This document summarizes insights from behavioural economics on the energy efficiency gap. It discusses how humans are boundedly rational and influenced by framing effects. Case studies show that illustrating the monetary costs of energy usage can make energy efficiency investments more salient and increase their adoption rates. Preliminary results from CONSEED and NEEPD projects in Europe find that providing lifetime cost labels on appliances statistically increases the likelihood of purchasing more efficient products and the stated importance of energy efficiency for educated consumers. Field trials also show these labels can translate to reductions in average energy usage for some appliances.

1. ENERGY EFFICIENCY
INSIGHTS FROM BEHAVIOURAL ECONOMICS
Eleanor Denny
Trinity College Dublin

2. Presentation Outline
• Background and Motivation
• Framework and some behavioural economics
• Case studies
• CONSEED and NEEPD projects
• Preliminary results

3. Background
• Wind about 50% as effective as demand
reduction in terms of emissions
• +100MW wind @ -50MW demand (Denny &
O’Malley, 2010)
• Smart metering shown to be effective
• Effectiveness may diminish over time
(Carroll et al, 2015)
• More impact if we to get people to invest in
EE at point of sale
• Why aren’t they doing this already?

4. Energy Efficiency gap
• “Seemingly low adoption of seemingly beneficial
energy efficiency investments”
• Allcott and Greenstone, 2012; Frederiks et al., 2015; Gerarden et
al., 2015; Gerarden et al., 2015; Greene, 2011; Linares and
Labandeira, 2010; Meyerding, 2016; Ramos et al., 2015; Reddy,
2013; Jaffe & Stavins, 1994 …..
• Efficient technologies are on the market
• They can save people money, reduce
environmental impact and other benefits
• Why isn’t there a greater uptake?

5. Energy Efficiency Gap
• If private benefit > private cost, people should invest
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Benefit
Allcott and Greenstone (2017)

6. Bounded Rationality
• People aren’t like that, they don’t do those sums
• Bounded Rationality – people are limited
• by information at hand,
• computational ability
• and time available
• Herbert Simon (Nobel ‘78)
6

7. Humans don’t think like that
• Assumes humans are ‘econs’
• Rational, calculating and selfish individuals with
amazing computational skills who never make
mistakes!
• “The assumptions are wrong”
• Humans are very different to Econs
• Kahneman & Tversky (Nobel prize 2002)
7

8. Framing effects

9. Energy Efficiency Gap
• If private benefit > private cost, people should invest
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Allcott and Greenstone (2017)

10. Question
10
• You are about to buy a new belt for SEK139.99, when you
realise the exact same belt is available for SEK69.99 in
another shop, 10 minutes’ walk away.
• Would you walk to the other shop to get the cheaper belt?

11. Question
You are buying a new state of the art TV for SEK 9690. You
hear that the same TV is available in another shop for
SEK9620, a 10 minute walk away.
Would you walk to the other shop to get the cheaper TV?

12. Framing Effects (proportional price
evaluation)
Would you walk 10 minutes to save SEK 70?
Framing – we respond differently to the same choice depending
upon how is it presented. Context Matters.

13. Energy Efficiency Gap
• If private benefit > private cost, people should invest
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Benefit
• Discount rate
• Present biased preferences
• Humans are impatient for immediate gains
• Lower cost today with greater future cost > Higher cost today with
lower future cost
Allcott and Greenstone (2017)

14. Energy Efficiency Gap
• If private benefit > private cost, people should invest
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Benefit
• Non-monetary net benefits
• Improved comfort
• Warm glow
• Rebound effect
• Time/hassle construction and installation
• Guilt/inspiration (e.g. social comparison)
Allcott and Greenstone (2017)

15. Loft insulation trial
© Behavioural Insights ltd
• Behavioural Insights Team
• Loft insulation proven to be highly
cost-effective
• ‘Rational’ thing to do
• 3 local authorities in S. London

16. I’d love to insulate my loft – as long as you’ll clear it out first
1% 1,1%
2,8%
Baseline Group discount Loft clearance
© Behavioural Insights ltd

17. Energy Efficiency Gap
• Market Failures:
• Imperfect information
• Buying or renting homes/cars/lightbulbs/other durables
• Behavioral biases
• Energy costs not salient
• Focusing bias
• Credit constraints
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Allcott and Greenstone (2017)
First Fundamental Welfare Theorem ≈ Un-adopted privately beneficial investments
imply some non-externality market failure.

18. Energy costs not salient
Energy Costs not salient => focusing bias on purchase price
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19. Make energy costs more salient
• What if we showed usage cost information in monetary
terms as well?

20. Make energy costs more salient
• What duration?
• Per hour, Monthly, annual, ….

21. …. what about lifetime costs?
• Reversed “pennies-a-day” effect
• Presenting lifetime energy consumption info has
significantly higher effect than presenting annual
info
• Stated preference/hedonic studies
• Hutton and Wilkie 1980; Kaenzig 2009; Gourville 1998; Kaenzig and
Wüstenhagen 2010; Heinzle 2012

22. CONSEED and NEEPD projects
• Attitudes to current labels
• Consumer surveys
• Would monetary information encourage greater energy
efficiency investment?
• Consumer surveys
• Randomised Controlled Field trials
• Discrete Choice experiments

23. Attitudes: Households
•Credit constraints:
• Property: 25% credit constrained for energy efficiency
• Appliances: Greece 60%, Spain 20% credit constrained
• Awareness:
• Electricity prices awareness: 20% in Spain versus 80% in Greece
• Only 29% understand how much fuel they would save if they
bought a more fuel efficient car
•Most households think that EPCs are open to
manipulation.

