WCI from more than 100,000 to more than 50,000 customers led to an increase in obliged actors from 30 to about 75 in 2008, however, the number of obliged actors fell in the following years, and to 65 in 2011 (AEEG 2010). Also, large customers with consumptions greater than 10,000 toe per year are now eligible to generate white certificates. In a side talk at a conference 355, Marcella Pavan explained that this rule was established especially to allow public actors on the local level (e.g. schools) to participate more 355

Conference by the German Environmental Ministry about transposing the End-use energy efficiency and Energy services Directive into national law on 10 December 2009 in Berlin.

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in carrying out energy efficiency projects to be awarded under the scheme. She added that these actors had started to actually take up the opportunity to participate. Fourth, in order to better understand the trading interaction, bilateral trading activity, too, has to be made more transparent, and each trade has to be recorded in the register. While initially GME recorded only trading activity via the electronic market platform, the new regulation 356 empowered GME to demand detailed reports also about bilateral trading activity, including the number and type of traded certificates, the certificates’ prices, and the trading partners (GME 2008). Fifth, banking has been extended until the end of 2012. Sixth, the cost recovery was lowered to 88.92 €/toe and since 2008 it has also been granted for type III savings, which were formerly excluded from cost recovery. As Marcella Pavan explained, the cost recovery is bound to energy price development rather than to the market price of white certificates. This decision was taken on the ministerial level. Since energy prices have risen again, price recovery rose accordingly: 92.22 €/toe in 2010, and 93.68 €/toe in 2011 (AEEG 2009c; AEEG 2011: 14). Thus cost recovery is mainly a mechanism for decoupling energy sales from revenues. The market price for energy savings resulting from spot trading of white certificates does not relate to the cost recovery, so the underlying incentive mechanism is not related to the market mechanism of the WCI. Finally, the sanction methodology has been specified and simplified. Sanctions apply only if the obliged actor does not achieve 60 per cent of the target; otherwise he is allowed to carry the missing savings over into the next year. Paying the penalty does not relieve the obliged company from complying with the target at a later stage; that is, a buyout is not possible. There is still no predefined penalty; instead, the penalty will be case dependent. However, a minimum penalty of €25,000 and a maximum of €155 million delimit the (extremely wide) range of possible penalties (Pavan 2009a).

356

The ministerial decree authorized AEEG to set up a regulatory document. With its Delibera EEN 5/08, AEEG (2008c) authorized GME to oversight also the bilateral trading activity by demanding certain information from the certificates seller.

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7.2.2.4 Outcome The data provided in English to evaluate the outcome of the WCI is comparatively limited 357. The regulatory authority AEEG provides the main documents, namely, the annual reports (of which the fifth was published in 2011), press statements and conference presentations of the main representative of AEEG, Marcella Pavan. The following numbers are mainly taken from these documents, in particular from the annual reports, which provide the most comprehensive and systematic accounts of results and make use of data about trading activity provided by GME. Most of the energy savings (80 per cent) have been realized in the residential sector, mostly through electricity savings. The share of savings in the industrial sector grew over the years, to 14 per cent as of May 2010 (AEEG 2011: 31). The deemed saving approach was preferred for measurement and verification (starting with 70 per cent in 2005 and stabilizing at around 84 per cent in the following years) (AEEG 2011: 29). The share of certificates generated by projects requiring extensive on-site measurement approaches grew constantly over the first five years of the WCI implementation, to 16 per cent in 2010. Thus, the share of the remaining projects making use of engineering estimates, the socalled analytica, with some measurement requirements has been constantly decreasing (AEEG 2011: 27). The pattern of fuel savings remained, however, rather stable, with 77 per cent in electricity, 19 per cent in natural gas and 4 per cent in other fuels (Pavan 2009a, AEEG 2011: 28). A more detailed examination of the measures delivered between 2005 and 2009 (AEEG 2011: 11, 12, 53, 56), 358 broken down into groups of obliged actors, reveals the following. The majority of savings (52 per cent) delivered by electricity distribution companies have been realized by (distributing) CFLs. Low-flow water taps make up 22 per cent of the savings – the second-most popular measure of the scheme. Other measures have been applied only to a minor extent (8 per cent installation of tap aerators in the residential sector, 5 per cent sodium vapour lamps in public lighting, 4 per cent district heating, 1 per

357 During the expert interviews, two experts explicitly complained about the lack of comprehensive and updated data available for evaluating the outcome of the Italian WCI. However, since 2007 a total of five annual reports have been published, although solely in Italian language. 358 There is a lack of clarity and consistency in the numbers provided by different sources. The 2011 report does not provide a clear overview of the measures. Since these are the most recent data at the time of writing, it is nevertheless necessary to rely on them. However, the percentages in Table A.3 on page 53 do not sum to 100. The author believes (and also cross-checked with former reports) that a transcription error was made in the bottom rows and therefore assumes that these measures have not been delivered.

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cent solar collectors); and the remaining 8 per cent have been realized through non-standardized projects with on-site measurement (see Figure 11).

CFLs Low-flow water taps Tap aerators Sodium vapour lamps District heating

Figure 11: Share of particular measures in the total savings realized by electricity distributors, 2005–2009 (Source: AEEG 2011; Author’s illustration)

CFLs Low-flow water taps Tap aerators Sodium vapour lamps Electric motors

Figure 12: Share of particular measures of the total amount of savings realized by natural gas distributors, 2005–2009. (Source: AEEG 2011; Author’s illustration)

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Like the electricity distributors, the gas distribution companies have realized the majority (63 per cent) of savings through CFLs, and 25 per cent through lowflow water taps. The remaining savings are even less various than those from the electricity distributors with 6 per cent from tap aerators, 2 per cent from electric motors, 2 per cent from recuperation of electric power by decompressing natural gas, and 1 per cent realized by sodium vapor lamps (see Figure 12). Among both electricity and gas distributors, 14 out of 22 listed eligible measures have not been applied at all, such as heat pumps or PV. A press release underlines the WCI’s success (AEEG 2009a). The system is ‘recording very positive results’ with savings exceeding 2 Mtoe by the end of 2008 on the assumption of carbon savings of 5 million tons. 359 In terms of realized measures, over 800,000 low-consumption appliances, 21 million ‘high efficiency’ light bulbs, and 230,000 m2 solar panels for hot water production have been installed in Italian households. These measures targeting households make up to 80 per cent of savings. The remaining savings have been realized by improving industrial processes through ‘hundreds of new electric motors and frequency regulators, as well as dozens of cogeneration systems’. Finally, measures have also been implemented in the public sector, mainly by replacing 420,000 lamps and installing automatic ‘consumption-reduction’ regulating systems. A mere list of installed measures does, however, not necessarily represent a successful scheme. For instance, comparing the area of installed solar panel for hot water production through the WCI in Italy with the numbers in Germany reveals that 230,000 m² is only a small fraction of the newly installed area in Germany in 2010, which amounts to 1.54 million m² (BMU 2011). 360 AEEG recovered costs of €100 million. It estimates that certified savings outweighed the costs between 9 and 14 times. This is, however, true only for those customers who directly benefited from a measure. No information is available on how many households actually profited from the measures and how the measures are distributed along the income spread, that is, what kinds of household benefited from the measures. AEEG’s fifth annual report differentiates the share of energy service providers coming from the north (51 per cent), the centre 359

According to more recent presentations on the Italian WCI, energy savings of around 6.6 Mtoe were achieved during the period 2005–9 (Pavan 2011: 4). The increase of savings between 2008 and 2009 probably reflects different calculation methodologies. While the cumulative annual target was 2 Mtoe in 2008, annual savings throughout the whole period amount to 6.6 Mtoe, which would be equal to the total number of white certificates issued (since they are issued annually). With an average life span of five years, one measure generates a certain number of certificates five times. 360 To compare, the total installed area of solar panels for hot water production in Germany amounted to 14.2 million m² in 2010, with new annual installations of 1.54 million m² in 2010.

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(39 per cent), and the south (10 per cent) (AEEG 2011: 22). While not indicating where the measures have been implemented, it reports that more activity has been stimulated in the richer regions of Italy. Since the Italian WCI is the only system so far with spot trading via an electronic trading platform, trading experiences are of special interest. Distributors, companies belonging to the same group as the distributor, and companies active in the energy service market may register themselves to open an account at the GME market platform in order to participate in trading and to qualify to receive TEEs 361. In the first session of the electronic market platform for TEEs in March 2006, no trades took place. The trade volumes on the market platform in 2006 were lower than those of bilateral trade activities. From June to October 2006 almost no trades occurred via the market platform; in 2006 a maximum of 4,280 TEEs were traded in one session. Trading activities via the electronic market platform increased only in 2008, after some changes of the system, so that in September 2008 the volumes traded on the market exceeded the volumes of bilateral trades. If the total volumes are taken altogether, however, most of the trading activity so far has been bilateral. Especially in the beginning, the trading volumes on the electronic market platform have been rather low (Mundaca et al. 2008). But more recent data confirm this result. Figure 13 shows that most trading activity was bilateral throughout the first five years of the Italian WCI. However, the trading volume alone does not provide a complete account since the obligation constantly increases over the years. Accordingly, the total volume of certificates on the market naturally increases. By comparing the ratio of increase in traded TEEs to the increase in objectives it becomes clear that the percentage of the traded TEEs peaked in 2006 (255 per cent) and then decreased (91 per cent in 2009) (AEEG 2011: 33). Pavan (2011:4) puts it this way: ‘Trading option crucial to the achievement of the target (traded EECs 362 = 91%–136% of assigned targets).’ 363

361

This involves paying a yearly fee of €300 and of €0.2 per traded TEE. For further details regarding the technical procedure of registering and trading see: http://www.mercatoelettrico.org/En/Mercati/TEE/CosaSonoTee.aspx 362 EECs is the abbreviation for energy efficiency certificates. 363 Pavan does not indicate the years corresponding to the numbers she gives. AEEG (2011) shows that 136% occurred in 2007 and 91% in 2009. In addition, there is no explanation for why more than 100% of the objective has been traded. One explanation could be that due to a lower target it was easy to overachieve the target, and the resultant surplus of savings has been traded. It would thus be valuable to calculate the number of traded certificates as a ratio of the total volume of generated white certificates. Another explanation could be that the same certificates have been traded several times on the spot market.

7.2 History of White Certificate Instruments in Italy

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

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Bilateral Market

2005

2006

2007

2008

2009

Figure 13: Relative distribution of trading activity: bilateral vs. market, 2005– 2009 Note: ‘Market’ = trading activity via auctioning organized by GME. (Source: AEEG 2011; Author’s illustration) According to the interviewees, smaller obliged actors minimized search, administration, and transaction costs by means of long-term contracts. In order to be guaranteed prices below the cost recovery, the prices for the certificates were rather low at the end of the second year (~30€ for type I certificates). Every month a certain amount of certificates were traded bilaterally at prices between €0 and €10 every month 364. Italian experts linked this phenomenon to energy service providers’ activity with the following observation. Many of the energy service providers carrying out energy saving projects are subsidiaries of obliged actors, especially to ENEL (which has to achieve more than 80 per cent of the target of electricity companies). A considerable part of the trading activity is therefore estimated to be in-house; and it is not evident that the resulting certificate prices reflect their true value, especially given certificates prices in the range of 0–10€/toe. There are, however, no figures available for the share of individual companies’ targets realized by the respective companies. 364 To avoid misunderstandings, some certificates have been traded bilaterally also at higher prices. Still, it is interesting to observe that some certificate prices were regularly as low as 0–10€/ toe.

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Shortly after November 2008 the new cost recovery of €88.92 came into force. The price patterns did not change, in either bilateral or market trades. However, what can be observed from the non-bilateral market price is that the number of certificates sold above the new cost recovery is negligible. 35000 30000 25000 20000 15000

Nov 08

10000

Nov 09

5000 0

Figure 14: Number of white certificates sold bilaterally within a certain price range, 2008-2009 (Source: GME 365, Author’s illustration) For trading activity via the electronic trading platform, the following results can be presented. While in the first sessions the market price was above €70, the difference between the prices of type I and type II certificates grew over time. In the middle of 2007 the average market price for type I (electricity) certificates was not much more than €30, whereas the price for type II (gas) certificates was around or above €80 (see Figure 16). Although no data are available for prices resulting from bilateral trades in 2006 and 2007, personal interviews with obliged actors established that the prices for certificates traded bilaterally were comparable to those traded via the GME market platform. From April 2008 on, average prices for bilateral trades have been reported publicly on the GME website. Overall, average prices for bilaterally traded certificates were lower than average prices for certificates traded via the electronic market platform, as Figure 15 shows. If we look at the price structure of bilateral trades, over the years a significant number of certificates have been sold for €0–9.99. A typical pattern of trading activity is displayed in Figure 14. It reveals that while the majority of 365

http://www.mercatoelettrico.org/En/Default.aspx

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savings are sold above a certain minimum threshold, some are transferred bilaterally with virtual no value. An interpretation for this phenomenon is that the certificates are transferred within the group of rather strong vertically integrated energy companies. 100 € 50 €

Type I bi Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09

0€

Type I

100 € 50 €

Type II

Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09

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100 €

50 €

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0€

Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09

Type III bi

Figure 15: Comparison of weighted average prices for market trades (dark grey pillar) vs weighted average prices traded for bilateral trades (light grey pillar) for different types of Italian white certificates, 2008–2009 (Source: GME; Author’s illustration)

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Figure 16 illustrates the market reaction to regulatory changes in December 2007. Since then, obliged actors have not been required to fulfil part of their obligation through savings of the same fuel type they distribute. Accordingly, the prices are converging and have became almost identical. While the new ‘flat’ price initially reflected the average price of both types of certificates, the level is now similar to type II certificates (saving in gas consumption), and almost equal to the cost-recovery rate. During the first three years of the Italian WCI scheme, cost recovery was applicable only to type I and type II certificates. This explains why virtually no type III certificate was generated and traded. Once cost recovery for all types of fuel savings was guaranteed, actors started to make use of energy savings also in fuels other than electricity and gas. Initially, the prices were significantly lower than the certificates’ prices for type I and type II savings, reflecting the comparatively lower costs of implementing savings in this sector. However, the price of type III certificates rather quickly became similar to the other prices. At the time of writing, the prices of all type of certificates are almost identical. Although they are meant to reflect differences in the costs of different kinds of fuel savings – which should be the case in practice – the prices no longer reflect these differences. Rather, the cost recovery seems to be the variable that most influences the price level of the certificates. Especially given that most of the savings are achieved through low-cost measures such as the distribution of CFLs, the high prices of certificates seem not to reflect the true costs of the intervention. The cost-effectiveness of the market mechanism is accordingly questionable. Obliged actors often choose to conclude medium-term contracts with project developers. The agreed prices for white certificates were not much below the €100 flat cost recovery per saved toe, according to an interviewed expert. According to another interviewee, more than 1,700 business enterprises have sought recognition as ESCOs 366 since the WCI was launched 367, while only 100–120 ESCOs have actively delivered energy savings to generate white certificates. The fifth annual report on the Italian WCI also provides figures on this subject and confirms the divide between companies that are registered and those that actually deliver certifiable projects: while by the end of May 2010 1,719 companies were recognized as ESCOs, only 231 have actually been granted certificates. In 2007, the savings were achieved by a total number of 1,769 inter-

366

The dissertation usually refers to ‘energy service providers’ rather than ‘energy service companies’ (ESCOs) in order to avoid confusion about the definition of an ESCO. However, since in the Italian context reports and actors mostly refer ESCOs, in this section the abbreviation ‘ESCO’ is used as well. 367 In an interview it was confirmed that in 2003, only 23 ESCOs were registered in Italy.

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ventions, of which 1,367 (more than 77 per cent) were implemented by ESCOs (AEEG 2011). 120 € 100 € 80 € Type I 60 €

Type II

40 €

Type III

20 €

Cost recovery

0€

Figure 16: Price development of white certificates traded via the electronic market platform GME, 2006-2009 (Source: GME, Author’s illustration) To prevent a flood of unqualified companies entering the market, companies that wish to participate in the market now have to demonstrate their proficiency. At the time of writing (19 April 2011), 455 parties have been admitted to the registry (trading bilaterally and via the GME market platform); 350 market participants (trading only via the GME market platform) are currently listed, and the number is increasing continuously. In addition, according to the annual report (AEEG 2011: 21), a total of five energy managers had obtained white certificates by May 2010. The numbers indicate that the introduction of the Italian WCI has stimulated activity in the energy services sector. A significant share of certificates has been generated by energy service providers. However, while the numbers indicate a strong interest in the WCI market, they also show that only a small fraction of the service providers have actually participated in the markets. In addition, the mere numbers of registered ESCOs do not provide insights into the ownership structure or the size of the ESCOs in general. Two Italian experts observing the ESCO market complained about a lack of vertical unbundling; they argued that

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many ESCOs belonged to the company group of obliged actors. Another expert observed that the profit margin seemed to attract only certain medium-sized ESCOs; bigger, independent 368 ESCOs complained that the market was too small. ESCOs are paid only for savings that are below the flat cost recovery unless the cost-efficient potential is fully tapped. For small ESCOs, becoming active in the white certificates market seems to be too costly since it implies heavy administrative burdens such as search costs, registering on the electronic market platform, and documenting the saving projects. More recent numbers confirm the concentration of energy service providers’ activity, with only 15 providers delivering 70 per cent of certificates (Pavan 2011: 4). However, Pavan concluded in another presentation that one important outcome of the WCI was the involvement of new actors in energy savings, especially ESCOs. In addition, she highlighted effects of the WCI such as the emergence of new forms of collaboration and a growing number of informational campaigns and training programmes (Pavan 2009a).

7.2.3 Preliminary conclusions on the history of the WCI in Italy The Italian WCI has no single objective. Instead, there is reason to believe that multiple factors drive agenda-setting, such as Italy’s high level of dependence on imported energy combined with low energy intensities, or the Kyoto commitment. While these are general reasons why Italy would increase its effort to enhance energy efficiency through policy interventions, the concurrence of (a) tradable green certificates for renewable energy promotion and the centre-left government’s attempts to promote the liberalization of energy markets and to render Italian administration in general more efficient and (b) the legal establishement of the WCI are striking. In comparing it with previous policy instruments in the field of end-use energy efficiency, the WCI can be characterized as a policy innovation. To summarize, agenda-setting can be traced back to the legal initiatives taken by the centre-left government between 1996 and 2001. Then, market-liberal ideas were gaining ground in Italy and the reforms started: liberalization of energy markets, e-government, the introduction of tradable green certificates, and, accordingly, the introduction of the WCI. While it is assumed that there was a strong belief in the efficiency of free markets during agenda-setting, this belief cannot be inferred from the legal documents; rather, it will be traced in the analysis of the interview transcripts in the next section. 368

An independent ESCO is understood here to be an energy service provider that is not a subsidiary of an obliged energy distributor.

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However, an examination of design choices already reveals why certain decisions were taken. Obliging distribution companies instead of, for example, suppliers can be understood as a package deal; while generous concessions are made to the electricity and gas distributors, these actors have to deliver end-use energy efficiency in return. The attempt to keep the scheme simple is not evident from the design choices – with implementation, particular interests seem to have influenced details of the design and rendered the current scheme rather complex. Many of the design features dilute the stringency of the overall target: nontransparent application of conversion factors, complex standardization procedures which are, however, often not observed in practice, eligibility of early action, and generous but unclearly defined sanction mechanisms. Last but not least, with a rather generous cost recovery, the scheme is transformed into a quasi-subsidy, however capped, since it is granted only until the target is achieved. An explanation of this is the involvement of different actors. While the industry ministry fixed the overall target and the architecture of the scheme, including the principle of cost recovery, the regulatory authority administers it. The latter attempts to optimize the cost effectiveness of the scheme by making changes within the boundaries of the rules set by the ministry. In addition, the government changed, and an initiative of a centre-left government was implemented by a new conservative government. As for the changes to the scheme resulting from the ministerial executive order in 2007, one can conclude that they were motivated by the intention to enhance trading in order to render the scheme more cost effective. The initiative in changing the scheme’s mode of action can be attributed to the regulator, AEEG, supported by GME. The practical steps were the decrease of the minimum threshold and, as a result, the increase in the number of obliged actors from 30 to 75. The effects of this change are somewhat uncertain since the target to be delivered by these additional actors contributes little to the overall saving targets, since the electricity market in particular is highly concentrated and Enel is responsible for around 87 per cent of the target 369. The new actors’ additional demand is thus expected to be only marginal. In the gas sector, by contrast, the new obliged actors are responsible for a little less than a quarter (23.9 per cent) of the savings, and the additional target is almost entirely covered by the new actors. Trading activity is influenced by the abandonment of the requirement to achieve half of a company’s target through savings of the fuel the company is delivering and by allowing cost recovery also for fuel savings other than in gas and electricity. Basically, the new rules are simpler and make the market more transparent and bigger (especially by making type III certificates eligible for cost 369

According to own calculation for the electricity sector, the new obliged actors are together responsible for 1.4% of the target.

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recovery). Accordingly, trading is encouraged. Finally, even the adjustment of the cost recovery 370 from €100 to €88.92 was supposed to signal a scarcity of certificates to the market. However, the changes in 2007 do not convincingly render the scheme more cost effective. This is demonstrated by the development of the prices of the different types of certificate, which now have virtually the same value – converging to the highest price. The price convergence is, however, relevant only for the spot market. It does not render the scheme more cost effective. Rather, it incentivizes a shift in profit margin from the obliged actors to those who sell certificates on the spot market – mainly energy service providers. Nevertheless, the majority of trading is still organized bilaterally, with prices generally below those of the spot market. Thus, the changes imposed by AEEG turned out to have visible effects on the markets. But they do not change the general incentive structure of the scheme so as to render it more cost-effective. The overall costs of the scheme remain the same; the final customers have to bear the costs, while the actual beneficiaries are not documented. Whether or not the schemes were rendered more efficient (these changes reveal in any case that the policy architects believed in the cost effectiveness of the market mechanism), trading was the crucial parameter to be reformed in order to improve the whole scheme. To conclude, the rules of the Italian WCI are rather complicated since it is an open-ended scheme with detailed rules, including for trading. Given the hybrid character of the WCI, the dominant mode of action in the Italian scheme, as derived from the design choices, is the flat cost recovery for primary energy savings. Another factor rendering the scheme rather complicated and nontransparent is the design changes throughout the ongoing commitment period. They are mainly intended to improve trading. The following conclusions can be drawn on the outcome of the scheme: Mass-market low-cost applications, such as CFLs and low-flow water taps, have been preferred. In addition, measures adopted by industry are increasing. In that sense, it can be argued that the scheme has achieved cost effectiveness. However, it is not clear whether the measures are really helping Italy to fulfil its commitment under EU burden sharing to achieve greenhouse gas reduction targets. Since it abandoned the obligation to achieve half of the savings in a certain fuel, it is also not certain to achieve its security of supply targets. As the following section demonstrates, the additionality of savings can be challenged. 370 However, the automatic target adjustment in the event of case of overshoot is also meant to prevent the scheme being used as a money machine by companies buying cheap white certificates on the market and then being granted cost recovery regardless of the individual company targets. Seen this way, the adjustment rule can be interpreted as an admission that cost recovery is the main incentive for trading.

