Energy efficiency labels could have a substantial impact in guiding decisions on household appliances. This research was also published in the Journal of the Association of Environmental and Resource Economists.
We evaluate the effectiveness of energy efficiency labeling in guiding household appliance choice decisions. Using a carefully designed choice experiment with several alternative labeling treatments, we disentangle the relative importance of different types of information and intertemporal behavior (i.e., discounting) in guiding energy efficiency behavior. We find that simple information on the economic value of saving energy was the most important element guiding more cost-efficient investments in appliance energy efficiency, with information on physical energy use and carbon dioxide emissions having additional but lesser importance. The degree to which the current EnergyGuide label guided cost-efficient decisions depends importantly on the discount rate assumed appropriate for the analysis. Using individual discount rates separately elicited in our study, we find that the current EnergyGuide label came very close to guiding cost-efficient decisions, on average. However, using a uniform five percent rate for discounting—which was much lower than the average individual elicited rate—the EnergyGuide label led to choices that result in a one-third undervaluation of energy efficiency. We find that labels that not only nudged people with dispassionate monetary or physical information, but also endorsed a model (with Energy Star) or gave a suggestive grade to a model (as with the EU-style label), had a substantial impact in encouraging the choice of appliances with higher energy efficiency. Our results reinforce the centrality of views on intertemporal choice and discounting, both in terms of understanding individual behavior and in guiding public policy decisions.