EN COMMISSION OF THE EUROPEAN COMMUNITIES Brussels, 16.7.2008 SEC(2008) 2115/2 CORRIGENDUM: Erreurs mineures corrigées dans le tableau du chapitre 6 et changement dans la disposition de l’annexe VIII pour rendre les tableaux plus lisibles. COMMISSION STAFF WORKING DOCUMENT



accompanying the Proposal for a



DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL



establishing a framework for the setting of ecodesign requirements for energy related products



IMPACT ASSESSMENT {COM(2008) 399 final}

{SEC(2008) 2116} Table of Contents 1.Procedural Issues and Consultation of Interested Parties 1.1.Consultation and expertise 1.1.1.Studies 1.1.2.Stakeholder Consultations 1.1.3.Academic expertise consulted 2.Problem definition: 2.1.Problem 2.2.EU's right to act 2.2.1.Treaty establishing the European Community 2.2.2.Policy background

2.2.3.Subsidiarity and EU added value 3.Objectives: 4.Policy options 5.Analysis of impacts 6.Comparison of the options 7.Administrative costs 7.1.For Member States and the Commission 7.2.For Manufacturers 8.Cost-effectiveness 9.Monitoring and evaluation SUMMARY This Impact Assessment accompanies the proposal for the amendment of the Ecodesign Directive for Energy Using Products. The amendment of the Ecodesign Directive is one of the elements of the Action Plan on Sustainable Consumption and Production and on Sustainable Industrial Policy (SCP/SIP) which is a joint initiative of DG ENTR, DG ENV and DG TREN. The main element of the SCP/SIP is an integrated product policy. The Ecodesign Directive is an important building block of the Action Plan. The current Ecodesign Directive covers only energy using products (excluding means of transport). For these and under the condition that no self-regulatory mechanism is offering a valid alternative, the Directive allows the setting of mandatory minimum requirements corresponding to the performance of the product that has least life cycle cost. Also, the Directive specifies a number of criteria and safeguards such that minimum requirements take into account competitiveness and social issues. This guarantees that improvements in environmental performance are cost-effective. While the purchase prices of these products might rise in the short term, their superior performance more than offsets this over the life span of the product by lower usage costs. However, the impact assessment of the Action Plan mentioned above has shown that the limited scope of the Ecodesign Directive represents an important restriction on the potential impact that the EU's Integrated Product Policy can have. This impact assessment report therefore analyses whether the scope of the Ecodesign Directive could be extended and what impacts the extension could have. The objective of the report is therefore to provide information to policy makers on the possible scope of such an extension. Three options are considered: (1)No extension of the scope, thus only energy using products can be covered, (2)Extend the scope beyond energy using products maintaining the exclusion for means of transport, and (3)Extend the scope beyond energy using products including means of transport Changing the scope of the Ecodesign Directive would not have direct impacts on products, since the Ecodesign Directive is a framework Directive. The environmental, economic and social impacts are linked with the implementing measures for specific product groups. These implementing measures are adopted by the Commission under the regulatory comitology procedure. Before the implementing measures are adopted, stakeholders will be formally consulted and a specific impact assessment will be made by Commission services. All impacts mentioned in the report are illustrative examples of the impacts that could be reaped by having implementing measures for products of the different options. Moreover, the impacts would only be realised in the long run since the adoption of implementing measures is done product by product and after a thorough assessment process.

The analysis of the options takes into account a number of issues. First, the environmental impacts are discussed for broad product categories. Second, it is reviewed whether the Ecodesign Directive would overlap with existing legislation already addressing environmental impacts. Third the environmental improvement potential and the economic and social impacts of the options are assessed. The analysis of the available data indicates that significant reductions of environmental impacts are possible while at the same time also allowing economic savings for businesses and final consumers. Generally speaking, the potential benefits are larger the broader the scope of products that can be addressed through implementing measures. Although the potential benefits would be highest in the case of covering all products (option 3) the report shows that the Ecodesign Directive does not appear to be complementary to the Type-Approval System since much of the potential benefits in the transport sector will already be reaped by forthcoming legislation such as the CO2 in cars legislation and the new Euro standards. Within the products screened in Option 2 a high environmental impact that can be reaped cost effectively would come from energy related products such as construction products and water using products. Furthermore, also a number of other product groups may offer significant potential for cost efficient improvements, as there is evidence that their impact is even more significant than both the Labouze 2003 and the EIPRO study have demonstrated when looking at products such as: detergent/cleaning products, footwear/leather products, other food products, print-media (books, journals, newspaper), hygiene paper, mattresses, batteries, and toys. Ongoing Commission studies will look further into the environmental impact and improvement potential of these products. Further research could also investigate the environmental and economic sustainability of the use of concrete/cement, steel, aluminium, plastics and other important materials. These product groups and materials are presented for illustrative purpose only. The screening analysis of the cost and benefits of option 1 and 2 shows that the importance of the upfront costs is highly dependant on the nature of the products and even between sub-categories of the same product type. In the illustrative cases analysed, net benefits increase over time with an increased uptake of products responding to minimum requirements. An extended scope will allow introducing implementing measures for those non energy using product categories that have the highest potential for improvement of environmental performance while also leading to the highest savings during the use phase. This would not necessarily be possible under the current Directive which is restricted to energy using products. More detailed analyses will be conducted for the impact assessments that need to be prepared for each implementing measure. At this stage, it can be recommended based on the available evidence to widen the scope of the Directive to energy-related products. Extending the scope to means of transport would have limited benefits. While there are also strong indications that widening the Directive beyond those products could deliver significant benefits, it is recommended to carry out further investigations and further assess the option of including non-energy related products in the scope of the Directive following a future review. 1.Procedural Issues and Consultation of Interested Parties The Ecodesign Directive This Impact Assessment accompanies the proposal for the amendment of the Ecodesign Directive for energy using products. This framework directive provides harmonised EU-wide rules for ecodesign of products to improve their environmental performance and ensure their free movement in the EU. The product scope of the Directive is energy using products (EuPs) with the exclusion of means of transport. The Directive does not in itself introduce directly binding requirements for specific products, but defines conditions and criteria for setting, through subsequent implementing measures, minimum requirements regarding environmentally relevant product characteristics (including energy consumption) and allows to improve quickly and efficiently the performance of the products put on the market. Minimum requirements are set aiming at the life-cycle cost minimum to end-users, taking into account the consequences on other environmental aspects. Implementing measures are only considered for products with significant environmental impacts and a significant improvement potential through their design. The philosophy of the directive is to cover only a limited number of products with a significant contribution to environmental performance. In Art 15 of the Directive the conditions and criteria for selecting products for which to set minimum requirements through subsequent implementing measures are explained. In Art 15.2 the necessary three criteria to be fulfilled by any product in order to be included in the working plan are presented. Satisfying these criteria is the first step in the procedure that could lead to an implementing measure: (i) The product shall represent a significant volume of sales and trade, indicatively more than 200,000 units a year within the Community. (ii) The product shall have a significant environmental impact within the Community. (iii) The product shall present significant potential for improvement in terms of its environmental impact without entailing excessive costs, taking into account in particular: - the absence of other relevant Community legislation or failure of market forces to address the issue properly. - a wide disparity in the environmental performance of products available on the market with equivalent functionality. These criteria can be applied to energy using products and non-energy using products Moreover, art 15.4 of the Directive presents the criteria which the Commission needs to take into account in preparing a draft implementing measure: (a) The life cycle of the products and its significant environmental impact (b) The impact in terms of competitiveness, for manufacturers, including SMEs, including on markets outside the Community, innovation, market access and cost and benefits. (c) Existing national environmental legislation.

(d) Consultation with stakeholders (e) The setting of implementing dates, which could include staged or transitional measure or periods, taking into account in particular possible impacts on SMEs or on specific product groups manufactured primarily by SMEs. For example, the Commission is preparing implementing measures on set top boxes and standby/off mode of electric equipment. For both implementing measures, staged minimum requirements will be introduced to allow industry to adapt to the legislation. These criteria can be applied to energy using products and non-energy using products Finally, art 15.5 contains criteria that implementing measures need to satisfy: (a) There shall be no significant negative impact on the functionality of the products (b) Health, safety and the environment shall not be adversely affected (c) There shall be no significant negative impact on consumers in particular as regards the affordability and the life-cycle cost of the product (d) There shall be no significant negative impact on industry’s competitiveness (e) In principle, the setting of an ecodesign requirement shall not have the consequence of imposing proprietary technology on manufacturers (f) No excessive administrative burden shall be imposed on manufacturers. These criteria can be applied to energy using products and non-energy using products Besides, Annex I and Annex II of the Eco-design Directive identify a wide list of environmental parameters must be considered when studying the setting of minimum requirements. The methodology used for developing implementing measures considers, (among others) the following environmental impacts: energy, water, waste, global warming potential, ozone depletion potential, acidification, the emission of volatile organic compounds, persistent organic pollutants, heavy metals and particulate matter into the air. The current methodology for setting implementing measures identifies the aspects of products having environmental impacts throughout their lifecycle, analyses the potential for improvement and identifies best available technology. On the basis of this information, minimum requirements are set to tackle the most relevant impacts. Typically, only 3-5 parameters would be identified because they account for a very high proportion of the total environmental impact of the product. The methodology for setting implementing measures does not weigh the environmental impacts. In practice, the European Commission decides, taking into account all evidence, what the most important environmental impacts of a product are. The list of environmental parameters can be used to reduce the environmental impacts of energy using and non-energy using products. Procedural steps before any implementing measure is adopted Before the Commission proposes an implementing measure, several steps have to be carried out. First, there is a need to define a working plan with candidate products to be studied. The first batch of products was included in the Directive. Currently, the Commission is identifying product groups to be tackled in the following three years. The work plan is made after consultation of the stakeholders and analysing whether the products satisfy the requirements of art 15.2. Second, it is necessary to launch preparatory studies for the products identified in the work plan to identify which eco-design requirements should be set for a particular product to improve the environmental performance of the product. The preparatory study provides the necessary information to prepare for the next phases to be carried out by the Commission. Third, as requested by Art 18 of the Directive, a group of interested parties called “Consultation Forum” is set up to allow stakeholders to be informed and provide their positions on the possible measures. The task of the Forum is to contribute, in particular to the definition and review of the implementing measures, to monitoring the efficiency of the established market surveillance mechanisms and to the assessment of voluntary agreements and other self-regulatory measures taken in the context of the Directive. The Forum is also consulted by the Commission during the periodic modification of the working plan. Fourth, an impact assessment is necessary for each proposal for an implementing measure. It will assess the environmental, economic and social impacts and submitted to the European Commission’s impact assessment board. Fifth, the Commission shall be assisted by a Committee operating under the regulatory procedure with scrutiny by the European Parliament. Sixth, the Commission adopts a proposal for an implementing measure following the normal procedures, including interservice consultations.

