Green is Good-The Impact of Information Nudges on the Selection of Voluntary Green-Power Plans.

• Author: Cardella, Eric

1. INTRODUCTION

   In the U.S., as well as in many other developed nations, there has been a growing trend toward greater reliance on renewable energy. One prominent area embodying this increase in re-newables is electric power generation, both in the U.S. and globally. As of 2018, the U.S. Energy Information Administration (EIA) reported that approximately 56% of renewable energy is used for electric power generation, and electric power generated from renewable sources accounted for roughly 17% of the total generation in the U.S.1 Furthermore, the U.S. Department of Energy reported in 2018 that renewable electricity grew to 20.5% of installed capacity, and continues to grow with renewables accounting for 42.9% of the new capacity additions in 2018.

   Certainly a key contributing factor to the continued growth in renewable energy infrastructure has been supply-side increases arising from energy policy and regulatory reform (e.g., Renewable Portfolio/Electricity Standards, Clean Power Plan, Renew300, and Green Power Partnership). (2) That said, increasing consumer demand for "green" power-stemming from its environmental benefits and sustainability-has also played an important role. (3) Prior research suggests that people express a preference for green power (Greenberg, 2009), and consumers are often willing to pay a green premium, typically in the range of $5-$15 per month (Menegaki, 2008; Sundt & Rehdanz, 2015). As a result, residential consumers have been increasingly offered the option to participate in voluntary green-power programs (Clark et al., 2003; Bird & Sumner, 2010; and Dagher et al., 2017 for discussion). As of 2018, the National Renewable Energy Laboratory (NREL) reported that 6.3 million customers procured 134 MWh of renewable energy through voluntary green plans, which represented about 28% of non-hydro renewable energy generation in the U.S, but only 3% of total retail electricity sales. Moreover, the take-up rate of voluntary green plans remains relatively low, conservatively estimated at less than 5% (e.g., O'Shaughnessy et al., 2016). Given the increased availability of green plans and the public policy driven expectations of green electricity use, it is important to think about possible mechanisms to increase take-up. Such insights can be valuable for renewable-energy policy, as more stringent emissions standards increase the focus toward green power, as well as for the operational strategies of electric-utility providers in response to renewable electricity generation becoming more cost effective.

   The aim of this study is to empirically examine how non-price, information "nudges" about the energy efficiency, production/social costs, and environmental impacts of different electricity-generating sources impact consumers' preferences for green power. (4) We conduct a stated-preference, choice experiment administered via online survey, where respondents make a series of hypothetical choices between a green-power plan and a conventional "gray-power" plan. (5) Prior to making their stated choices, we systematically vary whether individuals receive: (i) positive or negative information about the gray plan, (ii) positive or negative information about the green plan, (iii) a combination of positive or negative information about both plans, or (iv) neutral information (generic facts about electricity). We also vary the expected monthly green-price premium, which enables us to quantify the size of the information effect relative to the pure-price effect. Lastly, we consider how existing participation in a green plan, personal attitudes toward the environment and green energy, and other socio-demographic measures impact plan choice, as well as their possible moderating role on the information effects. Importantly, an advantage of using a choice experiment is our ability to systematically vary the provision and framing of plan information and, hence, our ability to consider several different information conditions; when combined with a sizable and diverse sample of respondents, this approach can provide robust inferences of the plausible, relative impacts of information nudges on voluntary green-plan adoption.

   Based on results from 1,838 respondents over two distinct samples and 21,384 plan-choice scenarios, we find that nudging respondents with information about the attributes relating to the electricity-generating source significantly impacts stated choices. Specifically, providing pro-green information (advantages of green and/or disadvantages of gray) significantly increases green plan selection by roughly 18%-26% relative to the baseline rate of green plan selection with neutral information. Conversely, pro-gray information (disadvantages of green and/or advantages of gray) significantly decreases green plan selection by roughly 11%-18% relative to the baseline rate. Importantly, our main results are generally robust across different levels of monthly price premium for the green plan. Although, we do find that promoting the advantages of the green plan is relatively more effective at increasing green plan selection when the green price premium is small, while promoting the disadvantages of the gray plan is relatively more effective when the green price premium is large. Interestingly, we also find that providing disadvantageous information about the green plan can really reduce its selection when the green price premium is large. Moreover, the estimated magnitude of the information intervention is economically meaningful, as it is proportional to the estimated change in green plan selection that would result from a $4 change in the monthly price premium of the green plan. (6)

   We also find that different "types" of respondents react differently to the information intervention. In particular, more educated respondents appear to be more sensitive to pro-green information and less sensitive to pro-gray information; thus, more educated people are more "nudge-able" into selecting the green plan. In terms of environmental attitudes, respondents who report being more pro-environmental are less responsive to the pro-green information and more responsive to the pro-gray information; the implication here is that respondents who are more concerned with the environment are less inclined to choose the green plan after receiving some information that the green plan is not all that good, or that the gray plan is not all that bad. Lastly, we find that respondents who report already being a participant in a green-power plan (at their current electric utility) effectively show no significant response to either the pro-green or pro-gray information; this suggests that this type of information intervention nudge might be more effective when targeted toward conventional gray plan participants or new customers.

   Prior research has documented many factors that can motivate people to engage in pro-environmental behaviors and the purchase of green-energy products (see Steg & Vlek, 2009; Herbes & Ramme, 2014; Steg et al., 2014 for a review). Among the various factors, psychological motivations can be important, which provide a plausible channel through which information interventions could impact plan choice. Steg & Vlek (2009) discuss how informational strategies, which they define as "being aimed at changing perceptions, motivations, knowledge, and norms, without actually changing the external context in which choices are made" (p. 313), can be instrumental in promoting pro-environmental behavior by "targeting" psychological motivations. Regarding power-plan decisions, we argue that providing salient information about the advantages of a certain plan (or the disadvantages of the alternative plan) can be persuasive by appealing to these psychological motivations, ultimately impacting plan choice. Moreover, the efficacy of these information interventions ought to be relatively large in the choice between green and gray plans, compared to other energy choice domains, since choosing to participate in the green plan is relatively convenient and inexpensive (Steg & Vlek, 2009; Steg et al., 2014).

   Our study contributes to the recent and growing literature focusing on how non-price nudges can influence energy consumption behaviors (e.g., Allcott & Mullainathan, 2010; Croson & Treich, 2014; Kunreuther & Weber, 2014; Allcott, 2016; Liebe et al., 2018 for reviews). Much of this research has focused on conservation efforts and usage behaviors (i.e., how much is consumed). We complement this literature by considering how information nudges can impact people's preceding decision of whether to participate in voluntary green-power programs (i.e., what type is consumed). Given the focus of governments and other regulating bodies to reduce GHG emissions and curb global warming, it is important to think about feasible methods to promote growth in renewable energy. As such, within the residential sector, not only must we consider how nudges can impact energy conservation, but also how they can impact plan selection. While conventional economic levers (e.g., lowering prices, altering incentives, imposing regulation) can be effective in increasing the adoption of green plans, such levers can be costly and inefficient from a total welfare perspective. (7) Our results suggest that, as an alternative, nudging in the form of providing targeted information about the advantages of renewable power and/or the disadvantages of conventional gray-power can sizably increase the take-up of voluntary green-power plans; moreover, such information interventions could likely be implemented with more political ease, at a relatively low cost, and without some of the inefficiencies and choice constraints associated with conventional economic policies. Thus, our study is an important contribution to the possible applications of using nudges to motivate consumers to make more environmentally friendly energy decisions.

   From a green-power marketing...