Eco-labeling of electricity - Strategies and tradeoffs in the definition of environmental standards

The liberalization of electricity markets opens up new opportunities for electricity providers to differentiate their products along environmental characteristics. Due to considerable search and evaluation costs for the consumer, the success of green power products depends to a large degree on a professional communication strategy. Besides professional marketing, instruments like environmental labeling have attracted considerable attention. The present paper analyzes the fundamentals of voluntary, third-party eco-labeling of electricity products and compares different labeling approaches, which have been developed in Europe and in the US recently. We distinguish six major dimensions along which labeling schemes can differ and identify two main strategies to deal with the basic tradeoffs, correspondingly. Labeling concepts may either be simple, require low or medium environmental standards and strive for the support of at least one stakeholder group. Alternatively, eco-labels may judge a broad range of environmental impacts and integrate several stakeholder groups with opposing interests. Experiences show that labels of the first type can be set up quickly and have the advantage to set a standard early in the market. In the medium and long term, however, public awareness and potential criticisms may rise and rather simple eco-labeling schemes will have to be adapted. The paper finally discusses the prospects for a common European eco-labeling strategy.