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7.3 Perception of the WCI and the policy process – the policy image ‘Trading’, ‘cost effectiveness’, and ‘market-based scheme’ are keywords in the discourse of the Italian WCI. This section put these keywords into perspective with the help of expert interviews. Unlike in Britain and France, in Italy the WCI is not clearly part of an energy efficiency discourse such as climate protection. While it would be possible to see the Italian WCI from the perspective of the process of liberalization of energy markets, the most important factors have already been analysed. Instead, it turned out to be more fruitful to rely on the expert interviews to understand the discourse in which the Italian WCI is located.

7.3.1 Objectives and (hidden) purposes The interviewees did not paint a homogeneous picture of the objectives and drivers of the WCI in Italy. Their responses established that there was no clear objective but a mix of demonstrating compliance with international commitments or simply ‘delivering energy efficiency’ or security of supply. Indeed, three Italian experts explicitly stated that the WCI was not a policy instrument to reduce carbon emissions. The following collection of comments from Italian experts summarizes the main issues raised: ‘minimizing economic costs’, ‘the main driver in my opinion is security of supply. You know, in Italy, we don’t have oil. Then we are completely subjected to imports’, ‘the policy is not specific (...), historically, it was created as a part of the package instrument, to make Italy respect the obligation of the Kyoto Protocol’, ‘the fashion of market mechanisms in Europe and in Italy particularly in the end of the 90s (...), a fashion that has hit more the centre-left than the centre-right’, ‘is for the authority to respond Kyoto’, ‘this accent was placed on white certificates because of the idea of trading. And this was in its turn due to the liberalization of energy markets (...) so what everyone hopes, I think, is basically that this system would allow the saving target to be achieved at least cost’, or ‘the ministry of economic development and the energy and gas authority were in favour of the market mechanism’. Two conclusions can be drawn from these quotations and the explanations given by the interviewees. First, some experts absolutely insist that this policy instrument is about security of supply, not climate protection. Among other things, they maintain that if the main objective has been climate policy, the unit of energy savings would not have been primary energy. Others argue that, on the contrary, the main driver of the Italian WCI was climate policy. Throughout the interviews it became clear how to these apparently contradictory beliefs should be interpreted: experts did not really believe in the carbon reduction potential of

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this policy instrument. They believed, rather, that the WCI would be a tool to show that Italy is making an effort to comply. One expert put it as follows: ‘Italy fully agreed in one way or another to Kyoto, to have these targets. So we have to show we are doing something to attain them.’ Second, the interviews reveal that, while talking about objectives, actors strongly associated the modes of action (market/trading) with substantial objectives (security of supply, compliance with international and European commitments). The idea of promoting economic efficiency by introducing a market mechanism was emphasized, despite the overall claim that end-use energy efficiency measures as such promoted economic efficiency371. The majority of Italian experts linked the scheme’s objectives to the significance of trading for economic efficiency and the general preference for market mechanisms as a consequence of the liberalization of energy markets. The specific mode of action associated with the WCI can thus be regarded as one of the drivers of the scheme. Thus, the Italian WCI has no clear-cut objectives. The strong emphasis on economic efficiency through trading suggests that trading has arguably become an end in itself.

7.3.2 Mode of action and demarcation from other policy instruments During agenda-setting, the WCI seems to have been used to promote no single clear-cut objective. A market mechanism was believed to be adequate for promoting a diversity of objectives. It was perceived as the most cost-effective way of steering energy efficiency improvements. The Italian regulatory authority, AEEG, in particular pursued the idea of creating a market-based policy instrument based on trading. It was believed to be compatible with the principles of liberalized energy markets. This is documented not only by representatives of AEEG in various presentations at conferences as well as in papers (Pavan 2002, 2005, 2008, 2009a, 2009b, 2011) and during expert interviews. Other interviewees also stressed the significance of the regulatory authority establishing an MBI and ensuring that the market mechanism functioned well. The major spokesperson for the Italian WCI, Marcella Pavan from AEEG, commented (Pavan 2009b): ‘If you choose a market instrument, leave the market to work without (deliberately) distorting market forces’ (efficiency) and ‘promotion of investment also in technologies with long-lasting effects’ (quality). This shows well that on the one hand there is a strong focus on the mode of action, 371

An observation from various conferences on energy efficiency is that policy advocates for energy efficiency usually refer to the so-called McKinsey curve (greenhouse gas abatement cost curve) to illustrate the economic potential of energy efficiency measures.

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that is, enhancing economic efficiency through trading. On the other hand it is acknowledged that energy efficiency projects are always attached to qualitative savings. ‘The system spread a lot of information to consumers, and thus a greater awareness about energy savings, an essential element for developing the most efficient technologies’ (AEEG 2009a). Some interviewed experts disagreed with these claims, claiming that, on the contrary, the scheme was invisible, making it more difficult to reach the final customer. This is relevant in Italy, since it is the energy distribution companies that have an obligation – they do not necessarily benefit additionally from big advertising campaigns promoting brands, as some suppliers do. This paradox has not yet been solved in the Italian case by focusing mainly on ameliorating the mode of action. The collected terms characterizing the mode of action present a picture that appears to be quite clear: the majority of expressions and explanations emphasize the importance of the flexibility provisions in the scheme, as Table 8 shows. Table 8: ‘Coercion’ and ‘flexibility’ in the transcripts of interviews Coercion ‘Strong regulation’

Flexibility a

‘Obligation in the final use, I oblige you directly’b ‘the fact that an obligation is set is an important point’c ‘they [obliged actors] were not so happy because it was an obligation’d

‘most important, it’s the trading’ ‘Very free’e ‘Trading is the most important characteristics’ ‘I believe in trading mechanisms like emissions trading’ ‘why white certificates and not mandatory instruments’ ‘market mechanism’ ‘you are making profit, you are exchanging’ ‘cultural thinking about how markets work: It’s not just obligation’ ‘flexible target’f ‘When there is a market, there is also – hopefully – a gain’g ‘When they play, they comply with the obligation more easily than being

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7 Italy obliged’ g ‘mechanism that is not so stiff’ ‘very easy to change’ g ‘They don’t say it’s a penalty. But they don’t say it’s an encouragement.’ g ‘Economic efficiency through trading’ ‘The larger the scope, the bigger the possibility to exploit the advantage of market mechanisms’ ‘market is a key element’ ‘the target must be higher than the actual. Because only if you have a target you can put more efforts to reach the target’h ‘this accent on white certificates was put because of the idea of trading’ i ‘the fact that there are so many flexibilities is a rather important point’ i ‘I do expect more trading’ ‘I would lower the threshold to the obliged parties, just cancelling it or lowering it in order to let as many distributors as possible get into the market’j ‘authority changes things in an ongoing procedure’ ‘the electronic platform – it is not used; the volumes are really low; obviously something is going wrong with this because everything is done basically with the bilateral contracts.’k

Source: Author Notes: a The same expert said that the very open system needs a strong regulation. He also said that it is a market mechanism, with trading its most important feature. The expert also explains that it is a little counterintuitive to oblige distributors that forced the authority to introduce a cost recovery which then leads to inefficiencies.

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b

The same expert explains in detail that the ‘market mechanism’ is crucial since it incentivizes ‘playing’. c The same expert maintained that the motivation to choose the scheme was ‘the idea of trading’; he acknowledges, however, that the obligation is the single most important design feature and that there is a lack of understanding that the obligation could also work without trading. He said that the flexibilities are rather important in any case. d The expert basically explained that the companies originally expected the mechanism to be a penalty; only when the cost recovery was introduced did they cease to object to the scheme. The expert himself saw the trading opportunity as the scheme’s main characteristic. e The same expert argued that a very open system needs strong regulation. He also said that it is a market mechanism, with trading its most important feature. As well, this expert explained that it is a little counterintuitive to oblige distributors that forced the authority to introduce a cost recovery which then leads to inefficiencies. f This expert basically explained that this means two things: flexibility in reaching the target with different approaches, including banking, and flexibility in the target itself, which exposes companies to uncertainties. g The same expert said that the obligation is an important part of the policy instrument. h The context of this quotation was the attempt to explain how the mechanism functions or should function. The quotation highlights that it is all about making the market mechanism work since the expert explained it is not so much the liquidity (in terms of the availability of significant numbers of certificates on the market) that has to be adjusted artificially but the target itself. This in turn would enhance trading. i The same expert acknowledged that the obligation is the single most important design feature and that there is a lack of understanding that the obligation could also work without trading. j The same expert explained that the obliged companies initially looked at the policy instrument as a mere penalty/ obligation. k The expert acknowledged the importance of trading to the scheme but recognized that it is not working in the way it was expected to.

This list of quotations can be enriched by more quotations revealing the perceived logic behind the scheme. One expert explained it thus: There is a market. When there is a market, there is also – hopefully – a gain, because when money passes from one subject to another there is also some part of the money which is gained from the subject, then, personally speaking, using play language, you stimulate people to play monopoly. When they play, they comply with the obligation more easily than being obliged. It’s easy to comply with an obligation when there is also a mechanism for market. Because in principle you can hope for a gain, for an advantage.

Another expert’s statement stresses that the idea behind the scheme was its flexibility; he did not even perceive the scheme as an obligation: ‘The most interesting thing is also: why white certificates and not mandatory instruments?’ And again, a third expert put it like this: ‘The basic idea was the economic efficiency of this kind of policy instrument, so the possibility to minimize costs through the trading of certificates.’

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This does not tell the whole story. The interviewees generally acknowledged that the scheme was introduced because of its flexibility provisions, in particular the possibility of certificate trading. Many actors related this to their first experience of the scheme and relativized the significance of trading and flexibility provisions as follows: While some argue that the precondition for the functioning of the scheme is the obligation, others say that the way the market was created contains some flaws (too few actors, too low targets) that have to be corrected in order to make trading more attractive and efficient. The companies – whether energy service companies or obliged distribution companies – have a different perspective on the policy instrument. Originally, these actors perceived the scheme as a penalty, seeing the obligation as its dominant mode of action. Now, the obliged companies have changed their minds. For them, the scheme brings a net gain through the generous cost recovery. When talking about the scheme they complain that the incentives are not high enough to generate white certificates. Since other subsidies are more attractive to many of them, the scheme would indeed not function without the obligation. One expert (not a member of an energy company) described it thus: ‘They don’t refuse them [the white certificates], of course. They don’t say it’s a penalty. But they don’t say it’s an encouragement. It’s not incentivizing enough.’ Another expert observing the market put it frankly: ‘They were not so happy because it was an obligation. (...) They had the possibility to make a lot of money just buying certificates and receiving the cost recovery. So at the moment they are more happy then they were some years ago.’ Seen this way, the WCI is an obligatory subsidy to the companies. Some other statements show that the theoretical flexibility has at least two faces. The scheme is open-ended in that it allows for certificates to be generated involving large on-site measurements. Many experts mentioned that the administrative procedure for certification of projects other than those standardized ex ante is non-transparent and long-lasting. One expert pointed it out thus: ‘The authority tends not to encourage the completely free procedure because they are not so easily verifiable. (…) I think they [delivering actors] used in a very wide way the standard procedures because it’s the simplest way, the way which is universally accepted. If you use this way you don’t have any arguments with the authority.’ In practice, on-site measurement involves many extra costs, including negotiations with the regulatory authority, the uncertainty surrounding whether a project will deliver savings and uncertainty about the point in time when a final decision will be taken. This leads companies to prefer not to make use of all options but filters out the standardized measures. The Italian WCI not only provides flexibility for obliged actors in delivering the savings. The administration is also given the flexibility to change the

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rules of the WCI. Experts, especially from the companies but also some others, complained about the flexibility in administering the scheme. The ministry of economic affairs and the regulatory authority made adjustments and changes to the WCI to take effect in the current period. These concern the inclusion of new actors, a change to the nature of the target (all types of certificate are eligible to count towards the target, and type III and type IV certificates are eligible for cost recovery now), and finally an increase in the target. One expert from a company put it like this: ‘They put a flexible target. Because what you can receive in a year you can put just 50 per cent in the other year (…) the problem is that the authority changes the goal each year, so we cannot do planning, because if this year the goal will not be reached, maybe the other year the goal will be lower.’ Another expert confirmed this issue: ‘The greatest problem, the greatest critical issue is the fact that the authority changes things in an ongoing procedure. One day they are valid for this year but not for last year, so they really don’t like this thing that the rules are changing while you play the game.’ In order to work out the relevant mode of action that becomes effective through the WCI, the comparison of the WCI with alternative policy instruments turned out to be useful also for the Italian case. Asked to compare the WCI with other policy instruments, the experts used two types of instrument to express the way they see the WCI. First, six experts maintained that white certificates are similar to tradable green certificates for renewable energy promotion and an emissions trading scheme. Second, six experts (not necessarily the same ones) said that the Italian WCI has to be seen as distinct from traditional regulation, which is basically subsidies and financial incentives. Two experts also mentioned feed-in tariffs as distinct from the WCI in this context. One expert explicitly said that he views the WCI as a subsidy. Obviously, experts differ in their opinions somewhat when asked directly to compare policy instruments and in their statements indirectly describing the policy instrument’s mode of action. Experts agreed that the cost recovery has been a precondition for establishing the scheme and guaranteeing the companies a net rent. However, when they talked theoretically about the policy instrument, the incentive structure was perceived to lie within the trading provisions. The WCI is seen as conflicting with Italy’s traditional way of incentivizing energy efficiency improvements via subsidies and fiscal stimuli. Thus there are some inconsistencies in perceptions of the WCI and of different policy instruments, basically confirming the persistence of the image of the WCI as a tool to deliver energy savings cost effectively by making use of a tradable permit scheme.

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7.3.3 Design choices and political conflicts The main political conflicts in Italy had already emerged during the agendasetting process. The design choices reflect to a certain degree the compromises that solved these very early conflicts. As shown above, the origin of the establishment of a WCI in Italy lies in the liberalization attempts legally prescribed by the Bersani Decree. One of the reforms was the determination of concessions for the energy distribution companies. The government generously awarded concessions to the companies on condition that the companies pursued end-use energy efficiency. Coming back to this deal, the government issued ministerial executive orders in 2001 to impose an energy saving obligation on distribution companies – and the companies nevertheless complained. According to experts explaining the political process, the delay between the scheme’s envisaged and actual coming into force was caused not only by the change of government 372 but the strong opposition of the distribution companies. They complained that they were not suitable actors to deliver end-use savings since they were not directly involved with end users. When the opinions of the interviewed experts are put together, there are strong reasons to believe that the delay was only to a minor extent due to the constitutional reforms. The main reason was the need to frame compromises to appease the distribution companies and integrate them into the WCI. The initial proposal to introduce a WCI in Italy was met with many objections from the distribution companies. One expert said, ‘they focused basically on the obligation as such. They did not formulate, at least in the debate I took part in, a very detailed opposition.’ Some companies, in particular Italgas, have tried to challenge the legality of the scheme. The legal action was, however, dropped once it was clear that the cost recovery would provide a net income to the companies, as a representative of a company and another expert explained during the interviews. Basically two concessions were made to the companies: permitting early energy-efficiency actions carried out between 2001 and 2004 to be eligible, and awarding a generous flat cost recovery for certified savings. This cost recovery, initially €100 per toe of saved energy, was far above the certificates’ prices in the early years. It now changes annually and is linked to energy prices rather than to the white certificates’ prices. This way it can be argued that the cost recovery acts as an implicit decoupling mechanism: the cost recovery is an incentive not 372

An expert illustrated the general attitudes of centre-left governments as opposed to right-wing ones toward the WCI: ‘When we have a left government we say: oh, everything is good now, white certificates will go on and emissions trading will be better; when the right comes back, we say, oh, they will decrease the objectives, and they won’t...’

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just to sell energy but to receive a net rent for saving projects. The coupling of the cost recovery to energy prices instead of the average market price of white certificates does, however, counteract the idea of price building for energy efficiency action via a market mechanism 373. The following quotations are taken from different experts to indicate the compromises that had to be made in order for the WCI to gain acceptance among the obliged actors: The first year of obligation was subjected to transient rule which allowed to take into account also the savings from 2001 to 2004. (...) You can show also the savings from 2001 to 2004 for the first year. And you are not considered a free rider because they assume that you did that according to the first law. It’s gentleman’s agreement. It’s a way to allow to launch the mechanism. They thought that it was very difficult to launch the mechanism, (...) they assumed a lot of difficulties, then they decided to make the mechanism very simple, very encouraging in the beginning, that’s why. There was opposition from the parties that were involved that caused this delay, but I do not know anything in detail about this aspect. It was very difficult to find an agreement about the rules to be set and in the end the risk was really that the system would not have started at all. So what the regulators decided was, let’s start (...) because if we lost (...) time the risk is really that the initiative would be abandoned. They [the obliged actors] were not so happy because it was an obligation. [Later] they were quite happy because in those years, especially for the energy efficiency certificates, they made a lot of money if you see (...) the difference between the cost recovery and the market prices. They had the possibility to make a lot of money, just buying certificates and receiving the cost recovery. So at the moment they are more happy then they were some years ago. Also because distributors, as you know, are working in a strictly regulated market, so this was the reason why they had to bring in the mechanism, this sort of costrecovery system of the tariff: €100 per toe. Yes, there was strong opposition from the distributors, the obliged parties, because they claimed there was a strong obligation, they had to face costs, and it was not certain that they would be able to recover the costs. And those costs could be rebated on consumers, so they had a strong opposition and it could delay the policy for a while.

Once the scheme was launched, other issues appeared to be critical as well. The verification of projects turned out to be rather complex in terms of ensuring addi373

At a side talk at a conference on market mechanisms for end-use energy efficiency in Berlin on 10 December 2009, a representative of the Italian regulatory authority implied that it was the ministry’s decision to link the cost recovery to energy prices. The regulatory authority seemed to prefer to link the cost recovery to the prices of certificates. When I asked whether the system of linking the cost recovery to energy prices was consistent with the idea of the mechanism, the representative of the regulatory authority commented ironically: ‘Ah, you think this is logic?’

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tionality and of providing companies with certainty of eligibility of their nonstandardized action. Public presentations about the Italian WCI by the regulatory authority highlighted the scheme’s claim to recognize only additional savings that are ‘over and above spontaneous market trends and/or legislative requirements’ (Pavan 2009) as counting towards the target. However, as one expert put it, very cautiously, ‘I am not completely sure that additionality was very well ensured every time white certificates were released’. Some examples given during the expert interviews mainly of company representatives reveal that many of the savings have not been additional – even if the claimed savings did not stem from early actions. One expert explained the initial procedure for claiming white certificates for projects delivering CFLs: ‘I don’t know if Marcella [Pavan] will confess [about] the mechanism, but I’ll tell you because it’s not a secret.’ He explained that it was sufficient to demonstrate that the voucher had been delivered to the client by post to gain a certain number of certificates. There was no need to prove that the client also made use of the voucher. The expert further reported that many distributors send twice or three times coupons to the same people.’ This practice has since been halted, but it illustrates practical problems with additionality. Another example given by an expert concerns in-house projects of the company that employs him. One of those projects utilizes turbo expanders to optimize gas heating for distribution purposes. Other projects involve cooperation with engineering graduates who are accounting for all the energy saved within the company. If this amount is sufficiently great, the company requests white certificates for the improvement. Asked about the additionality of the project, the expert responded candidly that the company would have carried out the projects anyway. The expert interviews revealed that serious delays in administrating the scheme leave the obliged actors uncertain about whether their projects can really count towards the target. This especially concerns projects that require some kind of on-site measurement. It was said that project applications are held up somewhere in the ministries. Thus there seems to be a lack of capacity to deal with the entire range of the flexibility of the policy instrument. Related to this are general concerns expressed by experts about the capacity of the Italian regulatory authority to cope with its assigned task: ‘I would really fear the administrative burden on the regulatory authority. I am really, really worried. Because in the first year of implementation the AEEG, the authority, was a little bit slow. And operators perceived that it was slow.’ An expert from a governmental authority related the complexity of the scheme to the ability to manage and administer it: The larger the scope of the scheme, the bigger is the possibility to exploit the advantage of the market mechanism, but from an administrative and regulatory point of

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view, it is far more complex because you have to design all the measurement and verification methods, looking at every kind of project you could think about, so this is very complex and time-consuming.’

In an interview a company representative described the problem that the company had with a project it wanted to carry out in order to create white certificates. The project aimed to improve the gas distribution system by optimizing the gas temperature in the distribution process. The company submitted its application in 2005, but at the time the interview took place (16 July 2008) no final decision had been taken about the project. The company called Marcella Pavan from the regulatory authority, who said that the documents were still in the ministry. Another representative of a company waiting for projects to be approved said that ‘the only bad thing is about timing. You know, there is a sort of predefined time for approval of the project, but there is no predefined time for the approval of the result. So you wait for an indefinite time for the approval.’ An expert observing the scheme commented on the way the regulatory authority deals with the different types of verification procedure: The authority tends to not encourage the completely free procedure because they are not so easy verifiable. (…) I think they used in a very wide way the standard procedures. Because it is the simplest way: the way which is universally accepted. If you use this way you don’t have any arguments with the authority.

In order to respond to the delay and to expedite approval and verification, the ministry decided to allocate additional staff to the task. However, instead of providing the regulatory authority with new ’own’ staff, the ministry assigned to it staff from ENEA. An expert expressed the fear that this would cause even more delays and complexities rather than lighten the administrative burden: It’s sort of a duplicate of [the] bureaucratic aspects, because they don’t use the same information platform. They use a different type. So the same project has to be put [on] two different [platforms] – it’s absurd. So, first things. Second things, ENEA in Italy, it’s a sort of (...)old structure, with very low productivity. More bureaucratic than practical (...). So another step to along the time and not to shorten.