In summary, the procedures that are specified in the Ecodesign Directive guarantee that all concerned parties are heard and all evidence is considered when setting implementing measures. Even if at the time of being developed, these provisions were drawn up to address mainly energy-using products, they can equally be applied to non-energy using products. Regulatory Dialogue It should be mentioned as well that the European Commission is involved in formal regulatory dialogues with its main trading partners and with international organisations on such issues as the harmonization of measurement methods/standards, benchmarking and other crucial elements directly linked to the setting of implementing measures of the Eco-design Directive. The draft measures are notified to the World Trade Organisation/Technical Barriers to Trade to ensure that no barriers to trade are introduced. Additionally the draft implementing measures are discussed with the relevant ministries from third countries in the frame of regulatory cooperation. Manufacturers from outside the EU are encouraged to actively provide input when implementing measures are developed and the all process is made extremely transparent from the outset. Transposition The Ecodesign Directive is being transposed into Member States legislation and there are currently 7 MS that are late in their transposition and confronted with infringement procedures. This is not an unusual situation for a new Directive. Furthermore the delays did not have yet any practical consequences, as there is no effective application of the Directive until Implementing Measures on specific products have been adopted and are applied. The development of such Implementing Measures is under way and the first ones could be adopted by the end of 2008. Conclusion The different criteria, procedures and other safeguards assure that economic and social issues are taken into account when setting minimum requirements. Therefore, the Directive is a good framework for reducing negative environmental externalities while taking into account potential negative economic or social impacts. Since the same policy goal is aimed at for non-energy using products, the same criteria, procedures and other safeguards that already exist for energy using products should be in place to guarantee the policy goal. The current impact assessment The Action Plan on Sustainable Consumption and Production and on Sustainable Industrial Policy (SCP/SIP), a joint initiative of DG ENTR, DG ENV and DG TREN, will propose actions to solve market and regulatory failures which prevent improving the environmental performance of a large scope of products in Europe. The main element of the SCP/SIP is an integrated product policy. The Ecodesign Directive is an important building block thereof. This impact assessment is one layer in the analytical framework of three levels of impact assessments related to product policy. First, the impact assessment of the Action Plan focused on delimiting the problem definition and the remaining problems. In the Impact Assessment of the Action Plan it was clearly stated that the Action Plan would only look at existing policy instruments and how to coordinate them better. The Impact Assessment of the Action Plan discussed the options of business as usual, a voluntary approach or a mandatory approach. The main conclusion of the impact assessment of the action plan was that a mandatory approach could solve the identified market failures. Moreover, the impact assessment of the action plan concluded that a specific impact assessment was needed to look at the extension of the scope of the Ecodesign Directive. Second, this impact assessment focuses on the identification of the need for and the most adequate extension of the scope of the Ecodesign Directive. It will start addressing the environmental, economic and social trends and impacts of the different options to the extent possible. The extension of the scope could be dealt with through a separate legal instrument, such as a sister directive that could contain similar provisions as the current eco-design directive but be applicable only to non-energy using products. This option has been discarded because two separate directives with exactly the same material content but different scope would not only pose an unnecessary burden for the Community legislator and the national Parliaments. It would also mean adding to the volume of the acquis communautaire and creating confusion for enterprises that have to understand which of the directives is actually relevant for them. This is fully in line with better regulation principles, in particular simplification. Third, where an implementing measure will be proposed for a product, a specific impact assessment will identify the specific problems and analyse the specific environmental, economic and social impacts of setting minimum requirements. In the impact assessment for the specific product group, the Commission will set out how it respected the safeguards of Art 15. The impact assessment principle of proportionality should be seen in light of these three layers of impact assessments and notably the guarantees and safeguards stipulated in the Ecodesign Directive for the implementing measure stage. This document is prepared as a basis for comments and does not pre-judge the final form of any decision to be taken by the Commission. Moreover, all products categories mentioned in this document are only included for analytical purposes and do not prejudge any decision on the inclusion of products on the working plan for the Ecodesign Directive. Finally, all figures and numbers quoted in this Impact Assessment are of an indicative nature only.



1.1.Consultation and expertise An inter-service steering group was consulted on the impact assessment. The meeting has taken place on 28 February 2008. ECFIN, ENV, ENTR, TREN, SG and RTD were present. After the meeting the DG’s present have been informally consulted on a draft impact assessment. The suggestions of the different directorate generals have been taken into account in drafting this impact assessment. 1.1.1.Studies

The results of a number of studies have been considered. Some of the most important are: the EIPRO project, Labouze et al (2003), McKinsey (2007) and the preparatory studies on implementing measures. The results of the different studies are not necessarily consistent because of the very different methodologies used to evaluate the externalities and potential impacts. Yet, in general the results of the studies point out in the same direction. 1.1.2.Stakeholder Consultations DG ENTR and DG TREN are in regular contact with their stakeholders. Two consultations on the Action Plan were organised: The first one was business oriented: a questionnaire was sent to around 4000 companies participating in the European Business Test Panel. The consultation took place from the 15th of September to the 15th of October 2007. 354 companies responded. 69% of the businesses surveyed where in favour of applying minimum standards to improve energy and resource efficiency to a broad number of products. The second consultation was done jointly with DG ENV and concerned the Sustainable Consumption and Production and the Sustainable Industrial Policy Action Plan. The Internet consultation on the basis of the questionnaire and a 10 pages background document was launched on “Your voice in Europe” and took place between the 27th of July and the 23rd of September. It addressed both stakeholders (national ministries, industries, associations, NGOs) and the general public. Participants to the consultation were also invited to provide position papers. 479 answers were submitted. Enhanced use of eco-design instruments was generally recognised as the first best action (67.3%). 83% of the respondents strongly agreed with extending the product scope of the Ecodesign Directive. There was a slight preference for concentrating on products improving resource and energy efficiency (79.1%). A majority of the respondents (70%) indicated that actions need to tackle environmental problems in a cost-efficient way and need to minimise the social impacts. Eleven Member States, three Universities and forty-two associations and companies also provided position papers. See Annex I for a more detailed account of the stakeholder consultation. Stakeholders have been generally very positive to the philosophy of the Directive and the possibilities it gives to manufacturers, in terms of self-regulation and cooperating on the development of implementing measures. However, some stakeholders have recently raised some concerns about the revision of the Ecodesign Directive. The main objections are the period of legal uncertainty for the mechanical engineering industry that would be induced by the revision as well as the strong resistance from other industries. The European Commission would take into account the comments of these industry associations by proposing only a limited recast to the Ecodesign Directive to modify only its scope without altering its other provisions. This should not raise legal uncertainty for the industries whose products currently fall under the scope of the Directive. 1.1.3.Academic expertise consulted DG ENTR has drawn on the expertise of several academic institutions for the elaboration of this impact assessment. The Institute of Environmental Science of the University of Leiden has shared its expertise and databases for the life cycle assessment of the environmental impacts of products. The “Zentrum für Europäische Wirtschaftsforschung“ (ZEW) assisted by providing input-output analysis on the environmental databases. 1.2.Opinion of the Impact Assessment Board This impact assessment report was drafted following the remarks in the request for resubmission of the Impact Assessment Board of 21 April 2008 and the Final Opinion of the Board on the final draft issued on 6 May 2008. The following improvements have been made: A comprehensive section on the current eco-design directive has been included. This section focuses on explaining that the provisions of the Eco-design Directive are suitable to cover non-energy using products. It sets out clearly that the goal of the Eco-design Directive is to reduce negative environmental externalities taking into consideration the social and competitiveness impacts. It is explained that the goal is realised by a list of criteria and procedures for setting implementing measures included in the Directive. Two examples (construction products and water using products) of the value added of an extended scope of the Directive are included. These two examples have an illustrative purpose and do not limit or prejudge any decision by the Commission. This final draft makes clear that all products and impacts in this report are for illustrative purpose only. Moreover, it has been clarified to which extent specific product groups listed in the table could be potentially covered by the extension taking into account existing legislation and how existing voluntary measures and industry standards would be taken into account when designing implementing measures. Also, art 1.4 of the Directive has been taken into account when selecting products. A number of methodological issues have been clarified. It has been clarified that the energy and climate package is not taken up in the baseline since this would require a complicated modelling exercise. Also, it is explained that some thresholds used in this impact assessment are purely for illustrative reasons and that for future implementing measures no such thresholds would be used. Also, it is clarified that the thresholds used could be higher or lower and that this would alter the environmental improvement potential but not the comparison of the three options. The text and Annex VII clarify the weightings used in this impact assessment. Moreover, it is clearly stated that the weightings are for illustrative purposes and that the European Commission does not use weightings to determine the most significant environmental impacts in the implementing measures. This draft elaborates on the international context of the Eco-Design Directive. It clarifies the role of existing mechanisms on international standards and regulatory dialogues with main trading partners, and confirms that the impact on third countries will be addressed when designing implementing measures. The Impact Assessment Board requested that net benefits would be disentangled into both costs and gross benefits. This has been done for illustrative purposes for water heaters and windows. The more aggregate analysis that was initially in the main body of the report has been explained more thoroughly in Annex II, explaining underlying assumptions more carefully. 2.Problem definition: 2.1.Problem As explained in the impact assessment of the SCP/SIP Action Plan, the way in which products are made, used, consumed and disposed of can have negative impacts on the environment. The aim of policy action is not to reduce pollution and CO2 emissions to zero. The aim is to have a socially desirable level of consumption and production on the one hand and environmental impacts on the other. The SCP/SIP impact assessment identified several market failures and imperfections that currently prevent society from reaching the social optimum. The most important are: Environmental externalities that result from prices that do not reflect the negative environmental impacts of the production or consumption of products. Information asymmetries that result from high transaction costs for consumers to obtain relevant information on product characteristics. Consumers can often not tell whether a product is more resource efficient during its use phase than another. Bounded rationality that can explain why even well-informed consumers do not act rationally when making purchasing decisions. Even if consumers have sufficient information, they can be faced with high upfront costs when buying a more performing product, while the benefits accrue over a longer period of time (i.e. during its use-phase). Consumers may not take into account the use cost of a product but focus on the purchase price only.

