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Consumer discount rates implied by purchase of energy efficient refrigerators
Abstract
Consumer purchasing patterns for a standard and an energy-efficient refrigerator are presented. These models differed only in their initial cost and electricity consumption. Consumers tended to buy the more efficient model in regions with higher electricity prices. A distribution of implied consumer discount rates is constructed. Roughly of the consumers behaved as if they had real discount rates above 60%, between 35 and 60%, and less than 35%.
... Gately (1980) found that the CDR used in the choice of refrigerators ranged from 45 to 300%. Meier and Whittier (1983) also estimated CDRs implied by the purchases of refrigerators, showing that threefifths of the buyers have a discount rate greater than 35%. Ruderman et al. (1987) examined consumers' efficiency choices for eight residential appliances, finding that while the aggregate market discount rates of room and central air conditioners were about 20%, those of six appliances (refrigerators, freezers, gas and oil central space heaters, and electric and gas water heaters) had higher values, ranging from 39 to 825%. ...
... Gately (1980) calculated discount rates directly from data on the initial and operating costs of high-and low-efficiency refrigerators produced by each of three firms. Meier and Whittier (1983) examined consumer purchasing patterns for one energy-efficient refrigerator model using sales data. Ruderman et al. (1987) utilized data from engineering analyses to perform an analysis of aggregate market behavior. ...
... •D Di ir re ec ct t c ca al lc cu ul la at ti io on n: Gately (1980), Meier and Whittier (1983) •E En ng gi in ne ee er ri in ng g a an na al ly ys si is s: Ruderman et al. (1987) Others Fig. 1 Classification of previous studies on estimating CDRs in energy-saving investment decisions 4 CDR estimation techniques based on laboratory experiments (Coller and Williams 1999), field experiments (Harrison et al. 2002) This paper estimates CDRs using revealed-preference data collected in the same region from which Hamamoto (2012) gathered information to estimate discount rates by direct elicitation. The aim of the present study is to examine how and why estimated discount rates differ between qualitative choice analysis, hedonic pricing, and direct elicitation. ...
This paper investigates the relation between estimation techniques and the estimates of consumers’ discount rates. In an earlier paper, the author estimated the average value of discount rates using direct elicitation, which was found to be 50.8%. In this paper, consumers’ discount rates adopted in purchasing room air conditioners are estimated using revealed-preference data. Estimates using hedonic pricing and qualitative choice models indicate discount rates of 13.6% and 10.7%, respectively. The results reveal that the rate estimated using direct elicitation is four- or five-fold the rate estimated using hedonic pricing method or qualitative choice analysis. A possible reason for this is that consumers make cognitive errors and desire unrealistically high returns from the use of energy-efficient models. This paper also examines how consumers’ attentiveness to energy efficiency affects their discount rates, finding that inattentiveness may cause the adoption of higher discount rates.
... Energy efficiency is one of the most important tools for mitigating climate change [1], and the commercial buildings sector has a large potential for implementing cost-effective energy efficiency improvements (e.g., occupancy sensors) [2]. Unfortunately, this sector also has a track record of slow market diffusion of energy efficiency improvements [3][4][5]. To better understand the causes of this slow diffusion, researchers have examined the barriers faced by owners of commercial buildings. ...
... Lighting was chosen because it accounts for about one-third of energy used in offices, many lighting improvements are cost-effective, and lighting is the most frequent target for energy efficiency improvements [48]. 4 Each choice provided respondents with information about the costs and benefits of a new energy efficient technology (see SI section 2 for calculations), and asked whether they would prefer the new technology or the status quo. While the normative analysis does not dictate any particular response to these questions, responses were used in later comparisons and to measure interest in energy efficiency, finding a high level. ...
... p < .01). In sum, most respondents were favorable toward investing in their building's lighting systems yet had not made 4 We also included a heating system choice task that produced very similar results to the lighting task. Out of 97 respondents, 88% (=85/97) chose a more expensive higher energy saving option and 12% (12/97) chose a less expensive lower energy saving option. ...
... Efficient technologies often cost more than their conventional counterparts but promise to return the initial investment in energy savings throughout their useful product life. As such, the purchase of an expensive energy efficient refrigerator or washing machine represents a text-book example of an inter-temporal decision, whose understanding can help in forecasting the market penetration of efficient technologies, and the evaluation of impacts of policy interventions on economy-wide energy demand (Hausman, 1979;Meier and Whittier, 1983). ...
... In this policy context, the actual purchase decisions of consumers and businesses are critical. Past research suggests consumers tend to apply discount rates for efficient energy and transport technologies that are higher than the market interest rate (e.g., Hausman, 1979 and Whittier, 1983;Train, 1985;Ruderman et al., 1987;Howarth and Sanstad, 1995). This observation has been attributed, in part, to market failure and behavioural errors, where the foregone, supposedly costeffective, energy efficiency potential has been called the 'energy efficiency gap' (Hirst and Brown, 1990;Jaffe and Stavins, 1994;Stadelmann, 2017). ...
... Throughout this paper, we use the term 'consumer discount rate' (Meier and Whittier, 1983) synonymously to also mean 'individual discount rate' (Harrison et al., 2002), 'personal discount rate' (Warner and Pleeter, 2001), or 'implicit discount rate' (Greene, 1983). The consumer discount rate depicts the rate of annual return from saved or produced energy at which consumers are indifferent between the purchase of an efficient but expensive technology versus a less efficient but cheap technology (Meier and Whittier, 1983). ...
... By foregoing certain energy efficiency investments, individuals demonstrate implied discount rates that are frequently an order of magnitude or higher over the prevailing discount rate (Meier and Whittier, 1983;Koomey and Sanstad, 1994;Sanstad, Blumstein, and Stoft, 1995;Menanteau and Lefebvre, 1999). Table 3.2 shows a sample of implied discount rates from a literature review compiled by Sanstad, et al. (1995). ...
... They examined two refrigerator models sold by the same national retailer between 1977 and 1979. The two refrigerators were identical in nearly every way except their energy use and cost: one used 410 kWh per year less electricity but cost $60 more (Meier and Whittier, 1983). Using a 6% discount rate and a 20-year lifetime, the more efficient refrigerator saved energy at an electricity cost of just over one cent per kWh-lower than electricity prices prevailing in every state at the time (Meier and Whittier, 1983). ...
... The two refrigerators were identical in nearly every way except their energy use and cost: one used 410 kWh per year less electricity but cost $60 more (Meier and Whittier, 1983). Using a 6% discount rate and a 20-year lifetime, the more efficient refrigerator saved energy at an electricity cost of just over one cent per kWh-lower than electricity prices prevailing in every state at the time (Meier and Whittier, 1983). Despite being widely advertised and being recommended by a prominent consumer magazine, the energy-efficient refrigerator was purchased by customers less frequently than the less expensive inefficient model (Meier and Whittier, 1983). ...
