Investment in Energy Efficiency, Adoption of Renewable Energy and Household Behaviour: Evidence from OECD countries

There exist some possible synergies between energy efficiency measures and renewable energy adoption in the sense that the former reduces the energy demand so that the latter can begin to cut future GHG emissions with a high potential in residential sector. In this residential sector, many works have been done either on demand for clean energy or on investment in energy efficiency, but to our knowledge there is no specific study that investigates the interaction between the two decisions. This paper fills this gap in literature and first theoretically shows that there exist interactions between the two decisions depending on a threshold on the pro-environmental index of the consumer. Second, the paper empirically shows that the two decisions are positively interrelated and cannot be estimated independently. As a result, univariate methods that estimate separately the two decisions of renewable energy adoption and investment in energy efficiency potentially produce biased results because it may exist unobserved characteristics that determine both decisions. Third, the paper investigates characteristics of the household that significantly affect the interaction between the two decisions by using generalized ordered logit model. More precisely, the paper provides evidence on factors that affect the joint probability of adopting renewable energy and investing in energy efficiency and the probability of doing nothing. This contribution can serve to define incentive policies to boost the energy transition.