In the interest of energy efficiency and reduction of greenhouse gas emissions, the Chief Executive of HKSAR announced in his 2009 Policy Address that residential electricity account holders will receive cash coupons issued by the power companies, which can only be used to purchase compact fluorescent lamps (CFLs). This policy measure has aroused much attention but the focus of the debate has been put on whether this would benefit a specific sales agent of CFLs. Rather than this issue, an analysis of the effectiveness of this policy measure is presented in this article together with brief discussions of other related issues, which may help readers judge whether or not the policy measure is worth supporting.

How the policy objective can be achieved
Given that use of CFLs can lead to energy cost savings compared to incandescent light bulbs, the reasons for the latter's continuing presence in the market would include:

1. Information barrier: some people are still unaware of the cost savings associated with CFLs
2. Financial barrier: some people are unable to afford the higher initial costs associated with CFLs; and
3. Other constraints; incandescent light bulbs are indispensable in certain applications or situations.

The proposed method for promoting wider use of CFLs will be effective in removing the knowledge barrier and in helping the low-income class to overcome the financial barrier. When more households switch to CFLs, substantial energy saving and reduction in greenhouse gas emissions at the power plants can be achieved, which is the key objective of the proposed policy measure.

It is interesting to note that in the proposed scheme, the cash coupons will be issued by the power companies rather than the government. The two power companies in Hong Kong are each granted a monopoly to produce and sell electricity in designated regions. Under the agreement between the government and the power companies, called the scheme of control, either power company is allowed to raise electricity price if the profit from the sale of electricity falls below a guaranteed level.

In the case of issuing cash coupons for households to purchase CFLs, the cost incurred to the power companies will be regarded as part of their operating cost, which will entitle them to raise tariff. Therefore, ultimately, the cost of purchasing CFLs will be borne by the citizens. Since there is economic benefit in switching from the use of incandescent light bulbs to CFLs, those who have not been using CFLs due to reasons 1) or 2) above would be able to grasp the benefit. For the low-income class, the energy cost savings would allow them to save up sufficient money for purchasing CFLs for replacement in the future.

Households that have already been using CFLs and thus would not enjoy a reduction in electricity consumption would also be issued with cash coupons for purchasing CFLs, but they would need to pay back the money to the power companies later in the form of higher electricity tariff. Therefore, they will not benefit from this policy measure. On the other hand, this arrangement helps avoid the need to distinguish those who have been using CFLs from those who have not, which is a nearly impossible or an extremely costly task while disputes on the fairness of the scheme may arise if cash coupons are issued only to those who have not been using CFLs. Furthermore, the increased electricity tariff will ensure people do use CFLs in lieu of incandescent light bulbs and will not sell their cash coupons at face value rather than use them to buy CFLs, as otherwise their electricity bill will go up further.

If taxpayers' money is used to subsidise the purchase of CFLs instead, all households would benefit, irrespective of whether they have or have not been using CFLs. However, public expenditure would increase, which will impose a pressure on the government to raise income from taxation or other means, which will not be welcome by those who would be made to pay more.

There is one question yet to be answered, which is why the power companies would agree to play such a role in this policy measure. Given the way in which electricity tariff will be gradually adjusted to take into account a reduction in overall consumption due to widespread use of the more efficient CFLs, getting the power companies to issue cash coupons and allowing them to recover the cost through raising electricity tariff will make the initial rise in tariff more acceptable to the public. By the time the cost had been recovered but the need arose to raise electricity tariff further due to reduced overall consumption, resistance to keeping the tariff at the high level is anticipated to be smaller.

Other related issues
The announcement of the policy measure also aroused public concern ove the disposal of the mercury in CFLs. Some opined that the measure should have been supplemented by another policy measure that addresses their end-of-life treatment. This is indeed an important issue but abatement of the problem entails holistic considerations that embrace not only CFLs; attention should also be given to other types of fluorescent lamps as well as other mercury-containing products, such as batteries and LCD displays.

Consideration should also be given to whether the government should make available the needed treatment and recycling facilities or should the producers/suppliers of the mercury-containing products be required to assume this responsibility. Means for facilitating collection of used fluorescent lamps and other products are no less important to the success of the abatement policy. Clearly, a considerable amount of time is needed before the required policies, including the associated legislation, can be made and to make available the needed main and auxiliary facilities will also take time. While no time should be wasted in formulating such policies, should we abandon the proposed policy measure and wait?

Some also argue that since LED lamps, which are also energy-efficient but do not contain mercury, are emerging, LED lamps instead of CFLs should be promoted through the proposed policy measure when they become commercially available in large quantities. Once again, should we wait?

Conclusion
The analysis presented above shows that a significant degree of wisdom has been exercised in devising the policy measure. The measure has the effect of allowing the economic benefits of using more energy-efficient lamps to be exploited by those who have not, without spending money from the public purse. The money used will serve the same effect as providing loans to those in need to assist them in overcoming the financial barrier to using the more costly CFLs. Means for payment is embedded into the electricity billing mechanisms without much extra transaction costs. It can also prepare people to accept a rise in electricity tariff.

Nonetheless, there are other concerns that should be addressed. Further explanations by the government on the rationale behind their proposed policy measure and their plans for addressing the related issues, such as disposal and treatment, are needed to resolve the controversy.

About the author: Ir Prof Francis W H Yik is a professor in the Department of Building Services Engineering, the Hong Kong Polytechnic University.

Building Services Blog