SECTIONS IN THIS CHAPTER Introduction Energy labelling programmes The effectiveness of energy labels: a conceptual framework for analysis

Discussion and suggestions Conclusions and recommendations concerning energy labelling programmes References

1 Introduction Introduction of energy standards as well as energy labelling programmes for electrical appliances play an increasingly important role in national energy efficiency promotion strategies. In several member countries of ESCAP, including China, Japan, Republic of Korea, Thailand and United States of America, umbrella energy conservation laws provide mandates to designated authorities to conduct product testing, establish minimum energy efficiency standards and launch voluntary or mandatory energy labelling programmes. In other ESCAP member countries or territories, such as Australia, New Zealand, the Philippines, and Hong Kong, China, separate regulations have been issued to provide for the introduction of energy labels. A considerable wealth of recent literature discusses the technical aspects of energy standards or labelling programmes, but only a few reports deal with the various parameters which affect the impact and success of such programmes. Lawmakers in Asia should study the emerging results of empirical work on the impacts of energy labelling programmes as they consider replication or expansion of such programmes to include additional appliances. During the past decade, there has been great concern worldwide in improving energy conservation and energy efficiency, both in the industrial and residential sectors. This is a particular concern in Asian developing countries where the demand for home appliances is growing rapidly. Compared with industrialized countries, energy efficiency of some home appliances is still quite low, thus the projected residential electricity demand is expected to increase continuously. As part of demand side management and improving energy end-use efficiency, energy performance standards and energy labelling programmes are major energy policy measures in many countries. The purposes of energy labelling programmes are multifaceted. At the national level, the main objectives are energy conservation and reduction of emissions, including CO2 emissions. For appliance manufacturers and suppliers, labelling programmes may increase business opportunities. For consumers, labelling programmes are expected to provide additional product information and result in better product choices and higher consumer satisfaction. <return to top> The primary purpose of an energy labelling programme is to provide information and improve consumer awareness of energy efficiency. The effectiveness of energy labels can only be evaluated based on an understanding of consumer behaviour. There is a dearth of research addressing the impact of energy labels on consumers. Most research has focused on economical analysis or technical analysis of the potential energy savings or the environmental impact. This paper is to review the impact of energy labelling programme on consumer behaviour. In the following sections, the analysis of energy labelling programmes is to be restricted to appliance labelling programmes on refrigerators, washing machines and air-conditioners,

which are all major electricity-consuming appliances. In Asian countries, a refrigerator is usually the first appliance purchased when income allows. A washing machine comes next. Air-conditioners are also important to consider because many of the Asian countries experience long periods of high heat and humidity. In Asian developing countries, clothes dryers, dishwashers and ranges with ovens do not play a key role in the appliance market. The climate makes line drying of clothes standard practice and Asian kitchens rarely have room for a dishwasher or a range. 2 Energy labelling programmes Energy labels are designated to provide information on energy efficiency, energy consumption or performance of the product. Various types of energy label programmes have been developed reflecting each country's status of economy, technology, industry and appliance market. Designs of energy labels differ (see Figure 3.4.1, Figure 3.4.2, Figure 3.4.3 & Figure 3.4.4). The concept of labelling programmes also differ between voluntary and mandatory programmes. Some programmes are associated with Minimum Energy Performance Standards (MEPS). Comparison labels may compare a particular model to others on the market. Comparison labels provide information allowing the consumer to compare the energy efficiency of all products within a given category, while endorsement labels identify and endorse a limited number of products that meet a designated efficiency standard. <return to top> Table 3.4.1 presents an overview of energy labelling programmes worldwide concerning refrigerators, washing machines, and air-conditioners. Eight countries and the European Union have appliance labelling programmes for at least one of these three household appliances. Characteristic and comparisons of appliance labelling programmes of each country are also summarized. 3 The effectiveness of energy labels: a conceptual framework for analysis Until recently, environmental concerns and issues of energy efficiency have been the interests of engineering and science study but not of social science. Lack of interdisciplinary collaboration is one of the major reasons research and empirical data regarding the impact of energy labelling programmes on consumers are unusually scarce. However, such studies are essential for the successful replication and expansion of labelling programmes. This section presents a preliminary conceptual framework which uses consumer research and human behavioural sciences such as psychology and sociology to evaluate the effectiveness of energy labels. 3.1 Product stimulus (energy label) and consumer response (purchasing behaviour) Purchasing is not just procurement of the product or the exchange of money for the product. Consumers are involved in their purchasing activity in order to accomplish their personal goals and achieve satisfaction. The consumer, in purchase decision-making, is influenced by his or her own psychological makeup and also by the sociological influences of society. Following a simplified behavioural approach, it is perceivable that consumers exposed to some stimulus (product) may likely develop a purchase response. It can be assumed that an