7.4 Conclusion: cost-effective – to whom? There are manifold reasons for the Italian government and administration to foster end-use energy efficiency, such as Italy’s dependence on energy imports, or its commitment in the context of European burden sharing to comply with the

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EU’s Kyoto greenhouse gas reduction target. However, the choice of the WCI in preference to alternative policy instruments can be attributed, not to a specific objective such as climate protection or security of supply, but to the WCI’s perceived nature as a market-based policy instrument. In that sense it is a policy innovation, since the previous regulation in the field of end-use energy efficiency consisted mainly of informational measures, as well as fiscal and financial incentives. ‘Economic efficiency’ is the keyword to circumscribe the WCI image that appears in all stages of the policy process and both in written primary and secondary documents and in orally transmitted data (interviews and participatory observation). This is most obvious in the written documents related to the design changes of 2007, most of which were intended to increase trading activity. Some experts have expressed doubts about the need to encourage trading since they are not convinced that trading enhances the cost-effectiveness of the scheme 374. Other experts question the benefit of changing the rule regarding the types of certificate. The change makes distinguishing between the different types of energy savings unnecessary. However, throughout the analysis the prevailing belief is that economic efficiency is best achieved by a well-functioning trading mechanism, which itself is perceived as a crucial element of the market-based policy instrument WCI. In that sense it can be argued that energy efficiency and trading have become objectives in themselves, regardless of the purposes of energy efficiency (such as climate protection). The analysis has also showed that the policy image was retained throughout implementation and continued to have an influence on policy design changes (‘trading’ as a core element to be improved). The WCI image in the Italian case as a market-based scheme thus has an effect beyond agenda-setting. The policy image is one piece of the puzzle. The interests of the actors involved and their constellation are other pieces of the puzzle. The analysis shows that the interests not only of companies but also of administrative actors are manifested in design choices. The actor constellation constitutes a conflictual situation. On the one hand are partly state-owned energy companies as obliged actors and a rather conservative ministry responsible for the WCI’s architecture. Because of strong initial opposition leading to delays in implementation, the ministry decided to introduce a cost recovery for the companies, turning the scheme into a quasi-subsidy. On the other hand, the independent regulatory authority collaborates with the elec374

‘And there is also this aspect related to trading and the need to have a scarcity at one end in order to have trade and liquidity on the other hand in order to allow to be cost-effective. The trading part is a part that is really challenging, I think, and a definitive answer on the additional value given by trading does not exist so far, I think.’ (Italian expert commenting on the way the regulatory authority deals with the trading component of the WCI.)

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tronic market operator GME in order to render the WCI cost-effective and to demonstrate that this quasi-market can function. The policy image acted as an intervening variable in that it allowed actors’ interests to be transposed into design choices without attracting much attention in international WCI analysis. The regulatory authority – through AEEG’s annual reports and the presence of Marcella Pavan in the international expert arena on the WCI – bolstered the policy image of the Italian WCI, emphasizing the successful trading mechanism. Conflicts of interest and specific actors’ constellations are, however, prevalent – their manifestation in design leads to a distortion in the market mechanism since the cost recovery has remained the main incentive mechanism and cannot be improved by making the market more liquid (section 7.2.2.4). The abolition of the rule requiring at least half of the saving to be achieved in a certain fuel illustrates how the policy image interacts within the existing interest constellation. Abandoning the requirement to deliver 50 per cent of their targets in one particular fuel led to a convergence of prices. The certificates’ prices are now uniform and thus no longer reflect the type of project. They also do not reflect the real cost of the savings: while the price of electricity savings increased, the costs of the saving measures did not increase since the mix of measures was rather stable over time with most savings achieved in electricity or in-house gas 375. Accordingly, windfall profits persisted but as a result of this change the beneficiaries probably shifted to a certain extent from obliged to eligibles. It remains unclear who actually benefits from the increase in the profit margin in electricity savings. Those obliged actors who have an interest in carrying out savings themselves either do not trade via GME or organize trading with companies from their group. To them, the changes in the scheme’s architecture probably just do not matter. As the results show, instead of trading via the electronic spot market, most trading activity is organized on a bilateral basis with higher price variety and lower average certificate prices. Bilateral contracts are said to be more attractive since they allow long-term planning by contracting partners. The higher certificate prices may act as an incentive for eligible energy service providers to enter the scene as eligible third actors and carry out more measures in the field of electricity savings (which have been cheaper than gas savings, as reflected in certificate prices before 2007) in order to increase their profit margins. Indeed, the interest of energy service providers in the scheme is indicated by an increasing number of ESCOs requesting eligibility. However, those that really deliver savings through the scheme remain a rather small frac375

In the light of the expert interviews, there are doubts that these savings have been carried out additional to business as usual.

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tion, with 15 energy service providers delivering 80 per cent of the group’s savings. The customer probably does not benefit from an increase in the profit margin. While the cost recovery remains flat, the standard of the measures is not necessarily rising. Also, the fact that the certificates are increasingly generated in the industry sector shows that the private customers paying for the scheme directly benefit from it only to a limited extent. As set out above, the general changes to the WCI design over time were not appreciated by all actors. While for companies flexibility referred to the choice of the mode of compliance, for the ministry and the regulatory authority it referred to changes in design features, such as targets, cost recovery, and the threshold for participation. The companies did not welcome the ad hoc changes during the ongoing commitment period. But although the companies complained about it during the interviews, there were no indications that they seriously intended to oppose the changes. Thus, the effects of the changes on the obliged can be assumed to be rather small. The definition of, and the differentiation between, costs and benefits remained unclear throughout the analysis. No concise method was found in existing empirical analysis that determined the cost–benefit ratio of the scheme (a) for the administration, (b) for the companies or (c) for the energy consumer. Finally, the success of the scheme’s measures in delivering additionality should be viewed more sceptically than the analysis of the core expert group (see Chapter 4, especially Eyre et al. 2009) and even the presentations and evaluations by Pavan (2009a, 2009b, 2011) do. While interviewees usually stressed the success of the scheme and its strong additionality, some gave several counterexamples, such as the CFL distribution mechanism through vouchers, or certain projects in industrial sites that would have been carried out anyway, with or without the WCI. The regulatory authority and its staff (especially Marcella Pavan) have an interest in proclaiming the scheme’s success, since it is their main job to keep the scheme running and to defend it against the ministry, ENEA, and the companies, but also internationally. Pavan’s strong international presence and the presentation of the Italian WCI as a success story – not least due to its stimulating trading via the GME trading platform – renders her a policy entrepreneur advocating the Italian WCI. Thus, her maintenance of the policy image and her efforts to improve trading suggest that the scheme is a success. This diverts attention from

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other modes of action that are in place, such as the quasi-feed-in tariff through the flat cost recovery. 376

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The WCI policy instrument is not a feed-in tariff for renewable energy promotion as the term is understood in Germany, for example, since cost recovery is granted only until the savings target is achieved.

8 Comparison

8.1 Comparing the case studies As depicted in Figure 4, there are two dimensions of comparative analysis. First, the comparison of the three case studies is meant to highlight, and differentiate between, those factors influencing WCI choice and WCI design and, in particular the role that case-specific WCI images play in shaping the political process from agenda-setting to implementation. Second, the comparison between the knowledge development in the international research community on WCIs and the images that are thereby generated within this group of the results on the one hand and the case studies (including the specific policy images) on the other hand is meant to illustrate the persistence of policy images in the light of emerging knowledge. Both dimension of the comparison are expected to shed light on the way WCI images are strategically used in the political process in order to strengthen certain interests and/or objectives. In addition, it is expected to reveal how policy images exert influence within the political process beyond the control of actors, and develop a life on their own. The introductory Chapter 1.3.6 indicated empirical differences in WCI design. The differences in design choices led to the suggestion that WCI choice, implementation and outcome differ as well. The case studies confirm these differences: each study tells a single story about the choice and implementation of a WCI in practice. The stories display the rationales of WCI choice and inconsistencies in design arising from a variety of factors. The comparison between the case studies elaborates the significant differences in design and illustrates why these differences in WCI choice and design matter. In order to grasp systematically the influence of the WCI image on WCI choice and design, it will compare the cases among selected categories 377. The categories are derived from the ele-

377

Note that the categories overlap strongly. To be precise, it is a theoretical assumption that the categories cannot be clearly distinguished – design choices set new institutional and ideational paths that develop lives of their own (e.g. in terms of mode of action) and shape the ongoing political process. However, for analytical purposes some categories need to be clearly distinguished to facilitate comparison.

D. S. Steuwer, Energy Efficiency Governance, DOI 10.1007/978-3-658-00681-5_8, © Springer Fachmedien Wiesbaden 2013

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ments of Figure 4 and Figure 5 378 reflecting the categories of analysis and those elements that are expected to influence WCI impact and effectiveness: ƒ ƒ ƒ ƒ ƒ

Objectives (derived from documents and discourses) and delivered objectives Mode of action (flexibility versus coercion, incentive structure, route of delivery) The policy image in the interplay between actors and institutions Role of actors (ministries, authorities, regulators, obliged companies, eligible third actors, associations, personalities) Role of institutions (laws, regulatory traditions, primary/secondary legislation, structure of energy market)

8.1.1 Objectives: Intended and delivered The objectives the WCI is meant to deliver were derived in the case studies from the discourses of the WCI, from official documents, and from the expert interviews. As the case studies showed, the different sources are not always consistent in this respect. Comparing the cases brings to light the objectives security of supply, consumer protection, climate protection, and cost-effectiveness.

8.1.1.1 Security of supply In none of the countries is security of supply or reduction of import dependence explicitly mentioned in official documents linked to the WCI. However, in each case security of supply is mentioned as a general objective of energy policy and of energy efficiency policy. Similarly, this objective was also mentioned in the expert interviews, although it was not treated as very important. Most significantly, it has been cited in France in the context of ageing nuclear power plants which require more investment in new capacity or at least new equipment in the near future – some of which could be offset with the help of energy efficiency. Even though in Britain the net balance of import dependence changed only recently, import dependence and security of supply or even the link to a possible power gap were not cited in the expert interviews as an important driver for the scheme. Security of supply has also been mentioned by most of the Italian experts, though without linking it to specific circumstances. 378 The categories of analysis as displayed in Chapter 3 reflect explications of policy instruments in general and of hybrid and market-based policy instruments in particular.

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8.1.1.2 Consumer protection in liberalized energy markets In all three cases the introduction of the WCI is linked to liberalization of energy markets, although the link is differently interpreted in each case. The strongest link to the liberalization of energy markets is apparent in the British case. The introduction of the WCI in France can also be interpreted in the light of the ongoing liberalization processes. However, the historical analysis revealed that the drivers were different. In Britain, the introduction of the energy efficiency standard of performance – the first state intervention for energy efficiency involving energy companies – had been seen as very critical. The policy instrument was perceived to contradict the idea of competition and the self-regulatory forces of markets (e.g. Prosser 1997). Re-regulation, paying special attention to the fuelpoor, was considered important to ensure that the final customer would benefit from energy efficiency measures. When the Labour government took over the policy instrument from the regulatory authorities and made it a matter of cabinet decision-making, the obligation became even stricter through more ambitious targets and a change in status. The objective of combating fuel poverty was strongly emphasized by the interviewees, and has been the most contentious – and most costly – issue surrounding the WCI. In France, the WCI was similarly introduced at a time when energy markets were about to be liberalized in practice. During the parliamentary debates on the introduction of the WCI, politicians, especially from the conservative UMP, referred to the British example – the successful Energy Efficiency Commitment. Britain was portrayed as a leader in liberalizing energy markets, and thus as an example to follow now that the French government would be obliged by European legislation to open its energy markets to competition. A British model seemed to be appropriate, and was therefore cited by advocates for the introduction of the WCI. While it is true that the scheme was perceived to be ‘compatible with liberalized energy markets’ – an argument also widely used by Italian policy-makers (e.g. Pavan 2002, Eyre et al. 2009) – the WCI was however never introduced as a lever to re-regulate liberalized energy markets in France. And the historical record shows that in parliamentary debates in 2005, when the energy framework law was approved, the WCI was not perceived as re-regulation. Instead, it was believed that artificially creating a market would enhance the spirit of liberalized energy markets – despite its interventionist character. However, customer protection can be interpreted as an objective in that the WCI was said to achieve the potential of energy savings dispersed throughout the residen-

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tial sector and also, in the light of ongoing 379 discussions in France, to introduce a focus on the fuel poor similar to the British WCI. In Italy, the link between the liberalization of energy markets and the introduction of the WCI resembles to some extent the French case, especially since the policy instrument was introduced by a centre-left government in a bundle of decisions promoting market liberalization and tradable permits to support it. The WCI were decided upon at the same time as tradable green certificates were selected as the preferred policy instrument to support renewable energy production. Analogous to the green certificates market, an electronic trading platform was established, making the Italian white certificates scheme the first fullyfledged tradable permit scheme for end-use energy efficiency. Thus, the initial idea to introduce the WCI was seen as a way of following the logic of market liberalization by creating a quasi-market – even if the practical application makes use of another incentive structure, namely the cost recovery. Unlike those in the UK and France, the Italian scheme does not especially emphasize customer protection or equity issues. The distribution of costs and benefits of the scheme have never featured prominently in political debate, nor have they been formulated as initial objectives. Thus, while the introduction of the British WCI has to be seen as reregulation for the sake of consumer protection and against fuel poverty, the other two schemes were conceived in the spirit of liberalized energy markets.

8.1.1.3 Climate protection Climate protection is – like security of supply – a main objective 380 of energy policy. While at the end of the 1990s the commitment to climate protection was still in its political infancy, this objective was last anchored in all three countries when the European Emissions Trading Scheme was on the agenda 381. In Britain energy policy is principally framed in the context of climate policy; a budgetary approach made climate protection the overarching rationale of energy policy. The WCI has always been officially promoted in the UK as a climate protection instrument. In France, where nuclear electricity predominates, decarbonizing the economy for the sake of climate protection is not as pressing. However, the parliamentary debates clearly revealed that politicians believed they were introduc379

On workshops French experts repeatedly reported that a separate target to reach the fuel poor was being adopted in the political sphere. To be more precise, climate protection is a corporate objective and a constraining framework condition for energy policy. 381 In 2004 it was clear that there would be an EU emissions trading scheme. 380

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ing first and foremost a climate protection instrument. Climate protection was – as in Britain – further institutionalized in energy policy. With the second environmental law project – Grenelle 2 – sustainable development and climate protection became overarching rationales of French energy policy as well. Also, the relevant ministry became the Ministry for Climate and Energy 382. Finally, the documentary analysis reveals that climate protection was one of the drivers for setting up the WCI in Italy, too. Thus, in official documents and presentations, all three countries treat the WCI as a climate policy instrument. In contrast, the expert interviews paint a different picture about the WCIs’ objectives. While in the UK the interviewees confirmed the climate protection focus of the policy instrument as one objective, in Italy and in France the majority of interviewees either did not mention climate protection at all or stressed explicitly that the WCI was not a climate policy instrument. However, even in Britain the cost increases of combating fuel poverty due to the WCI element indicates that, while climate protection is certainly an objective, there are reasons to argue that the WCI is primarily a policy instrument to combat fuel poverty. Instead, in Italy and France, security of supply was mentioned by some experts as one of the objectives. There are thus inconsistencies in the perceptions of the WCIs’ objectives as between official statements and decision-makers’ views on the one hand and the practitioners’ and experts’ views on the other.

8.1.1.4 Cost effectiveness An objective that became especially apparent in the Italian context deserves special attention. The WCI was chosen especially because of its perceived superior cost effectiveness due to the trading mechanism. While cost effectiveness is not an overarching objective in energy policy but rather general principle in policymaking, the idea that cost effectiveness is ensured in a mechanism where trading takes place became an important driver not only for setting up the scheme but also for changing it. The cost effectiveness of the mechanism was cited in parliamentary debates also in France as an argument for adopting loi POPE.

382

The name of the ministry changed several times during the research process. The most important message here is that climate and energy became integral concerns of the environment department.

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8.1.1.5 Delivered objectives The accredited savings of the existing WCIs exceed the official targets. Some obliged actors did not fulfil their goals but were overcompensated by other actors’ savings. Thus, all three WCIs delivered accredited savings through end-use energy efficiency measures as fixed by the rules of the scheme. If abiding by these rules is the criterion of success, the schemes can be considered successful. While the assumptions on which the cost-benefit analysis has been carried out are not entirely clear, all three schemes are said to have a positive net benefit, that is, the benefits of the scheme outweigh the costs (Eyre et al. 2009). Yet delivering mere kWh savings through end-use energy efficiency measures does not automatically lead to delivery of the objectives. As spelled out in Chapter 1 and Chapter 2, energy efficiency means different things to different actors, and the WCI is not necessarily designed to deliver an absolute reduction of energy consumption. It is therefore important to analyse the kinds of measure the scheme is delivering and the additionality of those measures. Delivered measures There are overlaps and differences regarding the eligible measures in the three WCIs. Some measures are in principle eligible in each of the schemes, such as efficient lighting appliances 383. These measures are typically listed in catalogues of standardized measures with ex ante determined savings attached to each measure. While the lists of measures vary in length and degree of differentiation, the measures actually delivered paint a more straightforward picture. The British scheme has delivered mainly insulation measures. While this was different in the beginning, when more measures for electricity savings were implemented, the scheme’s architecture increasingly supported distributing insulation measures, especially among low-income households, with the help of weighting factors and sub-quotas. Thus, the British WCI can be considered as delivering the kind of measures that correspond to the objective of combating fuel poverty. The French WCI is dominated by the replacement of boilers with more than two thirds of the delivered measures. The majority of savings – more than 80 per cent – is delivered in the residential sector. This meets the objectives of the scheme as perceived by the interviewed experts. While decision-makers have seen the scheme’s objective as delivering cheap CO2 savings, the schemes’ re-

383

In the initial phases, CFLs were one of the popular standardized measures in each of the schemes.

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sults suggest rather that the objectives cited by the interviewees have been delivered. The Italian WCI delivers different kinds of measure from those of the UK and France. Instead of boiler replacements or insulation measures, the scheme basically delivers mass-market measures such as the implementation of CFLs or low-flow water taps. In that respect, the savings are delivered by most costeffective measures. These measures are, however, accompanied to a lesser extent by additional qualitative benefits, such as market transformation or distributional equity. In none of the countries was there any special focus on measures that would reduce peak load and so help to stabilize energy supply. Thus, the objective of security of supply is not explicitly supported by the measures that are delivered. Additionality The WCI can be said to deliver its objective only in the event that the measures are additional to business-as-usual. As set out in Chapter 1, additionality can be verified ex ante 384 or ex post. In addition, there are at least two perspectives from which additionality can be determined. First, it can be ensured that the savings delivered through the WCI would not have been delivered through other schemes. Second, savings can be additional by setting ambitious baselines from which to calculate the savings. This way, the savings would be additional with regard to standard baselines. The British approach to additionality is rather pragmatic in that the non-additionality fraction of measures is estimated in advance and counted towards the overall target. The energy suppliers have to show how they ensure additionality of savings. The regulatory authority controls additionality via random samples. The exact amount of reductions that can be attributed to the WCI cannot be determined exactly. Since the targets have increased over time and have reached an ambitious quantitative level, the policy instrument can be judged to have a significant effect in terms of additionality. This is less obviously the case in the other two schemes, where additionality is meant to be reached mainly via the baselines. The baseline definition has generated much political debate in France and Italy, resulting in political compromises rather than in a technically feasible optimum: in France, the baselines generally represent the market average rather than the best available technology, and in both France and Italy they are by definition above the legal standards. In addition, setting up conversion factors and the differentiation between different 384

‘Ex ante’ in this context does not preclude ex post measurement on site. Rather, the obliged party complies with its target only if the savings are verified as being additional according the rules. ‘Ex post’ accordingly means that all savings delivered under the scheme are counted as additional.

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climatic zones on the one hand is an attempt to ensure additionality, and on the other hand renders the schemes more complicated and requires more political decisions to be taken, so increasing the probability of a dilution in additionality in savings. This is especially obvious in Italy, where the WCI envisages three different procedures to verify additionality. Besides standardized measures, onsite measurement can also be involved. However, lengthy application procedures to account for these savings lead to delays in verification and approval. In both Italy and France, tax credits can be used parallel to the WCI. In that sense it is not clear whether the savings can mainly be attributed to the WCI or to the tax credits that the customers make use of. Policy additionality is thus not necessarily given, and deserves further examination. At the time of writing, no studies were available quantifying the effect of existing tax credit schemes in order to comply with the WCI target. However, the fact that this mechanism was used allows for questioning policy additionality as well as the consistency of the national approaches.

8.1.1.6 Competition of objectives, unintended effects and discourses of energy efficiency In all three cases, the WCI has more than one official objective. In all three cases the interviews revealed that prominent objectives 385 are supported by the delivered measures, so there is some matching of objectives and outcomes. However, in practice there is a certain degree a competition between objectives. This became most obvious in the British case, where climate protection and combating fuel poverty collided as the overall targets became more stringent, since the fuel poverty element is the single most costly element of the British WCI. In the end, the ministry decided to prioritize certain measures –insulation measures in this particular case – in order to render the scheme effective and to legitimize the increasing costs to the final customers. Competing objectives are not as visible in the two other cases. However, doubts about additionality through politically defined baselines and existing tax credits, as well as the focus on boiler replacement in the residential sector in France and on cheap and simple measures in Italy, show that delivering overarching objectives such as climate protection or even contributing to security of supply can hardly be controlled for. Neither a specific focus on measures for peak load reductions nor an absolute reduction of energy consumption due to the WCI can be observed; consequently, 385

This can certainly be also attributed to the fact that the interviewed experts are aware of the objectives the schemes actually deliver. In that sense, their perception is an (re-)interpretation of objectives in the light of the results.

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the benefits of the WCI in terms of enhancing security of supply can be questioned. While the experts did not question the benefits of the WCI in terms of climate protection, in all three cases there are reasons to argue that the WCI is not primarily a climate policy instrument. Rather, less aggregated objectives play a more important role in the practical application of the WCI. In the French case such objectives or benefits include the involvement of energy companies, municipalities or other actors along the efficiency value chain, incentivizing measures in the end-use sectors and thereby sensitizing residential customers and triggering market transformation. In Italy, the creation of a functioning trading scheme became the dominant objective. To a certain extent, these are unintended objectives since they are not officially stated or explicitly mentioned in expert interviews. So far there has been no systematic evaluation of the qualitative (unintended) benefits of the schemes. Such benefits are, however, often cited in presentations and reports about the WCI to legitimize the scheme. The reports and presentations on the three WCIs make little reference to the WCIs’ benefits in terms of climate protection and security of supply in order to legitimize the scheme and proclaim its success. In all three cases the WCI has been discussed – among others – within the discourse of liberalized energy markets. However, the way the WCI is related to liberalization of energy markets varies, revealing the understanding of the WCI mode of action. On the one hand the policy instrument has been understood as supporting the spirit of liberalized energy markets, as in the French and the Italian cases. On the other hand it has been perceived rather as re-regulation in the light of newly structured energy markets, as the British case has shown. While not statistically confirmed, the qualitative analysis reveals a correlation between the flexibility elements of the WCI and its character as supporting the spirit of liberalized energy markets, especially in the French and the Italian cases. This is especially true for the single feature ‘trading’. A comparison of the underlying modes of action realized in practice (see subsection 8.1.2.) reveals, however, that the British and the French schemes are more alike than the Italian and the French schemes, despite their common element of trading. There is one common element which all experts have highlighted as an objective of the scheme, namely, budgetary independence. Similar to the objective ’trading’, budgetary independence is a mode of action rather than an objective, since savings are delivered in a way that does not touch the treasury. This illustrates how the mode of action and the objective of policy instruments are intertwined in the political debate and in actors’ perceptions.

