Purpose and scope of laws and regulations to promote energy conservation and energy efficiency

Compendium on Energy Conservation Legislation
in Countries of the Asia and Pacific Region

Part One: Overview of Energy Conservation Legislation in the Asia and Pacific Region

1 Purpose and scope of laws and regulations to
promote energy conservation and energy efficiency

All civil societies regulate human behaviour through laws and regulations which aim at establishing codes of conduct that allow individuals to satisfy their needs, whilst protecting the rights of others. All economic activity requires some form of (commercial) energy. All energy production and consumption is directly or indirectly associated with some form of environmental impact which may affect the health or welfare of people other than the producers or consumers. In all countries, energy production and consumption are therefore subjected to a variety of laws and regulations which aim to optimize energy development and use under the prevailing political, economic, social and environmental development priorities.

Within the framework of energy laws, governments establish their policies, rules and regulations concerning ownership, exploitation, development and use of energy resources within the boundaries of their jurisdiction. Some countries have comprehensive energy laws which regulate resource exploration, development, production, transport, purchase and distribution of energy for one or more than one energy carrier. Other countries have issued separate laws for each type of fuel governing resource ownership, exploration rights, and trade regulations as well as supply and pricing rules. In most countries, energy supply systems, and electricity supply in particular, remain in the domain of the public sector. Due to the strategic and economic importance of energy private sector activity in this field also remains highly regulated. However, conventional energy laws typically focus on the development and management of the energy resource and supply side, and do not normally provide specific guidelines concerning energy use or demand management.¹

All legislation concerning controls of human activity which cause emission of pollutants or has other environmental impacts may be categorized as environmental laws.² The promulgation of national environmental laws began in the late 1960s, when governments in industrialized and in several of the newly industrializing countries responded to growing local, national and international public concern by establishing legal and institutional frameworks for environmental protection. <return to top>

During the past ten years many of the developing countries in Asia also announced such laws. Among the developing countries in Asia, national environmental protection laws were established in China (Environmental Protection Law; 1989), India (Environment Protection Act; 1986), Indonesia (Environmental Management Act, 1997), Malaysia (Environmental Quality Act, 1974, amended 1996), Sri Lanka (National Environmental Act; 1980 and 1988), Thailand (Enhancement and Conservation of National Environmental Quality Act, B.E. 2535, 1992) and Viet Nam (Law on Environment Protection; Presidential Order of 10 January 1994). National environmental laws provide a legal basis for prohibiting specific (economic) activities in certain geographical areas (for example, for purposes of preserving forest reserves, parks, wetlands, grasslands, coastal zones or marine parks). They also determine the mandates of institutions created to ensure that minimum environmental quality or safety standards are adequately maintained. Environmental laws provide the legal basis for environmental impact assessment (EIA) studies. Today, most Asian governments require EIA studies as a precondition to approval and funding of all larger industrial or infrastructure projects.

In all countries, basic national environmental laws are complemented by and implemented through a variety of industry, sector or product specific regulations aimed at restricting the production and use of hazardous substances and/or the reduction of emissions that can affect human health through pollution of the air, water or soils. Environmental laws call in general terms for a conscious and "rational" use of all resources, including in particular of water and energy, but they do not normally spell out any detailed principles for energy conservation or attainment of energy efficiency.

Energy conservation laws were first introduced by some oil import dependent countries as emergency measures in the mid 1970s and early 1980s when two subsequent global oil price shocks caused sudden and dramatic trade imbalances and economic recession. The initiation of the first energy conservation laws in the United States of America, Japan and Republic of Korea date back to that period. Energy conservation laws establish institutions and authorize funding for the increase in domestic energy production and supplies and/or the creation of strategic energy reserves.³ Energy conservation laws provide mandates for market intervention, energy price regulation (for purposes of energy price stabilization) and, in some countries, also include provisions for emergency-type rationing of energy consumption. Most energy conservation laws also include elements of energy efficiency promotion which are aimed at curbing growth in energy consumption.

Promotion of energy conservation and promotion of energy efficiency are separate but related concepts: Energy conservation is achieved when growth of energy consumption is reduced, measured in physical terms. Energy conservation can, therefore, be the result of several processes or developments, such as productivity increases or technological progress. Another way to conserve energy is to consume less, possibly sacrificing output, consumption or comfort. Energy efficiency is achieved when energy intensity in a specific product, process or area of production or consumption is reduced. By definition, energy efficiency does not involve sacrifices or reduction of output, consumption or comfort. Promotion of energy efficiency will contribute to energy conservation and is therefore regularly an integral part of energy conservation promotion policies. <return to top>

In reaction to the oil crisis, several industrialized countries as well as some energy import dependent developing countries established (temporary) oil price stabilization funds. Related regulations foresee the (temporary) subsidization of energy import costs during expected future crisis periods. In most countries, regulations pertaining to oil price stabilization were repealed or suspended during the late 1980s and early 1990s as part of overall moves towards greater market and price liberalization.