... The participants' IDR was directly calculated on the assumption that the returns per year are perpetual and the factors affecting the IDR were empirically estimated using tobit regression. Meier and Whittier (1983) examined the sales of one pair of refrigerators (one with greater efficiency than the other) in four different parts of the USA with different electricity prices and found that roughly two-fifth of the consumers behaved as if they had IDRs above 60%, onefifth between 35 and 60%, and the rest less than 35%. Dubin and McFadden (1984) developed a joint waterheat space-heat choice model to a subsample of the 1975 survey carried out by the Washington Center for Metropolitan Studies (WCMS) for the Federal Energy Administration. ...
... Considering the factors underlying the IDRs from the literature review above, it is not surprising that the empirical findings vary substantially. A commonly acknowledged conclusion is that the observed IDRs are substantially higher than the opportunity cost of capital (e.g., Coller and Williams 1999;Dubin and McFadden 1984;Hausman 1979;Meier and Whittier 1983;Schleich et al. 2016) although negative IDRs have been also uncovered (e.g., Heinzle, 2012). ...
Consumers are assumed to compare the upfront costs to the discounted value of future savings in energy expenditures when deciding whether to invest in a more energy-efficient product. This assumption presupposes that consumers have the energy-related knowledge, are familiar with the concept of discounting, and use a subjective discount rate, known as the implicit discount rate (IDR). However, the related literature suggests that consumers usually suffer from energy-related financial illiteracy and tend to apply IDRs much higher than the market interest rates owing to market and behavioral failures. This paper wishes to contribute to the ongoing discussion on how to promote energy efficiency across the residential sector using the results of a stated preference survey among 992 Greek consumers. The survey provides empirical evidence on the heterogeneity in the energy efficiency-related IDRs. More importantly, it is one of the few studies to look directly at investment literacy in the field of energy efficiency. To this end, a choice-experiment, the focus of which is to examine whether consumers can recognize the most cost-efficient alternative products, is being conducted. The estimated probabilities of having selected the most optimal choice are then regressed against attitudinal and socio-demographic variables to investigate the factors that affect investment literacy. The results suggest that preferences, behavioral biases, external barriers, and socio-demographic factors are important sources of heterogeneity in the estimated IDR and the energy-related investment literacy of the consumers. The outcomes and the limitations of the survey leave space for future research.
... Energy efficiency is one of the most important tools for mitigating climate change [1], and the commercial buildings sector has a large potential for implementing cost-effective energy efficiency improvements (e.g., occupancy sensors) [2]. Unfortunately, this sector also has a track record of slow market diffusion of energy efficiency improvements [3,4,5]. To better understand the causes of this slow diffusion, researchers have examined the barriers faced by owners of commercial buildings. ...
... Lighting was chosen because it accounts for about one-third of energy used in offices, many lighting improvements are cost-effective, and lighting is the most frequent target for energy efficiency improvements [48]. 4 Each choice provided respondents with information about the costs and benefits of a new energy efficient technology (see SI section 2 for calculations), and asked whether they would prefer the new technology or the status quo. While the normative analysis does not dictate any particular response to these questions, responses were used in later comparisons and to measure interest in energy efficiency, finding a high level. ...
Even when the benefits seem to outweigh the costs, many building owners do not invest in energy efficiency. Here a framework is presented for understanding energy efficiency investment decisions drawing on methods from behavioral decision research. The approach begins with a normative analysis that characterizes how building owners should behave, compares this to interview and survey data from decision-makers, then concludes with policy recommendations suggesting how to bridge that gap. The framework is demonstrated with a sample of class B and C office building owners in Pittsburgh, a population believed to under-invest in energy efficiency. Interviews (n = 16) and a survey (n = 132) found that while uncertainty and a lack of information about costs and energy savings play a critical role in decision-making, a significant proportion of the respondents also express aversion to debt and a lack of sensitivity to split incentives. Based on the results, providing owners of class B and C offices cost-benefit information and resolving energy savings uncertainty through guarantees, trial periods, or grants that fully subsidize energy efficiency for a small part of a building may be a way to enhance investment. The approach can be applied to other energy efficiency decision-making contexts by anyone with training in behavioral research.
... The indication of an energy efficiency gap had been provided by various empirical estimations of implicit discount rates, the rates consumers and firms would be applying when purchasing energyusing products to weigh up future energy costs. Estimates reported for refrigerators ranged from 39% to 300% (Revelt and Train, 1998;Hwang et al., 1994;McRae, 1985;Meier and Whittier, 1983;Gately, 1980;Cole and Fuller, 1980); for air conditioners between 19% to 77% (Matsumoto, 2012;Train and Atherton, 1995;Hausman, 1979;Kooreman, 1995); and for water heaters between 67% and 84% (Hwang et al., 1994;Goett and McFadden, 1982). ...
... Following the work of Hausman (1979) on room air conditioners, earlier research found implicit discount rates that are substantially larger than real financial discount rates. In the case of electric appliances, rates reported for refrigerators range from 39% to 300% (Revelt and Train, 1998;Hwang et al., 1994;McRae, 1985;Meier and Whittier, 1983;Gately, 1980;Cole and Fuller, 1980); for air conditioners between 19% to 77% (Matsumoto, 2012;Train and Atherton, 1995;Hausman, 1979;Kooreman, 1995); and for water heaters between 67% and 84% (Hwang et al., 1994;Goett and McFadden, 1982). ...
Energy investments are a requirement to mitigate climate change, but also a challenge for adaptation. The first part of this PhD dissertation focuses on improving the energy efficiency of domestic appliances. Chapter 1 analyses if consumers take into account energy costs when they purchase refrigerators with UK market data. Chapter 2 presents the EU Energy Label, its expected effects on energy efficiency and the key factors of success of such a large scale information-based policy. The second part of this PhD dissertation broadens the scope of analysis to the impacts of climate change on energy investment behaviour. Chapter 3 reviews the climate sensitiveness of the electricity sector and provides elements of discussion on how investments decisions could better take into account climate change in the future. Chapter 4 provides a longitudinal analysis of the evolution of US housing (1985-2011) and its sensitivity to climate, with the objective of forecasting the long-run impact of climate change on both residential gas and electricity consumptions.
... Some argue that consumers' lessthan-enthusiastic adoption of newer technologies arises because they apply high discount rates to future energy cost savings in making purchasing decisions. A 1983 experiment showed that consumers continued to purchase inefficient refrigerators even when they were given an option to purchase an energy-efficient one for $60 extra and were informed that this $60 could be recouped by the consumer within two years in energy-saving costs (Meier and Whittier 1983). However, the purchase's initial higher cost deterred consumers from buying the more energy-efficient models. ...