24. Services Sector
• Appliances (Hotels, Spain 200 responses and Greece
120)
• Only 38% knew their energy consumption or were aware of energy
prices
• 65% of the Greek sample credit constrained, Spain 30%
•Properties (Ireland) (187 responses)
• Just 26% consider energy efficiency ‘very important’ when buying
or renting a property
• 44% do not understand monetary energy savings of higher energy
efficiency
• Credit and financial constraints are preventing EE upgrades for
many firms in Ireland

25. Agriculture & Industry
• Tractors (Ireland) (316 responses)
• Fuel efficiency is a major consideration for most tilage farmers
• Farmers have a good understanding of fuel consumption,
energy prices and monetary savings associated with investment
• Finance and credit constraints may be reducing investment in
energy efficiency
• Industry (Norway, 86 and Slovenia, 83)
• Reliability is the most important factor in the investment decisions
followed by safety
• Energy efficiency information not understood

26. Results from CONSEED surveys
• Survey results indicate illustrating monetary usage
information:
• may be more understandable
• would make it easier to calculate running costs
• Testing this using
• Randomised control trials
• Discrete choice experiments

27. Property RCT
• Ireland
• 80,000 properties p.a.
• 90% of total market
• 50% counties treated
• Treatment = annual €
• Match with actual
sales/rent price
• Landlords

28. Transport RCT
• Norway
• Annual fuel cost
• Treatment = label + training
• # of EVs sold

29. Appliances RCT
• Spain
• Treatment = 10 yr € label
• Sales person training
• Small & large stores
• Ireland
• Treatment = 10 yr € label
• Consumer surveys in store
• …..

30. Appliances RCT - Ireland
• Industry partner – DID Electrical
• 23 stores nationwide
• Cluster parallel randomised
controlled trial (RCT)
• New labels showing lifetime costs
• Four appliance types

31. Consumer surveys
• Consumer surveys in all stores
• Demographic info
• Owner/renter/landlord
• Energy/environmental awareness
• Purchasers and non-purchasers
• Risk preferences/Patience
• Treatment stores: Engagement with labels
• 10 RAs surveying in all stores at weekends for 6 months
(1000 responses)

32. Results
• Data just in!
• Descriptive statistics
• Basic regressions
• Indicative results

33. Importance of energy efficiency
• How important is/was the energy efficiency of the
appliance when making your decision?
• The following variables significantly *** increase
probability that someone will answer “very important”
• High environmental concern
• Age under 60
• More children in house
• The following variables significantly *** decrease
probability that someone will answer “very important”
• Landlords
• Female
• Very high income

34. Who was influenced by the new label?
• To what extent did seeing the running costs
influence your ultimate purchasing decision?
• The following more likely *** to answer “highly
influenced”
• Higher educated (degree or higher)
• More children in the household
• The following less *** likely to answer “highly
influenced”
• Very high earners (€6k - €7k) and (€7k+) per month

35. Impact of the new label
• How important is/was the energy efficiency of the
appliance when making your decision? Scale of 1 to
10
• Treated customers more likely to answer “7 – 10” to this
question
• New label increases stated importance of energy
efficiency

36. What about actual appliances bought?
• Does stated energy efficiency attitude influence actual
purchase decision?
0.1.2.3.4
Density
2 4 6 8
EnergyRating
C AB A+ A++ A+++
Efficiency of appliances purchased
( )1,0,ij ie f consumerinfo treatment=

37. Impact on purchases
• The following statistically significantly *** increase
likelihood of purchasing higher efficiency appliance
• Homeowner
• Highly educated
• Purchasing Dishwasher or Washing machine
• Treatment store
• Income, gender, age etc – not statistically significant
• Stated energy efficiency concern not statistically significant
• Stated environmental concern not statistically significant

38. Store level results
• Label ‘worked’ for
• Tumbledryers 2.2% reduction in average kWh in treatment stores
• Dishwashers 0.7% reduction in average kWh in treatment stores
• Didn’t work for
• Fridgefreezers
• Washing machines
• Caveat …
• Label monitoring

39. Summary of appliance results
• Energy efficiency is more important for those with high
environmental concern, age group 20 – 60
• Monetary info more important for highly educated, larger
households
• Target group: Highly educated environmentalists
• Monetary labels do increase stated importance of energy
efficiency in purchasing decision and this appears to
translate to actual purchasing behaviour

40. Preliminary results from DCEs
• Complementing the field trials
• Split sample
• Property – Slovenia
• Appliances – Greece
• Transport – Norway
• Preliminary results:
• Willingness to pay +20% Car Sales (Norway)
• Willingness to pay +47% Property Sector
(Slovenia)

41. Preliminary results from property RCT
• Hedonic model
• Efficiency Premium (increase in
letter) = €3,630 for control group
• Results:
• House Sales: €2,608 more for
treatment group (significant 5%)
• House rental – no effect
Control
Treatment

42. Other aspects of the EE gap
• Discount rates – what rates being applied? CONSEED
• Are the labels accurate?
• Suggestive evidence from the US shows this isn’t the case (Fowlie
et al, 2015; PSD, 2015; DOE 2015 …)
• UK: Expected savings from UK ‘Green Deal’ halved due to poor
installation, monitoring and rebound (Dowson et al, 2012)
• Ireland: Work in progress - 1.1 million electricity and gas
customers, 212,000 retrofits

43. Conclusions
• Energy Efficiency Gap (seemingly low adoption of
seemingly beneficial energy efficiency investments)?
• Non-externality market failures
• Private net benefits overstated
• Monetary labels appear to be valued and effective for
some products
• Most affected group – highly educated, middle income, owner-
occupiers
• House sales

44. Keep in touch with CONSEED’s progress
• www.conseedproject.eu - join our newsletter
• @EneryWiseEU
• @conseedproject
• Final conference in Brussels
• 6th June 2019 – CONSEED, PENNY and
COBHAM