Susanna Berkouwer, University of Pennsylvania

Research in high-income countries has identified carbon taxes and nudges to increase attention as effective policies to increase investment in energy efficient technologies. We show that these policies will likely be less effective in low-income settings, which are expected to contribute almost all growth in global energy demand in the next several decades. In a randomized field experiment with 1,000 households in Nairobi, Kenya, we study an energy efficient replacement for their primary energy-consuming durable: a charcoal cookstove. Using an incentive-compatible Becker-DeGroot-Marschak mechanism we estimate a 40% reduction in charcoal spending, in line with engineering estimates, which corresponds to a 300% annual rate of return. Despite large private fuel savings of $236 over the stove’s two-year life span—almost as high as the $292 in carbon emissions reductions—households are only willing to pay $12. Drawing attention to potential energy savings does not increase demand: households already internalize the private financial benefits, perhaps because energy is a larger portion of household budgets. A three month loan more than doubles WTP; credit constraints prevent adoption of privately optimal technologies. This suggests carbon taxes and nudges to increase the salience of future energy savings are unlikely to significantly increase the adoption of energy efficient appliances in lowincome settings, and may instead induce regressive increases in energy costs.

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