Principal-agent problems that occur where there is a misalignment of incentives of those purchasing the product (e.g. landlords) and those using it (e.g. tenants) The above market failures have negative effects on innovation of better performing products since they limit the demand for products with lower environmental impacts. The market failures identified in the impact assessment of the SCP/SIP Action Plan result in products that are not designed such that environmental impacts of products over their life cycle are optimal from a social point of view. This is confirmed in reality. Based on a comprehensive list of environmental impacts for the EU, Labouze et al (2003)calculated the total external cost of 25 products which are commonly seen as having a significant environmental impact over the life cycle. For each environmental impact Labouze et al report a minimum and maximum monetary value which corresponds to the cost of that environmental impact to society. The monetary values are based on the lower and higher estimates found in the literature and are reported in Annex VII. In Table1 below the monetary values for the environmental impacts are aggregated to one monetary value which represents the cost of all environmental impacts studied by Labouze et al for that product group. As the authors stress the given external cost figures are clearly conservative estimates as many mechanisms and impacts that result in external costs could not be included. The true impact and potential is hence clearly higher. Also, and as a found more below, the numbers for non-energy using products are a systematic underestimate, due to limitations in data, assumptions of the study and a certain focus on energy-related emissions in the inventory data and impact assessment. The aggregated monetary value is mainly used for presentational reasons. For setting implementing measures no aggregation of environmental impacts will be done and the European Commission can decide, taking into account all evidence, which environmental impacts it deems most important. These minimum and maximum environmental impacts are represented per capita, for the EU-27 and ranked per importance. Table1 External costs of environmental impacts per year per capita (€) EU-27 (bn €) Rank Product min max Min max min max Space heating 41.3 186 20.3 91.7 1 1 Personal cars 32.2 90 15.8 44.1 2 4 Goods transport 20.4 100 10 49.2 3 3 EuP domestic appliances 15.6 101 7.7 49.5 4 2 Appliances and lights 12.7 58 6.2 28.4 5 6 Textiles 11.6 67 5.7 32.9 6 5 Building structure12 11 51 5.4 24.8 7 7 Water heating 8 38 3.9 18.9 10 10 Transport services 5.1 28 2.5 13.6 14 11 Water supply12 3.5 42 1.7 20.5 15 8 Cooking 3.5 16 1.7 7.6 16 16 Furniture 3.3 14 1.6 6.9 17 17 EuP IT 3.1 17 1.5 8.5 18 15 Non eco-designable products 47.7 138 22.4 68.8 Total 219 946 106.4 465.4 Source: Labouze et al (2003) Products to which eco-design measures can be applied make up between 80 and 88% of environmental impacts studied by Labouze et al. Total externalities are in the range of €219-€946 per capita per year. For the EU-27 as a whole these externalities amount to between €106.4-465.4 billion per year. In relative terms, this is between 1.1% and 4.9% of EU GDP at the time of publishing the study, keeping in mind the already mentioned systematic underestimation of the real level of external costs. CO2 accounts for an important share of total externalities: in the minimum scenario CO2 accounts for 77% of the externalities, in the maximum scenario CO2 accounts for only 44%. As CO2 related impacts are rather well covered in the external cost calculation while others are not, the true relevance of CO2 is however lower. Remaining Problems, taking account of existing policies The problem definition of the impact assessment of the Action Plan SCP/SIP demonstrated that a number of policies are already in place. It identified the climate package (Emission Trading Scheme (ETS), renewables, sectors not covered by ETS), the directive on industrial emissions, waste legislation, the directive on Ambient Air Quality and Cleaner Air for Europe, the eco-label, the energy action plan (energy performance of buildings directive, energy efficiency label and Ecodesign Directive), EMAS and ETAP. However, the impact assessment of the Action Plan already pointed out that: Internalisation policies such as ETS will not necessarily result in consumers buying more environmentally efficient products that are optimal from a social- or even consumer perspective. Information asymmetries, bounded rationality and principal-agent problems are not resolved by internalisation policies. The best way to foster environmentally efficient products is to complement price signals with an eco-design framework. The eco-design framework can assure that manufacturers produce products with environmental externalities that are optimal over the life cycle from a social perspective. Information asymmetries can be resolved by providing more information on the environmental performance of products. Yet, bounded rationality, principal agent problems and environmental externalities require a mandatory approach for product policy. Intervention on the environmental performance of products at Member State level might erect barriers for the free movement of products in the internal market. Therefore, public intervention at the EU level is justified for product policy. Based on the definition of the problem and the results of the Impact Assessment of the SIP/SCP action plan, the Ecodesign Directive is identified as a useful mandatory tool to address environmental externalities of products. However, currently the Ecodesign Directive covers only energy using products. But, energy using products are only responsible for 31-36% of the environmental impacts studied by Labouze et al (see Table 2). Thus the identified market failures are currently not necessarily adequately addressed for other products that cause the majority of environmental impacts.

Table2 External costs of environmental impacts per year per capita (€) EU-27 (bn €) % of total min max min max Min max Energy using Products 69.6 341.6 33.2 167.9 31% 36% Other products 149.3 604 73.7 297.9 69% 64% Source: Labouze et al (2003) 2.2.EU's right to act 2.2.1.Treaty establishing the European Community

Article 94 & 95 of the EC Treaty state that the Council shall adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market. This applies to all aspects of production, products and consumption in the EU. 2.2.2.Policy background The possible amendment of the Ecodesign Directive is part of the SIP/SCP Action Plan. 2.2.3.Subsidiarity and EU added value The subsidiarity principle applies insofar as the proposal does not fall under the exclusive competence of the Community. The objectives of the proposal cannot be sufficiently achieved by the Member States for the following reason: To leave the setting of ecodesign requirements for products to the Member States would lead to divergent national provisions and procedures having similar objectives that would generate undue costs for industry and constitute obstacles to the free movement of goods within the Community. Community action will better achieve the objectives of the proposal for the following reasons: Acting at the Community level is the only way to achieve the objective of the proposal while ensuring that the requirements for products placed on the market are equal in all Member States, thereby ensuring the free movement of goods in the Community. The scope of the proposal is limited to new products placed for the first time on the Community market. Action at the Member States level is unlikely to address environmental problems either efficiently or effectively. The impacts of climate change and air and water pollution are of a global or at least a cross border nature. Member States may fail to take into account the effects of domestically generated pollution that creates impacts outside national borders and therefore carry out insufficient abatement. 3.Objectives: The General objective of this proposal is the same as the overarching one for the SIP/SCP Action Plan: To allow industry to transform environmental challenges into economic opportunities by fostering sustainable production and consumption on the basis of a strong framework for product policy. This proposal seeks to contribute to the general objective by aiming to reduce environmental externalities through broadening the scope of products covered by an integrated product policy (Specific objective). As the impact assessment on the Action Plan on SCP/SIP has shown, the preferred way to implement an enhanced Integrated Product Policy is to extend the scope of the Ecodesign Directive to cover additional product groups. The operational objective is therefore to extend the Ecodesign Directive such that products can be included which present significant potential for improvement in terms of their environmental impact without entailing excessive costs (Based on the article 15 of Ecodesign Directive) 4.Policy options The policy options analysed in this impact assessment only look into the most appropriate product scope for the Ecodesign Directive. The only amendment proposed to the directive will be related to the product scope. No changes are necessary for the procedures of the implementation of the Ecodesign Directive. The impact assessment does not need to consider a voluntary approach or self-regulation as an option: Article 17 and annex VIII of the Ecodesign Directive obliges the Commission to look into the option of a voluntary approach or self-regulation in the process of the adoption of an implementing measure for a specific product. Indeed, annex VIII of the Ecodesign Directive sets out the criteria for the admissibility of self-regulatory initiatives as an alternative to implementing measures. Criteria are openness of participation, added value, representativeness, quantified and staged objectives, involvement of civil society, monitoring and reporting, cost-effectiveness of administering a self-regulatory initiative, sustainability and incentive compatibility. In general, the impact assessments of the implementing measures will also consider whether labelling the product category could be a valid alternative to minimum requirements. Regardless of the option taken, the Directive, as do New Approach related Directives provides for the use of mandated harmonised standards giving presumption of conformity to requirements of the Directive. The EU encourages that standards are developed at global level (Vienna and Dresden agreements) and there is scope for making use of adequate international standards. However, the need for such standards is determined at the time of developing implementing measures for specific products. The three options identified for extending the scope are:

