Japan’s Top Runner Programme

Japan’s Top Runner Programme Incentivise Eco-Intelligent Design and Manufacturing

Japan’s Top Runner Programme, introduced in 1999, is a set of energy efficiency standards for energy intensive products, such as home appliances and motor vehicles. As of 2014, the programme involved 23 product categories. Products are included due to either their high energy or widespread use or their substantial scope for improving energy efficiency. Energy efficiency targets are set to be achieved within a given number of years on the basis of the most efficient model on the market (the ‘Top Runner’).

Products which do meet the energy efficiency standard receive a Top Runner label at the point of sale; those which do not are labelled differently. This drives companies to try to make ever more efficient models to compete for the award of Japan’s ‘Top Runner’.

The Minister of the Environment (METI) can disclose the names of companies that fail to meet the targets, as well as issue recommendations, orders and fines. This also drives companies to avoid negative publicity. To date, no enforcement actions have been taken, as targets have been systematically met or exceeded. Manufacturers highly support the programme, since they are directly involved in setting the targets and energy efficiency is considered to be a competitive advantage.

At a Glance
  • The Top Runner sets the standard but takes into account the limits of future potential improvements: standard setting takes into account the potential for technological innovation and diffusion.
  • Differentiated standards are set based on a range of parameters that affect energy efficiency within product groups. These parameters include function (e.g. copying machines—number of copies made per minute; TV sets—whether a recorder is included or not etc.), size (e.g. refrigerators—internal volume; TV sets—size of screen), weight (e.g. passenger vehicles), types of technologies used (e.g. refrigerators—refrigeration method), fuel used (e.g. passenger vehicles) and other practicable differentiations.
  • Compliance with the standard is evaluated by corporate average product sales. In order to comply with the standards, producers must make sure that the weighted average efficiency of the products they sell in a target year achieves the standards. Therefore not all of a manufacturer’s products have to meet the target, but the average of all products has to. This flexibility enables producers to provide a wide range of models to meet the market demand while guiding the overall market to higher energy efficiency.
  • Compliance with the standard is rewarded: efficient machinery and equipment has so far been promoted with a labelling programme. The label includes an expected electricity bill and a 5-star rating to represent the relative position of a product in the market with respect to energy-saving performance.
  • Non-compliance with the standard is penalised: in case of non‐compliance the Top Runner Programme uses a ‘name and shame’ approach, putting the brand image of companies at risk as opposed to their profit.


Policy Reference

Act Concerning the Rational Use of Energy (Act No. 49 of 1979), Ch. 6 (as amended). [English]


Connected Policies

  • Act on the Promotion of Effective Utilization of Resources, which enforces reduction in generation of used products and by-products by promoting recyclable and reusable parts in products. [English]
  • Keidanren Voluntary Action Plan on the Environment for the control of GHG emissions. [English]
  • The standards set in the Top Runner Programme have also been utilised in the Law concerning the Promotion of Public Green Procurement [English] which came into force in 2001, and the green automobile tax scheme [English] which incorporates the Top Runner standards as a criterion for tax reductions for environmentally-friendly cars. In combination with the level of achievement regarding exhaust gas emissions, two levels of reduction are indicated, depending on whether the cars sold achieve the Top Runner standards, or are 5% or more efficient than those standards.


Selection as a Future-Just Policy

The Top-Runner Approach is “widely recognized as an epoch-making method” to establish efficiency standards (see Central Research Institute of Electric Power Industry). Rates of energy efficiency required for 23 products have all been met or exceeded, and there have been reduced greenhouse gas emissions due to decreased energy use.

The policy has also been shown to boost responsible purchasing (see here) and has raised consumer awareness. Cost savings are delivered to consumers from reduced energy consumption and there are increased market opportunities for energy-efficient products. A culture of R&D and rapid market deployment has been developed, incentivising continued improvement beyond agreed targets, and encouraging competition. The regulatory burden is shared with industry which is part of the policy-making process, which is flexible, adaptable and responsive to technology or market changes. Ambitious standards force manufacturers to invest in innovation and a long-term planning horizon enables them to do so.


Future-Just Policy Scorecard

Our “Best Policies” are those that meet the Future Just Lawmaking Principles and recognise the interconnected challenges we face today. The goal of principled policy work is to ensure that important universal standards of sustainability and equity, human rights and freedoms, and respect for the environment are taken into account. It also helps to increase policy coherence between different sectors.

   Sustainable use of natural resources

  • The policy helps to ensure that the earth’s resources will be used in a more sustainable way by incentivising a more efficient use of energy – compelling importers and manufacturers to meet ever higher efficiency standards.
  • The policy helps to address climate change which is a common concern of humankind by reducing emissions caused by widely used or high energy products.
  • Natural areas are not specifically protected by the legislation, but such areas are indirectly advantaged through, e.g. better air quality, achieved through a reduction in emissions.

