New Power Efficiency Label Released by the EU Is Little Informative for Consumers

By introducing a new power efficiency label, the European Commission wants to boost European consumers’ motivation to buy energy-saving electronic equipment. However, this plan might fail.As a recently presented study shows, the economic power consumption plays for the consumers a less important role as a buying criterion when electric devices are labelled with the new power efficiency tag than with the traditional ones. The customers’ willingness to pay for an especially power-saving device is also reduced if it carries the new tag. The study has been conducted by Stefanie Heinzle and Rolf Wüstenhagen (both: University of St. Gallen) in the context of a research project coordinated by the Centre for European Economic Research (ZEW) in Mannheim. Observing consumers’ buying behaviour of accordingly labelled TV sets the study compares the effects the traditional label has on consumers to those caused by the new label.

At the beginning of this year the European Commission decided that high quality electronic equipment such as refrigerators and freezers have to be labelled with the new energy efficiency tag. The new tag is based on the previous label. The seven-stage scale marking up to now a low power consumption by a green A and a high energy demand by a red G is extended by the new categories A-20%, A-40% and A-60% (see illustrations below). A product rated A-60% has reached the highest level of power efficiency. For example a refrigerator marked with A-60% needs 60 percent less energy as one labelled with A. This enlargement is carried out by the European Commission to enable a clearer differentiation, as in the course of time many devices have been categorised as A although their power consumption differs a lot. An alternative would be to adapt the old energy efficiency label to the technical progress by only giving the A-label to the best pieces of equipment.

On the European scale, it is currently discussed whether this modified energy efficiency label should also document the energy consumption of TV sets in the future. This was the inducement for the University of St. Gallen and the ZEW to examine the buying behaviour of customers in Germany. The results are based upon the analysis of 2,148 buying decisions collected by the German GfK (Society for Consumer Research). The surveyed customers were divided into two equipollent groups with similar socio-economic attributes such as income, age and gender. In a computer-aided simulation the participants could choose between different TV sets which differed concerning their technical setting, brand, price, and energy consumption. In the first group this was marked by the traditional energy efficiency label, ranging from the efficiency levels A to D. In the second group the consumption was shown by the new label with a differentiation from A to A-60%.

The results show that for the consumers who had to choose between the electric devices with the new label, the power consumption played a significantly less important role than for the ones in the first group. Though in both groups the price was the most important buying criterion, followed by the power efficiency, then by the technical equipment and finally by the brand. Nevertheless, the researchers’ calculations revealed that in the group with the old label the influence of the energy efficiency mark was ten percent higher compared to the group with the new label.

The willingness to spend more for an energy-saving TV was four times as high in the first group than in the one with the new label. In the first group the customers were ready to pay an average mark-up of 132 euro to get a TV set labelled with A instead of B. On the contrary, the participants of the second group only accepted a surcharge of 28 euro to get a TV marked with A-20% instead of A. According to that, the willingness of the customers to pay for energy-saving equipment diminishes, whereas the general preference shifts to preferably cheap devices.

"The new energy efficiency label rather seems to irritate the customers than to be a guideline for choosing technical equipment", says Dr. Klaus Rennings, researcher at the ZEW and coordinator of the project SECO@home in which the study is embedded. "Thus, the new label seems to be counterproductive, because the aim of the label to encourage the selling of power-saving and climate friendly equipment is not only failed but even reversed. However, a dynamic adaption to the technical progress is crucial for the effect of the old energy label so that there are not 90 percent of the electric devices marked with A any more."

"The slight distinctions of the new label seem to suggest to the customer that concerning the energy consumption everything’s alright. That is why other attributes – such as a low price – influence the buying decision. Thus, to the manufacturers, the new label becomes a boomerang", adds Prof. Dr. Rolf Wüstenhagen who was in charge of the survey at the University of St. Gallen.

For further information please contact

Dr. Klaus Rennings, Phone: +49/621/1235-207, E-Mail: renning@zew.de