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8.1.2 Mode of action: flexibility versus coercion The comparison between the three cases shows that the modes of actions vary considerably, so the ensemble of design elements in each case resulted in different underlying incentive structures within the boundary of the hybrid WCI. This subsection is structured around the different design features that determine the degree of flexibility as opposed to coercion in the WCI. The respective WCI designs provide for different degrees of flexibility in the three cases, with the Italian and the French schemes offering in theory more flexibility provisions than the British scheme. However, practical application reveals that the actors involved make use of these provisions only to a limited extent.

8.1.2.1 The role of standardized measures The choice of measures is one flexibility provision in WCI designs. The obliged actors’ flexibility of choice of measures varies by case. First, there are differences regarding the open-endedness of measures, that is, only standardized measures may count towards saving targets, or non-standardized measures may also do so, either requiring on-site measurements or even based solely on assumptions such as behavioural measures. Second, there are differences regarding the definition of standardized measures in terms of the number and kind of eligible measures and the eligibility conditions of these measures. The lists differ with regard to the number of eligible measures, theoretically leaving more leeway for the French suppliers than for the British suppliers or the Italian energy distribution companies. In each country there exists the opportunity to expand the list of standardized measures. Apart from the standardized list of measures, each WCI allows for the accrediting of energy savings that are delivered through non-standardized measures as well. While in the UK this opportunity is ring-fenced to a maximum of 12 per cent of so-called demonstration action, market transformation, or innovative action 386, it is principally openended in Italy and France. Over time, in the British and the French schemes experimentation with behavioural measures increased. While these measures are part of the ring-fenced project in the UK 387, the French and the Italian schemes are not restricted by subquotas. Rather, the definition and the kind of measures themselves (in France, these measures are included on the list for the transport 386 Under Energy Efficiency Commitment, these measures have been called ‘innovative actions’; under CERT they are called ‘market transformation actions’ or ‘demonstration actions’. 387 Indeed, only a percentage of the ring-fenced demonstration projects may be realized through behavioural measures.

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sector) have a smaller saving potential than mass-market appliances such as CFLs. Thus there is little encouragement to realize these measures to a great extent in practice. While the Italian scheme is principally open-ended, the procedure to accredit savings via non-standardized measures with large on-site measurements is rather lengthy and involves not only the regulator but also the ministry. The procedure thus reduces the incentive to make use of those measures. Implementation results confirm this. The results show that, despite the wide range of opportunities, standardized deemed savings is the preferred route of delivery in each of the three schemes. In addition, there exists a national pattern of implemented measures. In Britain, this is mainly due to changing objectives and an objective-tailored scheme, where insulation in low-income households is prioritized by the ministry and the regulatory authority and is now even fixed as a sub-quota of the scheme. In Italy, the most cost-effective measures – some call it ‘cherry picking’ – are implemented, which can be attributed to the underlying incentive structure. Under the French scheme, many boilers were replaced. This can be explained by reference to interests. The French suppliers mainly agreed to implement savings (instead of paying the buyout price, see subsection 8.1.3.) on condition that they could do so with measures that would be the least harmful or most beneficial to their companies. Client bonds are deepened by, for example, replacing an old gas boiler with a more efficient one. This way the client is certain to purchase gas over future decade(s). Thus, flexibility in terms of a wide choice of measures turned out not to be as important to the obliged as expected.

8.1.2.2 Scope of obliged and eligible actors Another flexibility feature of the WCI is the scope of actors participating in the scheme. The schemes vary in this respect as well. Other than in the UK, with only six big obliged energy suppliers, under the French WCI more than 2,000 domestic heating oil suppliers on top of the gas and electricity suppliers received an obligation. On the number of obligated companies, the Italian scheme lies between those of France and Britain. The number of obliged companies varies from 30 to 75 388. Thus there is not the concentration of obliged actors such as exists in Britain – and in practice also in France. While in France and Britain energy suppliers are the obliged actors, the situation in Italy is somewhat different, with energy distribution companies being obliged under the scheme. These differences are said to exert a major influence in the market in 388

This is because the regulatory authority and the market operator GME advocated for a ministerial decree lowering the minimum threshold for companies to receive an obligation. This was meant to expand liquidity on the white certificates market.

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terms of competition among the companies (expected to be more present with energy suppliers as obliged actors) and in terms of demand and supply of white certificates and energy efficiency projects (demand is expected to be higher the less direct is the link of the obliged to the customers and the fewer obliged actors exist). This has consequences for the mode of action since a higher degree of competition increases the companies’ interest in the kind of measures that are delivered – flexibility to ensure the cheapest savings is less important than flexibility to implement those measures that help broaden the companies’ portfolio. Finally, following an economic rationale, the supply of WCIs is expected to be highest with easy access of eligible third parties to the market and with a high number of participating actors in the scheme. However, implementation shows that these calculations only partly match reality. In all three schemes, a few big energy companies are the main market actors responsible for demand and supply of energy efficiency projects and white certificates. The suppliers in the British and the French schemes have carried out projects mainly on their own or under direct contracts with partners such as planners, installers, and so forth. In Italy, more savings have been generated by third actors, and obliged distributors have sold the certificates on the market. However, there are also obliged actors in Italy who have carried out savings on their own or influenced the kind of measures by entering into bilateral contracts instead of purchasing certificates on the spot market. In fact, most trading activity takes place bilaterally. The expert interviews lead to the suggestion that the unbundling of companies did not entirely work and that vertical integration still has an influence on distributors’ activities, so that the obliged actors still have an interest in selling energy. On the other hand, they have daughter – energy service – companies which then carry out the projects and sell or virtually donate 389 the certificates to the obliged actor. In that respect it is still the big companies such as ENI that exert the most influence on the market for white certificates. However, the investigation does not solve all the puzzles in the Italian scheme just by collecting hints about the motivations of the obliged actors and the energy service companies. Certainly, there is a decisive difference between Italy and France in the political will to support an active energy service business. From all the documents, presentations and interviews, it emerges clearly that Italy has made an active political decision to involve energy service companies as actors to deliver white certificates to the markets. In France, energy service companies are not eligible to generate white certificates. French policymakers argue that projects carried out by energy service providers lack additionality by definition, since saving energy is these companies’ main business. Therefore, these actors 389

A considerable number of certificates have been traded for a few (symbolic) cents.

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are not eligible to generate white certificates. This could also be interpreted as preserving the status of the incumbents and limiting competition between obliged and eligible actors.

8.1.2.3 Trading What can be observed especially in Britain and France is the lack of trading activity. Companies and experts attribute this to the companies’ competition: energy efficiency measures at their customers’ sites are well recognized by the clients and lead to stronger ties to the final customers – an important point of differentiation in a liberalized market where customers may choose freely their energy suppliers (Mundaca et al. 2008). However, the French case is somewhat different since most private households still profit from EDF’s regulated tariffs beating down energy prices. Nevertheless, the argument about strengthening customer ties holds true also in the French case, since the French energy market faces more competition over the long run. In addition, French gas suppliers compete with domestic heating oil suppliers, so the kind of boiler replacement makes a difference to them. With the energy distribution companies as obliged actors, and on the assumption of fully unbundled energy markets, competition would provide no incentive to carry out projects. In addition, the Italian WCI market is more complicated in that there are three types of certificates involved and trading rules have changed over time. Thus trading activity cannot be explained only by the different type of obliged actor. The different patterns of trading activity are also a function of continuous intervention by the regulatory authority, GME, and the ministry to change trading rules, enhance the number of actors and encourage third-party engagement in order to make the market more liquid and to increase trading activity. In that respect, the market is not only artificially created by setting an obligation; as well, demand and supply are not left to market forces to generate but are manipulated by the policymakers through the rules of the game. In addition, while there is generally more trading activity in Italy than in the other cases, major volumes are still traded bilaterally and not via the spot market. On the assumption that bilateral trading is also motivated by an interest in the kind of measure, this may be attributed to a still significant degree of integration of energy companies. On the other hand it may reveal that the incentive (via the cost recovery) is too low to encourage enough third-party involvement to secure a sufficient supply of white certificates. To conclude, the mere existence of white certificates (as opposed to trading of projects or obligations) does not per se enhance trading. This is indicated by

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the relatively low trading activity in both Britain and France. Rather, additional value is connected to the individual project influencing the competitiveness of the obliged actor, so that the incentive to trade remains rather low. There is more trading activity in Italy, though less than originally expected. According to the expert interviews, rather long-term contracts are the preferred route of delivery also in Italy. The reported increase in energy service providers’ activity is not necessarily connected with the need for an open-ended market in order to render the scheme cost effective. Much of the existing trading activity in Italy is some kind of in-house trading with energy service branches belonging to the same group as the obliged distribution company. Thus, trading as a design element to enhance flexibility does not necessarily render the scheme more cost effective. On the contrary, it creates transaction costs that have to be taken into account in any evaluation. In fact, an important route of delivery for the obliged actors is to tender projects and cooperate with partners along the value chain of energy-efficiency measures.

8.1.3 Incentive mechanisms (prices, obligation, cost recovery, penalties) The most striking difference between the three WCIs is the incentive structures that drive the energy-efficiency activity. They are significant in that they give arguments to understand the three WCIs as three different kinds of policy instrument as categorized by various scholars (see Chapter 2.4). Obviously, each WCI has the obligation as an incentive to deliver energy savings. While this can be seen as the main incentive in the British scheme, complementary or alternative incentive structures are present in the other schemes. In the UK, the state actors have a clearer idea than their counterparts in France and Italy of what the policy instrument is designed to achieve: housing insulation, preferably in low-income households. The design of the WCI in Britain reflects these objectives and sets the obligation accordingly. During expert interviews it became apparent that the companies share this understanding, too. The whole scheme has been developed in close consultation with the suppliers in order to ensure that it delivers what it is meant to. This was possible since the main incentive – the increasing obligation – was perceived as not to be circumvented. The French WCI differs from the British scheme, in that it offers a buyout option, which makes it a true hybrid instrument from an economist’s viewpoint. In practice, however, the WCI in France is to a certain degree a voluntary agreement. The ministry has no interest in raising money through the buyout price. Rather, it wants to see measures and savings without being in a position to collect and redistribute money through its own programmes again. In that sense,

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the buyout mechanism is a lever whereby the companies can design the scheme so that it suits their interests. From the interviews it became clear that, during the consultations about the WCI design, the companies agreed to cooperate and deliver the measures instead of paying the penalty or buyout under the condition that the overall target would be bearable. It also emerged during the interviews that the French suppliers cooperated also in order to circumvent the introduction of other policy instruments such as an additional tax. The Italian scheme has no buyout mechanism. Instead, the core incentive – also to get third actors involved – is the flat cost recovery which is given for delivered certificates. Since the certificates price is rarely higher than the cost recovery, there has been a margin of net gains through the incentives for those implementing savings. The net gain is higher the less costly the measures per unit of savings are. Thus, the certificate price does not reflect real costs as long as the cost recovery is higher than the unit cost for energy savings. Since the cost recovery is financed through a tariff surcharge, the mechanism works similarly to a feed-in tariff, which is a well-known support mechanism for renewable electricity production (Jacobs 2011). Many energy service providers stated that the margin was too small to act as a real incentive. Thus, it is interesting for only a limited range of energy service providers to generate energy savings under the WCI: those for whom a small margin would be sufficient, or those who have other interests in delivering cheap savings for the obliged company since, for instance, they belong to the same group. What does that teach us about the WCI? On the one hand it shows that the WCI is a true hybrid scheme that can easily be adapted to various contexts and implemented in many different ways. On the other hand, there are considerable doubts about whether the three schemes should really be considered as the application of the same policy instrument since the three countries’ main incentive structures differ so widely.

8.1.3.1 Perceived modes of action The analysis of the national experts’ perceptions revealed that the mode of action was perceived differently in the three cases. In addition, the analysis of the WCI perceptions among the national experts only partly matches the analysis of the design elements. The qualitative content analysis revealed that perceptions of the WCI differed especially with regard to the mode of action and the dominant character of the policy instrument. The sum of British expert statements reveals that the British WCI is widely regarded as a coercive policy instrument, since the obligation reaches a level that amounts to a significant government intervention.

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This corresponds to the design choices. The perceptions of the WCI in France and Italy differ from that in the UK. While experts also mentioned the importance of the obligation, they placed significantly more emphasis on the flexible elements of the policy instrument. Regardless of implementation and operationalization results, the qualitative content analysis revealed that Italian experts continued to perceive the WCI as a market-based policy instrument, emphasizing the importance of trading and of other flexibility provisions. In contrast, the cost recovery was not mentioned as an incentivizing design element of special importance. In France, the perception of the WCI was somewhat more complicated. Importance was attached to flexible elements such as the trading elements. However, some experts said that it is not (yet) a fully-fledged market mechanism; others said that it is just regulation. An obvious interpretation is that expectations were different before the policy instrument’s implementation. The experts’ statements can thus be interpreted as a result of a learning process. The buyout option is – like the Italian cost recovery – not stressed as an important design element. In this regard, the word ‘flexible’ does not connote the fact that the actors may choose the preferred mode of action (which is possible since it is a hybrid instrument). Rather, the meaning of flexibility is attached to the image of a market-based policy instrument involving the issuing (and trading) of certificates. However, as explicated in Chapter 2.4, the comparison of perceptions shows that there is no uniform understanding of what a market-based policy instrument consists of. To sum up, there are some inconsistencies between objectives, design and perception, especially in France and in Italy. In the French case, the greatest tension is between agenda-setting and actual design. In fact, the ambivalence in perception can be seen as an expression of that tension around agenda-setting in the light of the idea of promoting a flexible market-based policy instrument compatible with liberalized energy markets following the British WCI model 390 and implementing a scheme which on the one hand is rather open-ended but on the other hand follows a technocratic French policy style leading to narrow-range implementation. The Italian scheme has been implemented following the idea of establishing a flexible policy instrument promoted as a fully-fledged marketbased instrument in that it is compatible with liberalized energy markets. It is still perceived as such a policy instrument despite somewhat contradictory design features and implementation results. The main incentive of the scheme is a

390 In fact, this is one of the main misunderstandings in the French scheme – following the British WCI model would mean re-regulation and pursuing an obligation. While the actual design is indeed similar to the British model, the policymakers did not necessarily expect such a scheme to result from the idea of a WCI.

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quasi-feed-in tariff, not a price-building mechanism via setting up a quasimarket.

8.1.3.2 Breaking with traditions? To return to one element of determining the mode of action, namely additionality, some insights with regard to regulatory tradition will be highlighted. Within the three countries, the definition and application of additionality of energy savings delivered through the WCIs differ considerably. As mentioned above, defining additionality leads to the engagement of energy service companies in Italy, whereas it prohibits those companies’ engagement in the French scheme. Analysing the understanding of additionality in the different schemes reveals that the schemes differ quite considerably. While this has a practical consequence when it comes to harmonization or possible linking of the schemes, not to speak of an EU-wide scheme, it also has theoretical implications. It shows that design choices and implementation of the scheme follow the traditional policy styles of these countries. This would not be problematic if the policy instrument worked as a true hybrid and thus accordingly allow the delivery of savings to be adapted to each context. However, reality is much more complex. What policymakers had in mind when setting up the policy instrument to some extent broke with national policy style and regulatory patterns (regulation in Britain, relying on market forces in France, circumventing state intervention through the regulatory authority and GME in Italy, each of the schemes driven by newly formed party coalitions). The scheme was expected to work according to modes of action partly opposed to the present regulatory context: The interventionist character to some extent opposed the spirit of liberalization in Britain. The open-endedness of the scheme – following the British Energy Efficiency Commitment, which was perceived as being in line with liberalization – to some extent opposed or at least challenged the technocratic and national champion approach in France. Finally, the idea of organizing a policy instrument via structures outside governmental influence (trading via GME, verification via ATEE) circumvents to some extent constant ministerial shuffles and the old institutional structure in Italy.

8.1.4 The policy image in the interplay between actors and institutions Many different actors are involved in setting up energy efficiency programmes. However, some actors turned out to play a crucial role as strategic agents. They

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framed and promoted the policy instruments’ image and thus its choice and design. As set out in Chapter 2, strategic action is itself a social construct and shaped by the interplay with institutions, thereby shaping institutions. Therefore, in the following sections not only the actors but also the institutional settings that emerged from the political process of choosing and designing the WCI will be compared.

8.1.4.1 Policy entrepreneurs In each case policy entrepreneurs or a central actor have created the image of the WCI. In the British scheme Eoin Lees assumed this role in the mid-1990s when the Energy Saving Trust was involved as a main actor implementing energy saving projects. His role was critical for the promotion of the scheme since he was not only setting up the scheme but he was also engaged in evaluating the performance of the successor supplier obligation. He basically supported the scheme not so much as a market-based instrument or a regulatory intervention, but as a mechanism for delivering energy savings in a cost-efficient manner; and he promoted it as a success. As with the British scheme, in France the main driver for the WCI came from the administrative level. François Moisan was at that time executive director of strategy and research 391 at ADEME. The personnel at ADEME who initiated the scheme were formerly engaged with emissions trading and market-based policy instruments. Within ADEME, spurred by Moisan, the image of the WCI as a market-based policy with similarities to emissions trading has been created, in which terms it was also discussed in parliamentary debates. Moisan pointed in parallel to the successful implementation of the British supplier obligation – labelling it as a similar scheme (Moisan 2004) – and proposed to implement a similar scheme in France – however, with tradable certificates. Thus, on the one hand the link to the British scheme was made, and on the other hand the WCI as a tradable certificates scheme was pictured as an innovative policy instrument. In Italy, too, a policy entrepreneur triggered the creation of the WCI policy image. The regulator, AEEG, is the main promoter of the scheme. Marcella Pavan, from AEEG, plays an important role, especially when it comes to presenting the scheme to experts from third countries but also when advocating the scheme within the country. Among international experts she is known for her constant efforts to ameliorate the scheme, as the interviews revealed. While she paints a differentiated picture of the functioning of the scheme, she promotes the 391

Directeur exécutif de la stratégie et de la recherche.

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scheme as a success and emphasizes the role of trading. Her efforts to ameliorate the scheme also target the improvement of the quasi-market: enhancing certificate volumes to incentivize trading via the spot market and therefore rendering the scheme more cost efficient. Thus the image of the WCI as a market-based scheme has been significantly shaped by Pavan. The regulatory authority collaborates with the electricity market operator GME. Together, both actors aim at getting the market elements to work. Thus, in each case policy entrepreneurs played a crucial role in agendasetting and in framing the WCI image.

8.1.4.2 Political parties and administration In all three countries political parties played a role in settling the policy image. The interplay between political parties, the legal anchorage of the policy instrument and the role of administrative actors are, however, intertwined, as the present subsection shows. When Labour returned to power in the UK in 1997, the governance of the scheme changed and thus the main actors involved changed as well. With the first Energy Efficiency Commitment, the environmental minister fixed the level of the supplier obligation, with his legal competence based on the Utility Act 2000. Ofgem, the newly merged regulatory authority for electricity and gas, was accordingly responsible for administering the scheme and verifying the energy savings resulting from the measures carried out by the suppliers more independently from EST than under EESoP. Thus, there had been a shift in authority over the scheme. The legal status of the scheme was upgraded as a result of the environmental ministry fixing the level of obligation. Administration and verification became a responsibility of the regulatory authority, and the EST – partly financed by energy companies – lost some of its influence over the scheme. In short, state involvement increased and the image of a regulatory state intervention was supported. In France, the WCI was similarly introduced at a time when energy markets were about to be liberalized in practice. During the parliamentary debates on the introduction of the WCI, politicians, especially from the conservative UMP, referred to the British example – the successful Energy Efficiency Commitment. State involvement had been strong from the very beginning of the French scheme. Unlike in Britain and Italy, the WCI was grounded not only in a ministerial decree but in primary legislation, in particular the energy framework law loi POPE introduced by the conservative government, which welcomed and thus enforced the market-based image of the WCI. Determining targets and rules as

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well as carrying out measurement and verification have from the very beginning been tasks of the central ministry and its devolved regional counterparts. In the beginning of the scheme, the ministry of economic affairs was involved as the responsible ministry. With a reshuffling of ministerial tasks and competences, the newly founded ministry for energy and climate was accordingly responsible for the scheme. While the ministry had the authority to make the final decision about the level of obligation and the design of the scheme, suggestions for rules, measures as well as measurement and verification of savings were made by two other bodies: the environmental and energy agency ADEME and the technical association ATEE, uniting the energy efficiency industries involved and the energy suppliers. The nature of the WCI is such that design choices are a truly technical task. However, each choice of measure implies a choice of baseline and accordingly an associated amount of savings resulting from the measure. Thus, the final decision about the effectiveness of the scheme – even though it is a technical matter – is also political. The ministry took over the role of an arbitrator. While in Britain it was New Labour, and in France it was the conservative government, implementing and shaping the image of the WCI, in Italy the scheme was chosen under the liberal centre-left government. The Italian idea of liberalizing the market in order to get rid of old and inefficient structures relying on subsidies and fiscal incentives in the field of energy policy was substantiated in the creation of new policy instruments such as green and white tradable certificates. After the government changed again, the regulator took over the role of defending the scheme and its market-based character. In that respect, both government shifts helped to sharpen the image of the WCI as a policy instrument in the spirit of market liberalization, making use of tradable certificates. The legal status of the WCI is strongest in France and weakest in Italy, since the scheme in Britain was upgraded over time even though it was not grounded in primary legislation as it was in France. In Italy, the main rules of the scheme are grounded in ministerial decrees. In each of the countries, individuals and advocacy organizations played an important role in implementing the scheme. In all three countries, administration also played a crucial role in designing and implementing the scheme. This is especially true for Italy, where the government has been rather unstable and the constant actor in the process has been the regulatory authority AEEG. The ministry’s decision to have the rather old energy agency ENEA engaged in measurement and verification instead of increasing AEEG’s staff shows that it is not especially interested in rendering the scheme more efficient. The regulatory authority has also been important in Britain, whereas in France the regulatory authority has not been involved at all. In line with its regu-

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latory tradition, the French government made it a task of the ministry to draft the rules. ADEME and ATEE acted as consultants while the whole scheme was regulated top-down. In Britain, state actors gained more control over the scheme than the companies, although, consistent with British policy style, the whole scheme was negotiated between all relevant actors in a rather informal way, leading to greater room for interpretation than in the French scheme, where each rule was grounded as secondary legislation.