Laws and regulatory measures for energy efficiency promotion aim at achieving lower energy intensities in specific economic sectors or the economy as a whole.⁴ National campaigns for energy efficiency promotion can include mandatory energy auditing for large-scale energy consuming industries or other establishments.⁵ Some countries, have issued ministerial orders establishing minimum energy efficiency design standards for commercial or institutional buildings. Regulatory measures for energy efficiency promotion can also include the setting of minimum energy efficiency standards for automobiles or electrical appliances, and the introduction of voluntary or mandatory energy labelling schemes for consumer information. All energy conservation legislation issued after 1990 focuses on measures for energy efficiency promotion. Many of these countries with economies in transition have recently established a regulatory framework for energy efficiency promotion.

Table 1.1.1 provides a chronological listing of energy conservation laws and regulations known to the Secretariat at the time this study was prepared. The laws and regulations are listed in historical order. The changes in the titles and in the focus of the laws reflects main trends and developments in the priority concerns of governments and the public. <return to top>

Energy Conservation in Indonesia

by Budi S. Sudarsono *

From 1969 to 1997, Indonesia achieved a sustained high growth of 6.8 per cent per annum in its economic development. This high economic growth had been accompanied by a high growth in commercial energy demand of 9.4 per cent per annum and in electricity demand of about 15 per cent per annum. These high growth rates in energy and electricity have been principally due to the availability of domestic supplies, the relatively low pricing levels for petroleum products, and the relatively low electricity tariff levels. However, because of the constitutional stipulation that "the earth and the waters, and all the natural riches that they contain, should be utilized for the maximum benefit of the people" (article 33 of the 1945 Constitution), it had been politically difficult for the Government to set energy and electricity price levels which reflect their economic value.

In the early 1980s, there were attempts to adjust energy prices and electricity tariffs, but these were frustrated by the subsequent necessity to devalue the national currency in 1983 and in 1986. Since then, prices and tariffs have been adjusted periodically to keep pace with inflation and the depreciation of the Rupiah as the Government realized that it was important to moderate energy consumption by appropriate signals to the market on energy pricing.

The necessity of implementing an energy conservation programme had been recognized from earlier five-year plan periods. The five-year plans are based on the Basic Guidelines of National Policy (Garis-garis Besar Haluan Negara or GBHN) which are formulated by the Consultative Assembly every five years. The current 1994/95-1998/99 five-year plan is based on the 1993 GBHN although the stipulations on energy conservation had been included even in earlier versions of the GBHN. Furthermore, in 1992 the Government issued a document titled "A General Energy Policy" (Kebijaksanaan Umum Bidang Energi or KUBE), in which energy conservation was given a prominent role in energy policy.

In fact, as early as 1982 the Government had issued Presidential Instruction No. 9 (1982) to all state-owned entities (and all government buildings) to implement programmes on energy efficiency and energy conservation. All forms of energy consumption were to be reported monthly and energy consumption was to be effected "efficiently and rationally without reducing energy consumption which is truly required". However, these stipulations were not made binding on the various Government departments and agencies and were only appeals without any sanctions against non-performance. A presidential decree was issued in 1991 (No. 43 of 25 September 1991) to boost energy conservation in both the private and public sectors. Energy conservation was to be applied to all energy consumers, whether direct or indirect consumers, and energy efficiency was to be increased.

More recently, the Ministry of Mines and Energy realized that the energy conservation programme should be institutionalized. It formulated a Master Plan on National Energy Conservation (Rencana Induk Konservasi Energi Nasional or RIKEN). The plan was intended to provide guidelines to all concerned public and private sector entities on the implementation of the energy conservation policy. It was formally issued through Decree No. 100.K of the Minister of Mines and Energy. The Ministry also acts as the coordinating agency on energy conservation. The Ministry estimates that, in the long term, the country's energy conservation potential is between 10 to 30 per cent.

¹Comprehensive information on national and international energy laws and other natural resources laws may be obtained from various specialized academic institutions, such as Centre for Energy, Petroleum & Mineral Law & Policy (CEPMLP) at University of Dundee, Dundee, Scotland or International Institute of Energy Law at University of Leiden, Leiden, Netherlands. <return to place in text>

Prestigious periodicals on the subject of energy law include the Journal of Energy and Natural Resources Law, published by International Bar Association, and Energy Law, a newsletter published by Denton Hall, a London-based international law firm.

² For an overview of environmental laws the reader may refer to publications of the World Conservation Union (IUCN) or its home page: http://www.iucn.org/themes/law for environmental protection. <return to place in text>

³The Energy Policy and Conservation Law of the United States of America, passed on 22 December 1975, may be studied as an example (US Public Law 94-163). <return to place in text>

⁴ Energy intensity is defined as the ratio between (final) energy consumption measured in energy units such as tonnes of oil equivalent (toe) and joule as well as indicators of economic activity, typically measured in monetary units such as Gross Domestic Product (GDP). <return to place in text>

⁵A considerable number of studies have been undertaken to assess energy conservation potentials in industries focusing on industry in developing countries of Asia. Most of these studies conclude that energy consumption and related costs and emissions may be reduced by between 3 and 10 per cent through improved energy management alone and without costly investments. <return to place in text>

*Mr. Budi S. Sudarsono
Badan Tenaga Atom Nasional
Jl. Kuningan Barat, Mampang
Jakarta, Indonesia 12710
Fax: (62)(21) 525-1110
E-mail: budi@batan.go.id <return to place in text>