Option 1: No Policy change (baseline) Under this option, the scope of the Ecodesign Directive would remain as it is. The work to develop implementing measures for the priority products identified in the directive will be continued. For street lighting products, office lighting products, stand-by and off-mode losses, external power supplies and simple set top boxes implementing measures would be adopted in 2008. For the other priority products identified in the directive the technical studies preparing the implementing measures would be completed as planned. The working plan that brings together and complements available information and arguments as to which products should be included among the indicative priorities would be adopted swiftly. Option 2: Extend the Ecodesign Directive beyond energy using products but the exclusion for means of transport would be maintained (art. 1.3) Under the second option, the scope of the Ecodesign Directive would be extended beyond energy using products but the current exclusion for means of transport, specified in art 1.3, would be maintained. This impact assessment presents the available evidence to inform policymakers on which product groups could be envisaged under such extension. As this is based on preliminary screening exercises, this must not exclude other product groups that need to be evaluated as well. As this is based on preliminary screening exercises, this does not exclude further product groups to be evaluated and to be considered under this, or a following, extension. The implementing measures and the working plan of the baseline scenario would be implemented without delay. After the adoption of the amended Ecodesign Directive by the EU the working plan would be updated or extended to cover products beyond energy using products while maintaining the exclusion of means of transport. Based on this working plan, technical studies for implementing measures per product group would be launched. Based on these technical studies the Commission would prepare implementing measures for specific products. (4)Option 3: Extend the scope beyond energy using products including means of transport The justification to include means of transport would be that means of transports have very significant environmental impacts. Under this Option the scope of the Ecodesign Directive would be extended beyond energy using products and the exclusion of means of transport, currently specified in art 1.3, would be deleted. The implementing measures and the working plan of the baseline scenario would be implemented without delay. After the adoption of the amended Ecodesign Directive by the EU the working plan would be updated or extended to cover products beyond energy using products. Means of transport could also be taken up in the working plan. Based on this working plan, technical studies for implementing measures per product group would be launched. Based on these technical studies the Commission would prepare implementing measures for specific products. 5.Analysis of impacts To analyse the expected impacts of extending the scope of the EuP, first the environmental impacts of the options are identified based on available information. The analysis is carried out at the level of broad product categories for which ecodesign can be applicable. The aim is to identify whether an extension of the scope of the framework directive could be beneficial or not. Second, it is investigated whether the Ecodesign Directive could apply to the product category. This is done by looking at the complementarity of the Ecodesign Directive with existing legislation and by looking at the applicability of the concepts of the Ecodesign Directive to the product group. Finally, indicative potentials in terms of environmental improvement and economic and social impacts are assessed for the 3 options. Changing the scope of the Ecodesign Directive does not have direct impacts since the Ecodesign Directive is a framework Directive. The environmental, economic and social impacts are linked with the implementing measures for specific product groups. These implementing measures are adopted by the Commission in a comitology procedure. As the current Ecodesign Directive already mentions, before implementing measures are adopted stakeholders will be consulted and a specific impact assessment will be made by Commission services. All results presented in this document are illustrative of the impacts that could be reaped by having implementing measures for products of the different options. Moreover, it is worth stressing that the impacts of the implementing measures would only be realised in the long run. It takes time to develop implementing measures because it is done product by product and are only adopted after a thorough policy making process. Finally, it should be emphasised that for any implementing measures that could be adopted in the future, a much more detailed analysis will be carried out, as is already now the case for implementing measures under the Ecodesign Directive. Option 1: No Policy change (baseline) In this section evidence is presented on the environmental impacts of energy using products, then the potential of energy using products to reduce CO2 emissions is discussed, finally an assessment is given of the environmental impact of energy using products beyond CO2 emissions. The assessment of the environmental improvement potential and the economic and social impacts of the three options is undertaken in a later section and summarised in Table 8. The baseline does not include the expected impact of the Energy and Climate change package on the improvement of the energy efficiency. The Emission Trading Scheme (ETS) forces producers to buy emission rights for their production related CO2 emissions. It is likely that producers would at least pass through some of these costs to consumers. These increased costs will to some extent change the behaviour of consumers. To model these pass through effects and their impact on consumer behaviour requires very complicated modelling and is beyond the scope of this impact assessment. One of the most likely direct effects is a higher electricity price. This electricity price will make energy savings products even more beneficial. Consumers would rationally react to higher electricity prices by saving energy by for example buying more energy efficient appliances. However, as demonstrated in the problem section (and in the impact assessment accompanying the SCP/SIP action plan) and also recognised in, for example, the Stern Report, product policy can complement the ETS since it solves some market failures not directly addressed by ETS, in particular relating to information asymmetries, bounded rationality and principal agent problems. For the comparison of the different options it seems that not including ETS in the baseline does not change the comparison between Option 1 and Option 2. For both a higher electricity price seems the most significant impact of ETS. However, some means of transport under option 3 are not directly affected by the electricity price. Therefore, Option 3 seems less affected by ETS than option 1 and 2.

The renewable energy targets of the Energy and Climate Package will decrease the CO2 content of electricity production. This will make the CO2 savings of energy efficiency measures smaller. However, there seems again no difference for the comparison of option 1 and 2 concerning the impact of the renewable energy targets. Based on Labouze et al (2003), the environmental impact of energy using products is between 31% and 36% of all impacts studied. See table 3. It is to be stressed that due to the pre-selection, as done by the Labouze study, of product groups that are commonly understood to have a high environmental impact, many of which are energy using products, these are overrepresented. Important meta groups of products including food are under-addressed. That means that the true contribution of EuPs to the overall environmental impact is lower than approximated, i.e. the importance for extending the EuP Directive to non EuP products is higher than found by that study. Furthermore, the study of Labouze does not differentiate between different production processes. This is obviously especially relevant for non-energy related products, which are dominated by the production phase. Considering this additional argument it can be concluded that the relative share of non energy using products among the overall impact is much higher than the stated ca. 66%. Table 3 Environmental impacts of energy using products, yearly values per capita (€) EU-27 (bn €) % of total impact Product Min max min max min max Space heating 24.6 111.6 12.18 55.02 11% 12% EuP domestic appliances 16 101 7.7 49.5 7% 11% Appliances and lights 13 58 6.2 28.4 6% 6% Water heating 8 38 3.9 18.9 4% 4% Cooking 4 16 1.7 7.6 2% 2% EuP IT 3 17 1.5 8.5 1% 2% Total EuP 68.6 341.6 33.18 167.92 31% 36% Source: Labouze et al (2003) Energy using products are responsible for a substantial share of greenhouse gas emissions and have a demonstrated improvement potential. The preparatory studies for the implementing measures of specific products have largely confirmed the environmental savings potential and have demonstrated that the minimum requirements could lead to significant monetary savings. Indeed, the studies for the implementing measures of the Ecodesign Directive have shown that for boilers and water heaters a mix of ecodesign, installation and labelling requirements would result in yearly net savings of €45 billion as of 2020. In addition, extrapolations based on a recent study by McKinsey discussed in Annex II seem to confirm that significant amounts of CO2-equivalents can be saved while saving money to the consumer. For other significant environmental parameters the reduction potential for energy using products is less significant. Table 4 below shows the share of CO2-equivalent related costs in the cost of total externalities for energy using products. The share of cost related to CO2-equivalents in total environmental cost is between 44% and 86%. It could reach 90% for specific energy using products such as space heating and water heating. Table 4 Share of Greenhouse gases in environmental impacts for energy using products, yearly values Per capita (€) % of total external costs for considered products Product Min Max min max Space heating 22.2 56.6 90% 51% EuP domestic appliances 13 32.4 83% 32% Appliances and lights 11 28.9 87% 50% Water heating 8 19.5 99% 51% Cooking 3 7.9 86% 51% EuP IT 2 6.1 65% 35% Total EuP 59.2 151.4 86% 44% Total Products 169 416 77% 44% Source: Labouze et al (2003) Conclusion The main conclusion of this section is that the current possible coverage of the Ecodesign Directive has a significant potential to reduce CO2 and other greenhouse gas emissions, by far the most significant environmental impacts of energy using products. In the section on environmental impacts below, summarized in Table 8, it will be demonstrated that the potential of ecodesign for energy using products to reduce other environmental impacts beyond CO2 is more limited.



