How do credit and psychology affect the adoption of profitable energy efficient technologies in Kenya?

Policy brief Energy

  • Energy efficient technologies are often cited for their potential to meet sustainable development goals by slowing greenhouse gas emissions and generating financial savings for households living in poverty, but adoption of energy efficient technologies remains low.
  • This study conducts a randomised experiment with 1,000 low-income households in Nairobi. The authors estimate that an energy efficient charcoal cookstove reduces charcoal spending by 40 percent and saves up to USD 120 per year, or around one month of income. This is a significant sum of money for households living in poverty.
  • The findings suggest credit constraints prevent most households from adopting this technology and benefiting from its savings. Providing access to affordable credit more than doubles willingness-to-pay, closing the energy efficiency gap. 90 percent of respondents pay installments in a timely fashion.
  • For policymakers looking to reduce poverty and address negative environmental externalities with available tools, the presence of credit constraints may make subsidies on the energy efficient technologies a more effective tool than taxes on environmental pollutants.