Quantitative Policy Evaluation of the Top Runner Method Household Appliance Efficiency Standards Regulations in Japan by Cost-benefit Analysis

Author Name KAINOU Kazunari  (Fellow, RIETI)
Creation Date/NO. April 2006 06-J-025
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As one policy responding to energy and environmental problems, the Ministry of Economy, Trade and Industry (METI) implements regulations which oblige manufacturers and importers to achieve specified energy consumption efficiency levels in household appliances and other items sold on the domestic market by given target years based on the Energy Conservation Law (the Law Concerning the Rational Use of Energy).

These efficiency standards regulations which have been implemented since 1979 are recognized for their major impact in supporting Japan's energy conservation policy. The standards have been revised and additional appliances designated under numerous policy reviews. Nevertheless, the present approach has various problems including neglect of the influence from aging population, and evaluation based solely on the volume of energy conserved without any quantitative measurement of the costs and benefits.

As one means of overcoming these problems, the paper adopts household appliances as a case; constructs a model analyzing the purchasing and disposal choices and usage patterns of household appliances by generation based on the Family Income and Expenditure Survey by Ministry of Internal Affairs and Communications and other statistics; calculates the changes in the sales price, volume and electricity consumption by model from the household ownership and use of household appliances by generation; constructs a model for the changes in the production costs of household appliances under mass production; and estimates the regulations compliance costs of each model to attempt a quantitative policy evaluation based on cost-benefit analysis of the top runner method household appliance efficiency standards regulations.

The findings indicate that the benefits derived exceed the costs when the cost-benefit differential for all the appliances subject to the regulations is converted to present value using a discount rate of 3%, and that these regulations are superb policy measures which generate benefits of approximately \180 billion and reductions in CO2 emissions on the order of 25Mt per year on average.

The analyses show, however, that while the benefits exceed the costs for electric refrigerators and various other appliances, the costs exceed the benefits for microwave ovens and other appliances used for relatively brief periods of time and with little leeway for technological efficiency improvements, resulting in a conspicuously poor cost-benefit effect. These findings suggest that prudent cost-benefit analyses should be conducted, in advance, in selecting the appliances which should be subject to the regulations.

To verify the accuracy and stability of the estimation results, the paper also conducts sensitivity analyses on the influence from aging population, the real economic growth rate and real electricity charges. These analyses indicate that the future outlook for real electricity charges has a major impact on the cost-benefit estimation results, and identifies that as a future issue for the application of this method.