Credit, attention, and externalities in the adoption of energy efficient technologies by low-income households | Susanna Berkouwer

Susanna Berkouwer, Assistant Professor of Business Economics & Public Policy at the Wharton School at Penn will be discussing the paper Credit and attention in the adoption of profitable energy-efficient technologies in Kenya.

Abstract

Research in high-income countries has identified carbon taxes and behavioral nudges as effective policy tools to increase energy efficient technology adoption. We show that these policies will likely be less effective in lower income settings which are expected to contribute almost all growth in global energy demand in the next several decades. In a randomized field experiment with 1,000 households in Nairobi, Kenya, we study an energy efficient replacement for their primary energy-consuming durable: a charcoal cookstove. Using an incentive-compatible BeckerDeGroot-Marschak mechanism we estimate a 40% reduction in charcoal usage, in line with engineering estimates. Despite large private fuel savings of $240 over the stove’s two-year life span—which exceed the $227 in carbon emissions reductions—households are only willing to pay $12. Drawing attention to potential energy savings does not increase demand: households already internalize the large private benefits, perhaps because energy is a larger portion of household budgets. We find households are credit constrained; a three month loan more than doubles WTP. In sum, households attend to large private benefits but are prevented from adopting by credit constraints. This suggests carbon taxes and nudges to increase the salience of private benefits are unlikely to significantly increase the adoption of energy efficient appliances in low-income settings, and may instead induce regressive increases in energy costs.

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