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Investment in Energy Efficiency, Adoption of Renewable Energy and Household Behavior: Evidence from OECD Countries

There are possible synergies between the decision to invest in energy efficiency measures and to adopt renewable energy, in the sense that the former reduces energy demand so that the latter can further cut future greenhouse gas (GHG) emissions, and which has great potential in the residential sector. Much work has been done in the residential sector on demand for clean energy and on investment in energy efficiency, but to our knowledge there is no specific study that investigates the relationship between the two. This paper fills a gap in the literature, and first shows theoretically that there are relationships of substitution or complementarity between the two decisions depending on the threshold of the cross effect related to the environmental motivation of the consumer. Second, the paper empirically shows that the two decisions are positively interrelated due to unobserved characteristics that determine both decisions. Third, the paper provides differential impact of energy poverty, split incentive problem, dwelling characteristics, commitment and trust on the two decisions. Finally, the paper investigates household characteristics that significantly affect the joint adoption of energy efficient and renewable energy technologies. This contribution can serve to define incentive policies to advance the energy transition.

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Keywords: Energy efficiency, renewable energy, household behavior, bivariate probit

DOI: 10.5547/01956574.39.3.pdat

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Published in Volume 39, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.