Journal of Cleaner Production 10 (2002) 103–107www.cleanerproduction.net

Introduction

Voluntary agreements, climate change and industrial energyefficiency

To meet the considerable challenges of industrial sus-tainable development, business and industry will need toachieve significant improvements in resource efficiencyand pollution reduction, while at the same time address-ing increasing social demands relating for example tojob creation and poverty alleviation. The long-termachievement of a sustainable economy requires a“rethinking” of the current industrial development path,not only in terms of conventional production processes,but also in terms of the existing policy structures andthe nature of the interaction between government, indus-try and the community.

Many countries have recognised the limits to com-mand-and-control regulation and market-based instru-ments as a meanson their own of achieving sustainabledevelopment, and thus are increasingly using “voluntaryenvironmental initiatives” tocomplement traditional pol-icy instruments. An important goal of these policyinstruments is promote a more co-operative approach toenvironmental governance that seeks to make appropri-ate use of the entrepreneurial dynamism and infor-mational advantages of the business sector, while at thesame time striving to minimise the potential for undue“regulatory capture” by business.

Recognising the growing importance of innovativepolicy solutions as a means of achieving industrial sus-tainable development, the Journal of Cleaner Productionhas decided to dedicate a second special edition to theissue of “voluntary agreements.” The focus of the firstspecial issue, (Journal of Cleaner Production 9 (2001)),included a series of papers emanating from the “Con-certed Action on Voluntary Approaches” (CAVA)initiative, a research network established in 1998 as athree-year programme funded by the European Com-mission. This second special issue examines the findingsof a similar research network—the “Voluntary Agree-ments Implementation and Efficiency” (VAIE) project—that investigated the impact of five different agreementschemes as a means of promoting industrial energyefficiency and reducing greenhouse gas emissions.

In light of the recent Bonn Agreement, which appearsto have resuscitated the policy commitments of theKyoto Protocol, policy-makers are faced with theincreasing need to identify effective policy instruments

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that balance implementation of the climate change com-mitments with the desire to protect national economicand competitiveness interests. The papers in this editionprovide a useful insight into the potential role of volun-tary environmental agreements as a means of achievingthis important balance.

1. An overview of the special issue

The first paper, by Krarup and Ramesohl, summarisesthe main findings of the VAIE project, and brieflydescribes the overall structure and nature of the researchinitiative. The research project focussed on five agree-ment schemes in the field of industrial energy efficiency:the French Voluntary Agreements on CO2 Reductions;the Danish Agreements on Industrial Energy Efficiency;the Declaration of German Industry on Global WarmingPrevention; the Swedish ECO-Energy Programme; andthe Dutch Long-Term Agreements on Energy Efficiency.

The paper provides a brief characterisation of the dif-ferent approaches, and discusses the related implemen-tation effort and transaction costs. Using the widelyrecognised distinctions between negotiated agreements,public voluntary programmes and unilateral initiatives,the paper classifies each of the agreements accordingly.The Dutch, French and Danish schemes are consideredas “negotiated agreements”, the Swedish scheme as a“public voluntary programme,” and the German schemeas a “unilateral industrial initiative.” Reviewing theimplementation costs of the agreements, Krarup andRamesohl highlight the close relationship between thecosts and the particular design of the agreement scheme.The Dutch and Danish schemes, which are structuredand explicitly integrated into the policy mix, have themost significant administrative and monitoring costs,relating in particular to the implementation and verifi-cation of energy audits, and to the monitoring of theassociated energy management plans. The French andGerman schemes, which can be described as non-bindingagreements without legally defined tasks, rules and sanc-tion mechanisms, have comparatively low costs for thepreparation and negotiation phases, with more significantcosts incurred in the implementation and monitoring

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phases. By contrast the Swedish scheme, which is muchless structured than the others, has very low coststhroughout.

In their assessment of the effectiveness of the differentschemes, the authors ask whether the agreements achievetheir own targets, and question how this compares withwhat would have happened without the agreements inplace. They note that all five schemes are “more or lesssuccessful in achieving their own targets” and observethat progress has been made with regard to quantitativeimprovements in specific energy consumption and emis-sions. They suggest, however, that the agreements havegenerally had a limited impact on investment criteria(relating to the investments in energy efficiency techno-logies and to changing material flows, the energy supplystructure and process technologies), and that they rarelyrepresented the decisive initial impulse to introduceenergy efficient management practice. The most signifi-cant impact is seen to be with regard to raising generalawareness and increasing management motivation.

