Working Paper: NBER ID: w19224
Authors: Richard G. Newell; Juha V. Siikamki
Abstract: We evaluate the effectiveness of energy efficiency labeling in guiding household decisions. Using a carefully designed choice experiment with alternative labels, we disentangle the relative importance of different types of information and intertemporal behavior (i.e., discounting) in guiding energy efficiency behavior. We find that simple information on the economic value of saving energy was the most important element guiding more cost-efficient investments in energy efficiency, with information on physical energy use and carbon emissions having additional but lesser importance. The degree to which the current EnergyGuide label guided cost-efficient decisions depends importantly on the discount rate assumed. Using individual discount rates separately elicited in our study, we find that the current EnergyGuide label came very close to guiding cost-efficient decisions, on average. However, using a uniform five percent discount rate--which was much lower than the average elicited rate--the EnergyGuide label led to choices that result in a one-third undervaluation of energy efficiency. We find that labels that also endorsed a model (with Energy Star) or gave a suggestive grade to a model (EU-style label), encouraged substantially higher energy efficiency. Our results reinforce the centrality of views on intertemporal choice and discounting, both in terms of understanding individual behavior and in guiding policy.
Keywords: energy efficiency; labeling; consumer behavior; discounting; information programs
JEL Codes: C91; D12; D83; D91; H43; Q41; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic information (D89) | cost-efficient investments (G11) |
| elicited discount rates (E43) | cost-efficient decisions (D61) |
| uniform discount rate of 5% (H43) | undervaluation of energy savings (Q41) |
| endorsements like Energy Star (Q48) | energy efficiency choices (Q41) |
| type of information provided (economic vs. physical vs. environmental) (Q51) | household decisions (D10) |
| discount rate applied (E43) | effectiveness of labeling (D18) |