Wharton study finds energy-efficient technologies can help families save money

Researchers from the Wharton School and the University of Chicago researched how to implement energy-efficient technologies in low-income countries.

The study, which is currently under peer review, by Wharton professor Susanna B. Berkouwer and University of Chicago professor Joshua T. Dean found that energy-efficient technologies can help families in low-income countries save a significant amount of money. Credit constraints prevent these technologies from being fully adopted, the study found.

The researchers analyzed over 1,000 low-income households in Nairobi, Kenya, over a period of 14 months. The researchers offered the energy-efficient cookstove from the brand Jikokoa to the participants at a reduced price. Around 500 households, over half of the participating households, opted to take it.

The Jikokoa cookstove uses charcoal, similar to other cookstoves commonly used throughout Kenya. However, it consumes less charcoal than others due to improved insulation and better heat retention, Penn Today reported.

The families who adopted the energy-efficient cookstove reduced spending on charcoal by 40%, saving them on average $118 per year. Since the average monthly income of these families is $120 and the Jikokoa stove costs $40, this equates to a 300% yearly return on investment.

“The equivalent in the [United States] would be if you buy a more energy-efficient refrigerator,” Berkouwer told The Daily Pennsylvanian. “You save money on your electricity bill, but that refrigerator was more expensive.”

Berkouwer said that this result goes against a commonly held belief that it’s not economically beneficial to implement energy-efficient technologies.

“We often assume that's going to cost money, right? If you want to reduce emissions, it'll cost money. Yet there's actually cases where you can do both at the same time,” Berkouwer said. 

The caveat of the study was that, due to insufficient opportunities for families to take out loans, many did not have the means to pay up front for the Jikokoa stove, even though it would save them money in the long run. The study found that families without access to credit could only afford to pay up to $12 for the Jikokoa cookstove, and families with credit could only afford up to $25.

Berkouwer compared this situation to one that many low-income families in the United States may face as well.

“I think a lot of what we were studying actually applies to, for example, low-income families in the [United States] who also might might have a poor credit score and not be able to pay in installments, so they might just opt for the cheapest fridge up front, even if that ends up being more expensive,” Berkouwer said.

Berkouwer first became interested in studying low-income communities while obtaining their Ph.D. They noticed that environmental issues had the power to really exacerbate poverty, yet little research was being done on this issue. 

“That was also going to be very important for the next several decades throughout our lifetime,” Berkouwer said.

In order to solve the problem caused by a lack of available funds to buy energy-efficient technologies, Berkouwer said they would like to see massive subsidies by governments, international organizations, and individuals, which would help lower the price of these technologies and make them realistic for families to afford. 

The study also found that subsidies work significantly more effectively in driving adoption of energy-efficient technologies than “nudges.” The researchers staged an intensive advertising campaign to convince people to buy the stove, highlighting the amount of money it would save them in the long term, yet Berkouwer said this strategy did not affect adoption “at all.” 

Since the participants were so constrained financially, they were not able to spend a lot up front for the stove, and offering subsidies, which in turn lowered the price, was the only way to encourage purchases. 

Berkouwer emphasized that adoption of energy-efficient technologies is not only critical to reducing carbon emissions, but it also helps families save money and live more healthy lives.