In December 2015, Canada participated in the COP21 Paris meetings, “committed to reducing greenhouse gas emissions, to be a leader in the transition to a low-carbon and climate resilient economy,” and to contribute towards reducing global temperature increases (Barter 2016). In Alberta, the Climate Leadership Plan has a number of key action points, including “putting a price on greenhouse gas emissions … ending pollution from coal-generated electricity by 2030 … developing more renewable energy” (Government of Alberta 2018b). Initiatives in “consumer rebates, supply chain incentives, and innovative financing options” can help achieve the federal and provincial targets (Advanced Energy Center 2016, 10). However, energy efficiency upgrades and renewable energy projects are major undertakings and require significant capital investments. A widely held view by environmental advisors, such as Harrington and Heart (2014), is that loans to finance such capital investments are difficult to obtain from traditional lenders. Bill 10: An Act to Enable Clean Energy Improvements was introduced in the Alberta legislature on April 12, 2018 “to let municipalities establish a Property Assessed Clean Energy (PACE) program that would make it more affordable for Albertans to upgrade their properties without having to put money down” (Government of Alberta 2018a). The Alberta government lists four steps that property owners will have to take to access the PACE program. First, property owners will have to decide what clean-energy upgrade they want for their property. Second, property owners, then, sign an agreement with the municipality to repay a loan to finance the upgrade through an annual surcharge on their municipal property taxes. Third, property owners will have to find an approved contractor to carry out the upgrades. Fourth, property owners pay the loans through property taxes and “the municipality passes that on to the lender” (Government of Alberta 2018a). See also Jensen (2018) for a capsule summary of how PACE programs work and their pros and cons. Bill 10 passed on June 6, 2018 and the Alberta government announced that it would bring forward regulations for approval by the fall of 2018 and develop a PACE program in partnership with Energy Efficiency Alberta, an agency of the provincial government (Government of Alberta 2018a). The program “will front the cost, using private capital from a bank or pension fund partner” (Stolte 2018). However, as of February 2019, the government is yet to announce PACE regulations. The Bill has support in Alberta’s two largest cities. While municipalities are not forced to participate in the program, Calgary Mayor Naheed Nenshi “expects council to sign on to the program once it is fully fleshed out next year” (Wood 2018). Edmonton Mayor Don Iveson also agrees that there is “a huge pent-up demand” for a PACE program (Stolte 2018). However, Alberta’s Environment Minister Shannon Phillips believes that “there will be enthusiasm for the program throughout Alberta, not just in Calgary and Edmonton” (Wood 2018). Alberta Construction Association, and the Building Industry and Land Development Association have expressed support for the PACE program (Wood 2018). Devon, Drayton Valley, Red Deer, Wabasca, and Brazeau County have all expressed interests in adopting PACE programs (Dodge 2017). A 2018 survey showed that 68 percent of surveyed Albertans feel the provincial economy would benefit by a “transition to a reliance on lower carbon energy sources” (Anderson 2018). This paper examines some of the major issues with PACE programs. It discusses the rationale behind the PACE program, which includes a discussion on market failures and market barriers associated with energy efficiency improvements. The experiences of US states and Canadian provinces with PACE programs provide lessons for PACE implementation in Alberta with regard to the administration, financing, access, and legislation. Finally, the paper concludes with highlights of key issues and challenges for PACE implementation in Alberta. At this time the regulations governing the operation of PACE programs in Alberta have not been issued by the government. The goal of this paper is to provide the government and the public with an understanding of how the PACE program works in general terms and the key issues and challenges that will have to be addressed based on the experience with PACE programs in the US, Nova Scotia and Ontario.
... Previous studies measuring individual time preferences have differed widely in their approaches and methods of estimation, but most apply the same fundamental principle. In general, individual time preferences are usually quantified based on two methods: (i) observations of how an individual makes a buying decision involving trade-offs between the near future and the more distant future in real life [22]; and (ii) choice experiments (such as choice tasks, matching tasks, pricing tasks, and rating tasks) in which participants are invited to complete questionnaires where they are required to choose between real or hypothetical small payments available immediately or larger payments available later [23]. Choice experiment methods have been criticised on the grounds that the discount rate derived is not indicative of the actual time preferences of the respondents but rather the hypothetical parameter, given that the participants do not actually carry out their choices in real life [23]. ...
Sustainable land management (SLM) practices are important for tackling agricultural land degradation. This study investigates the association between farmers’ time preferences and their adoption of SLM practices (agroforestry, terracing, and land fallow practices) with intertemporal benefits, and further documents the moderating role of land tenure security in this relationship. The analysis in the paper is based on data from a survey of 480 farmers in south-east Nigeria, complemented by semi-structured interviews. Farmers’ time preferences were elicited using both a survey and experiments with hypothetical payouts. Land tenure was conceptualised as a composite concept to suit the legally pluralistic context of the study area. This study found that many of the sampled farmers have high discount rates. The result further shows that farmers’ time preferences are negatively associated with their adoption of agroforestry and land fallow practices. Moreover, the result shows that both legal and de facto tenure security encourage the adoption of SLM practices. Other factors influencing the adoption of SLM practices include gender, household size, education, credit constraints, marital status, risk attitude, farming experience, and farm characteristics (e.g., erosion problems and steepness of slope). Furthermore, this study found that the security-enhancing effect of land tenure security (de facto) can alleviate the negative influence of time preferences on farmers’ adoption of SLM practices. The findings suggest that farmers with higher discount rates, who have secure tenure rights to land, are more likely to adopt SLM practices, compared to similar farmers without tenure security.
... This is a less normative discount rate, describing behaviours rather than intention and thus implicit discount rates. Previous research has shown that actual behaviours of individuals correspond to implicit discount rates sometimes above 60% (Meier and Whittier, 1983). Jaffe et al. (2004) provide an empirical interval of 0% to over 100% for implicit discount rates and use 20% in their examples. ...
Decarbonisation of the building stock is essential for energy transitions towards climate-neutral cities in Sweden, Europe and globally. Meeting 1.5°C scenarios is only possible through collaborative efforts by all relevant stakeholders — building owners, housing associations, energy installation companies, city authorities, energy utilities and, ultimately, citizens. These stakeholders are driven by different interests and goals. Many win-win solutions are not implemented due to lack of information, transparency and trust about current building energy performance and available interventions, ranging from city-wide policies to single building energy service contracts. The emergence of big data in the building and energy sectors allows this challenge to be addressed through new types of analytical services based on enriched data, urban energy models, machine learning algorithms and interactive visualisations as important enablers for decision-makers on different levels.
