The growing impact of climate change in today’s society is favoring the spread in awareness on the effects of excessive energy consumption, making energy conservation a pressing topic in the public debate.
Exploiting behavioral science, Behavioral Energy Efficiency programs help consumers make more informed and conscious choices on energy optimization issues, motivating them to generate energy savings in order to both cut costs and benefit the environment.
Due to the very nature of energy as an auxiliary and necessary good as well as its market structure, people often struggle to achieve energy efficiency.
For example, as long as energy bills present aggregate information on the amount of power consumed throughout a billing period, disentangling the impact of a specific electrical appliance or energy powered service on total energy consumption can be complex for consumers.
In addition, being energy consumption an automatic and routine behavior, households’ investments on energy efficiency improvements are infrequent and involve effortful choices on switching energy contracts, often prone to inertia.
Moreover, various biases affect the decision-making process of costumers in this field. These include:
- Status quo bias, that makes people stick to the default setting, neglecting better alternatives
- Attitude behavioral gap, namely the difficulty of individuals to adapt their daily behavior to match their beliefs and preferences about the environment
- Framing, namely the principle according to which the way in which data is presented affects an agent’s choice from a set of options
- Endowment effect, namely the challenging issue of replacing an inefficient item that the customer paid for with a new device. Even when it makes financial sense, ownership makes it painful for individuals to replace goods.
Given the actuality of the theme and the rise in the cost of energy that various countries are now experiencing, behavioral interventions are being implemented in the realm of energy policy.
A study commissioned by the Norwegian Water Resources and Energy Directorate shows the importance of clear feedback systems on energy saving. Through the installation of real-time in-home displays, customers could control their energy consumption in real time, becoming aware of which services and electrical items consume a lot of energy. This proved that the effectiveness of feedback channels has a major impact on energy consumption and highlighted the importance of simplifying interventions on energy use. In this regard, the implementation of smart heating solutions seems to play a huge role too. New generation heating controls allow consumers to turn the heating on and off via smartphone apps, increasing the easiness to control energy supply.
However, these methods are often not enough to implement energy conservation because of the lack of comparison and the dependence on the conscientiousness of consumers.
A great example of how peer pressure and social comparison can be exploited in favor of energy saving is represented by the software company OPower.
The firm revolves around the idea that people judge the well-being of their behavior relative to a benchmark or depending on how well others are doing. Issuing Home Energy Reports, OPower informs customers about their energy use rank relative to those of the other homeowners in their service area and offers customized proposals on how to boost efficiency.
Furthermore, to overcome the problem of framing, the UK Department of Energy and Climate Change tested the impact of adding estimates of lifetime energy costs and energy efficiency to labels of electrical appliances on purchases. Together with an improvement in the intuitiveness of label design, the solution was proved to be extremely effective in reducing the average annual electricity consumption associated with the purchase of electrical appliances. Moreover, the exploitation of biases such as loss aversion and percentage bias in the production of labels showed to be helpful.
On the other hand, to encourage the use of energy from renewable sources, it’s necessary to act on the behavioral phenomenon that guides our choices related to energy contracts: inertia. People have indeed the tendency to adhere to the default option provided by energy retailers instead of searching for alternative contracts.
A study conducted by the Swiss Federal Office of Energy analyzed the consequences of making the use of renewable sources the default option in energy contracts. As long as the energy premium of renewable sources was not excessively higher than the one of traditional grey sources, green defaults led to a huge increase in the use of renewable energy.
To conclude, several behavioral interventions can be promoted in order to reduce energy consumption and nudge consumers towards green energy choices that benefit both the environment and their savings. Being climate change one of the most relevant issue of the public agenda, we all need to work towards a change in the collective behavior on energy consumption and recognize the huge positive impact this change would have on the environment.
- “Tackling Environmental Problems with the Help of Behavioural Insights” chapter 3
- When “Not Losing” is Better Than “Winning:” Using Behavioral Science to Drive Customer Investment in Energy Efficiency by C. Armel