Time preference and consumer discount rates - Insights for accelerating the adoption of efficient energy and transport technologies

The adoption of efficient energy and transport technologies often depends on how consumers discount energy savings. Understanding the rate of discounting and the choices consumers make is therefore essential for successful energy efficiency policy. Here, we review pertinent discount rates, identify factors influencing consumer preferences, and derive recommendations for policy makers. We find that consumers apply discount rates of 19 ± 17% when purchasing efficient energy and transport technologies. Discount rates span a wide range both within and between groups of technologies and tend to exceed the market interest rate. High discount rates may not always reflect behavioral errors but instead express the context-specific time and utility preferences of consumers facing liquidity constraints, opportunity costs, transaction costs, and multiple uncertainties. Energy efficiency can be promoted by addressing these factors through (i) innovative leasing schemes to lower the investment cost of efficient technologies, (ii) accurate product labeling to make costs and product functionalities transparent, and (iii) extended warranty, replacement, and take-back options to mitigate consumer risks. The inability of consumers to verify energy savings and attribute them to a specific investment has received little attention but arguably constitutes a major barrier for the diffusion of efficient energy technologies.

HAQ Anwar;  WEISS Martin; 

2019-10-02

ELSEVIER SCIENCE INC

JRC112372

0040-1625 (online),   

https://publications.jrc.ec.europa.eu/repository/handle/JRC112372,   

10.1016/j.techfore.2018.06.045 (online),