Option 2: Extend the Ecodesign Directive beyond energy using but the exclusion of means of transport would be maintained (art. 1.3) In this section evidence is presented on the applicability of the eco-design directive for non-EuP and the environmental impact of all products, except means of transport. The assessment of the environmental improvement potential and the economic and social impacts of the three options is undertaken in a later section and summarised in Table 8. Table 5 shows the products that, based on a preliminary screening in Annex III, satisfy the requirements of art 15.2 of the Ecodesign Directive. These product groups are presented for illustrative purpose only and do not imply that the European Commission would take them up in the Working Plan. Indeed, the analysis done here is proportionate for this impact assessment. To select the products for the Working Plan the European Commission would consult stakeholders and check the requirements of art 15.2 in much more detail before taking a policy decision on which products to include in the Working Plan. For example, the product groups referred to in the below table are quite broad. For the working plan the product definition would be narrower such that a much more precise judgment could be made whether to include a product in the Working Plan or not. Moreover, the inclusion of a product in the Working Plan does not necessarily imply that an implementing measure would eventually be adopted for that product by the European Commission. Based on a preliminary screening, the products that satisfy art 15.2 of the Ecodesign Directive would be construction products, textiles, water using products and furniture. These products account for 22-25% of the environmental impacts studied by Labouze et al (2003). As already discussed this is however underestimated (see in above section on Option 1). Table 5 Environmental impacts of non-energy using products excluding means of transport, yearly values per capita (€) EU-27 (bn €) % of total impact Product Min max Min max min Max Space heating 16.5 74.4 8.12 36.68 8% 8% Textiles 11.6 67 5.7 32.9 5% 7% Building structure 11 51 5.4 24.8 5% 5% Water supply 3.5 42 1.7 20.5 2% 4% Furniture 3.3 14 1.6 6.9 2% 1% Total 45.9 248.4. 22.5 121.8 22% 25% Source: Labouze et al (2003) Important impacts can be expected from the inclusion of construction products such as windows and insulation for refurbishings not covered by the Energy Performance of Buildings Directive. For construction products, implementing measures could improve the insulation capacity for example by setting a maximum U-value according to the intended purposes. U-values summarise the capacity of a material to retain heat, the lower a U-value the better the insulation capacity.

Also other categories can have significant impacts. For water using products examples of eco-design measures are: Sensors such that the water stops flowing in the absence of movement. Infusion of air into water to decrease the water content per volume unit. Infusing air into water allows saving water without changing the functionality of water using products. Toilettes with a dual flush such that the consumer can choose to flush 4 or 6 liters of water. The main benefits of ecodesign for water using products would be a reduction in total water use of 5.2%. Moreover, less hot water spent by shower implies also less energy needed to heat it, which would save 0.20-0.23% of total final energy consumption in the EU-25 which corresponds to 18.2 - 21.7 Mt CO2 emissions saved per year. Reducing water use would also lead to the reduction of environmental impacts of water supply. This reduction potential would be reaped at a rate of 3% a year, at low or no extra costs. See Annex IV for more details. Unfortunately is the Labouze study is limited in scope; while more advanced studies such as EIPRO find other relevant non-energy related products with very high impacts . Some environmental impacts are not appropriately covered as the data used by Labouze et al (2003) was limited e.g. regarding a number of relevant emissions (e.g. human and ecotoxicity; as stated by the authors). As a result; products with a higher relevance in these areas are poorely represented in the overall results (e.g. paper products). Due to lack of data or incomplete data (especially for the production stages as can be seen in the annex of the study), the impact of non-energy using products is additionally underestimated. Possible large improvement potentials in this area will require further investigation of these products. The Ecodesign Directive encourages self regulation as an alternative to implementing measures (art 17). The indicative criteria for the admissibility of self-regulatory initiatives as an alternative to an implementing measure in the context of this Directive are: Openness of participation; Added Value; Representativeness; Quantified and staged objectives; Involvement of Civil Society; Monitoring and reporting; Cost-effectiveness of administering a self-regulatory initiative; sustainability and incentive compatibility. Several sectors could be interested in self-regulation. Conclusion In summary, this section shows that there are non-energy using products that would meet the requirements of art 15.2 of the Ecodesign Directive. Moreover, for many t of these products there is a clear potential for ecodesign measures that appear to be cost effective. Below, see Table 8, evidence will be presented that overall environmental improvements are substantial as well. (5)Option 3: Extend the scope beyond energy using products including means of transport This section presents evidence on the environmental impact of means of transport. Then the potential of these products for reducing CO2 emissions is discussed. In addition, it is discussed whether the Ecodesign Directive is the appropriate framework to regulate the environmental impacts of means of transport. This exercise is done separately for road transport and other means of transport. The assessment of the environmental improvement potential and the economic and social impacts of the three options is undertaken in a later section and summarised in Table 8. Table 6 shows that the environmental impact of means of transport is between 23% and 26% of all impacts studied. Table 6 Environmental impacts of means of transport, yearly values per capita (€) EU-27 (bn €) % of total impact Product min max Min max min max Personal cars 32 90 15.8 44.1 15% 9% Goods transport 20 100 10.0 49.2 9% 11% Transport services 5 28 2.5 13.6 2% 3% Total means of transport 58 217 28 107 26% 23% Source: Labouze et al (2003) These figures show that the environmental impacts of means of transport are sizeable. Passenger cars account for most of the environmental impacts. Ecodesign measures can be taken for the overall vehicle or for the engine and transmissions. For the overall vehicle one can improve the aerodynamics, optimise the weight of the car or reduce the rolling resistance of the tyres. For the engine and transmissions improvements the most promising technologies that exist today reduce the internal friction in engines and improve thermal management. Goods transport also has an important share of environmental impacts. Ecodesign measures in light commercial trucks, reduction of internal engine friction and improved aerodynamics are the two most cost effective ones. For medium to heavy commercial vehicles (trucks and busses) the main design lever is improvements of the power train.For trains, measures to improve the energy recovery when breaking, lightweight modular construction and two-level carriages are available design improvements that would abate CO2. In air transportation one needs to further optimise the construction of planes as regards materials application and engine efficiency. To improve the environmental performance of existing planes one can retrofit them with winglets or reduce the weight of the seats used. Finally, transport services have a small contribution to environmental impacts. In the next stage it is investigated whether the cost effective level of abatement will be reached by forthcoming legislation and whether the Ecodesign Directive is the appropriate legislative tool for means of transport. This is done for vehicles first and then for the other means of transport.

Vehicles Road transport accounts for 73% of total energy demand for means of transport.

The proper functioning of the Internal Market for vehicles is based on the EC Type-Approval System. This system provides for market access throughout the EU for new vehicles complying with technical requirements relating to health, safety and environmental protection provided by a wide range of Directives and Regulations. Compliance with the legislation is assessed before the vehicles are placed on the market. With regard to the environmental performance of motor vehicles existing Community policies largely address two main issues: Pollutant emissions from vehicles (including Nitrogen Oxides, Particulate Matter, Carbon Monoxide, etc) are regulated through the so-called Euro standards, providing limit values for the emission of these pollutants from new vehicles. The Euro standards are becoming more stringent over time to reflect the increasing need for environmental protection and to adapt to technical progress. The latest adopted standards are the Euro 5 and 6 standards for light duty vehicles and the Euro V standards for heavy duty vehicles. The present Euro standard for mopeds and motor bikes is currently reviewed and the Commission is preparing more stringent limit values for these vehicles. CO2 emissions from cars are addressed in an integrated approach. A proposal for the main regulation of that approach was adopted in December 2007 and is currently being discussed in Council and Parliament. The regulation would introduce CO2 emission limits for manufacturers of 120 g CO2 per km for the average new passenger car fleet in 2012. Several other proposals further contributing to reduced CO2 emissions are in preparation. One example is the upcoming proposal on rolling resistance of tyres and tyre pressure monitoring systems, expected to be adopted by the Commission during the second quarter of 2008. Other types of vehicles (such as light commercial vehicles, trucks and busses and motorbikes) do not have binding CO2 targets yet. The Commission is in the process of evaluating suitable measures and test methods but no decisions on the principles have been taken so far. In principle, the Ecodesign Directive could regulate this. In addition to these two major groupings, there are several other community policies addressing the environmental impact of motor vehicles. These include the Directives on end-of-life-vehicles (recycling) and the use of certain refrigerants in air-conditioning systems. With regards to pollutant emissions, existing type approval legislation is already forcing manufacturers to take environmental impacts into consideration when designing the vehicles. With regard to CO2 emissions, manufacturers already take this aspect into consideration when designing the vehicles, and will give it even more attention in the future following the adoption of the legislative proposals under discussion in Council and Parliament. For example, the impact assessment for a regulation to reduce CO2 emissions from passenger cars specified that 600 M/tonne CO2 emissions would be saved by the regulation between 2010 and 2020. The regulation would also reduce fine particulate matter (PM) by at least 3%, SO2 by at least 14% and NOX by at least 4%. Moreover, the Euro 5 and Euro 6 standards will substantially reduce the quantity of PM in the EU. In summary, given i) the existing regulatory requirements, ii) the measures proposed by the Commission but not yet adopted and iii) the balance between environmental and safety criteria that are inherent to the Type-Approval System it seems that including motor vehicles under the Ecodesign Directive would have a somewhat limited complementary abatement potential. Due to the complexity of existing legislation related to environmental performance mentioned above it was not possible to determine further improvement potential resulting from applying ecodesign principles to road transport vehicles. Other means of transport The potential benefits of covering other means of transport are smaller compared to road transport but still significant. Air transport accounts for 11% of total energy demand for means of transport, water transport for 9% and rail for 3%. There is however a number of reasons why it will be difficult to apply the Ecodesign Directive to means of air-, water- and rail transport. The volumes sold in EU-27 for these products are below the threshold of 200,000 specified in art 15.2 (a) of the Ecodesign Directive. Moreover, airplanes and ships are continuously entering and exiting the EU. The international nature of these products makes it difficult to regulate the design in a European legislation. . In addition, in Air Transport the main operational cost is and will increasingly be fuel consumption. Thus, less fuel - and hence less CO2 emissions - is already the main market driver for aircraft design. Finally, for all other means of transport design is often customer specific which also renders the applicability of the eco-design approach difficult. Conclusion In summary, this section shows that means of transport have a sizeable impact on the environment and that there is a potential to reduce CO2 emissions. However, the potential abatement in the transport sector seems to be largely addressed and the limited potential benefits of applying the ecodesign approach to regulate means of transport seems not to be proportionate in view of the difficulties that that would engender. Analysis of environmental, economic and social trends and impacts of the three options In this section the environmental, economic and social impacts of the three options are further assessed.