The overall aim of this thesis was to advance urban analytics in the building energy domain. Specific objectives were to: (1) develop and demonstrate an urban building energy modelling framework for strategic planning of large-scale building energy retrofitting; (2) investigate the interconnection between quality and applications of urban building energy data; and (3) explore how urban analytics can be integrated into decision-making for energy transitions in cities. Objectives 1 and 2 were pursued within a single case study based on continuous collaboration with local stakeholders in the city of Stockholm, Sweden. Objective 3 was addressed within a multiple case study on participatory modelling for strategic energy planning in two cities, Niš, Serbia, and Stockholm. A transdisciplinary research strategy was applied throughout.
A new urban building energy modelling framework was developed and demonstrated for the case of Stockholm. This framework utilises high-resolution building energy data to identify buildings and retrofitting measures with the highest potential, assess the change in total energy demand from large-scale retrofitting and explore its impact on the supply side. Growing use of energy performance certificate (EPC) data and increasing requirements on data quality were identified in a systematic mapping of EPC applications combined with assessment of EPC data quality for Stockholm. Continuity of data collaborations and interactivity of new analytical tools were identified as important factors for better integration of urban analytics into decision-making on energy transitions in cities.
... Empirical estimates of implicit discount rates in households' investment decisions for energy efficiency improvements are derived from consumers' revealed or stated preferences for certain investments combined with assumptions on the future costs and benefits. Since Hausman's (1979) seminal work on consumer choices for air conditioners, several studies have analysed consumer investment decisions and estimated implicit discount rates for various energy-related products including appliances, refrigerators, lighting, automobiles, heating systems and building retrofits (e.g., Dubin, 1982;Meier and Whittier, 1983;Train, 1985;Ruderman et al., 1987;Min et al., 2014;Burlinson et al., 2018). Following our focus on households' investment decisions for heat saving measures, Table 1 lists implicit discount rate estimates in the literature, focusing on investments that affect households' energy demand for residential heating, i.e. energy efficiency retrofits and heating system choice. ...
The EU’s Energy Efficiency Directive (EED) sets a binding target for energy-savings in EU member states. The EED further requires member states to perform ex-ante evaluations of energy efficiency policies implemented to achieve these savings. However, ex-ante evaluation of energy efficiency policies is difficult as it requires detailed modelling of end-users’ investment and energy demand behaviour. This paper details the Danish IntERACT modelling approach for ex-ante evaluation of energy efficiency policies directed at residential heating. IntERACT integrates the energy system model TIMES-DK into a computable general equilibrium framework. The paper explores the potential for meeting Denmark’s EED-target through a policy-induced increase in households’ investments in energy efficiency retrofits. The paper considers the effect of energy efficiency policies on households’ investment behaviour by applying different levels of hurdle rates on households’ investments in energy efficiency retrofits. The paper shows that reducing the hurdle rate from 25% to 4% could meet more than a third of Danish energy-saving requirements for the period 2021–2030. This result includes a direct rebound effect of 31%. Finally, the paper demonstrates that reducing the hurdle below 10% has a substantial negative impact on households’ disposable income, making such policy less viable from a policy perspective.
... This is a less normative discount rate, describing behaviours rather than intention and thus implicit discount rates. Previous research has shown that actual behaviours of individuals correspond to implicit discount rates sometimes above 60% (Meier and Whittier, 1983). Jaffe et al (2004) provide an empirical interval of 0% to over 100% ...
Limiting global warming to 1.5 °C requires a substantial decrease in the average carbon intensity of buildings, which implies a need for decision-support systems to enable large-scale energy efficiency improvements in existing building stock. This paper presents a novel data-driven approach to strategic planning of building energy retrofitting. The approach is based on the urban building energy model (UBEM), using data about actual building heat energy consumption, energy performance certificates and reference databases. Aggregated projections of the energy performance of each building are used for holistic city-level analysis of retrofitting strategies considering multiple objectives, such as energy saving, emissions reduction and required social investment. The approach is illustrated by the case of Stockholm, where three retrofitting packages (heat recovery ventilation; energy-efficient windows; and a combination of these) were considered for multi-family residential buildings constructed 1946–1975. This identified potential for decreasing heat demand by 334 GWh (18%) and consequent emissions reduction by 19.6 kt-CO2 per year. The proposed method allows the change in total energy demand from large-scale retrofitting to be assessed and explores its impact on the supply side. It thus enables more precisely targeted and better coordinated energy efficiency programmes. The case of Stockholm demonstrates the potential of rich urban energy datasets and data science techniques for better decision making and strategic planning.
... Because the discount rate quantifies the time value of money, discount rates largely vary across individual investors, the private sector, and governments. For individuals, arriving at discount rates tends to materialize via surveys and generally yield high discount rates that can reach as high as 60% [52][53][54][55]. For the private sector, one way to view the discount rate is through the lens of the opportunity cost of the project relative to other investments (which is also applicable to individuals). ...
Muslims congregate for prayers in mosques five times daily: at dawn, noon, afternoon, sunset, and evening. Because these times are governed by the sun, they change within the year but are perpetual. As such, mosque load profiles are highly predictable and witness little variation year over year. The relatively large size of mosque rooftops and their ubiquity in the Muslim world make them ideal candidates for solar photovoltaic (PV) installations. We perform a technoeconomic analysis on a 124 kW PV system commissioned in 2017 on a mosque rooftop in Riyadh, Saudi Arabia, under a net metering mechanism. At a capital cost of 1.18 US$/watt, it was found that net metering reduces the annual energy bill by more than 50%. If some prior planning were incorporated in the early stages of the mosque’s construction, PV can bring down the electricity bill to zero. We compare our theoretical modeling results with an actual commissioned system, serving as a pilot-project, and the field results confirm our a priori theoretical expectations. The capacity factor obtained from the physical system was 18.2%. The results of this study can be extended to other houses of worship and community halls with appropriate modifications.
... Ruderman et al. [30] found similar implicit discount rates for air conditioners, but a higher discount rate for refrigerators (78-105%). References [6,13,21,29] also find high discount rates ranging from 34 to 300% for refrigerators. On the other hand, Cohen et al. [5] and Tsventanov and Sergerson (2014) find smaller discount rates ranging from 10.5 to 19.0% for refrigerators. ...
Previous studies have reported that households tend to not choose an energy-efficient appliance even if appropriate energy-saving information is provided. To identify the determinants of energy efficiency investment, we conducted a household survey in the Tokyo metropolitan area. Specifically, we collect product model information for the refrigerator that a household owns and calculate the yearly loss incurred from choosing a less efficient model. We then identify socioeconomic characteristics of households that are associated with these yearly losses. We find that wealthy households with many family members tend to purchase inefficient models. We also find that a house-renter with a high income is more likely to purchase an energy-inefficient model. A program targeted at such households could be effective for increasing energy savings in the residential sector.
