Beyond VW - other firms deceiving their customers
By Jack Hunter
At VW, what you see is not what you get. The same is true with home appliances. Firms are deliberately overstating the performance of their products through a legal loophole that could be costing consumers as much as €2bn a year. Reforms to close the loophole have been frozen by European Commission chiefs nervous of VW-like headlines.
- Manufacturers deliberately overstating product performance
- Whistleblower: the problem is endemic in the lighting sector
- Loophole could be costing consumers €2bn a year in higher energy bills
- European Commission sitting on a silver bullet legal reform
- Electrolux criticises Commission
Companies are taking advantage of allowances intended for use exclusively by state authorities. Manufacturers and importers are responsible for declaring the energy efficiency of their TVs, fridges and other products regulated by the EU Ecodesign Directive and Energy Labelling Directive, while authorities are responsible for testing those claims. Authorities are entitled to apply a margin for error, or ‘tolerance’, to allow for variations in the accuracy of their lab tests. Tolerances vary by product, but are typically around 10% in Europe. The rules are old, testing technology has moved on, yet over-generous tolerances remain. Even if tolerances were reduced, EU regulators never intended firms to take advantage of them, but never specified this with sufficient legal clarity. So today, manufacturers are declaring their products to be something they know perform worse. Some of those products should not legally be on the market at all because they waste too much energy.
Coolproducts has spoken to a whistleblower in the lighting industry who says his firm started out honest, but was forced to ‘cheat to compete’. The senior executive with over 20 years experience in the industry said:
Swedish consumer association magazine Råd & Rön has been testing bulbs for years. The results are grim and reveal that all the big brand names are overstating the performance of their bulbs by as much as 25 percent. German consumer association Stiftung Warentest says it sees the same problem "again and again".
There is no question these firms know they are deceiving their customers. The industry is legally obliged to put two distinct pieces of information on product packaging. The Energy Labelling Directive requires products to carry an energy efficiency rating on the well-known eu energy label. The Ecodesign Directive requires firms to print how many lumens the bulb produces (how bright the bulb is) and how many watts the bulb consumes. These two requirements are intimately related: lumens / watts = efficiency. In 2012, the European Commission closed the tolerance loophole only in relation to energy labelling of light bulbs, but not the lumens & watts aspect. The industry duly downgraded many of its halogen bulbs from a C to a D grade. At that point, it could have come clean about the lumens and watts information. But as energy labels were reformed, lumens and watts remained conspicuously the same.
The lighting industry has a history of greenwash. This year, media pressure initiated by Coolproducts forced the world’s biggest bulb makers, OSRAM and Philips, to stop marketing its halogen bulbs as ‘eco’. The truth is halogens are the most expensive bulbs on the European market to run and the most wasteful. Philips eventually dropped ‘eco’ but still claims the bulbs are energy saving, an illegal claim and an ongoing embarrassment when set aside the company’s endless green marketing, like the tweet below. Illegal according to a paragraph in this European Commission document (page 11).
Like the car industry, lighting firms use a trade association to do their lobby work in Brussels. There is no evidence available to suggest LightingEurope has been knocking on doors of senior Commission staff to pour cold water on legal reforms aimed at closing the tolerance loophole.
But LightingEurope was singled out in a letter from the European Commission to the manufacturing sector and other interest groups. While everyone in the room supported the change, LightingEurope stated it was particularly vulnerable to a change in the law.
Staff at the Commission’s energy department that had been working on a patch to the loophole since November 2012 tabled a redrafted version the following summer. Its working document, delivered with annex one and annex two confirmed that several firms were abusing tolerances, misleading consumers and creating unfair market competition.
An amendment that mature, with that much support should have moved to the next phase of the EU sausage machine, inter-service consultation, without much further delay. The amendment could have become law within five months, ending the loophole. But years have now gone by with no progress. Industry association CECED has asked the Commission more than once what has happened to the amendment, knowing it would help prevent VW-like public relations disasters in its backyard. Word in the corridor is that Commission leaders are shying away from anything that smacks of VW until dieselgate is out of the headlines. We heard insiders last week call the amendment ‘doomed’.
This worries firms that want to clear skeletons out of the cupboard. Electrolux VP of Environmental and EU Affairs, Viktor Sundberg, told Coolproducts: “If the Commission starts working on it then stops, it sends a bad signal. They even sent it to the consultation forum and then nothing happens. What is the conclusion from that? We don’t use tolerances. We’re trying to do the right thing, but it is a competitive environment.”