 


   Equity and poverty eradication

  • The law does not help to address pressing poverty or human rights challenges, being specifically targeted at product research and development.
  • The policy does however include provisions that take into account the needs of future generations by promoting a ‘rational use of energy’ which has demonstrably improved since the legislation.
  • The policy does not specifically promote social equity or justice, and has caused some product prices to increase. However, running costs of appliances are reduced which may benefit poorer users in the long-term.

 


 

    Precautionary approach

  • The policy promotes the prevention of excessive CO2 emissions caused by inefficient energy-intensive products, taking an approach which is clearly preventative in dealing with climate change through tackling emissions.
  • Levels of risk and threat are set by representatives from academia, industry, consumer groups, local governments and mass media, ensuring those most affected by the policy set levels of risk in cases of uncertain science.

 

   Public participation, access to information and justice

  • Since representatives from academia, industry, consumer groups, local governments and mass media are all involved in consultation on standard-setting, the Programme provides for genuine engagement in its implementation.
  • Standards are published for each target year so that producers can meet them, and product energy efficiency data is accessible in catalogues.
  • There are no records of compliance rates; although so far no producers have been publicly named as non-compliant.
  • Under Article 84 of the Act, the State is obliged, ‘through educational and publicity activities, [to] endeavour to increase the public understanding of the rational use of Energy, etc.’ (and to ‘ask for public cooperation’ for its implementation).
  • An avenue of address or repeal is provided in Article 90 of the Act: “Any person who is dissatisfied with a disposition made by a Designated Examining Body … or its inaction may make a request for review to the Minister of Economy, Trade and Industry’”.
  • Interested parties can voice concerns during consultation periods for each product category.

 

    Good governance and human security

  • Transparent, prompt, effective and fair implementation of the programme is effected, by existing institutions:
    • the Ministry of Economy, Trade and Industry (METI) evaluates product compliance;
    • an Advisory Committee for Natural Resources and Energy is in charge of overall energy policy including energy efficiency policy;
    • the Energy Efficiency Standards Subcommittee, one of the Subcommittees under the Advisory Committee, is responsible for setting energy efficiency standards. This Subcommittee, organised by METI, establishes an Evaluation Standard Subcommittee for each of the targeted products, and Evaluation Standard Subcommittees make draft standards.
  • Since detailed market and engineering information on the targeted products is required, there is strong involvement of industry associations in the standard‐setting process. The Energy Efficiency Standard Subcommittee authorizes the draft standards submitted by Evaluation Standard Subcommittees, which are finally decided by METI.
  • Reports must also be made pursuant to Article 87 of the Act by producers to the METI for an assessment of compliance to be made.
  • Unethical conduct is averted through the involvement of this range of actors; the regulatory burden is shared; although there is no penalty for any abuse of process provided.

 

   Integration and interrelationship

  • Income inequality and relative poverty have slightly decreased since 2000, although they remain higher than in the mid-1990s. Social justice and environmental protection are not overtly integrated in the legislation, although some cost savings are delivered to consumers from reduced energy consumption which naturally improves social justice. [OECD Environmental Performance Reviews JAPAN]
  • The culture of research and development and rapid market deployment encouraged by the programme is beneficial to the environment and to society – creating a virtuous cycle of technological and environmental progress, enhancing the national economy through technological advances in industry.
  • Lack of lifecycle analysis in target‐setting may lead to price increases so high that the payback period is longer than the lifetime of the product, which does not take into account social impacts. However, targets are ‘revised as necessary depending on any changes in these circumstances’: Art 78(2) of the Act.

   Common but differentiated responsibilities

  • The programme helps redress global inequalities in relation to the impact of climate change.
  • The programme is appropriate and well-adapted to Japan’s present level of technology, scientific knowledge, and cultural values—ensuring efficiency standards are differentiated according to appropriate parameters, setting ambitious but realistic targets, and “necessary transitional measures” in Art 91 of the Act.
  • The burden for standard-setting is not paced on vulnerable or inappropriate groups, but shared among government, industry and consumer groups.


Context

Mandatory energy efficiency standards for refrigerators, air conditioners and passenger cars have been in effect in Japan since 1980. At first, they failed to induce sufficient energy efficiency improvement as they were rarely revised and were largely based on negotiation with industry without any explicit standard‐setting method.

When the Kyoto Protocol was adopted in 1997, Japan was required to further accelerate energy conservation efforts to achieve its 6% reduction in greenhouse gas emissions by 2008‐2012 compared to 1990 levels. The Top Runner Programme was expected to be an effective means of contributing to this goal by setting ambitious efficiency targets and reducing energy consumption in the residential sector.

In 1998 the Top Runner programme was adopted in the revision of the Act Concerning the Rational Use of Energy (Act No. 49 of 1979), as a new method to set targets for selected products.