... The metric ranking of technology options does not change with r, only the values on the y-axis change due to changes in r even though for some technologies, the marginal cost changes from negative to positive. Technologies with shorter lifetimes are less sensitive to changes in r, and technologies with longer lifetimes are rather robust to changes in r, as shown in Fig. 8. Meier and Whittier (1983) make similar findings. The difference in MAC of each abatement technology with and without the implementation factors will be larger when using a higher r, the results shown in this study are conservative as an 8% discount rate is adopted. ...
Households may imperfectly implement energy saving measures. This study identifies two factors resulting in imperfect use of energy-saving technology by households. Households often continue to use old technologies alongside new ones, and the energy-saving technologies have shorter actual lifetimes than their designed lifetimes. These two factors are considered when computing marginal energy conservation cost and marginal CO2 abatement cost using data collected from a survey of rural households in three provinces in China. The results show that there are cost reduction for most space heating technologies, and their marginal abatement cost under full implementation ranges from −60 to 15 USD/t-CO2, while the marginal abatement cost of cooking technologies ranges from 12 to 85 USD/t-CO2. The marginal abatement costs of the majority of technologies increased after accounting for the two implementation factors. The marginal abatement cost in the imperfect implementation scenario is higher, with a range of −1 to 15 USD/t-CO2 for space heating, and 18 to 165 USD/t-CO2 for cooking. Assuming implementation factors are constant until 2035, annually achievable CO2 abatement by 2035 is estimated to be 57, 11, and 10 Mt-CO2/y in Hebei, Guizhou, and Guangxi Provinces.
... The literature suggesting that available opportunities may have negative cost often points to institutional, political, or social barriers as the cause. But other literature suggests economic The efficiency gap is defined as the difference between the socially desirable amount of energy efficiency (however defined) and what firms and consumers are willing to undertake voluntarily (see Meier and Whittier, 1983;Joskow andMarron, 1992, 1993;Jaffe and Stavins, 1994). ...
... The objective of this study is to understand how choice architecture, meaning the way decisions are posed, influence not just relatively simple consumer decisions, but also the upstream decisions about infrastructure project planning, which are complex, uncertain, and require multiple stakeholders to implement. In two previous studies, we developed interventions analogous to choice interventions successfully implemented in other fields (Dietz, Stern, & Weber, 2013;Kempton, Darley, & Stern, 1992;Meier & Whittier, 1983;Stern, 1985;Yates & Aronson, 1983). We begin by explaining our rationale behind these studies and results to provide supporting evidence for our three additional studies outlined in the methods section and reported results. ...
By blending theory from behavioral science and infrastructure project planning, we studied
whether interventions to the choice structure of an infrastructure planning tool could alleviate
biases in decision making for infrastructure planning about sustainability. We empirically tested
interventions to the Envision rating system for infrastructure using simplified case studies which
simulated a real-world decision environment. We found that endowing engineers with
sustainability points to induce loss aversion and showing them an exemplary role model project
produced significant gains in setting high goals for sustainability. The combined effect was
greater than either intervention separately. While these types of interventions can be
controversial when not disclosed, we found that pre-disclosing the interventions to participants
did not diminish the results. We repeated the study with groups of decision-makers and found a
similar effect on sustainability points. These results, combined with previous research, suggest
that approaches from behavioral science (loss aversion, role models, and combined
interventions) can translate to, and improve, multi-stakeholder infrastructure planning decisions.
The results also advance understanding of underexplored areas in behavioral science: nonconsumer
decisions, combined interventions, pre-post disclosure, and the effect of choice
interventions on group decision making. We hope to grow the interdisciplinary community
studying these interventions, which hold great promise to improve infrastructure outcomes, yet
require the unique expertise of the engineering project management community.
... As discussed in Ward et al. (2011), refrigerators have been the subject of several energy-related studies. Among these, Gately (1980), Meier and Whittier (1983), and Revelt and Train (1998) find evidence of high implicit discount rates exhibited by consumers in the refrigerator market. Their estimates range from 34% to 300%, suggesting slow adoption of high-efficiency products. ...
Existing studies point out various factors that might contribute to an “energy efficiency gap” but do not consider the potential effect of choice sets on behavior. In an earlier paper, we developed a theoretical model of the purchase of energy-using durables in which the choice set matters if consumers face price-driven temptation and self-control costs. In this paper, we use refrigerator market data to illustrate that, under such a preference structure, energy efficiency standards can have larger overall welfare benefits than previously recognized, suggesting the importance of considering choice sets in welfare analyses of standards.
... Several studies have investigated the effects of financial incentives on domestic energy preservation, especially on the adoption of energy-efficient household appliances (Faiers and Neame, 2006;Meier and Whittier, 1983;Ward et al., 2011). Revelt and Train (1998) suggested that consumers are attracted by zero-interest loans when they buy highly energy-efficient refrigerators. ...
... End-use Average rate Arthur D. Little (1984) Thermal shell measures 32% Cole and Fuller (national survey, 1980) Thermal shell measures 26% Goett (1978) Space heating system and fuel type 36% Berkovec, Hausman and Rust (1983) Space heating system and fuel type 25% Hausman (1979) Room air conditioners 29% Cole and Fuller (1980) Refrigerators 61-108% Gately (1980) Refrigerators 45-300% Meier and Whittier (1983) Refrigerators 34-58% Goett (1983) Cooking and water heating fuel type 36% Goett and McFadden (1982) Water heating fuel type 67% ...
... A number of mainly older studies from the US infer (aggregate market) discount rates from actual energysaving behavior (e.g. Gately, 1980;Hausman, 1979;Liebermann and Ungar, 1983;Meier and Witthier, 1983;Ruderman et al., 1987). Their results vary greatly both between and within product types (partially due to model specifications). ...
... The cost of homeowner borrowing provides a reasonable proxy, which can range from low home-equity lines of credit, to credit cards. However, research has found that discount rates for energy conservation investments are higher than for other investment decisions (Meier and Whittier, 1983;Train, 1985), perhaps because of higher uncertainty over future conservation savings (Hasset and Metcalf, 1993). Less research has evaluated the discount rate for green energy generation investments, but there may likely be a similar degree of uncertainty. ...