Krarup and Ramesohl conclude by arguing that agree-ments can have an impact on industrial energy efficiencyand CO2 emissions if they are embedded within abroader policy mix. They highlight the importance ofsetting guidelines and ambitious targets at the firm level,and of providing support and incentives to implementenergy conservation measures. They caution that effec-tive agreement schemes impose significant institutionaldemands and that the process of developing thoroughagreements can be very time-consuming. In general, theyargue that their empirical findings “give no hint that vol-untary agreements are a cheap solution, nor that therewould be anything approaching a golden key to indus-trial energy efficiency.”

The first specific case study, by Chidiak, evaluates theFrench experience with using negotiated agreements asa means of achieving a reduction in industrial green-house-gas emissions, and focuses on the experience ofusing agreements in the aluminium and packaging glassindustry sectors. These are both energy-intensive sectors,and include agreements at the sectoral and individualfirm level. Chidiak’s analysis suggests that the consider-able reductions in specific GHG emissions that havebeen achieved in these sectors cannot necessarily be seenas a direct consequence of the commitments within theagreements. She argues that these improvements havebeen triggered largely as a result of other environmentalregulations, as well as by industry’s heavy investmentsin technology modernisation and cost reduction efforts.The fact that the reduction in specific emissions corre-sponds with industry’s business-as-usual behaviour sug-gests that the stated objectives in the agreements werenot sufficiently ambitious. Interestingly, Chidiak alsofinds that the agreements did not foster any intra-industrynetworking and information exchange on energy man-agement.

Chidiak suggests that the principal weakness with theagreements—namely their failure to achieve moreambitious goals—is a result of the lack of a well-articu-lated policy-mix that effectively integrates energyefficiency agreements with the goal of reducing green-house gas emissions, as well as of insufficient “carrot”or “stick” incentives. She also highlights the role of theinternal conflicts within the Ministry for the Environ-ment (where only top officials favoured agreements overother approaches), as well as the impact of policymak-ers’ concerns over the potential competitive implicationsof climate policy. She suggests that providing incentivesfor more ambitious GHG reductions without impactingon firms’ competitiveness remains a significant chal-lenge for future policy.

In her paper, Katja Sander Johannsen describes andevaluates the impact of the Danish Energy EfficiencyAgreements concluded between the Danish EnergyAgency and various energy-intensive firms. She evalu-ates the agreements in terms of the following five sets ofcriteria: static concerns, dynamic concerns, institutionaldemands, political dimensions and risk. She outlines thehistory of the Danish scheme, noting that it came aboutas a result of a government initiative that sought toextend the use of revenue-neutral environmental taxeson trade and industry without losing environmental com-petitiveness. Following strong resistance by industry andothers to the introduction of new taxes, and as a formof political compromise, it was agreed to introduce “vol-untary agreements” that are closely connected to a CO2

tax. This connection is important for the understandingand the functioning of the scheme.

In terms of the scheme, firms with energy-intensiveprocesses may enter into a three-year agreement with theDanish Energy Agency in order to qualify for a lowerCO2 tax rate. These may be in the form of either individ-ual or collective agreements. The agreements typicallyspecify an action programme that comprises investmentprojects, energy management and special investigations.The basis for the action programme is an energy auditcarried out by external consultants and verified by anindependent verification agency. In theory, all of theprofitable energy savings are required to be included inthe action programme. The process of concluding theagreement and identifying the required actions is fairlydetailed and incurs significant administrative costs.Environmental organisations and the general public arenot involved in negotiating agreements, nor are theyinformed of the content of the final agreement.

In her analysis, Johannsen identifies a number ofadvantages arising from the close relationship betweenthe agreement scheme and the tax regime. These include,for example, the effective prevention of free riding, theflexibility of the scheme, and the fact that agreementshave actually resulted in an impact on the behaviour offirms. However she also identifies certain drawbacks: the

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administrative and search costs are high, and the impactin terms of innovation and the diffusion of knowledgebetween firms is seen to be low. She concludes that,“ from a socio-economic point of view, it is evident thatthe Danish agreement scheme on energy efficiency is nofirst-best solution.”

Peter Helby’s paper focuses on the Swedish EKO-Energi programme, a public voluntary programme thatfocuses on promoting the activities of the environmen-tally more active companies. By focussing on the leadingcompanies, the programmes sought to highlight a newlevel of best practice and thus pose a challenge to otherfirms. Each of the 47 firms that participated in the pro-gramme signed a standard contract, in terms of whichthey received free energy audits, assistance in achievingISO 14001/EMAS certification, and the use of a label,in return for developing and implementing energyefficiency practices. These energy audits covered somefive per cent of industrial energy consumption.

