Environmentally friendly or no? Ricardo Daziano models the economic variables that influence whether consumers choose energy-efficient technology.
Elizabeth Nelson
Elizabeth Nelson

How Consumers View Energy Efficiency

by Jackie Swift

Cutting back on energy use in the face of climate change means we need to make some important choices in the marketplace: Do we buy a gasoline-powered car or an electric one? Do we replace our old furnace with a gas furnace or an electric heat pump? Do we opt to get our energy from solar panels or coal-fired power plants?

“Environmentally friendly products like electric cars and solar panels have benefits not only for the user, who saves money because the products are energy efficient, but also for society because they produce less emissions,” says Ricardo A. Daziano, Civil and Environmental Engineering. Daziano is a choice modeler, an economist by training who focuses on energy efficiency—mathematically modeling the economic variables that underlie individual choice in an effort to understand how people make decisions regarding the purchase of energy-efficient technology.

Trade-off: Purchase Price versus Savings

In experiments, Daziano and his colleagues create scenarios in which they manipulate the features and price of a technology—say, an electric car. They tweak the price and adjust the operating costs higher or lower as participants choose between various options. “We are trying to see how much lower the purchase price needs to be and how much higher the benefits, or operating cost savings, so that we have a broader adoption of the technology,” he says.

Like most new, energy-efficient technology, electric cars are very expensive because economy-of-scale hasn’t been realized, and investments in research and development still have to be paid for. “The consumer has a trade-off to make between a higher purchase price now versus savings in the future because an electric car will be cheaper to operate and produces less emissions,” Daziano says.

In economics, that type of comparison is quantified through a concept called discounting, which values future costs and benefits at current dollar values. The higher the discount rate, the more impatient consumers are and the less they are willing to wait for a future reward. Daziano’s choice experiments coupled with data from consumer behavior show that subjective discount rates for electric cars vary from about 15 percent to almost 40 percent. “That’s much higher than interest rates for car loans, which are around five to seven percent,” Daziano says. “This high discount rate means people are more impatient with future savings than the market is. They don’t see benefits in the future. They care a lot about the purchase price of technology, and that is working against broad adoption of electric cars.”

Consumer Attitudes Toward Electric Cars

Currently, Daziano is collaborating with colleagues in Canada to gauge Canadian consumers’ attitudes toward electric cars. Using preliminary data, the researchers were surprised to find a significant difference in the discount rate between Anglophones (33 percent) and Francophones (16 percent). “Anglophones seem to be much more impatient,” Daziano says. “They care a lot more about the purchase price of the car and less about savings in the future compared to Francophones.”

Why the French-speaking Canadians care more about future savings than do English speakers is an intriguing question that Daziano intends to pursue with further data. “It doesn’t make sense that language would give a person a different valuation of future versus the present, but maybe language is a proxy for something else,” he says. “Can we link this lower discount rate of Francophones to greater concerns about the environment, for instance? Maybe, culturally, they are more concerned with protecting the environment, and that’s the reason they’re more patient and more willing to buy an electric car.”

In another study, Daziano looked at the most effective ways to communicate the future benefits of electric cars to consumers. Sometimes energy savings is expressed in pounds of carbon dioxide, which is hard for consumers to grasp. Sometimes it is equated to a certain number of trees saved, which is also problematic. “It’s still abstract because it’s not the tree in your backyard,” Daziano says. “But we can provide an economic equivalent—a dollar amount—by supposing an emission tax on the amount of emissions you’re producing.”

“COVID-19 could even threaten the survival of public transportation. People might choose to walk or take a car instead, but if they don’t take public transportation…it will deteriorate even further.”

While liberal, or green, consumers generally tend to prefer electric cars much more than conservatives do, when researchers presented study participants with future benefits expressed as taxes saved instead of emissions reduced, they found conservatives changed their opinion. “Conservatives hate taxes even more than the average consumer,” Daziano says. “So when they saw that they could save taxes by buying energy-efficient technology, they became more willing to buy an electric car than a liberal or green consumer.”

Public Transportation: Comfort = Travel Time = Money

Daziano applies his mathematical modeling tools to a variety of situations involving energy efficiency, including the utilization of public transportation. In particular, he’s looked at the phenomenon of subway riders taking a longer route to get to their destination to avoid uncomfortable crowding during peak ride times. This behavior is not reflected in the transportation engineering model for rider route choice, which is based on travel time without consideration for comfort, he explains.

“Using economic models, we can translate this intangible comfort variable into something more quantifiable, which is travel time,” he says. “I’ve found that a rider in a full subway car, for example, perceives travel time to be three times longer—a 20-minute ride feels like 60 minutes. So it makes sense that riders might choose to take a 50-minute route that’s less crowded rather than a crowded 20-minute route because subjectively, the longer route feels shorter. And people are willing to pay to save travel time. I can quantify that with my tools. In this crowding example, we go from comfort to travel time and then from travel time to money, and that money can be used to quantify the benefit to society of improving transit.”

COVID-19 and the Threat of Crowding

A new application for Daziano’s research has arisen during the COVID-19 pandemic, and he is seeking funding for further study. His work on the effects of crowding on New York subway riders makes him speculate that subways, which are already deteriorating, are facing a new threat to their survival: riders’ need for social distancing and fear of infection. “The crowding multiplier—how much longer you’re willing to travel in exchange for more comfort—will probably go through the ceiling,” he says. “COVID-19 could even threaten the survival of public transportation. People might choose to walk or take a car instead, but if they don’t take public transportation then it won’t get funding and won’t be improved, so it will deteriorate even further.”

Daziano sees his role as bridging the gap between engineers, who design energy-efficient technology, and consumers, who often fail to adopt the technology. “Engineers make assumptions that people are fully rational,” he says. “An engineer will say, ‘This technology is more efficient, it’s cheaper to use in the future, so of course people will want it.’ That’s where social scientists can inform engineers about complex human behavior. But engineers and social scientists have different backgrounds and speak different languages in some ways. We need to translate things so we understand each other, and that’s what I do. I’m a catalyzer in that respect.”