8.1.4.3 Energy companies in their regulatory environment The energy market structures in the three countries under examination differ. Accordingly, the interest structures differ. In the context of specific regulatory traditions, the interest constellation led to case-specific negotiations and WCI design choices. The policy image mainly created and advocated by policy entrepreneurs from administrative bodies acted as an intervening variable, as shown below. The energy market structures in the UK, France and Italy differ considerably. While all three countries have rather strong central governments 392 when compared with federal countries such as Germany, the relevant policy area – energy policy – is not very similar and even displays partly contradictory features. This is most obvious when it comes to the degree of liberalization of energy markets, one of the main discourses of the WCIs. While the UK was the first European country to implement liberalization and privatization in the energy sector, France opposed this trend until the European pressure was too great to resist. Italy is located somewhere between the other two countries with regard to the liberalization of energy markets. While quite far-reaching reforms have been introduced on paper, in reality former incumbents still dominate the energy structure in Italy, with competition not as advanced as intended (Di Nucci 2004a; 2004b). While the UK has undergone a far-reaching privatization process, the incumbents in France, EDF 393 and GazdeFrance Suez, 394 are still mostly stateowned. Liberalization in Italy also did not result in divestiture of the energy production monopoly 395. State involvement is, however, most significant in 392

However, in the last decade, devolution processes have increased in both France and in Italy, giving the regions more competences and independent authorities. However, the intended creation of a federal state in Italy in 2005 failed; the regions have yet to engage seriously in the field of end-use energy efficiency. 393 84.4%; http://www.boursier.com/vals/FR/FR0010242511-profil-edf.html 394 35.7%; http://www.boursier.com/vals/FR/FR0010208488-information-gdf+suez.html 395 Since privatization began in the UK, the number of energy companies in the market has decreased slowly but steadily. Currently, only six energy suppliers operate in the British energy market.

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France, resulting in extensive planning processes to secure investment in energy infrastructure and equipment. These perennial investment plans also give a role to energy savings and energy efficiency measures. However, only recently were energy saving potentials discovered to be an important part of the strategic investment decisions, following the rationale of minimizing the costs of nuclear power equipment. This has implications for the WCI. In the UK, the number of energy companies has been stabilized at around six suppliers, operating in a competitive environment. Putting an obligation on suppliers not only is a constraint but offers a diversification of their portfolio – the kind of energy efficiency programme they offer may make a difference to the customer 396. Thus, suppliers have an incentive not to trade but rather to establish long-term relationships with partners (such as installers or manufacturers) and to carry out energy efficiency projects themselves. The schemes’ design provides this opportunity and allows British suppliers to contract with partners. The close consultation between suppliers and state actors ensures that the suppliers deliver those savings that the government wants to see rolled out. Thus, the pragmatic policy style is combined with a clear incentive mechanism – the obligation. It gives a clear signal to the suppliers and allows them to develop business opportunities in the fields of energy efficiency and energy services. The incentives not to trade exist also in France (see also Mundaca et al. 2008). This interest structure can also be derived from the energy market structure: the effects of market liberalization have not yet fully appeared in France, and the two incumbents still dominate the energy markets. In the French policy tradition of promoting national champions, the WCI may help the suppliers to consolidate their market position. For example, with its energy efficiency brand ‘bleu ciel’, EDF creates a visible label that strengthens customer ties. The WCI does not allow energy service companies to participate in the market but only allows suppliers to choose their partners themselves: the energy efficiency actors such as manufacturers or installers are becoming involved in this way, but typically under the navigation of the incumbents and not as separate businesses. Competition exists also in France among the different fuels used for heating, with renewable energies making up only a negligible fraction. Since the suppliers of the different fuels (electricity, gas, and oil are all used for domestic heating) want to prevent the overreach of certain suppliers, the negotiation of a long list of standardized measures was lengthy and contentious, and accordingly resulted in comparatively high administration and transaction costs – especially when compared with the measures actually used. One interpretation is that the 396

The situation in the UK is a bit trickier due to the ’28 day rule’ (see section 6.3.3.3).

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flexibility provision has been exploited in order to appease smaller suppliers, whereas the major part of savings stems from a narrow list of measures delivered by the two incumbents. Thus, the flexibility provisions – a long list of standardized measures and many obliged actors – led to a more complex scheme without necessarily achieving more energy efficiency effects, since the two big suppliers account for more than 80 per cent of the savings. This is triggered by the hierarchical and technocratic policy style, as has been confirmed in the expert interviews: the French authorities have attempted to regulate the WCI in detail, which is laborious given the growing number of standardized measures. This could probably have been prevented with a well-tailored scheme addressing a more focused objective and target groups and a more specific range of measures. The policy image of an EU ETS-like scheme with a wide coverage of actors and sectors thus generated manifold arenas for conflicts of interest. Similar conflicts arose in Italy. Even if it remains unclear how much interest distribution companies have in preventing a decrease in energy sales due to a lack of unbundling, the companies all feared the constraint of the new policy instrument and wanted to prevent its introduction – even despite the former deal guaranteeing generous concessions. Their concerns found an audience in the ministry of economy, which decided to introduce the flat cost recovery as the main incentive structure of the scheme. Any measures below the cost recovery would mean a net gain for obliged actors. The regulator sustains the image of the WCI as a cost-effective mechanism steering by price building in an artificially created market. Setting up the market, including a functioning spot market, has been a rather complex task and appears to tilt at windmills. Windfall profits have not generally been avoided by the design changes in 2007. Rather, the main consequence of the 2007 changes in market design may be to shift windfall profits from obliged actors to energy service providers. Each of the case studies revealed that the obliged companies were strongly engaged in drafting rules through various institutional channels. In Britain, the companies’ engagement was originally institutionalized through the Energy Saving Trust and was later organized through bilateral contact between the company and the regulatory authority and the ministry respectively. Also, formal consultancy periods played a role in Britain. In France companies’ engagement played an important role, leading to compromises on the overall target and the actors included in the scheme. The scheme had been developed in coordination with the two incumbents. The more flexibility provisions are foreseen in the WCI design, the more interest conflicts are uncovered and influence design choices. By sustaining the image of a flexible market-based instrument, the cost effectiveness of the WCI

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may accordingly be diluted. This may be enforced in case the WCI image conflicts with regulatory tradition and therefore hinders effective implementation. Unlike in many other European countries, energy efficiency had been rather prominent in British energy policymaking (e.g. Collier 1998), especially since the establishment of the Energy Saving Trust in 1992 and, as a consequence, the Energy Efficiency Standards of Performance which were first introduced in 1994 and which can be seen as the foundation of the supplier obligation. It was a measure designed to involve energy companies in promoting energy efficiency not only on the production side but also on the demand side – also in liberalized energy markets. The WCI as a regulatory intervention can therefore be said to have emerged historically and incrementally, and does not represent a rupture in energy policymaking – even if the UK has been front-runner in tradable permit schemes. In that respect it is also in line with the country’s historical approach to continue combating fuel poverty with the scheme instead of solely promoting energy savings to achieve costly CO2 reductions. The idea of establishing the Italian WCI did not emerge from a regulatory tradition. Traditionally, energy efficiency had been supported by subsidies and fiscal incentives. In that sense the projects of the centre-left government at the beginning of the new millennium can be regarded as a break in the regulatory tradition of end-use energy efficiency. At that time the government then not only supported the European Emissions Trading Schemes but pushed for the liberalization of energy markets and implemented an administrative reform relying more on e-governance. The government decided to set up green certificates as a support scheme for renewable electricity, believing in the economic superiority of tradable certificates. In that respect the WCI can be understood as part of an ideologically motivated policy package. However, implementation was then left to the conservative government and partly to old structures such as ENEA, which caused delays and inefficiencies as reported in the expert interviews. France has a much differentiated tax system, which may explain why, in the expert interviews, the WCI was often compared to a tax. One expert even compared the buyout price to a tax. In particular, the domestic heating oil suppliers wanted to prevent a tax and therefore lobbied for obtaining an obligation under the WCI. In that regard, the WCI breaks with the French regulatory tradition, especially since there is no tradition of policy instruments making use of tradable permits and creating competition though artificial markets. On the contrary, implementation followed the hierarchical and technocratic French style of policymaking. This dual strategy – promoting a flexible scheme and implementing it in a rather regulatory manner – generated administrative and transaction costs. In Britain, state actors gained more control than the companies over the scheme, although, consistently with the British policy style, the whole scheme

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was negotiated between all relevant actors in a rather informal way, leading to greater scope for interpretation than in the French scheme, where each rule was grounded in secondary legislation. Also, formal consultancy periods played a role in Britain. In France, companies’ engagement played an important role leading to obvious compromises over the overall target and the actors included in the scheme. The scheme had been developed in cooperation with the two incumbents. The formation of new associations nevertheless reveals the novelty of the scheme and the seriousness with which the companies intend to meet the new challenge. Thus, in both countries traditional policy styles can be observed but also new elements – the rather stronger engagement of state actors in Britain than in France and the novelty of the policy instrument in France, leading to new organizational structures.

8.1.4.4 Newly institutionalized structures As set out in Chapter 2, strategic action shapes institutions and is influenced by the institutional structure. The analysis revealed that the WCI led to the establishment of new structures – the creation of new organizations, partnership networks for energy efficiency measures, and a system of reference baselines for the determination of savings by energy efficiency measures. Since these structures emerged from the political process of choosing and designing the WCIs, a separate subsection is devoted to them. Unlike in the UK and Italy, in France the obliged companies established new structures to bundle and defend their interests, independently from the individual companies’ engagement. First, a separate unit of ATEE was set up, the socalled Club C2E, which specialized in the WCI. A new website was created to inform the installers and manufacturers, especially the small obliged companies. Apart from representing the companies vis-à-vis the ministry and giving advice to their members, the Club’s website facilitates exchanges between the members. Second, a new association, ‘Ecofioul’ was founded to represent the interests of small domestic fuel suppliers. Unlike in the UK, where only six big energy suppliers had an obligation, the more than 2,000 domestic heating oil suppliers were individually much too small to properly defend their interests. For many of the small suppliers, it was too costly to conduct research into the most cost-effective measures and comply with the reporting requirements. This was one of the reasons for financing Ecofioul. It was hoped thereby to raise a voice against the two incumbents, GazdeFrance Suez and EDF, which otherwise dominated the market, being responsible for achieving more than 80 per cent of the saving targets. However, Ecofioul was also mainly concerned to advocate the inclusion of do-

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mestic heating oil suppliers in order to prevent further energy taxes. In Italy, instead of new organizations being created, or the regulator being supplied with additional staff to administer the scheme, a rather old organization – ENEA – was given additional authority to monitor the scheme and verify savings. However, spot market trading was established, including a whole new market segment on the electronic market platform organized by GME – with sub-markets for the different types of certificates. This on the one hand involves a rather high level of transaction costs, and on the other hand hampers time-efficient execution of approval procedures. In all three countries, the obliged actors drew up contracts with either installers or manufacturers and planners in order to develop energy efficiency programmes and to get them communicated and implemented especially in the residential sector, where the barriers to adopting these measures are higher than in the other sectors. In Italy, the activity of energy service companies was especially incentivized by changing the market structure in 2007: first, by obliging additional smaller companies it was expected that greater demand for white certificates would be generated by third parties; and second, by modifying the eligibility of the different types of certificates to obtain the cost recovery and to count towards the target, resulting in a higher certificate price and thus a higher net margin for those selling certificates on the spot market. Finally, the WCI forced the governments or relevant authorities to establish a system of baselines in order to determine energy savings from energy efficiency measures. These baselines have to follow a general principle, they have to be above the legal standard in order to reflect additionality of savings, they have to be developed for a wide range of measures differentiated by specific conditions of implementation, and they have to be adaptable to technological advance and the market penetration of energy-efficienct goods. While the institutionalization of a baseline system is certainly one of the main benefits of the scheme, the task of determining the baseline remains difficult and in many cases involves political as well as technical decisions. Baselines are, not only within a purely national context, difficult to determine, and often vary according to the context in which the measures are implemented (different climatic zones, different types of dwellings, etc.). Internationally, there exists no reference system of baselines to which the national schemes would correspond. This concerns the baselines and conditions of implementation as well as the bureaucratic procedure the obliged actor is required to follow in order to claim the savings. Harmonization on a European level seems impossible since the saving values attached to certain measures (and measure definition itself) differ even among the three cases under examination.

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To sum up, the WCI both stimulated activity through the activation of new partnerships and established a baseline system to account for energy savings but also trade-offs between the creation of new structures (thus risking the promotion of an inefficient bureaucracy) and the utilization of old, inefficient organizations hampering innovative action.

8.2 Comparison of research on WCI with practical insights The analysis above has identified some inconsistencies between perceptions of the policy instrument, agenda-setting and actual design choices across countries and even within countries. In order to complete the picture, this section compares the WCI image that has been developed by the international expert community with WCI images developed by experts at national level. This sheds light not only on similarities and differences between policy images but also on the way the policy image is reinforced by knowledge development and learning processes. Part of the comparative analysis is the unravelling of misconceptions which may in some cases lead to negative learning 397. The object of comparison is not the different WCIs and the political process of choice and change, since there is no such process on the international expert community level. Rather, the knowledge development of the core group of experts, which has evolved over time in the light of the first empirical results from different WCI applications, and the way these experts strategically frame the WCI and thereby frame a WCI image will be compared with the respective images and knowledge as analysed in the three case studies.

8.2.1 Emergence and consideration of knowledge The international research projects and WCI choice in France and Italy have had similar starting points. The initial idea within the international expert community was the establishment of an EU-wide scheme of tradable white certificates. It has accordingly been tested by various research projects, including empirical investigations. Unlike with the British scheme, the international expert community saw tradable permits initially as a core design element of a WCI. Today, how397

Negative learning is understood as the reinforcement of misconceptions. As May (1992:351) points out, ‘learning does not necessarily entail discovery of an ‘objective’ truth about a policy instrument, problem, or goal.’ In Chapter 2, on the theoretical approach, it is argued that strategic action comprehended as social construction may lead to unintended effects, set new unintended ideational or institutional paths, and thereby possibly reinforce misconceptions.

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ever, members of the international expert community see the policy instrument’s success as stemming from the obligation. Unlike in the original research questions of the international research projects, trading is perceived nowadays to be of minor importance. In the French and Italian schemes, trading and flexibility provisions were initially thought to be crucial elements of the WCI. In France, flexibility options are widely retained. Still, trading is not emphasized as much as before the implementation of the scheme. In contrast, Italian experts continue to promote trading as a core element enhancing the schemes’ effectiveness. Trading has never been a core element for British experts and policymakers, although it is occasionally discussed. In all three case studies the experts were united in opposing an EU-wide white certificates trading scheme. This is acknowledged among the core group of experts, possibly due to learning from the empirical insights. Nevertheless, options for harmonization at a yet undefined level are kept in play in the discussion. Three issues attracted increasing attention in the international expert community: additionality, transaction costs in combination with cost effectiveness, and co-benefits of a WCI. While international experts have to some extent inferred these issues from the strength and weaknesses of the WCI identified by empiricism, newly gained insights have only partly been incorporated in national WCI schemes. While some baseline adjustments have been made (such as removing CFLs from list of eligible measures, or formulating requirements to prove the delivery of CFLs), national experts mostly include these aspects in a report format without significantly changing the structural conditions to prevent non-additionality, minimize transaction costs and support co-benefits. Examples include the listing of how additionality is promoted while retaining counterincentives, which is especially true for France and Italy: ƒ ƒ

In France, baseline setting and the exclusion of energy service providers from the scheme are meant to ensure additionality of savings, but tax credits are granted in parallel. In Italy, additionality is promoted with strong baselines. Still, especially regarding industrial savings in natural gas are suspected to not be additional. As in France, tax credits are available in Italy.

As for transaction costs, a similar situation can be observed. In Britain, trading has not been established due to doubts about its cost efficiency. Also, the list of measures to be delivered under the scheme is narrower than in the other cases. In France, internal evaluations showed that the scheme generated more administrative and transaction costs than expected. However, the solution of limiting the number of eligible actors as well as raising the threshold for energy suppliers to

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be obliged is to some extent thwarted by expanding the scope of obliged actors to transport fuel suppliers as well as the list of standardized measures. In Italy, transaction cost minimization is promoted mainly by improving the spot market. As long as the cost recovery represents as a price cap for white certificates, an optimization of the spot market cannot be expected to result in falling transaction costs. Reports on the effects of the WCI increasingly refer to qualitative benefits or co-benefits such as increasing personal comfort, supporting the development of and market transformation towards certain technologies or equipment and infrastructure, and sensitizing actors along the value chain to energy efficiency opportunities, including the final customer. However, there is still a lack of systematic evaluation and quantification of qualitative benefits. While the expert community obviously gained knowledge about the policy instrument, these insights are not evidently transferred to the national level. Likewise, although the international community still talks about harmonization, national actors reject it. International research also fails to identify the distinct mode of action of the WCI in practice, so the policy instrument’s hybrid character is not very visible among the core group of experts.

8.2.2 Framing a success story One effect of the analysis of the research community was that knowledge developed in an incremental way, gradually enriching but not revising insights into the WCI. This aspect becomes more significant in view of the evolution of a core group of experts advocating the WCI while other international experts challenge the adequacy of this steering mechanism for end-use energy efficiency. Against the background of the differences between incentive structures and modes of action in the three cases, this process can be interpreted as an attempt to subsume all empirical examples of the WCI into one successful case. Instead of focusing on the flaws of the scheme, such as administrative and transaction costs and doubts about additionality, both the expert community and national experts highlight the co-benefits of the WCI. Occasionally, these cobenefits are presented as an objective of the scheme, while it remains unclear whether these additional benefits are intended or unintended (they are probably unintended, especially since qualitative benefits have not explicitly been formulated at the agenda-setting stage of the policy instrument). This can be interpreted as another indicator of the endeavour to create a success story – on both the national and on the international levels.

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As well, references since the very beginning of research into the WCI to the British supplier obligation as a success for the WCI – even though the scheme was differently motivated, had a distinct historical path and no tradable certificates – evince an attempt to create a WCI image as a promising role model. Both the core group of experts and experts in Italy and (particularly) in France cited the British example. Yet French and Italian experts at later stages emphasized their individual approaches rather then portraying them as variations of the British WCI. While policy entrepreneurs on both international and national levels advocate the WCI, their motivations in presenting the WCI as a success vary. On the one hand, attempts at harmonization lead to WCI advocacy on the EU level; on the other hand, national experts have an interest in representing a front-runner model. Paolo Bertoldi, the central actor in the international – and in particular European – expert community, aims to set the agenda for a policy instrument to be applied throughout Europe by European legislation. The European Commission has evinced considerable power to steer in the field of energy policy by introducing the EU emissions trading scheme (Steuwer 2007). Harmonization of support schemes for renewable energy production throughout Europe have been widely discussed (Jacobs 2011). Up to now, European policymakers have failed to introduce binding targets for end-use energy efficiency or to make the implementation of a policy instrument in this field mandatory. In the light of European policymakers’ preferences for market-based policy instruments and tradable permit schemes (COM (2007) 140 final), the implementation of an EU-wide WCI could be a solution to that problem. Advocating this policy instrument and setting the agenda for its adoption on the European level by citing successful examples of it in different European Member States would certainly strengthen the position of the European Commission and the DG JRC (to which Bertoldi belongs). Also, the attempts to find at least some elements for harmonization (such as generally prescribing the introduction of a WCI or the harmonization of verification procedures) can be interpreted as strengthening EU regulatory power in energy policy, a field dominated by Member States. At the national case study levels, there is no evidence of serious attempts to harmonize different schemes and to find common ground for an EU-wide scheme. The WCIs have been seen as national policy instruments from the very beginning. During the interviews in each of the countries, there were no suggestions that the WCI was implemented because it was expected to become an EU regulation. France, however, might be an exception to that rule, as the country where a strong link to the EU ETS has been made in parliamentary debate. Italy, too, stressed its front-runner position, ‘selling’ the WCI as a successful policy

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instrument in international fora. But, apart from these observations, the experts neither implicitly nor explicitly 398 mentioned an expected EU regulation as a driver for creating a national WCI. An explanation for this might be that the interviews took place at a time where it was very clear to the experts that an EUwide scheme would not to be realized without high transaction and administrative costs as well as inequalities in the distribution of costs and benefits. Thus, in the very beginning, policymakers might have had a forthcoming EU regulation in mind when favouring the implementation of such a scheme. Sticking to a policy image and framing the WCI and a specific mode of action as a successful policy instrument for end-use energy efficiency may hamper a differentiated evaluation of the policy instrument and perpetuate inefficiencies or ineffectiveness.

8.2.3 Ideological reinforcement versus depoliticization Framing a success story is linked to the creation of a policy image that suits current political discourses. As the case studies have shown, WCI images vary across countries. Comparing the case studies with the analysis of the expert community further shows that instead of focusing on the distinguishing features of the individual WCIs, the international expert community’s image of the WCI is an integrative, all-embracing one. Portrayed as a market-based policy instrument, it unites all aspects that have been empirically tested. This includes challenging the trading mechanism while at the same time promoting it as a means to enhance the scheme’s effectiveness. In addition, the mere description of the historically evolved logic of each scheme, which became especially visible through participatory observation at conferences and in the case studies, did not lead to consequences in research such as, for example, advising policymakers to abandon trading as a factor making for success. This can be interpreted as an attempt by European policy entrepreneurs and the core expert group to depoliticize the WCI. In contrast, on the national level the WCI images have in all three cases been rather politicized. In the UK, an obligation was felt to contradict liberalization efforts, and became a matter for ideological discussion spurred by the directors general of the regulatory authorities and subsequently by New Labour. The image was retained, setting its own historical path and its own mode of action, and accordingly shaping the policy design. In France, the WCI was accepted by the parliament because of its image as a market-based policy instrument inspired 398 In each interview I asked whether an expected EU regulation was seen as a driver of the policy instrument, but no expert responded positively.