The most clearly observed results of the programmeinclude: the provision for energy efficiency in theenvironmental policy of participating firms; theimproved diffusion of pre-existing knowledge withinfirms; and evidence of the added impact of such valuesand knowledge on decision-making. An important con-cern with the programme was the low level of partici-pation of Swedish firms. In evaluating the impact of theprogramme it has been difficult to disentangle the effectsof the EKO-Energi contracts from the effects of achiev-ing ISO 14001 or EMAS certification; the EMS certifi-cation programmes have proved to be of a significantlyhigher marketing value than EKO-Energi label. Helbyconcludes that “as a label, EKO-Energi was at best avery modest success” with the overall direct effect ontotal industrial energy consumption being very small.

The next two papers focus on the Dutch experiencewith implementing the Long Term Agreements onIndustrial Energy Efficiency (LTAs). These agreementswere added to the energy policy instruments mix in theNetherlands at the beginning of the 1990s, and havebecome a significant component of the industrial energyconservation policy. The first paper examines the extentto which LTAs have actually enhanced energyefficiency, while the second paper focuses specifically onassessing the monitoring methodologies and quantitativeresults of the LTAs.

In the first of these reviews, Rietbergen, Farla andBlok investigate whether the LTAs have resulted inimprovements in energy efficiency additional to thosethat would have occurred in the absence of such agree-ments. Noting that few attempts have been made in thepast to assess in quantitative terms whether agreementshave in fact resulted in improvements beyond businessas usual, the authors undertake to do this by exploringtwo possible methods for isolating the impact of agree-ments on energy conservation. The first method, which

is based on a bottom-up approach, assesses the actualoutcome by analysing whether firms’ investments inenergy efficiency are encouraged by agreements, andassessing the effects that changes in the firms’ invest-ment behaviour have had on industrial energy conser-vation. The study assesses the impact of agreements onthe following investment categories: good housekeeping,replacement investments, retrofit energy savings invest-ments, combined heat and power generation, and othermeasures. The second assessment method, which isbased on a top-down approach, assesses the actual out-come by comparing the monitored energy efficiencyimprovements with modelled, estimated efficiencyimprovements in the “business-as-usual case” .

The main conclusion of their study is that althoughthe actual outcome has still not been estimated accu-rately, “ the agreements on energy efficiency in theNetherlands certainly have had a stimulating effect.”They estimate that, on average, between a quarter and ahalf of the energy savings in the Dutch manufacturingindustry can be attributed to the policy mix of the LTAsand supporting measures. They conclude that agreementsare valuable policy instruments for energy efficiencyimprovements “ if accompanied by ambitious target set-ting, effective supporting measures and reliable monitor-ing procedures.”

The second paper on LTA, by Farla and Blok,assesses the extent to which the energy efficiency targetsset by the government were actually achieved. The paperinvestigates the following three issues: whether the orig-inal policy targets for industry were adequately trans-lated to the contracted LTAs; whether the LTAs achi-eved the contracted goals; and whether the monitoringmethodologies ensure a complete, comparable andobjective monitoring of the energy-intensity develop-ments in manufacturing industry.

The original policy target for the manufacturing indus-try was to decrease the energy intensity by 19% in theperiod 1989–2000. The authors note that although morethat half of the LTAs are lagging behind the agreedannual rate of energy intensity decrease, the energy con-sumption covered by these lagging LTAs is a relativelysmall fraction of the total energy consumption coveredby the industrial LTAs. Following their study, they findthat the average goal achievement of the LTAs in theperiod 1989–1997 turned out to be in accordance withthe contracted targets. On the monitoring methodologiesthat were developed for each of the LTAs, they find thatsome aspects of these methodologies do not ensure acomparable and objective monitoring of the energy-intensity results in the LTAs. They conclude overall thatthe monitoring of the energy-intensity developments inthe long-term agreements’ sectors is insufficiently trans-parent. They thus recommend a stricter enforcement ofuniform monitoring requirements as part of a new gener-

106 Introduction / Journal of Cleaner Production 10 (2002) 103–107

ation of LTAs, and they advocate independent super-vision and verification of the monitoring results.

The final paper, by Peter Helby, examines the poten-tial for introducing energy efficiency in the manufactur-ing industries at the level of the European Community,based on the national experiences reviewed in the VAIAstudy. While he suggests that agreements at the Com-munity level could have significant advantages, heargues that the success of agreements at the nationallevel in promoting activity beyond business-as-usualdepends on parameters that would be difficult to repro-duce or substitute at the Community level. These para-meters include for example extensive administrativecapacity, substantial political threats, large economicbenefits, and/or the capacity to grant tax relief. To over-come such problems, and to achieve some of the advan-tages of Community level action, Helby suggests thatone option would be to use Community agreements incombination with national action. Helby cautions thatany agreements that are developed exclusively at a Com-munity level should be confined to a few energy inten-sive industries with good capacity for collective action,and in the context of a credible system for monitoringand implementing sanctions.