energy label, as one of many product stimuli, could have a positive or negative impact on consumer response (purchasing behaviour). From the consumer's initial notice of product stimulus (energy label) to the final response (purchasing decision), there are many antecedents of each behaviour and a process of response is involved. A purchase as the outcome of a process of response is complicated and mediated by a host of internal and external influences and constraints. Any human behaviour as the outcome of a process of response is comprised of physical, cognitive and affective dimensions. The physical dimension relates to senses and motor skills. The cognitive dimension is the realm of thinking and memory and the affective dimension includes emotions, needs and motivations. In the process of response, these three behavioural dimensions are reflected as awareness, knowledge and preference. <return to top> a) Awareness: In this beginning stage of the response process, the consumer becomes aware of stimulus (i.e., the product's existence and/or the energy label). The consumer is exposed to the product stimulus for the response to occur. The consumer perceives the physical existence, figures and characteristics of the product. b) Knowledge: The consumer knows and understands what the stimulus is offering. Based on the individual's previous learning experiences, the process of comprehension and interpretation of product stimulus progresses. c) Preference: The consumer's favourable attitudes towards the product have developed to the point of preferring it to other products or possibilities. 3.2 Review of consumer research results on energy labels The three aforementioned behavioural dimensions of the process of response can be applied as criteria for evaluating the effectiveness of appliance labels. Consumer reaction to an appliance label can vary from simple ignorance to a full understanding of the highly advanced technical information of the label. There is a lack of qualitative and quantitative indepth study of how consumers recognize, perceive, comprehend and use label information in their purchasing decision. In this section, preliminary results of a recent empirical survey conducted by the author in Seoul, Republic of Korea and some available results from Australia , Thailand and the United States are reviewed and discussed. 3.2.1 Awareness: Label recognition Label recognition by individual consumers ranges from simple awareness of the physical existence of a label on the appliance and notice of its location to complete familiarity with the label and/or energy efficiency label programme. Recognition of an appliance label by a consumer is important because it is the essential step if any further meaningful process of response is ever to ensue. Awareness occurs in a short period of time and usually involves processing little information. In this stage, the response is simple recognition and notice of the stimulus may generate just enough interest to carry over to the next steps. Du Pont's (1997) study of recent appliance buyers in the United States and Thailand shows that while a majority of Thai consumers were aware of the Thai energy labelling programme, awareness was comparatively low among consumers in the United States. Results of Wilkenfeld's (1997) study with an Australian sample also show that the energy label has very