There are 28 product groups regulated under the Ecodesign Directive, 15 under the Energy Labelling Directive. While the Commission worked on its single, broad-reaching amendment to close the tolerance loophole for all products, it started sporadically upgrading the rules for some individual product groups to curb abuse. Coolproducts estimates around 30 product regulations remain open to abuse. Of the iconic household products, the loophole remains open for TVs, boilers (air heating), water heaters, dish washers, washing machines, air conditioners, fridges, and of course lighting.
The European Commission has responded to today's Suddeutscher Zeitung story poorly, saying it will close the loophole for lighting. That still leaves a massive question mark remaining for the many other products where abuse could still take place. If it closes the loophole product by product, it will take 10 years before a level playing field is assured.
ECOS policy officer Christoforos Spiliotopoulos said:“The Commission proposes closing the single lighting loophole, but this would leave a large number of home products wide open to abuse. National authorities will remain powerless on the wider issue until that single amendment is made law. It's the silver bullet to this problem and the Commission leadership is sitting on it.”
Here’s an example of the text occassionally being added to individual laws to end tolerance abuse. Mr Sundberg thinks even this stiff paragraph is not clear enough and the broad-reaching amendment is needed. This sample taken from regulations covering cooking appliances (ovens, hobs, range hoods):
“To ensure fair competition, and with a view to achieving the intended energy savings and accurately informing consumers on products’ energy performance, this Regulation should make clear that the tolerances prescribed for the national market surveillance authorities, when conducting physical tests to establish whether a specific model of an energy-related product is in compliance with this Regulation, should not be used by the manufacturers to provide room for declaring a more favourable performance of the model than measurements and calculations declared in the technical documentation of the product can justify.”
There is no hard evidence of sectors beyond lighting using tolerances to dupe consumers. But the loophole is an open invitation to many. Coolproducts calculates that if tolerances were used in all product groups, Europeans would be paying €2bn a year more in energy bills.
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UPDATE 18 December: The Commission has launched interservice consultation on its 'silver bullet' amendment to close the tolerance loophole across all products. It could take 5 months to become law. Until it does, national authorities remain powerless to curb company abuse and the loophole will remain open for TVs, fridges, washing machines and a host of other everyday products.
UPDATE 8 February 2016: The Commission announced today that it has notified the WTO of its amendment to close the loophole (see text 1 here, point 5 of the document). Great, except the lighting industry has been written out of the amendment. The legal text justifying this acknowledges just how bad the problem is in the lighting sector and confirms that industry has been deceiving consumers on a grand scale. “Data provided by lighting industry actors shows that many lamp types ... would be entirely removed from the market ... if manufacturers were prohibited from using the verification tolerances ... in the way that is current practice throughout the industry. It is therefore appropriate not to amend those three Regulations through this Regulation, but to clarify the intended use of the tolerances in conjunction with a reassessment of the related minimum requirements when those Regulations are next reviewed.” The Commission is sidestepping the issue today and pledging to deal with it tomorrow within individual lighting regulations. However it is reviewing those regulations now, and a proposal tabled in December makes no mention of the tolerance loophole or closing it. The auto industry was last week let off the hook by the European Parliament. Both auto and lighting cases feel like a case of 'too big to fail' or 'too widespread to nail'.
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Coolproducts co-ordinator Stephane Arditi said: “VW went bang and EU regulators woke up. The same thing could happen with home appliances, but the Commission leadership would prefer to go back to sleep. Trade is core to the EU project, so you would think they would accelerate rather than bury these reforms. Until they do, the playing field will slope in favour of those prepared to deceive their customers.”
European Environment Bureau policy head Pieter Depous said: "These scandals are exemplary of a political culture in the EU where those federations that shout the loudest get what they want, the focus under the EU’s Better Regulation agenda to ‘listen to those who need to comply with the rules’ has only strengthened this culture."
Better Regulation Watchdog, a network of 64 civil society groups, recently wrote to European Commission chief Frans Timmermans warning: “Europe suffers from a lack of popularity with people much more than with business. Slashing business regulation gives companies a windfall over the back of citizens, only widening this divide in perception and taking the EU even further away from its citizens."
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