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by European climate policy and a European preference for liberalized (energy) markets. Similarly, in Italy agenda-setting was ideologically motivated in that the policymakers believed a market-based policy instrument to be superior to traditional regulation. While the image has been retained by the regulator in Italy, especially when communicating the Italian WCI in international fora as a success, the image of the French WCI is more ambiguous. Traditional policy implementation has shown the limits of the market-based character of the French WCI, especially when it comes to trading. Still, the image of an instrument that stimulates demand for energy efficiency projects through the creation an artificial market for tradable white certificates is sustained by the experts during the interviews as well. Even if the consultation of the second commitment period turned out to be lengthy and entered into force after a delay of more than a year, policymakers adhered to the WCI and widened its scope with the changes. The dual policy style that Szarka (2003; see also Bauby & Varone 2007) analysed for the French case is thus also supported by this analysis. To summarize, while at the European expert level there are attempts to strategically depoliticize the WCI image, the national WCIs are more attached to general ideas about the best incentive structure for steering.

9 Conclusions

9.1 Theoretical lessons The research project seeks to explain policy instrument choice and design. Following Hay and Wincott (1998: 955), change is understood as the consequence of strategic action, be it intuitive or instrumental. In line with constructivist institutionalism, strategic action is further understood as socially constructed; it has to be examined in the context of existing institutions and the ongoing political process. Thus, in order to explain change both political processes and perceptions have to be traced. To explain unintended effects and prevailing institutional tensions, the analysis follows Jabko (2006: 40), who argues that it is necessary to ‘exploit the polyvalence of ideas (...) that these ideas create in pursuit of complex and multiple goals’ – that are here inherent in the energy efficiency discourses. In addition, scholars of policy analysis see policy instruments as markers to analyse change; thus, research focusing on instruments is another way of trying to fathom policy change, or to make visible some of what has hitherto been invisible (Lascoumes & Le Gales 2007:18). In order to do so, the analysis made use of the concept of the policy image: ‘How a policy is understood and discussed is its policy image’ (Baumgartner & Jones 1993: 25). Putting these elements together reveals the WCI image as a carrier of polyvalent ideas and multiple goals framed in a political process by actors choosing a policy instrument as an operation of strategic action, though socially constructed. This has implications for the underlying policy objectives as well, which must be understood no longer as given entities but as being shaped in political processes that both result in and are the result of institutional and policy change. The analysis of objectives has thus been an integral part of the dissertation. Objectives are bound to actors, so the kind of actors that make use of strategic action and the way they do so in order to pursue certain objectives have been part of the analysis as well. A special emphasis has been placed on the role of policy entrepreneurs and the way strategic action leads to processes of ‘neutralizing‘ and ‘depoliticizing‘ policy instruments (Lascoumes & Le Galès 2007: 17; Voß 2007: 59) to promote the WCI. It has been shown that the WCI is especially prone to image framing and possibly (de-)politicizing since it is a hybrid instrument and, in addition, mostly understood as a market-based policy instrument,

D. S. Steuwer, Energy Efficiency Governance, DOI 10.1007/978-3-658-00681-5_9, © Springer Fachmedien Wiesbaden 2013

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with the term ‘market’ often being associated with various values and ideas. Since strategic action is a social construct, an attempt to ‘depoliticize’ a policy instrument may fail and turn out to enforce a value-laden image. Even if a policy entrepreneur’s strategy is to depoliticize a policy instrument in order to make it more acceptable, from the constructivist institutionalism perspective the political dimension will persist. In line with constructivist institutionalism, it is assumed that the (valueladen) policy image exerts an influence beyond agenda-setting since it sets an institutional and ideational path for the policy instrument, giving it a life on its own (see also Voß 2007). In other words, once ideas have been put on the agenda, carried by a policy image, their influence shaping political outcomes will persist. This has implications for the policy instrument’s effectiveness, which is assumed to depend on the matching of objectives, discourses, and persisting institutional and ideational paths (see also Böcher & Töller 2007). Thus, it is assumed that effectiveness is not automatically increased just by the choice of a hybrid instrument as understood by economist. Rather, it requires a detailed analysis of the design choices and the policy image throughout the political process, including implementation. The theoretical assumptions have been translated into a set of assumptions guiding the analysis and reflecting the deductive–inductive research process. The following sections are structured around these guiding assumptions.

9.1.1 Common design features of WCIs In more concrete terms, the underlying research questions aims to establish why the three countries implemented the same policy instrument. Apparently, Britain, Italy, and France have different regulatory traditions, and their energy markets have different structures. Indeed, at first glance design details seemed to be rather different, so the following questions arise: How different are these policy instruments in practice? Is this policy instrument the one-size-fits-all solution to fill the energy efficiency gap? Is there in the end a common element that would justify presenting the three different schemes as examples of a single policy instrument? The case studies include the analysis of the individual design choices and the modes of action these choices imply. Comparing those features reveals that the three schemes are rather different in terms of design choices, resulting in different modes of action and incentive structures that deliver energy efficiency action. There are indeed some common elements, the most important of which is

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the obligation. In this way, the first assumption guiding the research is partly confirmed: There are indeed key characteristics which make the scheme a common scheme: the mandatory saving obligation, the involvement of energy companies as agents delivering energy efficiency projects, and the budgetary independence of the WCI as a financing tool for energy efficiency projects. These common elements will be listed again in the final section of the analysis, on lessons for policymakers. However, the differences between the schemes are striking, which called for the formulation of follow-up questions. Why are the schemes so differently designed if they are meant to be examples of the same policy instrument? Who is presenting the schemes as one type of policy instrument, namely the WCI? Are those strategic actors aware of the schemes’ differences? To what extent is the steering capacity of the WCI connected to its character as a hybrid instrument? It is acknowledged that there are interests (e.g. of regulators, obliged companies) leading to differences in policy instruments and design choices. It is also acknowledged that different regulatory traditions leave their mark on the implementation of the policy instrument. The case studies were well able to reveal the influence of these factors. But these approaches cannot adequately explain all phenomena, including various inconsistencies. Therefore, the perceptions revealing the policy image throughout the political process have been examined in order to determine their influence on WCI design and effectiveness.

9.1.2 Hybrid instruments: too smart to steer? Hybrid instruments are characterized by manifold framing opportunities. This again implies many different ways of defining the problem and defining possible ways to solve it. Matching target/ objective and mode of action on the one hand with the relevant political and/ or scientific discourses on the other is therefore expected to be easier for hybrid instruments than for other steering mechanisms. Indeed, the analysis confirmed that the combination of modes of action matched to some extent national policy styles. The hypothesis that the combination of modes of action leads to greater acceptance and thus agenda-setting of the hybrid schemes is therefore supported. However, this would matter only if the policy instrument also embodies its steering capacity in practice, that is, if acceptance is not gained at the expense of effectiveness. The follow-up analysis was

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therefore designed to show how the various modes of action and the WCI image itself affected 399 the outcome. During the analysis it was attempted to further differentiate between, on the one hand, effects of the mode of action that have been realized in practice and, on the other, the effect of the policy image, which is not necessarily manifested in the applied mode of action. Methodologically, it turned out to be rather difficult to attribute the effects of the policy image on later stages of the policy cycle and thus on outcomes of the policy instrument. Nevertheless, through capturing experts’ subjective views on the policy instrument, the analysis attempted to increase understanding of the framing effects on stages of the policy cycle beyond agenda-setting. It did so by matching experts’ perceptions to actual design choices and the way experts perceptions were manifested in design choices. The analysis unravels only a part of the political process of designing and implementing WCI. However, there are many indications that the policy image continued to have an effect even where the image had not itself been transposed into practical application. In France, the policy instrument has been framed as a market-based policy instrument. In practice, it is a well-regulated scheme with the majority of projects making use of standardized, deemed savings and minimal trading activity. However, instead of driving the scheme towards stricter savings over time, the involved actors made use of the flexibility provisions of the policy instrument by continuously extending the list of deemed savings (at the time of writing 400 210), 401 which increases the administrative costs and complexity of the scheme. Thus the idea of making savings more cost-efficient by enlarging the scheme (the implicit idea of creating quasi-markets) was used by the obliged actors as a way of making the scheme more convenient for them. One could even talk of quasi-voluntary agreements, since the incumbents could use the buyout price as a lever to argue that they would become inactive if they were not allowed to introduce the measures that would benefit them most. This does not, however, necessarily increase the cost effectiveness either of energy savings or of the entire scheme. When it comes to outcomes, the scheme has largely served as a market transformation tool leading to boiler replacements. The outcome does not correspond exactly to the original goal of saving kWh also (or even especially) in the electricity sector in order to reduce investment in new nuclear equipment. In399 It is worth recalling that the hybrid itself offers different modes of action.Since more than one mode of action can be implemented, making use of various images is encouraged. However, framing the policy instrument image as delivering savings through a certain mode of action does not preclude the possibility that this mode of action is actually implemented. 400 April 2011. 401 Even the coverage of the scheme has been extended: now even fuel suppliers are obliged.

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stead, market transformation in the heating sector was supported by the policy instrument. Thus, framing the scheme as a market-based scheme, including the carrots of ‘flexibility’, served particular interests (incumbents) in influencing design choices, partly subverting and diluting original goals 402. In Britain, the scheme was perceived rather as regulation to a certain degree opposed to the idea of liberalized energy markets. The design features and mode of action became more and more coherent and focused on a well-delineated list of eligible measures mainly supporting insulation and targeting especially lowincome households. Trading did not play a major role, so the scheme is rather consistent with the initial perception and does not conflict with modes of action that would be characterized by greater flexibility. Indeed, the scheme delivers mainly insulation, with a special focus on low-income households. In Italy, the scheme has been perceived as market-based and is still communicated as such. Trading is believed to be crucial despite some counterindications, as set out in the case study. Trading is not proven to render the scheme cost effective. The main incentive structure is the positive price incentive, namely, the flat cost recovery. The open-endedness of the scheme and the complexity of trading rules do not lead to increases in the cost effectiveness of the scheme or of energy savings. Attempts to improve trading rules and flexibility thus prevented policymakers from changing those rules that could make the scheme more effective, namely, with strong standards, a more focused target and a cost recovery that is related to the price of certificates, or even a shift in obliged actors. To conclude, hybrid instruments offer policymakers as well as those implementing them a choice of more than one mode of action to deliver the outcome. This in turn makes it easy for policymakers to pick one image associated with the mode of action that appears to be most acceptable in a specific case. This framing typically occurs at the stage of agenda-setting .Thus, hybrid instruments make case-specific image framing easier and increase the probability of the policy instrument in question being chosen. However, hybrid instruments allow not only for creating different images through emphasizing different modes of action. They also allow for implementing primarily a particular mode of action. The case studies show that design choices were made according to policy style and the interests of involved actors. This is closely in line with the following guiding assumption:

402 Another target was hard-to-reach consumer groups. This target, however, was not used to frame the policy instrument. Rather, the policymaker has cited this objective in retrospect. Possible reasons to mention this objective in retrospect could be to justify the scheme or to emphasize its regulatory element.

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9 Conclusions The policy instrument is a hybrid scheme. Therefore, it is unnecessary to say that they unfold differently in practice. A hybrid scheme allows for the adaptation of the policy instrument to national circumstances such as nationally pressing objectives, regulatory and ideational paths, or the specific composition of involved actors with their distinct interest-based agendas.

The image created initially still has an impact on design, and interacts with policy styles and interests. It is difficult, however, to extract and separate the strongest influence on policymaking. Nevertheless, comparing the three case studies clearly shows that the image created initially still exerts an influence on the scheme’s design and effectiveness. In the UK, goals were rather clear-cut (widespread installation of insulation, strong focus on low-income households) and well matched with the perception of the policy instrument as a regulatory intervention after energy markets were liberalized. Agenda-setting was nevertheless highly political, and the policy instrument was perceived to contradict the neoliberal spirit of privatizing the energy market. However, the WCI started on a small scale, grew incrementally and blazed a trail as a policy instrument succeeding in delivering energy efficiency. The policy instrument does not interfere with national policy styles since the design has been implemented in close consultation with the concerned actors. The cases in France and Italy differ, however. In both countries, the idea of a market-based policy instrument persists (though to different degrees, with different meanings, and among different actors). If we recall the explanation about differing definitions of market-based policy instruments, it is not surprising that certain images enhance the institutionalization of misconceptions.

9.1.3 Hybrid instrument WCI – offering room for misconceptions As indicated above, the effectiveness of a WCI does not necessarily flow only from implementing the obligation and delivering savings according to the rules. Rather, intervening variables have an influence. The hybrid feature of the WCI is crucial since it allows for the manifestation of different steering modes. In addition, this is linked to different perceptions of the policy instrument, emphasized in this subsection. Here, it is worth recalling the wide interpretation of a marketbased policy instrument even in the theoretical literature. The British case is rather straightforward. The WCI was introduced as an obligation, and it is perceived as such. Thus the scheme appears – after a political struggle over competition between its objectives – to be well-tailored, clear

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about the kind of measures to deliver and with a clearly defined target group (both in terms of delivering actors and in terms of addressees of efficiency measures). In France, the minutes of parliamentary and senate debates document that the WCI was accepted because it was perceived as a market-based instrument and, as such, by definition superior in its cost-effectiveness in abating carbon dioxide. It was also perceived as especially suitable in the run of liberalized energy markets, showing that France fulfilled European expectations. Trading was perceived to be a main element of the scheme. It is not documented in written form whether the administration and the companies shared the same perception of the policy instrument. The interviews with the experts revealed that, to them, it was not a climate policy instrument. However, it is not entirely clear at what point in time this perception was first formed. What can be said for sure is that, for ADEME and the ministry, climate protection was not the primary goal. Rather, the fuzzier objective of reaching the efficiency potential dispersed among households and saving electricity as well as gas was repeatedly articulated. Flexibility was believed to be a core element of the scheme. However, this has been reversed. French actors from the ministry, ADEME and the big companies now talk about regulation. That the scheme still is open-ended shows well how particular interests come into play. The mode of action which foresees a buyout option is to a certain degree also a lever arguing for measures that suit the interests of the actors (an opportunity to change boilers leads to savings in gas but not in electricity). Well-defined regulation, administered by the ministry in close cooperation with the incumbents chimes with the design elements and the process of choosing the design elements of the French WCI. However, the flexibility provisions are still in the scheme. They allow the incumbents to benefit from the scheme (despite the lack of tariff adaptations) while not allowing energy service providers to participate at all. The idea of trading is retained, and opens up space for intermediaries to enter the stage, which has led to the foundation of start-up companies (no ESCOs) matching demand and supply. However, EdF is not a client of these intermediaries, which accordingly work in the first instance with smaller suppliers. EdF claims to know better how to pursue their strategy, showing that the scheme embodies an incentive not to trade or carry out savings themselves. In Italy the idea of trading certificates was strongly associated with the idea of free market, centre-left liberal political attitudes and a modern way of administration. The scheme was communicated as suitable for liberalized energy markets. This is true for most energy efficiency interventions. While this has been cited in the UK as a justification for introducing the scheme, the Italian case is somewhat different. In Italy it is suggested that this instrument operates best in

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liberalized energy markets since it involves a market mechanism. During the design phase, the scheme has been diluted with design elements that reduce the effectiveness of the scheme (eligibility of measures), increase administrative costs (complex trading mechanism, three different ways of verifying savings) and subvert the steering incentives through the white certificates markets (implementation of flat cost recovery). However, trading was persistently perceived as a core element in the scheme; and keeping trading rules, changing trading rules, and increasing liquidity by obliging more actors are all measures manifesting the idea of trading without rendering the scheme more efficient. On the contrary, there are strong indications that the scheme is not very effective, especially compared with its British counterpart. Disincentives of trading are ignored: the distribution companies are regarded as unbundled companies from generation and supply when it comes to the logic of trading, while in interviews it is acknowledged that unbundling is true only in theory. Here it shows very well how the idea of a market mechanism including the superiority of trading in order to find the most cost-effective solutions sticks to the scheme enforcing inefficiencies and diverting attention from other elements. In terms of theory, it is shown that the idea has become a goal in itself, and has a quasi-life of its own. There are misunderstandings regarding the nature of the policy instrument and thus its key characteristics. Policy actors believe that WCIs are so-called market-based instruments unfolding their cost-effective effects through flexibility provisions such as trading. The schemes are believed to be united through this element. While this assumption holds in cases where the WCI was perceived as a marketbased instrument making use of tradable certificates, which is especially true for the Italian case and to some extent for the core group of experts on the international level, it does not apply to the British case, where no importance was placed on trading or on the flexibility provisions. The British case supports the assumption that a focussed and consistent WCI is likely to be more effective. To summarize, the idea of the nature of the policy instrument – portrayed by grasping the perceptions of the WCI in the respective countries – had an influence on agenda-setting and on design choice. It also had an intervening effect helping particular interests to enter the scheme, and was manifested in design choices and design changes. The purpose of the research project was not to show that interests are not there or do not matter. Rather, it was shown that the image of the policy instrument has an effect even after agenda-setting. The effect it has depends on national policy styles and prevalent interests. In addition this is espe-

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cially so because the WCI is a hybrid instrument inviting different perceptions of it. This way, particular interests find it easier to be supported by design choices.

9.1.4 All-embracing hybrid instrument: framing a success story ‘WCI’ How does the analysis of expert knowledge over time fit with the theoretical insights? First, the body of analysed literature as well as the discussions and topics at conferences show that, although there is a differentiated awareness of crucial elements and pitfalls of WCIs, at every single conference the issue of whether the policy instrument is market-based policy comes up. On almost all scientific occasions, the three cases – Italy, France, and UK – are presented as a single model of a WCI. Although other examples – Denmark, Flanders, Australia or examples from US states – are presented and discussed as well, the presentation of the three examples of Italy, France and UK creates a common story abut the WCI. This way, WCIs are framed as a policy instrument with the crucial element ‘obligation plus flexibility’ regardless of other incentives such as cost recovery, buyout price, or restriction to the residential sector. In that respect the analysis shows that knowledge is advancing and the expert community is agreed that there is a common success story while still offering implementation adapted to national regulatory and political circumstances. Second, the presentation of the cases also tells success stories of the WCI showing the attempt to make it a policy instrument for wide European application. This is done by selecting topics, speakers, and audiences. In general, introductions to the workshops emphasize the success, the topics are presented as add-on learning rather than questioning the whole scheme. The speakers are usually involved actors (administrative actors or company representatives) that have an interest in maintaining the scheme rather than a scientific perspective. Also, the audience is mostly composed of those who are affected by the scheme – ESCOs, intermediaries, obliged parties. There are also a couple of scientists following the workshops, but it seems that the scientific community around white certificate schemes does not grow significantly compared with those interested and potentially affected in practice. Workshops are often not announced in public and cannot be found advertised on websites, instead, attendance is by the personal invitation of the organizer, usually Paolo Bertoldi from the DG JRC. This way, the emergence of the core group of experts has also been supported. The group played an important role in shaping the image of the WCI as a successful policy instrument even though the experts do not necessarily share this belief. Rather, promoting the success of the WCI can be regarded as a com-

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mon undertaking leading to the emergence of a certain WCI image which in turn exerts influence on the policy instruments’ effectiveness. To conclude, also there are arguments to support the following guiding assumption since there are indications that the policy instrument WCI was framed as a success story by emphasizing common elements. Promoting a hybrid scheme as one type of policy instrument to solve a range of pressing problems increases the political acceptability of political intervention. Uniting different schemes that are apparently successfully implemented 403 in different EU Member States creates a success story to be followed by other EU states. Whether this will have any effect on future EU policymaking in terms of setting up a community-wide obligation remains unclear. The final section of the dissertation provides a discussion of some indications for future developments in EU energy efficiency policy. Before that, section 9.2 examines the lessons that policymakers intending to implement white certificates schemes can draw from the analysis.

9.1.5 Challenging the effectiveness of hybrid instruments The analysis has shown that the opportunity to promote a certain policy instrument image – due to the policy instrument’s hybrid character – helps policymakers to choose the policy instrument. However, the analysis also shows that competition between objectives, and prevailing tensions with persisting regulatory traditions or interests of actors responsible for implementation (here especially administrative bodies and energy companies) offer the opportunity to dilute the policy instrument’s effectiveness, as formulated by the last guiding assumption:

403

Note that successful implementation of a scheme does not by itself mean that the scheme is effective.

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Hybrid instruments are more likely to be implemented since they are able to attract relatively high levels of political acceptance. Acceptance of agenda-setting is, however, not at the same level as effectiveness. Effectiveness is mainly influenced by detailed design choices. The intended or unintended creation of a policy image – as a result of strategic action – influences design choices beyond agenda-setting, and thus the policy instruments’ effectiveness. Figure 17 illustrates possible effects of the policy image as intervening variable: A policy image that does not match the institutional context or problem discourse reduces the chance of policy-makers to control the influence of distinct interests. While success in terms of implementation (“rectangle”) may be facilitated by hybrid characteristics of a policy instrument, success in terms of effectiveness (“uni coloured rectangle”) is not necessarily granted. 1.

Success symbolized as a uni coloured rectangle Problems P in the context of energy efficiency discourses (1-3) P1

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S1 Policy-maker solve P by choosing & designing a policy instrument

Institutional context (regulatory tradition, energy market, etc.) restricting design options D Policy entrepreneurs strategically frame the policy instrument‘s image I

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352 2.

9 Conclusions Success as a rectangle Problems P in the context of energy efficiency discourses (1-3) P1

P2

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Solutions S S1

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Policy-maker solve P by choosing & designing a policy instrument

Institutional context (regulatory tradition, energy market, etc.) restricting design options D Policy entrepreneurs strategically frame the policy instrument‘s image I

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Figure 17: Successfully implementing a WCI – Two interpretations (Source: Author)

9.1.6 Summary: policy instrument choice and change remain a politicized process To summarize, the analysis has shown that the influence of ideas once they have entered the political process acts as an intervening variable opening or closing opportunities for interests or regulatory paths to transpose into the political output and, accordingly, the outcome. The hybrid feature of the WCI offers room for framing various WCI images by strategic action. Here, policy entrepreneurs have played a crucial role in supporting and reinforcing the policy image. The image itself serves as a carrier of ideas and interests and can therefore be characterized as a facilitator or catalyst. Not only the hybrid feature of the WCI but also the various discourses of energy efficiency enhance the framing of opportunities for strategic actors.

