Case Study 2
Public Promotion of Private Investment in Efficient Lighting
Richard Duke and Steve Ryder
Woodrow Wilson School
Princeton University, NJ
Keywords: CFLs; Green Lights; PELP
Governments and multilateral agencies have promoted efficient lighting markets
as a means to reduce greenhouse gases (GHGs). Lessons learned from the Poland
Efficient Lighting Project (PELP) and Green Lights (GL) have inspired similar
efforts in developing countries.
In 1991, the U.S. Environmental Protection Agency (U.S. EPA), established Green
Lights (GL) to encourage Partners to systematically consider efficient lighting
investments. Furthermore, it empowers facilities managers to internally advocate
for lighting efficiency upgrades.
PELP is a US$5 million initiative (1995 to 1998) funded by the Global Environment
Facility (GEF) and executed by the IFC to reduce GHGs by increasing sales of
compact fluorescent lamps (CFLs). PELP reduces price and consumer awareness
barriers through financial incentives and public education.
GL is a voluntary programme that encourages public and private institutions
to enter into Memoranda of Understanding with U.S. EPA. Partners agree to invest
in 90% of profitable lighting efficiency upgrades within five years. Partners
appoint implementation managers and submit annual progress reports. GL also
recruits utilities and lighting companies to become certified Allies.
U.S. EPA agrees to provide both Partners and Allies with efficient lighting
technology workshops, objective information about efficient lighting technology
and financing, and assistance publicising Partners' successes.
PELP selected a manufacturer wholesale price reduction approach because it
promised the largest increase in CFL sales at the lowest cost. When the subsidy
is given to the manufacturer, the sales tax and distribution chain markups are
also proportionately reduced. Careful monitoring ensured that subsidies passed
down the distribution chain to the retail level. Five Poland-based manufacturers
competed to deliver the largest reduction in electricity use for the smallest
subsidy (World Bank, 1996).
The subsidy programme was accompanied by an extensive public education component
using media, school programmes, environmental fairs and energy efficiency competitions.
A PELP logo, along with the allowable retail price, was placed on subsidised
Through a competitive process, IFC selected the Netherlands Energy Company
(NECO), a Dutch utility entity, to administer PELP. Among others, NECO drew
upon services from the Polish Foundation for Energy Efficiency and the International
Institute for Energy Conservation. The project also included a pilot CFL-based
demand-side management (DSM) programme.
GL has over 1,600 Partners (85% corporate, 15% government) and 594 Allies (41%
manufacturers, 25% distributors, 21% lighting management companies, and 14%
utilities). GL upgrades completed by 1997 reduced U.S. GHG emissions by 0.1%
and U.S. EPA projects that this will rise to 0.4% by 2000.
GL does not provide direct subsidies to Partners; however, through 1997, the
total administrative budget has been US$90 million and Partners received US$184
million in utility DSM rebates. Through 1997, the private internal rate of return
(IRR) for Partners averaged 50%. The social IRR (counting GL programme costs
as expenses and excluding DSM transfers from benefits) is still robust at approximately
In 1995, U.S. EPA launched the Energy Star Buildings programme that employs
a similar voluntary approach to encourage efficiency in all aspects of building
energy use. GL also inspired a related China Green Lights programme. While U.S.
EPA supports international replication of the GL model, programmes must be carefully
tailored to country-specific barriers. Moreover, multilaterals and NGOs may
prove better positioned to propagate the lessons from this programme given political
constraints on U.S. EPA investment in international programmes.
With PELP, US$2.6 million in GEF-funded direct subsidies leveraged US$7.5 million
to reduce the cost of 1.2 million CFLs. Thus, US$2.10 of GEF wholesale subsidy
per CFL yielded a US$5.90 retail price decrease, a 20% discount. These CFLs
will save approximately 725 GWh of electricity and eliminate 206,000 tons of
carbon. Public education activities raised consumer awareness of CFLs. Roughly
50% of first-time CFL purchasers learned about CFLs through PELP and 80% said
they intend to buy more CFLs.
PELP appears to have achieved the desired market transformation. Polish CFL
prices have stabilised and even dropped after the programme ended. This can
be attributed to the economies of scale possible in the now-expanded Polish
CFL market. GEF recently approved a US$15 million Efficient Lighting Initiative
to promote similar programmes in other transitional and developing countries.
Principle lessons include: engaging the private sector through manufacturer
subsidies or voluntary agreements can reduce barriers to efficient lighting
markets; governments can also help transform energy efficient lighting markets
by providing credible public information; evaluating programmes like PELP and
GL poses analytic challenges; for PELP, the use of respected local companies
and NGOs was key to navigating legal and economic obstacles, lowering project
costs and promoting capacity for implementing similar projects in the future.
The fundamental programme evaluation obstacle is determining what would have
happened had the programme never existed. Free riders and drivers underlie this
baseline problem. The free rider effect is the percentage of participants who
would have purchased efficient lighting had GL or PELP never existed. The free
driver effect refers to non-participants that invest in upgrades due to indirect
effects such as spillover of information and price reductions. Duke and Kammen
(1999) show that GL has decreased the price of electronic ballasts by approximately
1-2%. This induces additional demand for efficient lighting products.
Duke, R., and D.M. Kammen, 1999: The economics of energy market transformation
programs. The Energy Journal, 20 (4), 1 - 50.
World Bank, 1996: Poland Efficient Lighting Project. GEF Project Document,
Science, Technology and Environmental Policy (STEP) Program
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