Energy efficiency standards will give Central American companies a more productive and competitive edge.
BY MARIANNE OSTERKORN
Earlier this year, Mexican finance minister Agustín Carstens made a surprise announcement that his country could become a fully developed nation within 20 years. He compared the nation’s position with that of Spain and Ireland in the 1980s: “there are countries that in 20 years have carried out significant changes in their productive structure, per-capita income, in the well-being of the population and I believe that Mexico is in a position to do something similar,” he predicted.
Improved competitiveness, a stronger inflation and growth record and a rush of investor optimism all confirm that the nation is resting on a much firmer economic platform than it was during the 1990s, so there is some justification for this statement. Experts have noted that much of this economic recovery can be traced to successive governments’ patient construction of strong regulatory and technical foundations. Close attention to production and energy inefficiencies acted as one of the many key building blocks.
Through increasingly stringent product standards, energy consumption was slashed, leaving more funds in the nation’s coffers for other uses. FIDE, the national electricity power saving fund formed in the 1990s, reports that it had saved 4046 GWh by December 2005 – the equivalent of power consumed by three Mexican states.
The government managed this through simple efficiency actions backed up by rigorous rules that, for instance, led to the substitution of millions of conventional lamps with more efficient ones. Manufacturers have become more competitive due to disciplines such as these. For instance, the energy consumed in Mexico by washing machines and refrigerators fell by 30% and 52.7% respectively between 1992 and 2002 due to a series of new standards. That meant those products could compete more successfully, and in addition helped to lower users’ energy bills.
Central American countries are starting with a blank slate. For one thing, most organisations and households have never considered saving energy: “the issue of how to become more competitive by using more efficient energy is not part of our culture – this is a common barrier we are up against”, explains José Ma. Blanco, the Regional Director of BUN-CA.
BUN-CA and the Renewable Energy and Energy-Efficiency Partnership (REEEP) are working together to stamp the first characters of an energy efficiency motif into the heart of the nation’s political and commercial establishment. All parties involved in the regional strategy have benefited from the expertise of the Collaborative Labelling and Appliance Program (CLASP), an international body advising governments and industry all over the world on standards and labelling.
Central America stakeholders have now been briefed. They have been introduced to the necessary knowledge through REEEP seminars and training courses in close cooperation with Mexican energy authorities. Policy makers have been taken out into the field to consider the problems at a grass roots level. Now, the task is to convince national governments and overcome the practical barriers.
But Blanco says that public agencies “lack experience” and that there is not enough of a standards culture in the first place, for any industry. “There are standards agencies, but they have focused their actions mainly connected to safety and food issues”, says Michael McNeil, a researcher from California’s Lawrence Berkeley National Laboratory collaborating with CLASP. Intricate market barriers need to be removed.
For instance, products with higher energy performance will often incur higher import duties. Small and medium-sized companies need to be persuaded and helped, while there is also a lack of baseline energy data. Governments may be concerned by issues they consider to be more pressing.
On the positive side, there is no backlog of inefficient products, and an opportunity exists to take advantage of lessons already learned by their Central America’s partners. “Most Central American countries are importing nearly everything, so they are getting quite a few efficient products already. Like a lot of rapidly developing economies, the vast majority of products are not installed yet. They may end up going straight to the higher standards,” suggests McNeil.
Using the approach of a Minimum Efficiency Performance Standard (MEPS) combined with an Endorsement Label indicating the very highest efficiency models, minimum efficiency thresholds are set and updated regularly. A Comparative Labelling program could also be put in place, which rates the relative efficiency of all products in a way that’s clear to consumers.
The role of the appliance producers and major importers could be critical to the success of the region’s initiative which is only at the seed-planting stage. To a certain extent, the deployment of standards can help resolve some of the thorniest contradictions faced by developing countries and aid agencies. Developing countries want their economies to grow further, yet they are faced with international constraints on high energy demand. Forcing product standardisation in the earlier stages could help companies become more productive and more competitive more quickly.
Executives from white goods producers in Mexico showed a great deal of enthusiasm at seminars supported by REEEP to discuss relevant issues with stakeholders. Many companies manufacturing products based in Mexico and exporting to North America, also distribute well known global brands across Central American countries.
Project managers at REEEP and BUN-CA note that, due to the commercial advantages of the new standards, air conditioning and industrial motor producers could be key energy champions in the seven countries targeted by the initiative: Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. The initiative is part of a large energy efficiency strategy that, in 2005, was approved by the Global Environmental Facility (GEF) as a full-sized project (FSP) to trigger the development of markets for energy efficiency in the industrial and commercial sectors throughout Central America. This project, called PEER (Programa en Eficiencia Energética para Centroamérica) is now being implemented by the United Nations Development Program (UNDP) and executed by BUN-CA .
Fifty six per cent of electricity consumption in Central America originates from the industrial and commercial sectors, and 44 percent of that is accounted for by industrial motors alone. Industrial motors are a major component of most factory machinery. Air conditioners make up the rest of this large portion of energy consumption.
“Producers are actually helping to drive standards in Mexico and are starting to push the government to update them – it’s really encouraging,” remarks McNeil. He believes that electric equipment producers see the use of standards and labels as a route towards high quality products. “If regulations are consistent, you see a level playing field in the market, and that permits further development and investment”, he says.
Standards have benefits to consumers, too. End users save money by using efficient appliances, and they will be keen to cut their bills because thermal power prices have been rising. “By reducing consumption at the end of the chain, Central American countries can displace investment, especially during peak hours,” remarks José Ma. Blanco.
On a macro level, there are yet more good reasons for cutting back on energy use. In his statement last February, Carstens pointed out that he believed Mexico could no longer rely on its oil income, because it was not certain of its production and exportation platform. Developing more clean energy and cutting back on consumption are other options open to him and to the customers who buy the oil.
Reducing oil consumption leaves oil in reserve for future years, thus allowing more time for alternative technologies to develop. It is also a cheaper option than new technology for combating climate change and energy security problems.
According to The Rocky Mountain Institute calculations, a 2.5 decrease in US energy intensity between 1975-2005, constituted by 2005 an effective energy source that was 2.1 times as big as US oil consumption in 2005. The use of standards is one of the most powerful tools for driving continued productivity levels at these or higher rates. “Research shows that standards and labels are the most cost-effective way to promote energy efficiency,” comments Christine Egan, director of CLASP.
Dr. Marianne Osterkorn is the international director of the Renewable Energy and Energy Efficiency Partnership (REEEP), a global public-private partnership that structures policy and regulatory initiatives for clean energy, and facilitates financing for energy projects.