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The analysis has shown that it adds value to merge a macro-theoretical level (constructivist accounts of institutionalism) with micro theoretical levels on policy instrument choice. Policy instrument choice can indeed be used as a marker to reveal the factors explaining policy change. It also uncovers the mechanisms whereby ideas are manifested in the political process, in this instance with the help of policy images which reinforce the process whereby the policy instruments come into effect. In that respect the analysis also suggests where attention should be focused in order to render the policy instrument effective. This topic is further elaborated in the section 9.2 on lessons for practitioners. Voß (2007) has already shown how policy instruments comprehended as social constructs develop a life of their own. To some extent, the underlying analysis also gives flesh to Voß’s (2007: 181) arguments: The articulation of policy instruments avoids mentioning of values and basic political beliefs. The discourse of policy instruments entails explicit distantiation from grand political orientations and ideologies such as left and right, liberal and conservative etc. Instead policy instruments build on allegedly neutral, often scientifically framed theories of human interaction and societal development and offer mechanisms by which interaction can be ‘better’ organised, regulation made ‘more efficient’ and development be steered ‘more effectively’. As has been observed by many commentators, policy instruments can ‘depoliticise’ governance innovation (not because they are a-political, but because their politics are embedded and not immediately visible) and so are able to bridge political, especially ideological conflicts and overcome blockades to reform. Efficiency and effectiveness are abstract ‘intermediate’ goals that are used to assess how well policy instruments are capable of fulfilling a job. What kind of job it is, what the substantive policy goals are for which the instrument is used are secondary.

It has been shown in the analysis of the case studies that secondary objectives, or what Voß calls ‘”intermediate” goals’, became a relevant driver for WCI choice and design, especially in the case of Italy but also in the other cases. However, Voß’s view is only one possible strategic perspective in that it is one option for, say, policy entrepreneurs to depoliticize a policy instrument image. As the analysis shows, policy instrument choice and design is not apolitical but to a certain extent is less visible than the mere spelling out of ideologies. The hybrid character rather helped to integrate the underlying ‘grand political orientations’. WCI choice has been and remains a highly political process where ideologies have shaped the respective WCI image. Especially beyond agenda-setting, this is not least because of the interaction of the image with persisting institutions, interests and regulatory traditions: in the course of time, the policy instrument became institutionalized, with new structures evolving and actors gaining experience with the mechanism. In that sense a new path has been set and shaped the fur-

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ther, more technical implementation 404. Yet WCI design remains a political process with value-laden policy instrument images. The underlying analysis shows that the policy instrument to hand interacts with national policy styles. With a new policy instrument in place, interests form around the newly established structures. In the case of WCI, obliged companies have a stake in defining the baselines for energy savings and expanding the list of measures, arguing for the efficiency of an open-ended scheme: the British DECC has an interest in rolling out insulation measures in low-income households and legitimizing it with the successful scheme, and the regulatory authority in Italy uses the argument of cost-effectiveness through trading via the ministry in order to retain its capacity to steer energy policy. These are only some examples to show that politicization is not abandoned but becomes less visible. The image is used – intentionally or otherwise – as a lever to promote particular interests. From the perspective of the analysis of the international research community, further conclusions can be drawn about the (de-) politicization processes of the policy instrument. As shown above, there are indications at the European level of research on the WCI – especially among the core group of experts – that the image of a market-based policy instrument with trading as a key element is retained in conjunction with a stress on its efficiency (and integrating other aspects only in an incremental manner, as shown above). This shows on the one hand the way efficiency becomes a secondary – but legitimate – objective, which Voß sets on a level with attempts to depoliticize the instrument. On the other hand, by adhering to the WCI image and only slowly integrating new insights 405, the core group of experts advocating the WCI politicizes the policy instrument in opposition to other experts highlighting the advantages of other policy instruments, such as energy saving funds or feed-in tariffs, for energy efficiency, even though the underlying mode of action is not as different as the images suggest due to the hybrid character of the WCI. This becomes especially visible in the Italian case, with the cost recovery the main incentive, resembling the idea of feed-in tariffs.

404 While In ‘t Veld (1998) does not describe or explain the detailed dynamics a policy instruments unfolds after implementation, he observed that once a policy instrument is in place, ‘unintended unforeseen effects will increase in importance.’ He refers to this phenomenon as ‘the law of the gradually diminishing effectiveness of public policies’ (In ‘t Veld 1998: 154). 405 This is especially obvious in the case of the benefits of non-trading. While Langniß and Praetorius had already published an article on that issue in 2004, it was visibly accepted by the core group of actors only in 2008, when members of the core group of experts employed similar arguments (Mundaca et al. 2008).

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While Voß correctly argues that the policy instrument’s own life leads to changes in governance, one has to ask also about the consequences in terms of the policy instrument’s effectiveness. Here again, the WCI as a hybrid instrument and its policy image – which in practice has never been the image of a hybrid instrument – come into play. The hybrid character of the policy instrument allows for the coming into effect of a mode of action different from the image attached to the policy instrument throughout agenda-setting. In the event that different actors defend different images and modes of action, trade-offs in effectiveness may occur. These tradesoffs are manifest in design choices (e.g. serving competing objectives) and may settle misconceptions, that is, negative learning about, for example, drivers of efficiency. This is most probable when the image leading to agenda-setting does not match the regulatory traditions and the prevalent policy style in the respective country. The fact that a policy instrument is a hybrid scheme may help to place the policy instrument on the political agenda. In order to prevent dilution of the policy instrument’s effectiveness, the clear definition of objectives, as well as the mode of action, incentive structure and target groups, which are meant to deliver the objective, is therefore a condition for effective innovation in governance. Conclusions in a nutshell Why did three countries with apparent different energy market structures and regulatory traditions in the field of energy policy choose the same policy instrument? ĺ7KHK\EULGFKDUDFWHURIWKH:&,DOORZHGIRUFDVH-specific image framing and design choices which enhanced its attraction. Within a core group of experts an image of the WCI was created that captured a range of solutions to a range of energy efficiency challenges. In all three cases policy entrepreneurs were identified as promoters of the WCI image. Is the WCI the one-size-fits-all solution that fills the energy efficiency gap? ĺ:&,LVDIUDPHZRUNPHFKDQLVPDSSOLFDEOHLQPDQ\FDVHV+Rwever, the need for a baseline definition, the establishment of administrative structures, including measurement and verification as well as to ensure monitoring and additionality of savings, pose challenges to the effectiveness of the WCI in proportion as the policy image fails to match ongoing discourses and regulatory traditions. Why is the same policy instrument so differently designed in the three cases?

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ĺ7KHVFKHPHVDUHGLIIHUHQWO\GHVLJQHGGXHWRDYDULHW\RIIDFWRUVLQFOXding interest constellations, objectives, regulatory traditions and the prevailing energy market structure. Is the steering capacity of the WCI connected to its character as a hybrid instrument? ĺ 7KH DQDO\VLV FRXOG QRW HVWDEOLVK DQ\ VLJQLILFDQW FDXVDO PHFKDQLVP Eetween the WCI’s hybrid character and its steering capacity. However, by making use of the concept of the policy image, the analysis illustrated that the hybrid character facilitates the formation of different policy images. If the image does not match the objectives, or if the objectives are not clearly defined, and if the choice of a mode of action, influenced by the policy image, does not match regulatory traditions and/or scientific or political discourses, the effectiveness of the WCI may be diluted. Inconsistencies in this regard allow particular interest to influence design choices and thus have an impact on the WCI’s effectiveness.

9.2 For practitioners: Transposing theoretical lessons into practice The analysis, including the literature review on the white certificates scheme, allows some practical conclusions to be drawn about the WCI, including success factors and obstacles to effective implementation. An important success factor of the policy instrument is the denomination of the actor that has to deliver energy efficiency. Energy companies are well able to deliver technical and resource-wise energy efficiency. Involving these companies is therefore one of the most crucial features of the policy instrument. The trading element did not turn out to be crucial. Cost effectiveness is not enhanced per se by trading. Therefore, it would be more correct to talk about an energy saving obligation than tradable white certificates. The policy instrument (even if implemented without certification) can be implemented in many variants and thus can potentially be adapted to national policy styles. Defining precise objectives and well-tailored targets, and implementing the scheme in a way that corresponds to national policy styles, will enhance its effectiveness and efficiency. In contrast, spreading misconceptions in order to gain acceptance of the implementation of the policy instrument might lead to design choices and particular interests diluting the effectiveness and efficiency of the scheme. Most of the policymakers and experts that were interviewed agreed that the WCI is not primarily a climate policy instrument even though it is associated in many contexts with climate policy. Policymakers should therefore ask themselves what exactly they want to see implemented. Here the link to the general challenge of the complexity of energy efficiency and its many purposes, which renders fram-

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ing opportunities more diverse, becomes relevant. Also, the involvement of many different actors makes it necessary to clearly define who is supposed to deliver what and how to create the appropriate incentives with this policy instrument or with alternative instruments. Qualitative benefits, some of which are unintended, deserve special attention and may justify the implementation of the policy instrument for reasons other than the mere delivery of saved kWhs. Many of the (unintended) qualitative benefits were not explicitly listed as initial objectives. These include the stimulation of market transformation, the formation of new alliances to implement energy efficiency, and the qualification of installers. Policymakers are advised to keep this in mind and weigh qualitative and quantitative costs and benefits against the political and institutional feasibility. The countries reported that the overall objective in terms of certification of a fixed amount of reductions in kWh, CO2, or toe, has been (over-)achieved, and therefore they declare that the policy instrument is successful. However, as the analysis showed, additionality of measures, cost efficiency compared with nonhybrid alternatives, and target-specificity compared with non-hybrid alternatives are uncertain and therefore deserve the special attention of the policymaker. Table 9 gives an overview about different factors to be considered when designing a WCI. It shows the conditions under which obstacles might be turned into success factors. Table 9: Success factors and obstacles in designing a WCI WCI characteristics

Success factors

Obstacles

Hybrid

The hybrid character facilitates context-specific framing of images and thus enhances the probability of agendasetting.

The hybrid character provides a lever for misconceptions and particular interests to be manifested in design choices, potentially subverting the scheme’s effectiveness.

Framing

Agenda-setting becomes more probable by promoting a policy image that corresponds to relevant political and scientific discourses.

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Objectives

Objectives framing

–

Unambiguous and noncompetitive objectives facilitate an accurately fitting design of eligible measures and mode of action.

Ambiguous and competitive objectives invite inconsistencies in design choices, which in turn increase the likelihood of weakening the policy instrument’s effectiveness.

Coherence in objectives and framing facilitate an accurately fitting design of eligible measures and mode of action.

Non-matching of objectives and policy image impede a well-tailored composition of eligible measures and mode of action. This in turn increases the likelihood of weakening the policy instruments’ effectiveness.

Obligation

The obligation is the most crucial design element leading companies to engage in energy efficiency activity.

Standardized measures

A list with deemed savings for energy efficiency measures facilitates the implementation of the WCI for both the administration and the obliged actor.

Number eligible measures

of

A balanced number of eligible measures is important to allow obliged actors some flexibility and to keep down administrative and transaction costs. Having welldefined objectives makes it easier to limit the number of eligible measures.

Every new eligible measure increases time, effort and transaction costs through the process of negotiating about the list of standardized measures and the corresponding baselines.

Number of obliged actors

A limited number of actors enhances transparency and reduces administrative effort.

A high number of obliged actors increases administration. Especially where a

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minimum threshold for participation is lacking, this may lead to a disproportionate burden for smaller companies. Participation of non-obliged actors

The possibility that nonobliged actors might generate white certificates may stimulate the energy service market. Success factors are welldefined conditions for participation (ensuring a quality standard) as well as transparent and simple monitoring.

A high number of nonobliged actors may lead to an increase in administration in order to secure minimum quality requirements. This can be prevented by allowing obliged actors to cooperate with third parties and leaving it to them to guarantee minimum quality (tendering instead of trading).

Administration

Sufficient administrative capacity (resources, qualified staff, and sufficient decisionmaking authority on the part of the executive agency) is a condition of effective implementation.

In the event of insufficient or absent administrative capacity (financial resources, qualified staff, decisionmaking competences), particular interests have an easy way to be supported with the help of or benefit from design choices (e.g. through eligible measures, exemptions, baseline definitions, verification rules, accountability of early action). This might lead general welfare interests to be undermined.

Baseline definition

A baseline set by independent experts enhances the likelihood that additional savings will be achieved. Agreements with obliged

Proposals for baseline definitions by affected companies obviously run the risk of diluting additionality.

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Ex post verification

Verification involving casespecific ex post measurements on-site are disproportionate and time-consuming, and create administrative and transaction costs.

Trading

Empirical findings suggest that the trading option may lead to high administrative and transaction costs (e.g. through detailed reporting requirements, approval from a regulatory authority, regular auctions, etc.). These costs may undermine the additional value that is theoretically associated with trading. Cost effectiveness through trading is not proved in the case of the WCI and there are reasons to doubt the cost effectiveness of trading.

Source: Author Some major questions crucial to practitioners have yet to be satisfactorily addressed by researchers. On the one hand the quantification of costs and a precise definition of the term ‘cost’ would be very helpful to understanding the policy instrument’s benefits. This has to be completed by a more thorough analysis of additional qualitative benefits. The author is convinced that the key to a more successful energy efficiency policy lies in taking into account qualitative benefits more systematically since it is qualitative obstacles that hinder the implementation of greater energy efficiency.

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9.3 Future prospects 9.3.1 Discussion of methodological approach Throughout the analysis the methodological approach to the research process turned out to have both strengths and weaknesses. The methodological approach allowed for a highly comprehensive analysis of the factors influencing policy instrument choice and design changes. The combination of document analysis, expert interviews, qualitative content analysis and participatory observation complemented different research perspectives. In particular, the deductive–inductive research approach helped to obtain rich insights into the policy process dynamics and allowed for a refinement of the author’s research focus. This includes modifications to the way interviews and participatory observations were conducted. While the general structure of the interviews was retained throughout the research period, the way in-depth questions were formulated and integrated improved. The author sees this mainly as an advantage that enriches understanding of the cases under investigation rather than a flaw since an adequate degree of standardization was maintained with the help of a constant set of general categories. It turned out to be very fruitful to work very closely with the interview transcripts in order to grasp the experts’ individual perceptions of the WCI, which displayed country-specific trends. Due to the rather broad research design covering a wide range of variables, this kind of qualitative content analysis could not be extended here. A possible expansion would include a larger sample of interviews, more examples of WCIs, or examining different types of hybrid instrument beyond WCIs. The research project has found evidence that supports the assumptions spelled out at the start. This qualitative content analysis could be enriched by quantitative content analysis that obtains significant results. One of the main flaws of the methodological approach was its attribution of indicators to causal relationships. While, for instance, the WCI was mostly labelled as a market-based instrument, the correlation between trading or other flexibility provision and the perception of it being a market-based instrument was obvious. Still, the methodological approach did not allow for a significant correlation or the establishment of a causal relationship. Most correlations could only be observed – and supported by various indications. Apart from the general choice of method, this is more difficult due to a small number of cases and the non-restriction to a certain group of actors (such as a focus solely on representatives from companies or from administration). However, this was a deliberate decision reflecting the fact that at the beginning of the research not many experts from one group were available. Yet considering a cross section of all possible

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actors also allowed comparison of perceptions that were shared across interestbased perspectives within a country. In addition, working with three different languages, including some translation, challenges the analysis of the transcripts, especially when it comes to determining the notion of flexibility versus coercion 406. However, the transparency of the research process was intended to be enhanced by including quotations also in their original language whenever possible. More generally, the complexity of the research project due to its inclusiveness turned out to pose a general challenge: the complexity of energy efficiency, the complexity of WCIs as hybrids, the different cases, the different dimensions of comparison (within country, across countries, between international and national experts) and the different languages together made it difficult to maintain a focus.

9.3.2 Remaining research questions and current dynamics of WCI development The analysis provided arguments that partly supported the guiding assumptions and answered the research question. As explained above, with a modified methodological approach, the research results could be given more weight. In addition, the set of research question could be enhanced. The questions of why some Member States did not choose a WCI has not been treated and thus remain unresolved. Some expert interviews contain indications for why other states have refused to introduce a WCI. Sweden and in the Netherlands entertained the idea but declined to introduce a WCI mainly because they wanted to exploit alternative instruments. In the Swedish case, strengthening existing regulation was preferred. In the Netherlands the situation was somewhat different. Here, voluntary agreements were made with the energy companies, but the WCI was retained as an option in case the companies failed to deliver the savings. However, according to side talks at conferences with Dutch experts, whereas companies indeed failed to deliver the savings and the WCI option was revived, until the beginning of 2011 there was no serious visible move to establish a WCI in the Netherlands. It would be interesting to discover the WCI’s policy image and how it has affected policy instrument choice. Other Member States could be worth investigating in order to verify the results of the analysis. Since 2010 Denmark has imposed energy saving obligations on distributors, but these obligations realise energy savings mainly in the industry sector, and so have a different focus from the WCI under examination, which 406

Many thanks to Michael James, Louis-Gaetan Giraudet and Daniele Russolillo, who helped me to avoid too many errors of translation.

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basically resulted in savings in the residential sector. The Danish example is worthy of detailed future study since it is said to be a pragmatic version of a WCI which does not determine additionality ex ante via baseline requirements but rather relies on ex post estimations with the option to suspend the scheme if additionality is too low. Administration costs are meant to be limited this way. Poland, Bulgaria, and Romania announced in their national energy efficiency action plans that they intended to establish a WCI. Ideas about implementation are most developed in Poland. According to a presentation at a conference in January 2011, 407 the mode of action to be adopted in Poland involves tendering procedures and tradable white certificates. The legal basis to set up a White Certificates Scheme has been adopted in April 2012 408. Polish experts frequently defended the cost effectiveness of the WCI as a market-based policy instrument making use of tradable white certificates, which were in line with market liberal ideas and therefore added to the argument that the WCI has an ideological dimension. Probably the most interesting debate is taking place in Germany, giving more indications of the verification of the underlying working assumption of the research project. The debate about an appropriate policy instrument for end-use energy efficiency is not new. In 2006 the Wuppertal Institute proposed that an energy saving fund be introduced. From the analysis of the international expert community (Chapter 4) it was apparent that no German researcher belongs to the core group of experts. However, some German scholars have been publishing on the WCI, such as Langniß and Praetorius (2004), Bürger and Wiegmann (2007), Leprich and Schweiger (2007), or Irrek and Klinski (2008), all of whom have adopted a rather critical approach towards the policy instrument and either prefer other options or stress the importance of the obligation rather than the trading option. This has been confirmed at workshops, especially at the ECEEE summer study in 2007, where some German scholars attended discussion on WCIs. This suggests that the image of the WCI among German scholars differs from that under examination here. While it seems to be perceived as an MBI, experts seem to evaluate this more critically than in the case of France and Italy, thus there seems to be mismatch between image and prevailing discourses. A more thorough study of the German case could confirm the underlying theoretical assumptions. Following the disaster at the nuclear power station at Fukushima following the tsunami in northern Japan in early 2011, Germany decided to phase out nu407

The workshop was held on behalf of the European Commission, organized by DG JRC in Varese. The Act is mentioned in Polands second National Energy Efficiency Action Plan, the original version of the law can be accessed under http://www.abc.com.pl/du-akt/-/akt/dz-u-11-94-551, accessed 29 October 2012. 408

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clear energy generation in the country by 2022 and adopted a policy package supporting the restructuring of its energy policy. Many policy options have been on the table, including a WCI; but the policy package contains the establishment only of an energy and climate fund as well as tax credits for building restoration. A WCI is mentioned in none of the propositions. However, in a recent public speech, Chancellor Merkel mentioned the possibility of introducing a WCI in Germany 409. In addition, already before Fukushima, a study was launched whose results are supposed to be published in September. The study investigates whether a WCI should be established in Germany and includes plans to run a pilot scheme. It remains unclear if and when a decision on that matter will be taken. This may change with the entering into force of new EU legislation 410. On 11 September 2012 the European Parliament adopted the Energy Efficiency Directive that will among others replace the End-use Energy Efficiency and Energy Services Directive 2006/32/EC (European Parliament & Council of the European Union 2006). The draft directive had been subject to negotiations between Council, Parliament and Commission with the former Article 6 411 being at the core of the debate: the Article aims at introducing a mandatory WCI in each Member State. Throughout most of the negotiatons, German actors had no common position. Instead, there was a divide between the position of the Federal Environmental Ministry and the Federal Ministry of the Economics and Technology with the Environmental Ministry aiming for stricter targets and a strong Article on energy saving obligations and the Economic Ministry trying to avoid the adoption of mandatory energy saving obligations. The German ambiguity finally neither created a strong opposition nor could prevent diluting the directive. 412 Other than for renewable energies, the targets for energy efficiency remain indicative.The directive opts to define only a minimum set of requirements and 409

On 20 June 2011, Merkel gave a speech at the annual conference of the German Council for Sustainable Development that mentioned the WCI as a policy option to foster end-use energy efficiency, http://www.nachhaltigkeitsrat.de/presseinformationen/pressemappen/jahreskonferenz-20-062011/bk-merkel-jk-20-06-2011/ 410 The negotiation and adoption of the directive has taken place after the editorial deadline of the analysis. However, the main decision has been added afterwards to indicate future directions of energy efficiency governance in the European Union. The finally adopted text is accessible on the homepage of the European Parliament: http://www.europarl.europa.eu/sides/getDoc.do?type=TA&reference=P7-TA-20120306&language=EN&ring=A7-2012-0265#BKMD-6, accessed 29 October 2012. 411 Throughout the negotiations, Article 6 proposed the introduction of energy saving obligations. However, according to the homepage of the European Parliament displaying the finally adopted text the legal basis for establishing a WCI is set out in Article 7. 412 The author has been following the debate and talked with different experts in the field.

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leaves the rest to Member States to decide. The directive spells out that either retail energy sales companies or distribution system operators 413 should be obliged to achieve annual energy savings in the end-use sectors of 1.5 per cent of their market shares between January 2014 and December 2020 414. Measurement and saving rules set out in Annex V of the directive include a list of standardized savings and an expected lifetime of the selected measures that may be used by the Member States; if they do not use them, the Commission has to approve the methodology of the Member States’ alternative measures. The list includes behavioural measures and gives default lifetime values for these as well. All other recommendations as to the design of energy saving obligations are meant to be voluntary. The main features of the existing WCIs are listed, such as requirements with a social aim (UK), the eligibility of energy service providers (Italy), certification of savings (Italy and France), or the exclusion of small distributors or suppliers (especially relevant in France). An initial draft foresaw the mandatory introduction of a WCI in each Member State 415. The directive includes, however, a paragraph which allows Member States to adopt alternative policy instruments under the condition that they lead to the same amount of final energy savings. Possible policy alternatives are listed and include energy or CO2-tax, fiscal incentives, energy labelling, training and education, or voluntary agreements. The debate of whether or not implementing a WCI in Germany will continue. The transposition of the new European directive into national legislation will spur the political debate about the appropriate instrument for energy efficiency.