high visibility and recognition in Australia where recognition of the label among randomly surveyed adults is constantly over 65 per cent. <return to top> The author's sample of recent appliance buyers in the Republic of Korea shows that 57.8 per cent of respondents were aware of the energy efficiency rating system. However, more indepth questions revealed that only 33 per cent of appliance buyers knew about the energy labelling programme when they made their purchasing decisions and only 40.9 per cent of the respondents remembered the correct location of the energy label on their already purchased product. 3.2.2 Knowledge: Label comprehension Knowledge is a basic underpinning to most explanations of consumer behaviour. Knowledge of the product stimulus means acquaintance with and understanding of the product. Simple notice of the existence of an energy label without any further thought process on the part of the consumer is not likely to result in any impact on the consumer's response. Understanding the stimulus and use of information for the individual's purchasing decision will be important. Though the understanding and label comprehension process is largely based on an individual consumer's previous learning experiences and ability, the way information is presented and introduced to consumers is critical. Energy labels should not be just perceived as a "yellow thing" on the appliance. Consumers should rather comprehend what the energy label says, understand what the numbers on the label stand for and finally process this information for their own purpose or purchasing decision. Du Pont reported that the great majority of Thai consumers understood the basic meaning of the label and could use it to identify a model's energy efficiency. Forty-five per cent of an Australian sample used label information to compare appliances. However, contradicting results regarding consumers' understanding of an appliance label are also evidenced. An instore survey (1995) with a United States sample indicated that 90 per cent of buyers noticed the "Energy Guide" label but found the label format confusing. Among the sample in the Republic of Korea, 12.6 per cent of respondents correctly understood, 21.8 per cent partially understood, and 65.5 per cent of respondents did not understand the energy efficiency rating grade/class which is the main information on the label. Among those who "tried" to use the information, 33.8 per cent of respondents used it to compare models, 17.9 and 29 per cent used it to estimate monthly energy consumption and monthly utility cost, respectively. However, 66.6 per cent of respondents reported the label was not useful. The most frequent reasons given for the label's uselessness were: a) not knowing how to use information on the label (45.7 per cent) and b) unreliable information (27.1 per cent). <return to top> 3.2.3 Preference: Priority of energy efficiency Even if the product stimulus reaches the consumer, the consumer may not respond. Stimulus reception does not guarantee equal direct response. People buy things not only for the properties of the product, but also for what they mean. Products vary in the degree to which social-symbolic meaning is important. Each consumer as an individual has different values and motivations which are influenced by society. This situation is reflected in each

purchasing decision. A consumer's preference created by energy labels may be measured by the priority given to energy efficiency over other factors. Product price, quality, design and brand name are among the factors which influence purchasing decisions. A 1995 survey of major appliance dealers in United States of America reported that the three single most important factors determining consumer's purchasing decisions were: price (32 per cent); product quality (31 per cent), and product features (20 per cent). Fifty-two per cent of the same respondents reported that energy efficiency was a very important factor, and 44 per cent said it was somewhat important when making a sale. In 1991, 28.4 per cent of respondents in Australia considered the energy efficiency rating to be the most important factor when purchasing a new appliance. "Operational cost" was the most important factor for 13.5 per cent of respondents and about 42 per cent of consumers reported energy efficiency or related factors as being the most important consideration in their choice of an appliance. Thirty-three per cent of appliance buyers in the author's own sample reported that label information had influenced their purchasing decision and 70.6 per cent of respondents reported energy efficiency would be the priority concern in future appliance purchasing. When the same respondents were asked about their willingness to pay more for a highly energy efficient appliance in the future, 67.7 per cent of respondents said they would if the price increase was 1 to 5 per cent. However, 28.6 per cent of the respondents said that they were willing to pay 5 to 10 per cent more for models with above average energy efficiency. The survey with major appliance dealers in the United States also showed that 53 per cent of dealers reported that consumers are willing to pay more for energy efficiency. <return to top> 4 Discussion and suggestions Despite its limitations, the results of this review indicate some critical points which should be considered in evaluating energy labelling programmes and which are essential for understanding the consumer response to energy labels. Label recognition results vary considerably between the different studies. This suggests that consumers in different countries and different cultures react differently to energy labels. This also allows the conclusion that the replication of energy labelling programmes internationally may not always be useful or effective unless the particular socio-economic and cultural circumstances are carefully considered. This may partially explain why energy labelling of appliances in the United States has been less effective than in Thailand. The appliance market in the United States is enormous in size and the socio-economic, cultural and ethnic spectrum among consumer groups extremely diverse. In Thailand, there is far less heterogeneity in the appliance market; hence, labelling programmes, their design and the related public relations and information campaigns have been much more effective. Another dimension which may affect label recognition is the size and diversity of the respective national/local market. In all those situations where there is a wide array of brands, models, sizes, designs and features, the purchasing decisions of consumers are proportionally more complex. The recognition and impact of labels may be quite different from developing country markets which are usually characterized by a more limited choice of products.