Aim: Policy-makers typically track the rapidly evolving U.S. residential photovoltaic (PV) market by relying on price data reported by PV installers/integrators to incentive programs. Recent years have witnessed a shift toward third-party-owned (TPO) business models, in which the absence of a cash purchase price obscures data interpretation. Appraisals-often based on estimates of the average fair market value across a diverse fleet of systems-are one way TPO prices are reported. Scope: This study investigates residential PV system price drivers to improve the accuracy, consistency, and relevance of PV price-tracking efforts. Our econometric approach evaluates system price drivers using California Solar Initiative data, controlling for system, installer, and geographic variables. Conclusions: We find that reported prices for confirmed appraised systems are $1.13/W higher than non-appraised systems and do not respond to hypothesized price drivers. For non-appraised systems, we find preliminary evidence of market distortions based on the impact of the incentive level, module cost and household income on reported price. Further, unspecified installer heterogeneity-possibly due to differences in products, cost structure or reporting practices-is a substantial price driver. Using estimates, we develop a price model to approximate non-appraised system prices.
... However, additional factors present in a new market such as informational deficits, outsized perceptions of risk, aversion to sizable investments and other factors could increase a consumer's discount rate. Further, research has found that discount rates for energy conservation investments are higher than for other investment decisions (Meier andWhittier 1983, Train 1985), perhaps because of higher uncertainty over future conservation savings (Hassett and Metcalft 1993). Less research has evaluated the discount rate for green energy generation investments, but there may be a similar degree of uncertainty. ...
Over the past several years, third-party-ownership (TPO) structures for residential photovoltaic (PV) systems have become the predominant ownership model in the US residential market. Under a TPO contract, the PV system host typically makes payments to the third-party owner of the system. Anecdotal evidence suggests that the total TPO contract payments made by the customer can differ significantly from payments in which the system host directly purchases the system. Furthermore, payments can vary depending on TPO contract structure. To date, a paucity of data on TPO contracts has precluded studies evaluating trends in TPO contract cost. This study relies on a sample of 1113 contracts for residential PV systems installed in 2010-2012 under the California Solar Initiative to evaluate how the timing of payments under a TPO contract impacts the ultimate cost of the system to the customer. Furthermore, we evaluate how the total cost of TPO systems to customers has changed through time, and the degree to which contract costs have tracked trends in the installed costs of a PV system. We find that the structure of the contract and the timing of the payments have financial implications for the customer: (1) power-purchase contracts, on average, cost more than leases, (2) no-money-down contracts are more costly than prepaid contracts, assuming a customer's discount rate is lower than 17% and (3) contracts that include escalator clauses cost more, for both power-purchase agreements and leases, at most plausible discount rates. In addition, all contract costs exhibit a wide range, and do not parallel trends in installed costs over time.
... For decades, studies of consumer choice have demonstrated barriers to adoption of more efficient, cost-saving household appliances, for instance. In 1983, Meier and Whittier reported that more than half of refrigerator purchasers, in a large national sample, refused to pay $60 more for a model that would reduce their energy usage by greater than 25% annually; instead, most bought a model identical in all respects except its energy usage [22]. The simple mathematics required to calculate the long-term cost savings of the $60 investment is not only within the capacity of the average consumer, it is a baseline assumption of most rational choice models. ...
... For decades, studies of consumer choice have demonstrated barriers to adoption of more efficient, cost-saving household appliances, for instance. In 1983, Meier and Whittier reported that more than half of refrigerator purchasers, in a large national sample, refused to pay $60 more for a model that would reduce their energy usage by greater than 25% annually; instead, most bought a model identical in all respects except its energy usage [22]. The simple mathematics required to calculate the long-term cost savings of the $60 investment is not only within the capacity of the average consumer, it is a baseline assumption of most rational choice models. ...
... The literature suggesting that available opportunities may have negative cost often points to institutional, political, or social barriers as the cause. But other literature suggests economic The efficiency gap is defined as the difference between the socially desirable amount of energy efficiency (however defined) and what firms and consumers are willing to undertake voluntarily (see Meier and Whittier, 1983;Joskow andMarron, 1992, 1993;Jaffe and Stavins, 1994). ...
... For example, buyers will pay a premium in choosing a more energy efficient appliance or building design, where the premium reflects the expected value of energy savings compared with alternatives. Studies that have explored this, and other cases where a current day expenditure will reduce future costs, show that the effective discount rate for most consumers is very high, typically 20Á40% (see for example Meier and Whittier, 1983). ...
... For example, buyers will pay a premium in choosing a more energy efficient appliance or building design, where the premium reflects the expected value of energy savings compared with alternatives. Studies that have explored this, and other cases where a current day expenditure will reduce future costs, show that the effective discount rate for most consumers is very high, typically 20Á40% (see for example Meier and Whittier, 1983). ...
... In this study, we used a one-year saving rate of 3.5%a rate often used in market decision makingas the discount rate. Many studies have shown that consumers tend to use a higher discount rate when purchasing energy-efficient products (e.g., Hassett and Metcalf, 1993;Hausman, 1979;Meier and Whittier, 1983;Ward et al., 2011). For example, Hausman (1979) found a 20% discount rate, and Revelt and Train (1998) found the implicit discount rates that consumers used when purchasing energy-efficient products were as high as 39-46%. ...
... Researchers have taken various approaches to measure the relative priority consumers place on energy efficiency versus upfront cost when making technology purchases, including implicit discount rates (IDRs) (Gately, 1980;Meier and Whittier, 1983). The IDR, or hurdle rate, is the value of the discount rate for a hypothetical net-presentvalue-maximizing consumer that best matches observed choice behavior. ...
... Second, empirical evidence of the use of high discount rates for future returns from energy-saving technologies (Gately 1980, Hausman 1979, Meier and Whittier 1983, Ruderman et al 1987. Expectations of rapid technological change, information barriers, and other non-monetary costs are some of the factors that give rise to the use of high implicit discount rates (Hassett andMetcalft 1993, Howarth andSanstad 1995). ...
Diffusion of microgeneration technologies, particularly rooftop photovoltaic (PV), represents a key option in reducing emissions in the residential sector. We use a uniquely rich dataset from the burgeoning residential PV market in Texas to study the nature of the consumer's decision-making process in the adoption of these technologies. In particular, focusing on the financial metrics and the information decision-makers use to base their decisions upon, we study how the leasing and buying models affect individual choices and, thereby, the adoption of capital-intensive energy technologies. Overall, our findings suggest that the leasing model more effectively addresses consumers' informational requirements and that, contrary to some other studies, buyers and lessees of PV do not necessarily differ significantly along socio-demographic variables. Instead, we find that the leasing model has opened up the residential PV market to a new, and potentially very large, consumer segment—those with a tight cash-flow situation.