9.3.3 Coda: Vision 2050 End-use energy efficiency has been on the political agenda for almost 40 years. After another 40 years, will we be writing the same books on energy efficiency? A project by the German Council for Sustainable Development (RNE 2011) encouraged young people to develop and sketch their vision for the year 2050. Part of the project was the creation of a ‘Verbarium’ – a list of terms that will have ceased to exist by the year 2050. The list included ‘developing country’, ‘ex cathedra teaching’, and ‘sustainability’. The young people hoped that these 413 414

In the dissertation these are mainly referred to as suppliers and distributors respectively.

More specifically, the market share refers to the market for final customers in the previous year multiplied by the total volume consumed by final customers in the Member State in the previous year. 415 The draft proposal was send by email on 10 May 2011.

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terms would no longer be needed because the problems they referred to would have been solved, because new forms of learning would be better able to educate people to become problem-solvers, or because sustainability had become internalized. I add ‘energy efficiency’ to the list, for several reasons. The efficient use of energy will be an imperative in an economy operating under the constraints of finite resources. A factor that facilitates these developments is the diffusion of alternative business models: it will no longer be possible to make money by selling energy. Only energy services will be sold, and a sparse use of resources will implicitly be rewarded. Finally, the orientation towards achieving our objectives will give us the means at hand: playing the ‘fugue of the low-carbon economy’ with fairness and equity as the principle theme in each part of the societal ecosystem makes it necessary to realize energy efficiency that genuinely leads to an absolute reduction of resource consumption. If energy efficiency policy does not lead to an absolute reduction in energy consumption to a sustainable level, it will have to be abandoned. Keeping the objectives in mind when moving forward may prevent secondary objectives – such as realizing energy efficiency improvements for the sake of mere ‘efficiency’ – from controlling political processes. Let’s devote some energy to bringing the date forward: we shouldn’t wait until 2050 for the term ‘energy efficiency’ to disappear. Instead of looking for just the one way of realizing energy efficiency, many ways should be explored as long as they do not contradict the principles of a low-carbon and sustainable society.

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Sorrell, S., Harrison, D., Radov, D., Klevnas, P. & Foss, A. (2008) White certificates schemes: economic analysis and interactions with the EU ETS, in: Energy Policy, Vol. 37, No.1, pp. 29-42. SRU (2011) Wege zur 100% erneuerbaren Stromversorgung. Sondergutachten, Band 1, Januar 2011, Hausdruck. Berlin: SRU Steuwer, D. S. (2007) Der Europäische Emissionshandel und die Rolle der Europäischen Kommission. Eine akteurszentrierte Analyse zur Untersuchung eines PolicyWandels. Ecological Energy Policy edited by Danyel Reiche, Band 1. Stuttgart: ibidem. Szarka (2003) The politics of bounded innovation: ‘New’environmental policy instruments in France, in: European Politics, Vol. 12, No.1, pp. 93-114. Tänzler, D. & Steuwer, S. (2009) Cap and invest. Why auctioning gains prominence in the EU’s emissions trading scheme. Heinrich Böll Foundation, Washington D.C. Tews, K. (2005) Die Diffusion umweltpolitischer Innovation: Eckpunkte eines Analysemodells, in: K. Tews & M. Jänicke (Eds.) Die Diffusion unweltpolitischer Innovationen im internationalen System. Wiesbaden: VS Verlag für Sozialwissenschaften, pp. 25-54. Tews, K. (2009) Politische Steuerung des Stromnachfrageverhaltens von Haushalten Verhaltensannahmen, empirische Befunde und Politikimplikationen. Transpose Working Paper 2, Berlin: FFU. The House of Commons Environmental Audit Committee (2008) Reducing carbon emissions from UK business: The role of the climate change levy and agreements. Second report of session 2007-08, HC 354, 19. February 2008, London: The Stationary Office Limited, http://www.publications.parliament.uk/pa/cm200708/cmselect/cmenvaud/354/354.p df Thelen, K. (1999) Historical Institutionalism in comparative politics, in: Annual Review of Political Science, Vol. 2, pp.369-404. Thelen, K. & Steinmo, M. (1992) Historical institutionalism in comparative politics, in: S. Steinmo, K. Thelen & F. Longstreth (Eds.) Structuring Politics. Historical Institutionalism in Comparative Analysis. Cambridge: Cambridge University Press, pp. 132. Thomas, S. (2002a) Regulation in a de-regulated Energy Market: the British Experience. Paper presented at the CIRIEC International Congress, http://www.psiru.org/reports/2002-09-E-Reg.doc Thomas, S. (2002b) The Impact of Privatization on Electricity Prices in Britain. Paper presented at the IDEC National Seminar on Public Utilities, Sao Paulo, http://www.psiru.org/reports/2002-08-E-UKImpactPriv.doc Thomas, S. (2004) The British model: Failing slowly. Paper presented at International Workshop on: “Thirty Years of World Energy Policy – cum – Editorial Board Meeting of Energy Policy, Hong Kong, http://www.psiru.org/reports/2004-04-E-UKHongKong.doc Thomas, S., Wissner, M., Kristof, K. & Irrek, W. (2002) Die vergessene Säule der Energieeffizenz. Energieeffizienz im liberalisierten Strom- und Gasmarkt in Deutschland. Vorschläge des Wuppertal Instituts. Wuppertal Spezial 24, Wuppertal

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Annex

Annex I – List of Interviewees Alaimo, Stefano (GME) Personal interview, 14 July 2008, Rome, Italy. Arnaud, Patrick (GDF Suez) Personal interview, 28 November 2007 in Paris, France. Audero, Valter (AES spa) Personal interview, 16 July 2008 in Turin, Italy. Baudry, Paul (EDF) Personal interview, 28 November 2007 in Paris, France. Becchis, Franco (University of East Piedmont), Personal interview, 15 July 2008, Turin, Italy. Bertoldi, Paolo (DG JRC) Personal interview, 11 July 2008, Ispra, Italy. Biddle, Phil (E.on Energy) Personal Interview, 10 March 2008, Nottingham, United Kingdom. Bodineau, Luc (ADEME) Telephone interview, 12 December 2007. Bourru Lacouture, Patrice (Ecofioul) Personal interview, 20 November 2007 in Paris, France. Capozza, Antonio (Cesi Ricerca) Personal interview, 2 July 2008, Milan, Italy. Chambers, Paul (DEFRA) Personal interview, 8 March 2008, London, United Kingdom. Civati, Massimo (Elyo) Personal interview, 23 October 2008, Milan, Italy. Ferreiro, Giovanni (Italgas) Personal Interview, 16 July 2008, Turin, Italy. Giraudet, Louis-Gaëtan (CIRED) Personal interview, 13 November 2007 in Paris, France. Genier, Roland (ATEE) Personal interview, 23 November 2007 in Paris, France. Hargreaves, Charles (Ofgem) Personal interview, 28 February 2008, London, United Kingdom. Klevnas, Per (NERA Consulting) Personal interview, 27 February 2008, London, United Kingdom. Labanca, Nicola (Politecnico di Milano) Personal interview, 18 July 2008, Milan, Italy. Lees, Eoin (Consultant, formerly Energy Saving Trust) Personal interview, 5 June 2009, La Colle Sur Loup, France. March, Russell (Green Alliance) Personal interview, 6 March 2008, London, United Kingdom. Marsh, Keith (Energy Saving Trust) Personal interview, 26 February 2008, London, United Kingdom. Monjon, Stéphanie (ADEME) Personal interview, 19 November 2007, Paris, France. Mundaca, Luis (Lund University) Personal interview, 5 June 2009, La Colle Sur Loup, France Oikonomou, Vlasis (University of Groningen) Personal interview 3 June 2009, La Colle Sur Loup, France.

D. S. Steuwer, Energy Efficiency Governance, DOI 10.1007/978-3-658-00681-5, © Springer Fachmedien Wiesbaden 2013

392

Annex

Pavan, Marcella (AEEG) Personal interview, 9 July 2008, Milan, Italy. Rabany, Bertrand (DGEMP, MEDAD) Personal interview, 26 November 2007, Paris, France. Rezessy, Silvia (DG JRC) Personal interview, 11 July 2008, Ispra, Italy. Russolillo, Daniele (Fondazione per l’Ambiente), 15 July 2008, Turin, Italy. Thénoz, Jocelyn (EDF) Personal Communication, 15 November 2007 in Paris, France. Wheatley, Megan (UK Business Council for Sustainable Energy, UKBCSE), Personal interview, 11 March 2008, London, United Kingdom.

Annex II – List of Conferences and Workshops with Participatory Observation 22 October 2008: Workshop ‘White Certificates: the Italian experiences gained in regulation, monitoring & verification and electricity market context’, organised by IEA and Cesi Ricerca, Milan, Italy. 21 November 2008: Colloque national et européen – Les certificats d’économies d’énergie: bilan et perspectives; 1ere Semaine des energies renouvelable, du bâtiment et de la maîtrise de la demande en énergie (National Workshop on WCI during the First Conference in Renewable Energies, Buildings and Management of energy demand) organised by ADEME, Paris, France. 30 March – 1 April 2009: JRC Workshop on white certificates, utily and supplier obligations, Brussels, Belgium. 1 – 6 June 2009: ECEEE Summer Study La Colle Sur Loup; Participatory observation especially at the following workshops: ‘Energy company obligations to save energy in Italy, the UK and France: what have we learnt?’ on 4 June 2009; informal session on WCI organised by Paolo Bertoldi on 5 June 2009; 10 December 2009: Workshop ‚Klimaschutz durch Energieeffizienz in der EU und Deutschland‘, organised by the Federal Ministry for the Environment, Nature Protection and Nuclear Safety, Berlin, Germany 27 – 28 January 2011: JRC Workshop on experiences and policies on energy saving obligations and white certificates, Varese, Italy.

Annex III: Questionnaire template France L’Introduction du dispositif des Certificats d’Économie d’Énergie (Certificats Blancs) dans des pays de la Communauté Européenne Introduction ƒ

Pourriez-vous vous présenter brièvement, s’il vous plaît? Quelle est votre carrière professionnelle?

Annex ƒ

393

Quelle a été votre implication dans le processus politique de conception et de mise en oeuvre du dispositif des certificats d’Economies d’Energie ?

Raison de l’introduction du dispositif de CEE ƒ ƒ

Quels sont, à votre avis, les objectifs visés par ce dispositif? Lesquels sont les plus importants pour expliquer l’introduction du dispositif de CEE? Pourriez-vous citer les raisons de l’introduction du dispositif de CEE, SVP? Est-ce que la politique énergétique de l’Union Européenne a joué un rôle ? Idem pour les exemples de l´Angleterre et de l´Italie ? Lesquelles ont été les plus influentes pour expliquer l’introduction du dispositif de CEE?

Les acteurs et le processus politique ƒ ƒ ƒ ƒ ƒ

Quand plus précisément l’idée d’introduire des CEE en France est apparue (sur votre agenda)? Qui a avancé l’idée d’introduire ce dispositif ? Pourriez-vous, SVP, caractériser le processus décisionnel ? Sa mise en place a t´elle été simple ou bien a t´elle été source de conflits? Quels étaient les intérêts discutés les plus opposés ? Quels en étaient leurs défenseurs ? Qui furent les gagnants et les perdants de cette introduction des CEE en France ? En résumant: Dans un cadre de politique énergétique, considérez vous le processus politique de conception et de mise en oeuvre du dispositif des CEE comme typiquement français ? Pourquoi ?

Les CEE - un nouveau dispositif dans le domaine de la politique énergétique ? ƒ ƒ ƒ ƒ

Considérez-vous le dispositif des CEE en France comme un dispositif innovant et nouveau dans le domaine de la politique énergétique? Pourquoi ? Marché ou régulation ? Où est-ce que vous placeriez les CEE ? Pourquoi ? Quelle est la caractéristique des CEE en France la plus importante à vos yeux ? Quelle est l’importance de l´instrument CEE comparativement à d’autres instruments de politique énergétique dans ce domaine ?

Développements actuels ƒ

À votre avis: Quels sont les développements actuels, est-ce que le dispositif de CEE a atteint ses objectifs ?

394

Annex

Annex IV: Questionnaire template Italy The White Certificates Scheme in Italy Introduction ƒ ƒ

Could you please introduce yourself briefly? What is your professional background? What has been your implication in the political process of creating, introducing and implementing the White Certificates Scheme?

Political discourse ƒ ƒ ƒ ƒ ƒ

What is the underlying political discourse of introducing the White Certificates Scheme (e.g. climate change, security of supply)? Has this goal been changing while developing the instrument? Why has this instrument been chosen instead of others? Have alternatives been discussed? At what stage of the political process? Where did the idea to introduce a White Certificates Scheme stem from? Have there been exchanges between experts of other countries with similar policy approaches? How would you characterise this exchange? (E.g. continuous vs. selective?) Have policy developments on the European level been influencing the further development of the White Certificates Scheme in Italy? In what way?

Actors and the political process ƒ ƒ ƒ ƒ

Who has been the main advocates promoting the establishment of a White Certificates Scheme with an energy saving obligation for distribution companies? How did the distribution companies respond to the idea of introducing a White Certificates Scheme? What have been the biggest controversies between the actors affected by this policy instrument? Who were those actors? Do you think that actors changed their preferences towards the instrument? In what way? What explains the delay of implementing the White Certificates Scheme?

Annex

395

The design of the policy instrument and its relative importance ƒ ƒ ƒ

What is, to your opinion, the most important characteristic of this policy instrument? (E.g. obligation, focus on households, market-elements?) Why? What is the relative importance of the White Certificates Scheme in comparison to other energy efficiency instruments in Italy? Would you consider the Italian energy efficiency policy instruments as coherent and comprehensive?

Current developments ƒ

To your opinion, what will be the future relevance of the White Certificates Scheme in the context of o Climate change policy? (national/ European/ international level) o Supporting new technologies? o Energy security o Other objectives? To your opinion, is there room for linking the White Certificates Scheme to other schemes (e.g. green certificates? Creating a European market?)

Annex V: Questionnaire template United Kingdom The Energy Efficiency Commitment in the United Kingdom Introduction ƒ Could you please introduce yourself briefly? What is your professional background? ƒ What has been your implication in the political process of creating, introducing and implementing the Energy Efficiency Commitment? Political discourse ƒ ƒ

What is the underlying political discourse of introducing the EEC (e.g. climate change, fuel poverty)? Has this goal been changing while developing the instrument towards CERT? Why has this instrument been chosen instead of others? Have alternatives been discussed? At what stage of the political process?

396 ƒ ƒ

Annex Have there been exchanges between experts of other countries with similar policy approaches? How would you characterise this exchange? (E.g. continuous vs. selective?) Have policy developments on the European level been influencing the further development of the energy saving obligation in the UK? In what way?

Actors and the political process ƒ Who has been the main advocates promoting the establishment of an energy saving obligation for energy suppliers? ƒ What explains the continuous support of the EEC by the energy suppliers? ƒ What have been the biggest controversies between the actors affected by this policy instrument? ƒ Do you think that actors changed their preferences towards the instrument? In what way? The design of the policy instrument and its relative importance ƒ What is, to your opinion, the most important characteristic of this policy instrument? (E.g. obligation, cost-recovery, focus on households, focus on priority group, market-elements?) Why? ƒ What is the relative importance of the EEC/ CERT in comparison with other energy efficiency instruments in the UK? ƒ Would you consider the British energy efficiency policy instruments as coherent and comprehensive? Current developments ƒ

To your opinion, what will be the future relevance of the EEC/ CERT in the context of o Climate change policy? (national/ European/ international level) o Supporting new technologies? o Alleviating fuel poverty? o Other objectives?

ƒ

Do you see a tendency for the EEC/ CERT or future white certificates schemes to substitute other policy instruments? To your opinion, is there room for linking the CERT to other schemes (e.g. quota for renewable energy? Creating a European market?)

ƒ

Annex

397

Annex VI: Examplary sheets used to document participatory observation Analysis of a Panel Discussion on WCI with regard to policy instrument’s mode of action 30 March – 1 April 2009: JRC Workshop on white certificates, utility and supplier obligations, Brussels, Belgium. Expert Coercion Flexibility True Hybrid EU Administration

supplier obligation

EU Administration UK, Administration

IT, Administration

Market-based approach; “One of the beauty of white certificates is to pick market forces.” Costeffectiveness

The [first] system consisted mainly of a levy

this MBI [since 2002] lead to “scatter-gun” approach: pick the least-cost options first trading is a central element in the scheme; “if you chose a MBI than leave the market work”; “enhance marketliquidity as far as it is possible”; “obligation also to suppliers, eligible project expanded to include also soft

398

Annex measures such as behavioural”; ESCOs are e.g. not there in the UK and in France. She asks: “Why put a market-mechanism in place if not the basic elements of the market work?” ĺ SXEOLF applauded

FR, Administration

“The market is of marginal importance, the suppliers do themselves”

“we have all sorts of certificates, black, green, red, why not have white?”

PL, Researcher

US, Consultant

(tax credit: biggest financial constribution, TWC networking and informational aspects important). “ESC makes it possible for the tax credit to be effective”

He doesn’t think that it is all about trading. Rather, it is allowed that states have their own tougher targets. Trading

Annex

399 would disincentive this. no additionality requirements

DK, Consultant

Subsidy part of the utility obligation on one end Audit/ Information on the other end; economic instrument that started as a voluntary agreement

IT, Energy dustry

In-

ask for shorter project preapproval time and the improvement of market liquidity

FR, Energy Industry

a real constraint for the suppliers

FR, Energy Industry

market is not useful as TWCs are not a commodity, you produce an added value

FR, Administration

‘Obligation’; ‘Result-based approach’; The trading is not an important aspect to be considered at EU level (if at all).

EU, Energy Industry

‘this is a flexible instrument with a limited scope’

Likes the flexibility; Major concerns address previous experiences with the

400

Annex EU ETS and other tradable certificates

EU, Energy Industry

‚The benefits of TWC are full in line with all other tradable systems’

PL, Researcher

‘If there is a common market for ETS, why not for White Certificates? What is the difference? I believe in common market, why don’t you?’

Analysis of Panel Discussion on WCI with regard to the Discourses the policy instrument is placed in 30 March – 1 April 2009: JRC Workshop on white certificates, utily and supplier obligations, Brussels, Belgium. Liberalisati Climate Ener Others on of energy Change gy Security of markets Supply EU, Administration

the purpose is to make sure that utilities implement the same EE programs in a liberalised energy market than they did before

EU, Administration

She mentions firstly the cost-

this instrument also helps to de-

Costeffectiveness

Annex

UK, Administration

401 effectiveness of the scheme, and most importantly: competitiveness.

liver sustainable development

All started in 1994 when the energy markets were not yet deregulated

The instrument is all about carbon savings. Although the target doubled from period to period, the carbon savings increased significantly more with shifting the unit of the targets to CO2

origi nally UK wanted to save electricity and not to save carbon

FR, Energy Industry

Question from FR to UK “This is an instrument about Energy efficiency and you are counting in CO2 – can you explain that?”

FR, Administration

Energy efficiency in diffuse sectors

402 PL, searcher

Annex Re-

climate change and carbon reduction

US, Consultant

integrated least cost planning they know; DSM; obligation is perfectly compatible with liberalised markets models

UK, Energy Industry

Expresses concerns due to counteracting liberalisation of energy markets

UK, Energy Industry

“only energy security and connection to liberalisation of energy markets – no climate change” “why are there so many countries around that are not considering implementing white certificates” The value of TWC is: economic efficiency, climate protection, energy security. By linking it to CO2 only it puts the others at side ĺ WKDW¶V QRW good.

Annex

403

Annex VII: Counting experts to filter out core group of experts Name

IEA

Adnot

White

White &

ECE EE

Cert

Green

2009

Euro

5

Milan

Bru ssel s

1

Alaimo

1

Anable

1

Bach

1

Baudry

1

Becchis

1

1

1

1

1

Bertoldi

1

Blesl

1

1

Bodineau

1

Broc

1

1

Brogi 1

Capozza

7

Chamber

1

Child

1

1

1

Contaldi

1

Cowart

1 1

1

D’Ancona

1 2

Di Giacomo

1

DiSanto Dockwell Eide

1 1

Bye

Devine

1

1

Bodiguel

Crossley

Berl in

1 1 1

™ total

™ Are nas

6

2

1

1

1

1

1

1

4

4

2

2

3

3

1

1

1

1

3

3

1

1

1

1

1

1

9

3

1

1

1

1

1

1

1

1

2

2

1

1

2

1

1

1

1

1

1

1

1

1

404

Annex

Egerton

1

Eyre

1 2

1

1

1

1

Farinelli

1

3

2

Fonseca

1

1

1

Gaudioso

1

1

1

1

1

3

2

1

1

1

1

2

2

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

Givois Grattieri

1 2

1

Gravecca

1

Haas Hargreaves

1 1

Harmelink Hedensen

1 1

1

Hoffmann

1

Incalcaterra Jeliazkov

1 1

Jeandel

1

Johansson

1

Jochem

1

Kazakevicie w

1

Klink

1

1

1

Labanca

4

4

1

1

1

3

1

1

1

1

1

1

1

1

1

Landsberg Langniß

1 3

Lefèbre

1

Leprich

1

Liik

1

Loudon

1

Lutter

2

2

1

Luttmer

1

1

1

Annex

405

Lytras March

1 1

Masero

4

McClellan

1

McClourigh Monjon

1 2

1

1

1

1

1

4

1

1

1

1

1

3

2

Monroy

1

1

1

Moody

1

1

1

1

1

9

3

Müschen Mundaca

1 2

5

2

Neij

1

3

4

2

Niermeyer

1

1

1

1

Normand

2

2

1

Oikonomou

1

4

3

Pagliano

1

2

2

2

1

7

6

5

2

2

1

1

Patel

2

Pavan

1

2

Perrels

1

4

1

1

1

1

Piantoni

1

1

1

Pierre

1

1

1

1

1

1

1

1

1

1

1

6

4

1

1

Poel

1

Purchas Rabany

1 1

Resch

1

Rezessy Rooney

3

1

1

1

1

Russolillo

1

1

1

Sagbauer

1

1

1

1

1

1

1

Sagnac Sawyer

1 1

406

Annex

Schneider

1

1

1

Siderius

1

1

1

Sharick Tabet

1 1

Thomas

1

Togeby

2

Tomaselli

1

Tosato

1

1

1

1

1

1

1

2

1

1

1

1

1

Vergote

1

1

1

Visser

2

2

1

Voogt

2

1

Zmijewski Zorzoki SUM

1 1

3

1

1

1

1

1

172