On the issue of label comprehension, the results of the review indicate that most consumers, regardless of country, showed their intention to use label information. Despite a consumer's desire to use the information label comprehension can be difficult and frustrating. The consumer's lack of skill, insufficient label information and the complexity and diversity of the appliance market may all be factors contributing to these difficulties. Simplifying energy labels and at the same time providing relevant information to consumers may involve some unavoidable tradeoffs. However, the label which is simple enough to meet the needs of the general consumer and is also supported by enough complementary information to satisfy individual consumers' different information needs may work the best. <return to top> The various results show that reasons for consumer preference in energy efficiency vary between economic benefits, environmental concerns, equipment performance and product quality. Consumer preferences appear to depend on each country's economic and social system as well as on individual experiences with earlier appliance purchases. In general, a high percentage of consumers consider energy efficiency a a priority in appliance purchasing. Despite claims by some appliance manufacturers that "efficiency won't sell", a significant percentage of respondents said they were willing to pay a higher price for highly energy efficient appliances. Governments, appliance manufacturers and markets should pay attention to this emerging trend in purchasing behaviour. Although initial cost is still the primary determinant in the purchase decision, monetary value is not the only attractive factor. When consumers feel it is worthwhile, they are willing to pay more. Though energy efficiency may not always be the sole contributor to a premium price, the results of this review suggest that energy efficiency and related environmental issues can act as a strong tie-breaker and provide a source of differentiation and added value in the purchasing decision. 5 Conclusions and recommendations concerning energy labelling programmes 5.1 User-friendly label: simple, easy, reliable information Energy labels should be designed for the convenience of consumers. Many energy labels convey too much technical information. In many cases, the information provided may not be used by consumers. Energy labels should be simple and easy to understand. Only then will they influence purchasing decisions. However, a simple label should be accompanied with supplementary in-depth information provided by brochures or user manuals. Another crucial concern of label information is its reliability no matter how simple it is. Labels should not mislead or misinform consumers. Label designs and the concepts of a labelling programme can be improved through the active involvement of consumer organizations or environmental groups. 5.2 Value add-on label Although energy efficiency may be the primary information on an appliance energy label, it could be related to other values such as monetary benefits, environmental impact, equipment quality and performance. If more criteria or values are added-on to the appliance label, consumers may be more attracted. With information on additional values, appliance labels would no longer be just about efficiency but would also convey social-symbolic meaning and "say something more". <return to top>

Some of the empirical studies have shown that many consumers still have not realized the connection between purchasing highly energy efficient appliances and the impact on the environment. And some do not understand the economic benefit of energy efficient appliances. While many environmentally concerned consumers are looking for simple and easy ways to practice environmentally responsible behaviour, they may not see how environmental problems are directly associated with energy production and use. Consumer education by means of publicity, media advertisements, and/or collaborative efforts among government, utilities, manufacturers and consumer organizations may therefore be very useful in developing and upgrading energy labels and labelling programmes. 5.3 Environmental consumerism Over the past two decades, environmental concerns worldwide increased dramatically. A Cable News Network (CNN)/Angus Reid Group world poll of 16 countries in 1992 found that more than four-fifths of respondents identified with the statement: "I am very worried about the state of the environment." In any one country there exists a certain group of consumers who actively seek out products perceived as having relatively minimal impact on the environment. These groups of consumers ("green" consumers) have developed a keen interest in product quality and are rejecting companies and products with insincere, inaccurate or incomplete environmental action programmes. A majority of consumers claim that environmental concern affects their choice of product, even if they must pay a higher price. The most significant implication for the market of this emerging "green consumerism" is that individuals are acting upon their values through the power of their purchasing decisions. Among "green consumers", products are evaluated not only on basis of performance or price, but also on the social responsibility of manufacturers. The emerging "environmental consumerism" may have profound implications both for the way products are developed and marketed in the future and the way energy efficiency and energy labelling programmes are promoted.