Better ‘energy literacy’ leads to more energy efficiency in households

Improving energy efficiency is widely recognized as one of the best ways to reduce energy consumption and the associated CO2 emissions. Nevertheless, inefficient energy use persists in several sectors, including households. Recent publications by IVM’s Julia Blasch and Swiss co-authors show that improvements in households’ ‘energy literacy’ and ‘investment literacy’ lead to more energy efficiency. Education and decision support tools can enhance this literacy.

‘Energy literacy’ can be defined as an individual’s cognitive, affective and behavioral abilities with respect to energy related choices. ‘Investment literacy’ is the ability to perform an investment analysis and to calculate the lifetime cost of an appliance or energy efficient renovation (using compound interest).

An analysis of Swiss panel data showed that households possessing a higher energy and investment literacy are associated with lower overall electricity consumption. Analysis of data from another survey among Swiss households led to the conclusion that displaying information on energy consumption in monetary terms rather than in physical units positively influences an individual’s probability to perform an investment analysis which in turn increases the probability to choose the most (cost-)efficient appliance. Also a higher level of energy and investment literacy clearly enhances the individuals’ probability to do an investment calculation and to choose the most efficient appliance.

In an experiment with Swiss citizens it was confirmed that information processing is a major barrier for consumers when confronted with the selection of the most cost-efficient appliance and that enhancing their investment literacy increases the chances that they will choose appliances with low lifetime cost (i.e., energy efficient appliances). especially if their investment decision is supported by an online calculator.

Meanwhile, Blasch and others have developed the concept of ‘energy-related financial literacy’: the combination of energy-related knowledge and cognitive abilities that are needed in order to take decisions with respect to the investment for the production of energy services and their consumption. Empirical data show that energy-related financial literacy is relatively low and heterogeneous across Europe, which suggests that education and decision support tools should be elements in a wider policy package to spur the clean energy transition.