Environmental impacts To assess the potential of the options to improve on the significant environmental parameters, a simulation has been undertaken based on the EIPRO database for the EU-25. The EIPRO database contains information on the environmental impact of 480 sectors that span the total economy in the EU-25. The EIPRO database considers the environmental impact parameters of abiotic depletion, global warming, ozone layer depletion, human toxicity, freshwater aquatic ecotoxicity, marine aquatic ecotoxicity, terrestrial ecotoxicity, photochemical oxidation, acidification and eutrophication. Finally, these impacts are weighed and condensed by EIPRO into one environmental impact parameter. The weighted cumulative environmental impact is primarily for presentational purpose and for easy comparison of the options. As already mentioned, the methodology for setting implementing measures allows the European Commission to decide which environmental impacts it deems important and it is by no means bound to the analytical approach taken here. The simulation imposes an exogenous improvement in the environmental performance of 10% or 15%. The 10% or 15% appear conservative based on the efficiency improvement potential between average product performance and suggested minimum requirements in the preparatory studies currently undertaken for the Ecodesign Directive. For the worst performing products in a product range the improvement potential will off course be much higher. Nonetheless, this simulation should be seen as illustrative. For some products, the 10% or 15% can be assumed to be too low or too high. In the Directive, implementing measures are only considered for products with significant environmental impacts. Therefore, for the purpose of the example, the simulation considered improvement only in the cases of products whose environmental impact are higher than 0.5% of the total environmental impacts in Europe. This is an arbitrary cut-off used for illustrative purposes for this impact assessment. Another illustrative threshold, e.g. 1% or 2.5%, could have been used. Other thresholds would alter the environmental improvement potential but it would not have significantly altered the comparison of the three options. For the purpose of selecting the products for which implementing measures are considered the European Commission does not intend to use this kind of quantitative threshold. Since the environmental impact of the agricultural phase of the life cycle of food is already covered by the principle of cross compliance under the Common Agricultural Policy, this stage has been excluded from the analysis. Based on these selection criteria, there are 7 product categories that qualify under option 1 (Table 7). These product categories represent 12.6% of weighted cumulative environmental impacts. There are 11 additional product categories under option 2 that represent an additional 15.0% of weighted cumulative environmental impacts. As argued above this is an underestimation. ,. Finally, one product category under option 3 represents an additional 18.8% of weighted cumulative environmental impacts. The weights used for the aggregation are the ones utilised in the EIPRO study, which were reviewed by the JRC.

Table 7 Summary statistics for the products used in the simulation Option 1 Option 2 Option 3 % of total current environmental impacts covered 12.6% 27.6% (+15%) 46.4% (+33.8%) Number of product categories 7 18(11) 19(12) In brackets the differences to the baseline option are represented. The results of the simulation are shown in Table 8 below. These results are illustrative. Table 8 Annual environmental effect of improving the environmental impact of selected products by 10% in 2020 relative to current products Category Option 1 Option 2 Option 3 Abiotic depletion 0.0% -9.5% -9.9% global warming -2.5% -5.5% -7.4% ozone layer depletion -0.1% -2.4% -2.5% Human toxicity -0.3% -2.5% -5.4% Freshwater aquatic ecotoxicity -0.1% -0.6% -0.8% Marine aquatic ecotoxicity -0.1% -3.8% -4.0% Terrestrial ecotoxicity -0.2% -0.8% -1.1% photochemical oxidation -0.4% -3.0% -5.5% acidification -4.2% -5.2% -6.3% eutrophication -1.2% -2.1% -3.7% Weighted sum -1.5% -4.0% -5.8% As can be deducted from Table 8 above, and under the mentioned restrictions of an underestimation for non energy-using products, Option 1 reduces the weighted cumulative environmental impact of the economy by 1.5% compared to the status quo today. The main impacts are on global warming (-2.5% of total) and acidification (-4.2%). For other environmental parameters, the impacts of option 1 are smaller. Option 2 reduces the weighted cumulative environmental impact by at least 4.0% compared to the status quo. Compared to Option 1 the additional improvement potential of Option 2 is at least 2.5%. The main additional impacts are on abiotic depletion, global warming and marine depletion. Option 3 reduces the weighted cumulative environmental impact of the economy by 5.8% compared to the status quo. The additional improvement potential of Option 3 over option 1 is -4.3% and the main additional impacts compared to Option 1 are on abiotic depletion, global warming, human toxicity, marine aquatic ecotoxicity and photochemical oxidation. The environmental improvement potential of the products, regardless of the option, will be realised over the life cycle of the product. This implies that this improvement potential is gradual and for durable products will only be reaped over the somewhat longer term. The conclusion of this section is that Option 3 could have the biggest environmental improvement potential. However, since most of the additional improvement potential of Option 3 compared to option 2 is already addressed by forthcoming legislation, Option 2 and Option 3 would have similar environmental improvement potential. Competitiveness This section looks into the competitiveness aspect of extending the Ecodesign Directive. A general discussion is followed by a discussion of the internal competitiveness aspects and the competitiveness impacts for SMEs. Art 15.5 (d) imposes on the European Commission that implementing measures for products cannot have a significant negative impact on industry’s competitiveness. This implies that the European Commission needs to assure that implementing measures are only set such that this condition is respected. Art 15.4 (b) clarifies that the following dimensions of “competitiveness” need to be looked at: SMEs, innovation, market access and other international competitiveness aspects, and cost and benefits. Cost and benefits It is not straightforward to conduct an analysis of the cost and benefits of potential implementing measures without knowing in detail which products would be covered and how minimum requirements would be set. Besides, the portion of the impacts of ecodesign in option 3 (transportation means) not covered by existing or planned legislation are not differentiable in the current datasets. However, to provide some indication of the nature of the costs and benefits over time of options 1 and 2, the same case studies (water heaters, windows) used in the SCP/SIP Impact Assessment, using the same sources of information, were analysed in greater detail. The results are presented in Tables 9, 10 and 11 below. This analysis is illustrative only, but deemed appropriate for the purpose of the current impact assessment. Full blown analysis of the costs and benefits of all potential implementing measures is neither proportionate nor feasible at this stage. A more detailed analysis will be done when identifying the minimum requirements for the product groups . To analyse potential impacts in the two case studies, the period between 2010 and 2019 was selected. For this period of time, discounted upfront costs of least life-cycle costs products were compared with the discounted upfront cost of products considered to be the “baseline”. In the simulation, it was estimated that water heaters are replaced every ten years and that windows are replaced every 25 years. This implies that 4% of all windows are replaced in a given year. These payment flows and the benefits (differences in energy consumption) over time were discounted at a rate of 4%. The results are presented in terms of net flows (cost-benefits) (Table 9). The detailed flow of potential cost and benefits is presented in Annex VIII. Table 9 Present value of net benefits from the inclusion of minimum performance for one example of products in options 1 and 2 (in 2007 Euros) Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total Option 1 Products Water heaters "extra small" -195 -99 -18 49 104 148 184 211 233 248 865 Water heaters "extra large" 684 1563 2277 2848 3297 3640 3894 4072 4185 4244 30704 Option 2 Products Windows (50% double glazing) - 1,020 - 708 - 418 - 150 98 327 539 734 913 1,077 1392 Windows (only double glazing) -2040 -1416 -837 -300 196 655 1078 1468 1826 2154 2784 Source: own estimations from the same sources used in the SCP/SIP Impact Assessment In the case of water heaters, it appears that there are already appliances in the market that are not only more attractive from a life-cycle perspective but also from the up-front costs (the “extra-large” case). This implies that benefits would be derived from the beginning of the application of the implementing measure. In the other case (extra small water heaters and windows with different proportions of double glazing in the refurbishment) the up-front costs are higher than the ones of less efficient products, implying that the aggregate investment would pay-off only in the longer term.