... The contradictory patterns of consumer responses may result from design differences across survey instruments. Many previous studies were limited to only one type of product; in other words, research dealing with questions about refrigerators did not bother with air conditioners or solar panels (Faiers and Neame, 2006;Meier and Whittier, 1983;Ward et al., 2011). Studies aiming to establish general patterns usually focused on comparing curtailment activities and efficiency approaches; therefore, only a few energy-efficient products (such as light bulbs and appliances) were included as examples (Attari et al., 2010;Barr et al., 2005;Benders et al., 2006). ...
Residential energy-efficient and renewable energy (EERE) products play an important role in energy conservation and carbon emissions reduction. Various financial incentive programs have been developed to promote the adoption of these products. However, their effectiveness in attracting consumers is not very well understood. In this study, we investigated impacts of financial incentives on homeowner's decision making towards six EERE products. Two forms of incentives, tax credits and interest-free loans, were examined through a household mailing survey in Florida, the United States. Results showed that, although half of the respondents were interested in EERE products, the high investment cost was a major concern that hindered their purchase activities. Homeowners were attracted to financial incentives and valued tax credits much higher than interest-free loans. The current federal home energy tax credit levels were found to attract only 2–12 percent of homeowners to buy EERE products. The willingness of participation was especially low for the costly products (such as solar panels). The participation rate was also very low for lower income (i.e., annual household income below $50,000) families living in older residences. This study contributes to the understanding of economic and social aspects of consumer decision making on energy efficiency and alternative energy.
The implicit discount rate (IDR) is a decisive factor in household investment decisions, and its modification could promote investment in energy-saving products. However, the discussion on households’ IDR in developing countries is limited. In this regard, the current study aims to provide a detailed review of the IDR across various investment decisions, factors affecting its value, and policy instruments that can influence its value. The study finds that the IDR value tends to be considerably higher than market interest rates. Information and behavioural failures lead to a high IDR and under-investment in energy efficiency, which may be addressed through energy labels. However, the effectiveness of energy labels in addressing barriers and making energy-efficiency information visible to households depends on their visual presentation, time frame (annual or lifetime), units of measurement (physical or monetary), and the content of the information. The review has relevance for policymaking aimed at increasing the adoption of energy-efficient options that reduce household carbon footprints and, in turn, contribute towards realizing the net-zero emissions target.
This paper explores the willingness-to-pay for energy efficiency by exploiting variation across products and countries within the EU market for household appliances. Based on scanner data at product-level, I use the hedonic method to estimate implicit prices for energy efficiency and derive implicit discount rates. The paper argues that the implicit price will be underestimated when energy consumption is not only a determinant of operating cost but also is positively associated with other features of a product. The empirical analysis confirms that estimates of the willingness-to-pay are higher when this effect is accounted for in the estimation. This is especially true of product types for which the heterogeneity of usage intensity is low. The results thus indicate that the energy efficiency gap is smaller than found in earlier studies.
This paper wishes to add to the rich literature of studies exploring the reasons behind the energy efficiency gap. To this direction, it presents the results of a stated preference survey conducted on a representative sample of Greek households via computer-assisted web interviewing (CAWI) in the context of the “Consumer Energy Efficiency Decision making (CONSEED)” project. The survey was designed and conducted so as to reach every type of household and gather information on the factors influencing households’ energy efficiency choices. The emphasis was given on certain issues that previous studies identified as needing further research, such as the impact of EU labelling scheme on consumers’ decision-making, the connection between pro-environmental behaviour and willingness to invest in more energy-efficient appliances and the role of peer effects, misinformation about current electricity prices and imperfect understanding of energy operating costs on the energy efficiency gap. The findings of the survey are not an end-to-itself but a vehicle for behavioural research in energy efficient decisions. The data collected and analysed can be used to populate theoretical models regarding energy efficiency gap and determine the degree to which each factor contributes to the phenomenon. Moreover, they could help decision-makers in better understand the energy paradox, and, thus, could contribute to crafting better public policy responses that would maximise private and social benefits associated with the adoption of energy-efficient choices.
Energy efficiency is one of the key factors in mitigating the impact of climate change and preserving non-renewable resources. Although environmental and economic justifications for energy efficiency investments are compelling, there is a gap between the observable and some notion of optimized energy consumption - the so-called energy efficiency gap. Behavioral biases in individual decision making have been resonated by environmental research to explain this gap. To analyze the influence of behavioral biases on decisions upon energy efficiency investments quantitatively, we compare Expected Utility Theory with Cumulative Prospect Theory. On basis of a real-world example, we illustrate how the extent of the gap is influenced by behavioral biases such as loss aversion, probability weighting and framing. Our findings indicate that Cumulative Prospect Theory offers possible explanations for many barriers discussed in literature. For example, the size of the gap rises with increased risk and investment costs. Because behavioral biases are systematic and pervasive, our insights constitute a valuable quantitative basis for environmental policy measures, such as customer-focused and quantitatively backed public awareness campaigns, financial incentives or energy savings insurances. In this vein, this paper may contribute to an accelerated adaption of energy efficiency measures by the broader public.
The promotion of energy-efficient appliances is necessary to reduce the energetic and environmental burden of the household sector. However, many studies have reported that a typical consumer underestimates the benefits of energy-saving investment on the purchase of household electric appliances. To analyze this energy-efficiency-gap problem, many scholars have estimated implicit discount rates that consumers use for energy-consuming durables. Although both hedonic and choice models have been used in previous studies, a comparison between the two models has not yet been made. This study uses point-of-sale data about Japanese residential air conditioners and estimates implicit discount rates with both hedonic and choice models. Both models demonstrate that a typical consumer underinvests in energy efficiency. Although choice models generally estimate a lower implicit discount rate than hedonic models, the latter models estimate the values of other product characteristics more consistently than choice models.
We consider a two-periods-model of differentiated duopoly. Firms produce an energy consuming good differentiated by its energy efficiency. Consumers differ by the weight they apply to energy costs when deciding which product to buy. In line with the Japanese Top Runner Program, the regulator introduces a minimum efficiency standard in period t=2 which is fixed according to the efficiency of the product supplied by the high efficiency firm in t=1. We show that total energy consumption is decreasing, but the impact on welfare is ambiguous. It depends on the discount rate and the minimum weight consumers apply to energy costs. (JEL: L13, Q48, Q58)
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The empirical literature on the energy efficiency gap concentrates on demand inefficiencies in the energy-using durables markets and finds evidence that consumers underestimate future energy costs when purchasing a new appliance. We take a broader view and also consider the impact of imperfect competition. Using data on the UK refrigerator market (2002-2007), we find that the average energy consumption of appliances sold during this period was only 7.2% higher than what would have been observed under a scenario with a perfectly competitive market and non-myopic consumers. One reason for this small gap is that market power actually reduces energy use.
