By Susanna B. Berkouwer and Joshua T. Dean
In low-income countries, adopting energy-efficient technologies does more than just slow climate change. Increased efficiency can save the poor substantial amounts of money. Traditional energy sources also often have large negative health impacts (see the Clean Cooking Alliance for an overview). Energy-efficient technologies could help meet sustainable development goals by slowing greenhouse gas emissions, generating financial savings for households, and improving the health of women and children.
Despite this, adoption of energy-efficient technologies remains low. Almost all growth in global energy demand in the next several decades is expected to come from low- and middle-income countries (International Energy Agency 2017). But these countries still use more than twice as much energy per dollar of GDP (Energy Progress Report 2018).
In a randomised controlled trial with 1,000 households in Nairobi (Berkouwer and Dean 2020), we set out to understand why. What causes low levels of adoption of household energy efficiency technologies that are predicted to generate large benefits? Is it that the returns are not as large as predicted? Or do other frictions, such as market failures or behavioural biases, prevent widespread adoption?
Once we answer these questions, we can think about which policies would best support sustainable development. Economists almost unanimously agree that a carbon tax is the most efficient way to reduce greenhouse gas emissions. But is this the best policy everywhere? We show that in some settings a subsidy on energy-efficient technologies may generate larger welfare gains.