In terms of energy savings, the penetration of more performing products would induce important savings in all the cases (Table 10).

Table 10 Energy savings per year in GWh Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total Option 1 products Water heaters "extra small" 891 1782 2673 3564 4455 5346 6236 7127 8018 8909 49001 Water heaters "extra large" 4007 8014 12022 16029 20036 24043 28050 32058 36065 40072 220396 Option 2 products Windows (50% double glazing) 1669 3337 5006 6674 8343 10011 11680 13348 15017 16685 91769 Windows (only double glazing) 3337 6674 10011 13348 16685 20022 23359 26696 30034 33371 183538 Source: own estimations from the same sources used in the SCP/SIP Impact Assessment In terms of CO2 emissions, each of these products would increasingly reduce the emissions associated with their use (Table 11). Table 11 emissions savings per year (M t of CO2) Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total Option 1 Products Water heaters "extra small" 1 1 2 2 3 4 4 5 5 6 33 Water heaters "extra large" 3 5 8 11 14 16 19 22 25 27 150 Option 2 Products Windows (50% double glazing) 1 2 3 5 6 7 8 9 10 11 63 Windows (only double glazing) 2 5 7 9 11 14 16 18 21 23 126 Source: own estimations from the same sources used in the SCP/SIP Impact Assessment It is clear that addressing both energy-using and non-energy using products could improve their performance and would complement the Climate and Energy package adopted by the Commission in January 2008. As mentioned above, these are only examples of the potential direction of the impacts and do not imply any commitment to introduce implementing measures for these products. A more thorough analysis would be undertaken in the impact assessment of each implementing measure. In addition, it needs to be reminded that the provisions of Art 15.5 (d) require such analysis by the European Commission in the Impact Assessment of the implementing measures. The kind of analysis that would be undertaken at the product level: The Commission will look at how costly it is to redesign the manufacturing process for those producers whose products would not meet the minimum requirements. Based on this information it will take a decision on the timing of the phasing in of the minimum requirements. The Commission will look at the variable cost of adjusting the product in question when determining the level of the minimum requirements. The Commission will look at the amount of existing stock of products. This information will be taken into account when deciding the timing of the phasing in of the minimum requirements. Some general competitiveness aspects of the options The extension of the Ecodesign Directive should allow the introduction of implementing measures for products with significant environmental impact and significant potential for the improvement of that environmental impact at the lowest economic cost to society. By maintaining the product scope of Option 1, the full reduction potential which can be reaped at no extra cost or even at a gain to private individuals, is not reached. If one would try to reduce certain environmental impacts with the current product scope nothing guarantees that this happens in a cost effective way. For example, water efficient appliances such as showers, taps, washing machines and dish washers all offer households possibilities for water saving, equally diminishing the energy required to heat the water. Installing water efficient appliances, e.g. by eco-design, for all of them can reduce the use of a household from 280 l/day today to 167 l/day, representing total savings of 41% of household water use. Yet, under the current scope of the eco-design directive, only the water use of washing machines and dish washers can be regulated. Installing water efficient appliances for energy using products only has a potential to reduce the water use of a household by 12 l/day, representing total savings of 4% of household water use. If one would need to go beyond 4% savings for households and the scope of the Ecodesign Directive would be only energy using products, the current technology would not suffice and it would be very costly to reach this higher target. On the other hand, with an extended scope one can go beyond 4% reduction with existing technologies at lower additional cost. International Competitiveness As already stated before, a regulatory dialogue with the main trading partners is ongoing on the implementing measures of the Eco-design Directive. Moreover, manufacturers and countries from outside the EU can participate in the consultation forum for implementing measures of specific product groups. The Ecodesign Directive is an Internal Market Directive and will only apply to products placed on the market in Europe. Regardless of which options are taken, imported products would need to comply with the minimum requirements, while exported products would not need to comply with the minimum requirements. Thus, minimum requirements guarantee a level playing field both within and outside Europe. It should be noted that if these two level playing fields are sufficiently different it might be necessary for manufacturers to have two separate production lines, one for products complying with minimum requirements in the EU and one for the rest of the world. This creates additional costs. However, all manufacturers willing to be present on both markets will incur these costs no matter where they are located. Therefore there should be no competitive disadvantage for EU producers on export markets unless foreign producers decide to only serve the rest of the world and thus to save costs for a second production line. Given the substantial size of the EU market this is not particularly likely. It has to be pointed out that if tighter standards in the EU are considered desirable and the rest of the world does not adopt them, this additional cost is unavoidable. Art 15 requires the European Commission to look into the international competitiveness issue when considering implementing measures. In designing the implementing measures carefully taking into account international competitiveness, the European Commission can avoid a distortion of the international competitive balance. To achieve this it would need to take into account whether manufacturers are active on the domestic market versus internationally, fixed versus variable adjustment cost for manufacturers and access to technology. For the different options it seems that all goods in option 1 and 3 are traded internationally. Some products in option 2 such as textiles are internationally traded goods whereas other products such as windows are not traded internationally to a large extent. Therefore, for products of option 2, it will be important to assess on a case by case basis whether international competitiveness is an issue. To the extent that demand for environmental products is on the rise globally, new export opportunities might arise for European and foreign products that comply with the minimum requirements.

Competitiveness of SMEs It is also worthwhile to look into the impacts that the Ecodesign Directive will have on SMEs. The Ecodesign Directive can have important benefits for SMEs. For all SMEs, office machinery and equipment will become cheaper because of option 1 and heating costs for offices will be reduced because of option 1 and option 2. Only 12% of all SMEs are in the manufacturing sector. Those SMEs are responsible for 26% of all turnover for SMEs. Also for SMEs in the manufacturing sector there are important benefits. All motors purchased by SMEs will be cheapest over the life cycle under option 1. This implies that manufacturing SMEs will have a lower energy bill. For SMEs in the services sector there will only be benefits in terms of cheaper products over the life cycle. SMEs in this sector make up 88% of all SMEs and are responsible for 74% of all turnover of SMEs in 2005 for EU-27. Therefore, for most SMEs there is no downside to the Ecodesign Directive under either option. Moreover, for some there is a considerable upside. For example, small retailers will have commercial refrigerators that are more energy efficient. However, some SMEs will need to demonstrate that their products satisfy the minimum requirements. The above shows that one cannot make a general statement of the impact of the Ecodesign Directive on the competitiveness of SMEs. Therefore, the Ecodesign Directive contains safeguards such that implementing measures will take into account the competitiveness of SMEs: Art 15.4 (b) requires the Commission to look into the issue of competitiveness for SMEs when preparing an implementing measure. Together with Art 15.5 (d) this implies that the Commission will consider, if the competitiveness of SMEs requires it, a transitional period or a stage approach when setting minimum requirements and/or set the minimum requirements taking into account SMEs. Art 13.1 imposes an obligation on the Commission to take into account initiatives to help SMEs with ecodesign in the context of programmes from which SMEs can benefit. This is for example done via the Enterprise Europe Network. The Enterprise Europe Network and other dissemination channels will encourage SMEs to adopt environmentally friendly and energy efficient solutions. The Enterprise Europe support centres will consult and advise SMEs. Moreover, the action will aim at developing content for training and dissemination of tailor made information on the subject of energy saving and environmental compliance in SMEs. Art 13.2 obliges Member States to ensure, in particular by strengthening support network and structures, that they encourage SMEs to adopt ecodesign principles. In summary, the implementing measures will need to take into account the competitiveness of SMEs when setting the level and timing of minimum requirements. Conclusion This section has shown that limiting the product scope to Energy Using Products (Option 1), does not allow reaping the full reduction potential of environmental impacts that can be attained in a cost effective way. There are no indications that any of the three options would harm the competitive position of European manufacturers in the world. Also for the competitiveness of SMEs there is no indication that one particular option would be more or less harmful for the competitiveness of SMEs. The impact assessments of the implementing measures will need to look into the competitiveness aspects in detail for a specific product. Social dimension This section looks into the social dimension of the different options. First, it discusses the social implications of lower environmental impacts. Second, it discusses the short term and long term implications of the Ecodesign Directive. Finally, the employment effects of the different options are discussed. An extension of the Ecodesign Directive will allow setting minimum requirements such that products' environmental impacts are optimal over the life cycle. Each implementing measure will need to weigh the gains from reducing the environmental impact against the abatement cost. The abatement cost includes effects on jobs, competitiveness and affordability. Based on the simulations presented above one can give an illustrative indication of the social gains due to the avoidance of externalities of option 1, 2 and 3. This can be done by multiplying the environmental reduction potential by the cost of externalities. The gains of option 1 would minimally be €3 per year per capita. For option 2 and 3 the minimal gains would be respectively €9 and €13 per capita per year. Table 12 Cost avoided per capita per year € option 1 option 2 Option 3 min 3 9 13 max 14 38 55 For the EU-27 as a whole this corresponds to minimal savings of between €1.6 billion for option 1, €4.3 billion for option 2 and €6.2 billion for option 3. Table 13 Cost avoided for the EU-27

