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

The liberalization of electricity markets opens up new opportunities for el ectricity providers to differentiate their products along environmental cha racteristics. Due to considerable search and evaluation costs for the consu mer, the success of green power products depends to a large degree on a pro fessional communication strategy. Besides professional marketing, instrumen ts like environmental labeling have attracted considerable attention. The p resent paper analyzes the fundamentals Of Voluntary, third-party eco-labeli ng of electricity products and compares different labeling approaches, whic h have been developed in Europe and in the US recently. We distinguish six major dimensions along which labeling schemes can differ and identify two m ain strategies to deal with the basic tradeoffs, correspondingly. Labeling concepts may either be simple, require low or medium environmental standard s and strive for the support of at least one stakeholder group, Alternative ly, eco-labels may judge a broad range of environmental impacts and integra te several stakeholder groups with opposing interests. Experiences show tha t 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, p ublic awareness and potential criticisms may rise and rather simple eco-lab eling schemes will have to be adapted. The paper finally discusses the pros pects for a common European eco-labeling strategy. (C) 2001 Elsevier Scienc e Ltd. All rights reserved.