Objectives

The programme aims to reduce environmental impacts – that is, to reduce CO2 emissions through a reduction in energy consumption – and to enhance the national economy through technological advances in industry.


Methods of Implementation

Applicable from 1999, in Japan and applying to importing manufacturers, the ‘Top Runner’ programme can be defined as:

‘A maximum standard value system, by which targets are set based on the value of the most energy-efficient products on the market at the time of the value setting process. The programme uses, as a base value, the value of the product with the highest energy consumption efficiency on the market at the time of the standard establishment process and sets standard values by considering potential technological improvements added as efficiency improvements. Naturally, target standard values are extremely high. For achievement evaluation, manufacturers can achieve target values by exceeding target values by weighted average values using shipment volume. That is, the system is meant to give manufacturers incentives for developing more energy-efficient equipment.’

In 1998 the Top Runner Programme was adopted in the revision of the Act Concerning the Rational Use of Energy (Act No. 49 of 1979) with those revisions coming into force in 1999. The programme includes products that fall within one or more of three categories:

  1. products that consume a substantial quantity of energy in the use phase;
  2. products with large domestic shipments; and/or
  3. products with substantial scope for improving energy efficiency.

The Programme started in 1998 with 9 products:

  1. room air conditioners,
  2. fluorescent lamps,
  3. televisions,
  4. copying machines,
  5. computers,
  6. magnetic disk units,
  7. video cassette recorders,
  8. refrigerators,
  9. passenger vehicles, and freight vehicles.

The scope was reviewed every two to three years, resulting in the present coverage of 23 product items. In the future, the coverage in terms of the number of product items will be further expanded, and the Top Runner standards will be reviewed as each product’s target year arrives.

When each target year arrives, the producers submit a report on their sales and the energy efficiency of their products, and the “METI” (Ministry of Economy, Trade and Industry) evaluates their compliance. In case of non‐compliance the Top Runner Programme uses a ‘name and shame’ approach: the Ministry first makes a recommendation to the noncompliant producer to improve their performance. If this is not sufficient, METI makes the recommendation public (see Art 79(2) of the Act). Finally, METI can order the producer to meet the recommendations. In the event that such an order is not followed, penalties can be imposed (by Cabinet Order provided under Art 79(3)). Products which do meet the energy efficiency standard receive a Top Runner label at the point of sale; those which do not are labelled differently (Art 80 ss i and ii).

Energy efficiency standards are discussed and determined by the METI and its advisory committees which are comprised of representatives from academia, industry, consumer groups, local governments and mass media. The Advisory Committee for Natural Resources and Energy is in charge of overall energy policy including energy efficiency policy. The Energy Efficiency Standards Subcommittee, one of the Subcommittees under the Advisory Committee, is responsible for setting energy efficiency standards. This Subcommittee, organized by the METI, establishes an Evaluation Standard Subcommittee for each of the targeted products, and Evaluation Standard Subcommittees make draft standards.

Since detailed market and engineering information on the targeted products is required, there is a strong involvement of industry associations in the standard‐setting process. The Energy Efficiency Standard Subcommittee authorises the draft standards submitted by Evaluation Standard Subcommittees, which are finally decided by METI. It is usually takes about a year or two to set standards for one product (see  ‘The Role of Standards: The Japanese Top Runner Program for End-Use Efficiency‘).

 

In setting standards, the cost-effectiveness of energy-efficient appliances is analysed. The cost of an appliance, including the purchase price and the annual running costs, accumulates every year, and the cost of a product that achieves the energy-saving standard is compared with another product that fails to meet the same standards. A product is held to be cost-effective if the purchase cost taken together with the running cost is cheaper than a less efficient product over a period which is significantly less than the average product’s life cycle.

 

In the case of passenger vehicles, the Top Runner standards have been included as a criterion for tax reduction. In combination with the level of achievement regarding exhaust gas emissions, two levels of reduction are indicated, depending on whether the cars sold achieve the Top Runner standards, or are 5% or more efficient than those standards.

 

The Energy Conservation Center Japan (ECCJ) has also been running the annual Energy Efficiency Award scheme since 1990. The scheme selects and awards products that are remarkably superior in their energy efficiency. Candidate products should be designed not only for energy efficiency but also for resource efficiency, innovativeness, possible commercialisation, and safety, etc.

 


Impact

After the introduction of Top Runner policy in 1998, there has been a strong increase in energy efficiency of the targeted products. The rates of energy efficiency improvement required by Top Runner standards range from 16% to 80%, which have been achieved in all products:

  • Refrigerators: 30.5% decrease in kWh/year.
  • Gasoline passenger vehicles: 22.8% increase in km/L.
  • Computers: 69.2% decrease in kWh/year.
  • Room air conditioners: 66.1% increase in ratio between power input and power output.