€ option 1 option 2 option 3 min 1.6 4.3 6.2 max 7.0 18.6 27.0 In a number of cases, the reduction of externalities also generates savings, notably for products whose highest environmental impact occurs during the use phase. From a social point of view, any extension of the scope of the Ecodesign Directive might create difficulties for low income households in the short term since it is expected that those products that will be removed from the market because they do not fulfil the minimum requirements are the cheapest ones and thus most easily affordable. However, these products also have higher life cycle costs and thus permanently expose low income households to budget pressure, particularly with respect to energy expenditures. The Ecodesign Directive would instead allow a long term budgetary improvement for all households. Nonetheless, art 15.5 (c) obliges the European Commission to set implementing measures such that there shall be no significant negative impact on consumers in particular as regards the affordability and the life-cycle cost of the product. Therefore, the European Commission will consider when setting implementing measures foreseeing transitional periods or a staged approach for the introduction of minimum requirements and will set minimum requirements to balance affordability and the life-cycle cost of the product. Furthermore, short-term adjustment difficulties for low income households could be alleviated by financial measures by the Member States. Moreover, the impacts on competitiveness and the social dimension of introducing minimum requirements are likely to be limited over the long run. This is due to the tendency for appliances to become cheaper the more appliances are produced (economies of scale). A shift in demand towards higher energy efficient appliances will imply that over time the cost of these appliances will go down. The figure below indicates that from the 1960’s until now real prices of energy efficient energy using products have fallen on average. In Annex III more detailed figures are shown disaggregating the price and resource efficiency effects over time. Figure 1 Relation between energy efficiency and prices for energy using products over time Source: Weiss, Junginger and Patel (2008) unpublished The Ecodesign Directive and employment Finally, one should also assess the employment effects of extending the scope of the Ecodesign Directive. The academic literature does not provide conclusive evidence on the relationship between the environment and jobs. Studies by Morgenstern et al. (2002) and Berman and Bui (2001), for the case of US, find no evidence that environmental regulations have adversely affected industrial employment. Other studies for the US indicate that industries located in counties with stringent regulations have experienced job losses, or at the very least lower employment growth rates, relative to industries in less regulated counties. Cole and Elliott (2007) examine the impact of environmental regulations on employment for the UK. No significant trade-off between employment and the environment is found. The preferred option of the climate package is projected to have a +0.05% effect on employment in the EU-27. Since, the Ecodesign Directive is an Internal Market Directive it will apply to any product placed on the EU market regardless of the place where the goods are produced. Therefore, it is unlikely that delocalisation and the resulting job losses would occur as a consequence of the enlargement of the scope of the Ecodesign Directive. However, although the effect on the total economy might be non-negative, some industries can be negatively affected by environmental legislation. Yet, there is evidence that those effects are sometimes overstated initially. The effects of the US Acid Rain Programme on coal mining employment had originally been estimated at 13000-16000 by the year 2010. Current estimates are in the range of 4100 net jobs lost. Finally, there is some evidence that energy efficiency measures lead to job creation in Europe. One study determined the employment effects of energy conservation schemes for France, Germany, The Netherlands, Spain and the United Kingdom. In all countries, the energy conservation schemes, both for EuP and energy saving appliances such as insulation or windows have been found to create employment. France has since 1974 a programme of tax incentives in place to favour energy saving investments for residential space heating. Over the lifetime of the Income Tax Incentive scheme 71,000 labour years have been created. For Germany, the employment impact of the Thermal Insulation programme, which imposes insulation requirements for new buildings, is 40,100 labour years for the period up to 2010. The condensing boiler programme in the Netherlands, which promotes the uptake of energy efficient boilers, induces a total cumulative employment effect of 3,800 labour years over the period 1995-2010. The main driving force behind the positive employment effect of investment in energy efficiency in the residential sector is the fact that the energy sector has rather low labor intensity. The resulting shift of expenditures from the energy sector to other sectors with higher labor intensity leads to increased employment. Labor intensity is higher in the construction sector which needs to install energy efficient appliances than in the EuP producing goods or the transport manufacturing sector. This would imply that the products of option 2 would be the most positive for employment. Conclusion In summary, this section discussed the social impacts of the different options. The main conclusions are that option 2 and 3 result in lower environmental impacts which have a sizeable social value compared to option 1. Regardless of the option, minimum requirements for products can result in short term negative income effects for poor income households but these are offset by positive income effects over the longer term. This is because minimum requirements are set such that products have the lowest life cycle cost. These long term benefits are general since higher volumes for products with lower environmental impacts will result in price declines for these products. Finally, there is no evidence that either of the options will result in job losses. However, it will be necessary that social impacts are carefully scrutinised in the impact assessments of the implementing measures. 6.Comparison of the options As already indicated above, the possible extension of the scope of the Ecodesign Directive does not trigger any direct cost or benefits. The cost and benefits of the Ecodesign Directive will only arise when an implementing measure will be set for a specific product category. The analysis in the previous section can be summarised in a decision table: Option Disadvantages for covering/limiting under eco-design Advantages for covering/limiting under eco-design Not extending beyond EuPs 1) short run negative income effect on low-income households for some products 2) Adjustment cost for those manufacturers which products initially do not meet minimum requirements. 3) Limited environmental improve-ment potential even if relevant cost benefits exist. 1) Significant abatement potential in terms of CO2 2) The Potential for other environmental savings is somewhat limited: Improving the environmental impact of EuP by 10% will lead to improvements of 1.5% of the total environmental impacts. Most of these benefits are however reaped by reducing CO2 and acidification. 3) long run positive income effect on low income households Extend scope beyond EuP except means of transport 1) Potential short run negative income effect on low-income households for some products 2) Adjustment cost for those manufacturers which products initially do not meet minimum requirements 1) Significant additional abatement potential at low cost per tonne of CO2. 2) complementary to construction products directive and energy performance of buildings directive 3) Potential for other environmental savings is important: Improving the environmental impact of products covered by option 2 by 10% results in additional improvements of at least 2.5% of the total environmental impacts compared to option 1. 4) Compared to option 1, the same environmental impact could be realised more efficiently if the products with the highest savings potential can be covered, regardless of the product category. 5) long run positive income effect on low income households 6) Employment effects could be more positive than for option 1 or option 3 Extend the scope beyond energy using products including means of transport 1) Potential short run negative income effect on low-income households for some products 2) Adjustment cost for those manufacturers which products initially do not meet minimum requirements 3) Type-approval legislation for motor vehicles already provides for stringent requirements on environ-mental performance and an application of the Ecodesign Directive would not provide additional benefits. 4) Current and foreseen legislation already covers the CO2 abatement potential for motor vehicles. The CO2 and cars proposal will save 600 Mt CO2 equivalents between 2010 and 2020. The recently adopted Euro-standards for light and heavy vehicles will also significantly reduce other environmental impacts. Light commercial vehicles, trucks and busses, and motorbikes remain outside the framework. 3) Non-road means of transport are produced in very low volumes making the application of the eco-design framework difficult. 1) long run positive income effect on low income households 2) Potential for other environmental savings is important: Improving the environmental impact of products covered by option 3 by 10% results in improvements of an additional 4.3% compared to option 1 and an additional 1.8% of the total environmental impacts compared to option 2. But, see point 2 of disadvantages.

At this stage, it can be recommended based on the available evidence to widen the scope of the Directive to energy-related products. While there are also strong indications that widening the Directive beyond those products could deliver significant benefits, it is recommended to carry out further investigations and further assess the option of including non-energy related products in the scope of the Directive following a future review. 7.Administrative costs 7.1.For Member States and the Commission It appears that there are two areas in which the actions might generate administrative costs for Members States and the Commission. These are: (a) Work for defining implementing measures of the Ecodesign Directive. The extension of the product scope of the Ecodesign Directive will broaden the choice of product groups for which implementing measures can be adopted. Among those the products that have a significant environmental impact and potential for improvement will be identified and listed in the Working Plan referred to in Article 16 of the Ecodesign Directive. The eventual additional budgetary needs, resulting from the extension of the product scope will be determined by the Working Plan. The potential allocation of additional resources must be compatible with existing financial programming and will be subject to the current financial and budgetary rules and procedures. The expected integration of the decision structures of the Ecodesign Directive and the Energy Labelling Directive and the informative role of the eco-label suggested in the SCP/SIP Action Plan will provide synergies which guarantee that resources are used such that implementing measures have the biggest environmental impacts at the lowest cost for the economy. (b) The time and costs involved cannot be quantified precisely but as a guideline it has been assumed that the implementation of the amended Ecodesign Directive would require six full time equivalent work from Commission staff and equivalent amounts of time from officials in at least 10 Member States (it is unlikely that all Member States would be involved in the detailed discussions). Given the average annual cost of a Commission official (€ 117.000/year) this would cost the Commission € 702 ,000. This does not include any add on for overhead costs. The assignment of staff for these particular tasks from existing or additional resources remains subject to resources availability and will be decided in the framework of the annual resources allocation procedure. 7.2.For Manufacturers Extending the scope of the Ecodesign Direc