Research on the energy-efficiency gap in developing countries remains very scant. In this study, we apply the hedonic price model to investigate how Vietnamese consumers value the energy efficiency of air conditioners (ACs). We assume that the energy efficiency of ACs in the Vietnamese market improves to that of ACs in the Japanese market. Then, we calculate the payback period by dividing the capital cost to improve the energy efficiency by the annual electricity cost saving. We show that the initial investment cost can be recovered in a short time. In addition, we calculate the implicit discount rate to show how Vietnamese consumers value energy efficiency investment. We find that the implicit discount rate in Vietnam's AC market is much higher than the rates found in studies on developed countries. Hence, consumers in developing countries place much lower value on energy efficiency investment than consumers in developing countries, even though purchasing energy-efficient appliances offers opportunities to save substantial amounts.
Implicit discount rates (IDRs) are employed in energy models to capture household investment decisions, yet the factors behind the IDR and their respective implications for policy-making usually remain blurred and fractional. The proposed comprehensive framework distinguishes three broad categories of factors underlying the IDR for household adoption of energy-efficient technologies (EETs): preferences (notably over time, risk, loss, debt, and the environment), predictable (ir)rational behavior (bounded rationality, rational inattention, behavioral biases), and external barriers to energy efficiency. Existing empirical findings suggest that the factors underlying the IDRs that differ across household characteristics and technologies should be accounted for in energy models. Furthermore, the framework allows for a fresh look at the interplay of IDRs and policies. We argue that a simple observation of high IDRs (or observing correlations between IDRs and socio-economic characteristics) does not provide guidance for policy-making since the underlying sources cannot be identified. Instead, we propose that some of the factors underlying the IDR - notably external barriers - can be changed (through directed policy interventions) whereas other factors - notably preferences and predictable (ir)rational behavior - are innate and can only be taken into account (through reactive policy interventions).
The importance to environmental policy of improving energy efficiency is now widely agreed. It is also well establised that levels of energy efficiency are below the optimum for economic efficiency, i.e. there are market barriers to energy efficiency. Neo-classical economic theory provides a taxonomy of the barriers in terms of market failure and can evaluate short term options to address them. However, this paradigm does not explain the underlying causes or why all the market failures act in the direction of lower energy efficiency. Economic analysis alone cannot identify long term, sustainable approaches to removing the barriers; input is needed from other disciplines. A review of the multi-disciplinary literature identifies some common elements in the nature of the barriers: a dichotomy between producers and consumers, centralisation in energy supply and planning, a commodity view of energy, and complexity of energy efficiency markets. It is concluded that these are fundamental characteristics of energy use in a modern economy. They constitute a meta-barrier - a framework in which the other barriers can be described. Barriers to energy efficiency therefore remain deeply entrenched and, in the short term, optimisation of energy efficiency is unlikely. However, future changes in technology, market structures and institutions may open new opportunities to address the fundamental problems in the longer term.
Refrigerator efficiency is promoted through standards supplemented by utility incentives, with savings estimates based on consumption data as reported on appliance labels. How closely refrigerator energy consumption matches the label value, based on laboratory test data, was evaluated in a year-long study completed in August 1993. In the largest in-situ metering study to date, 256 new refrigerators in two efficiency categories were monitored at three locations within the Pacific Gas and Electric Co. (PG&E) service area. Hourly monitoring permitted the determination not only of energy consumption but also of the load shape, and how both depend on outdoor temperature. The effect of several other relevant parameters—including ice maker use, anti-sweat heater operation, coil location, number of persons in household, and fresh-food compartment thermostat setting—on energy consumption was evaluated using multivariate regression. Simpler regression models, where only outdoor temperature is considered as a predictor variable, yielded identical estimates on annual refrigerator energy use as the more complex regression model. The regression coefficients obtained in this study can be used to estimate in-situ consumption of similar refrigerators in other areas using local temperature data, thereby extending the usefulness of the results. In the PG&E service area, actual consumption was found to be 10% to 13% below label values.
Federal electric vehicle (EV) policies in the United States currently include vehicle purchase subsidies linked to EV battery capacity and subsidies for installing charging stations. We assess the cost-effectiveness of increased battery capacity vs. nondomestic charging infrastructure installation for plug-in hybrid electric vehicles as alternate methods to reduce gasoline consumption for cars, trucks, and SUVs in the US. We find across a wide range of scenarios that the least-cost solution is for more drivers to switch to low-capacity plug-in hybrid electric vehicles (short electric range with gasoline backup for long trips) or gasoline-powered hybrid electric vehicles. If more gasoline savings are needed per vehicle, nondomestic charging infrastructure installation is substantially more expensive than increased battery capacity per gallon saved, and both approaches have higher costs than US oil premium estimates. Cost effectiveness of all subsidies are lower under a binding fuel economy standard. Comparison of results to the structure of current federal subsidies shows that policy is not aligned with fuel savings potential, and we discuss issues and alternatives.
Data on residential construction practices in 1975–1976, together with climatic data, construction costs and fuel costs, are used to calculate discount rates implicit in homeowner's decisions to invest in energy-saving measures in new homes. This process is repeated for ten cities for three heating fuels in each city. The resulting discount rates are significantly higher than market rates of interest, suggesting market imperfections which reduce the level of investment in energy efficiency below the socially optimal level.
Consumers use simplified measurements as a basis for residential energy decisions. We analyze their measurements of monthly consumption, changes through time, comparison of appliances, and length of payback period. Because of systematic errors in quantification, consumers choose ineffective energy conservation actions, and underestimate the benefits of previous actions. These errors do not result solely from lack of information since they are made even by consumers who understand technical energymeasurement. To explain the persistence of a seemingly disadvantageous system, we show that consumer methods are cognitively efficient. They are easy to learn and use and are compatible with general-purpose budgeting tasks. However, they lead to higher energy use than would be economically optimal for either the individual or the nation.
In an earlier article in this Journal, Hausman estimated the implicit discount rate used by air conditioner buyers in the tradeoff between initial cost and energy usage. Similar estimates for refrigerators yield discount rates from 45 percent to 300 percent. This raises questions about consumer and producer behavior and weakens certain criticisms of efficiency standards.
This article presents a model of individual behavior in the purchase and utilization of energy-using durables. The tradeoff between capital costs for more energy efficient appliances and operating costs for the appliances is emphasized. Using data on both the purchase and utilization of room air conditioners, the model is applied to a sample of households. The utilization equation indicates a relatively low price elasticity. The purchase equation, based on a discrete choice model, demonstrates that individuals do trade off capital costs and expected operating costs. The results also show that individuals use a discount rate of about 20 percent in making the tradeoff decision and that the discount rate varies inversely with income.