The electricity consumed by the Top Runner targeted products equates to more than 70% of residential electricity consumption. According to some estimates, the Top Runner Programme has reduced energy consumption by 5% in road transport and by 8% in the residential sector (OECD, p.136).

Improvements in the fuel efficiency of automobiles and appliances under Top Runner standards has been assessed as leading to a reduction of 15,280 MtCO2 in 2007 and a yearly average of around 25,000 MtCO2 in 2008-2012 (OECD, p.127).

So far, the approach of using disincentives has worked ‘very well’ (see ‘The Role of Standards: The Japanese Top Runner Program for End-Use Efficiency‘). So far no producers have been publicly named as non-compliant. This is due to both the structure of the Japanese appliance market, which is dominated by a limited number of domestic producers, and Japanese culture in which government pressure and public ‘shaming’ acts as a strong compliance mechanism.

The mandatory nature of the Programme pushes producers to meet the standards and to consider energy efficiency in their product development strategy which they may not otherwise. Top Runner Standards have set a clear market direction toward higher fuel efficiency, reducing the risks faced by firms investing in more efficient products. There is general agreement that the standards have been set at a realistic level, enabling all the manufacturers, if they work hard, to meet the standards.

Because Japanese efficiency standards are applied to imported appliances, it is expected that it will also affect the improvement of efficiency of appliances in these countries.

Critiques

The policy requires a large investment of civil servants’ time, and businesses have a bargaining advantage because of the superior information at their disposal (OECD). It is also often difficult to determine the progress that would have been achieved without these measures, especially since they promote incremental rather than fundamental changes in products and processes (OECD).

In addition, the Programme compares only one aspect of the product lifeycle – the use-phase / energy efficiency of selected products. This is not as useful when products have competing priorities, or energy efficiency is not what consumers primarily look for in the products. Thus ranking of products in energy efficiency performance catalogues can be misleading for consumers.

Furthermore, as compliance is assessed by comparing performance in the base and target years, target setting does not take account of potential technological improvements that would occur in the absence of the programme, or of developments already available but commercially untapped. Comparing performance in the target year with baseline projections ‘would be more appropriate’, according to the OECD.

Despite the availability of products that are significantly more energy-efficient, the relatively high initial cost of these products make them less competitive than their less expensive, less efficient counterparts. Lack of lifecycle analysis in target‐setting may lead to price increases so high that the payback period is longer than the lifetime of the product. Many efficient air conditioning models on the market are sufficiently expensive that they cannot pay back within the typical 10‐15 year lifetime of room air conditioners.

Consumer appreciation of the cost savings achieved during the use phase appears to vary between different types of consumers. Because the standards are categorised by size for most appliances, manufacturers do not have an incentive to produce smaller, less energy consuming appliances. For example heavy cars, and large widescreen TV sets are in less stringent categories. This lack of incentive may cause a market shift of appliances to larger sizes for products such as televisions and cars. To overcome this, it is anticipated that imposing an obligation for each manufacturer to report the average appliance efficiency could be useful.

The Top Runner approach may also be less effective in relation to those products where the rate of technological development is difficult to forecast. For example, conservative targets were set for fluorescent lighting, so that targets were achieved just after they were established, with no significant impact on efficiency. Outstandingly energy-efficient products are excluded from being standard setters which diminishes the incentive to research and develop super-efficient products in that area. Setting standards at a ‘realistic’ level facilitates steady improvement, but may not to contribute to radical change. The change achieved may not always correspond therefore to what is necessary for the creation of a sustainable society.


Potential as a Transferable Model

This approach may not be applicable to other countries where the number of the manufacturers is small and/or the market is oligopolistic. An important characteristic of the Japanese market that enables the programme’s success is the market structure—which is dominated by a limited number of domestic producers. These all have high technological competency, and have experienced incentives to develop energy-efficient products to increase competitiveness against foreign producers. They also complied with the standards even without strict sanctions (which can be related to Japanese business culture and a cultural aversion to public ‘shaming’).

The majority of the producers addressed in the Top Runner Programme are large, well-known domestic companies and this may further contribute to why the ‘name and shame’ approach has been working well – reputations as household names are an important driver of sales.

Incentives or disincentives in another jurisdiction may therefore require adaptation to fit the cultural and economic climate. In Europe for example, coordination between Member States and mutual support would be necessary to meet the characteristics of the single market.


Additional Resources

Energy Efficiency Standards for Japanese Appliances, Yutaka Nagata, Central Research Institute of Electric Power Industry.

Top Runner Program – energy efficiency improvements by making the best available on the market, the new normal. Innovation Seeds.

OECD Environmental Performance Reviews JAPAN, OECD, 2010.

The Role of Standards: The Japanses Top Runner Program for End-Use Efficiency, Kimura Osamu – Central Research Institute of Electric Power Industry.

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