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Psychological, social and financial barriers to energy efficiency

Periodic Reporting for period 2 - PENNY (Psychological, social and financial barriers to energy efficiency)

Reporting period: 2018-03-01 to 2019-08-31

Energy saving through energy efficiency is crucially important as it contributes to reductions in greenhouse gas (GHG) emissions, to achieve a more competitive, secure and sustainable energy system, and is an important means to save money. However, energy efficiency depends not only on the availability of cheap technologies or on policy interventions, but it is largely influenced by behavioural choices of users. The primary goal of the project PENNY is to provide an empirical and numerical assessment of the psychological, social, economic and financial factors that influence energy efficiency in the residential and industry sectors.

The project aimed to provide major advancements on the state of the art related to consumer behaviour in the domain of energy efficiency in order to improve the design of future energy efficiency policies. The project tested interventions on consumer behaviour in collaboration with energy industries in several EU countries, using state of art methods based on randomization (RCT) and Discrete Choice Experiments (DCE). The generated knowledge allowed us to improve model-based impact assessment of energy policies in the EU and globally. The project ended with the Final Conference, which has been organized in a form of an Energy Efficiency Symposium, where we discussed the mains findings regarding the interventions to increase energy efficiency through consumer behaviour to help achieving Europe’s climate objectives.
The activities carried out produced a ranking of different policies aimed at improving energy efficiency. The stock-tacking activities also allowed us to develop a conceptual framework, that merges theoretical models incorporating behavioural aspects, a welfare framework and empirical results. Moreover, by analysing the data collected through a large sample survey we were able to compare the consumption of energy services, psychological characteristics and energy-related financial literacy in different European countries.

The main conclusion of the project are the following:
1. The project found that different success factors exist for policies aimed at making energy consumption more efficient. The project identified four success factors: technological advancements, perceived environmental responsibility of the energy providers, social norms, and individual characteristics. The project found that these factors are important per se, but their importance and effectiveness depend on how they interplay with each other and with the policy interventions (see point 4 below).
2. As for an effective design of incentives that improve investment in energy efficient appliances, we found that tailored information on potential monetary savings have an effect on investment, while information on the specific running cost of the appliances on the product webpage does not. The format (monetary savings versus energy costs) is a strong moderator of the effectiveness of information policies on investments.
3. As for an effective design of policies targeting the residential sector in general, we found that it is more effective to target behaviour in the domain of energy efficient investment, than a behaviour in the domain of energy use, such as the curtailment of consumption. Policies that target energy efficiency investments are the most accepted ones. On the contrary, policies that target sustainable energy sources, or curtailment behaviour, or changing the time of energy use are less accepted. We found that financial motivations have a limited influence on behavior. This result however, may depend on the low cost of energy.
4. Financial rewards are not the only option to improve energy efficiency. Environmental appeals are often very effective, but we find that their effectiveness depend on the extent to which people think their energy utility aims to reduce their environmental impact. For effectiveness, it is crucial the interplay between perceived corporate environmental responsibility and the type of message delivered (whether leveraging the environmental appeals versus the financial appeals). As for the interplay between social norms and individual characteristics, we found that social comparison information (comparing own versus neighbours’ energy consumption) influences energy use, in particular among high-energy users. Moreover, the willingness to shift energy consumption in time is higher when people think others do so too. Finally, technological advancements are and will be extremely useful, but they are more likely to be adopted when the design is appealing. This is because nowadays, we are overwhelmed by mobile applications.
5. We found that targeting the message to the relevant consumers is important. For example, social comparison information influences energy use, in particular among individuals who strongly endorse environmental values. We are aware however that targeting is an extremely difficult task.
6. Improvements in energy-related financial literacy are as well important. Higher energy-related financial literacy is associated with lower energy use.
7. Policy makers should be aware that there is a variety of barriers that pertain to individual behaviour (status-quo bias, bounded rationality, reference dependent preferences or strong environmental preferences), that cannot be addressed using only economic and regulatory instruments. The complexity and variety of barriers pertaining to individual behaviour call for increasing insights from behavioural economics.
The project aimed to make substantial contributions in the analysis of energy efficiency in order to support the development of energy efficiency strategies, policies and programmes across Europe. To do so, the project advanced the current state of the art on energy efficiency in various ways. PENNY provided an innovation in the assessment of the energy-efficiency policies, by offering a comprehensive assessment of the effectiveness of different types of policies targeting energy efficiency. PENNY compiled a novel dataset at the household level, on consumption of energy services, psychological characteristics and energy-related financial literacy in different European countries. PENNY conducted RCTs tests in two domains. The first domain is behaviour related to energy curtailment, which represents routine, repetitive effort to decrease consumption on a day-to-day basis. The second is behaviour related to investments, which are one time actions such as purchasing new energy efficiency technologies and modifying a building or a house.

PENNY generated quantitative information on expected impacts of EU policies in selected countries and the EU in its entirety. PENNY guided the policy process by assessing the existing policies in energy efficiency, identifying their strengths and weaknesses and by providing evidence based suggestions for the design of new policies. PENNY helped businesses in the energy sector to innovate their services. By better understanding individual behaviour in energy efficiency and by designing incentives that strengthen intrinsic motivation to adopt energy efficiency, PENNY contributed to move efficiency patterns and lifestyles towards more sustainable energy use. The outcomes of PENNY can be beneficial for other contexts and other disciplines. They can be applied to improve not only environmental behaviours, but also moral and healthy behaviour.
PENNY project - scribing map