2. Key conclusions—the road ahead

The findings of the VAIE research programme serveas a sobering reminder that there is no “quick fix” policysolution to achieving significant reductions in green-house gas emissions. It is clear from this research thatif agreements are to be effective, then they do not comecheap. All of the above papers have underlined theimportance of ensuring that agreements are effectivelyintegrated within a structured climate policy mix. Thistypically requires lengthy preparation, the negotiation ofsufficiently demanding targets, and the availability ofstrong incentives for compliance, backed up by a processof monitoring and evaluation.

The conclusions of the VAIE programme support thefindings of a number of similar investigations into theexperience of using agreements in different developedand developing countries. On the basis of these studies,it is possible to identify a set of key parameters—relatingto various institutional (“context” ) and procedural(“content” ) conditions—that correlate positively with theoverall effectiveness of agreements.

In terms of ensuring an appropriate “context” forintroducing agreements, following are some importantconsiderations:

� There needs to be a sufficient level of business andgovernment motivation to enter into an environmentalagreement; this in turn requires clear communicationon the ambitions and implications of the agreement,

a suitable level of environmental awareness, as wellas the existence of a credible sanction or incentive toenter into the agreement.

� A key requirement for an effective agreement is theexistence of a supportive legal and policy frameworkthat recognises the potential benefits of agreementsand that allows for the targets of the agreement to beeffectively integrated as part of an overall nationalstrategy for climate change and sustainable develop-ment.

� Experience with existing agreements emphasises theimportance of the nature of negotiation between thevarious parties: the overall success of agreementstends to be enhanced when there is greater level ofnegotiation involving credible and respected partiesfrom both sides; furthermore it is important that thereis a sufficiently high level of governmental represen-tation and that there is effective co-ordinationbetween the relevant governmental departments.

� The effective implementation of agreements is facili-tated by the presence of proactive sectoral organis-ations that are able to credibly represent their mem-bers and that have greater ability to minimise thepotential for individual free-riders; the larger numberof firms, the higher the level of competition betweenfirms and the less the concentration within particularsector, the more difficult it is to reach consensus andto control the potential for free-riding.

In addition to these general institutional requirements,there are a number of elements regarding the content ofagreements that contribute to their overall effectiveness.Certain issues are found to be common within mostagreements relating to energy efficiency. These issues,which may be seen to constitute the operational basicsof any agreements, include:

� A clear definition of the subject and target.� An unambiguous description of the parties and their

obligations.� A defined relationship with the legal and regulatory

framework.� Formal provision for monitoring, preferably with

details as to how this is to be undertaken, by whom,and with what frequency.

� A clear statement of the responsibilities expected tobe self-financed by industry.

� General provisions for amending the agreement andfor dispute resolution.

In addition to the above common basic features, thefollowing aspects are also seen to have a positive impacton the final overall effectiveness of agreements:

� The use of quantified targets that are ambitious yetattainable; ideally these targets should be derived

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from a formal assessment of the technically and econ-omically feasible options for energy efficiency, andshould include interim milestone targets and dead-line dates.

� Commitments that are defined expressly in terms ofindividual companies, rather than as sectoral commit-ments; these commitments should be clearly allocatedamongst the responsible parties.

� Explicit reference should be made within the agree-ment to the enforcing sanction, as well as to the agree-ment’s relationship with other policy instruments.

� The inclusion of specific requirements for monitoring,reporting and verification of results; this is parti-cularly valuable at the level of the individual plantrather than aggregated across the sector

� To enhance the credibility and effectiveness of theEA, provision should be made for some degree ofexternal participation in the implementation andmonitoring of the agreement; the nature of externalshould be clarified and the rights of third partiesclearly provided for.

Despite the important caveats regarding the use ofagreements, it is nevertheless suggested that agreementsare an important complementary policy tool for achiev-ing targets for sustainable development and climate

change. Arguably, the issue of climate change is parti-cularly conducive to the use of alternative policy instru-ments such as agreements. The costs of implementingmore traditional policy measures (such as carbon taxes)at a unilateral national level are significant, and thus faceimportant political constraints. Furthermore, it is sug-gested that in many instances there remain substantial“win-win” opportunities associated with improvedenergy efficiency practices, and that the identification ofthese opportunities is facilitated through the structuredprocess of information exchange, and flexibility that istypically associated with agreements.

A crucial feature of voluntary environmental agree-ments is that the process of concluding agreementsalmost inevitably results in improved communicationand enhanced co-operation between and amongst thepublic and private sector parties. This improved com-munication and co-operation is a fundamental elementof sharing responsibility for environmental management,and is an essential first step in the process of “ rethink-ing” that is required if we are to achieve industrial sus-tainable development.

Jonathon HanksCommon Ground Consulting, PO Box 1828,

Cape Town 8000, South AfricaE-mail address: jhanks@commonground.co.za