An empirical analysis of the adoption of energy conservation measures in developing countries
The purpose of this study is to analyze the adoption of energy conservation measures by industrial firms in developing countries, to identify the key factors that appear to affect adoption decisions, and to propose options for increasing current and future levels of adoption. Using discrete choice modeling techniques, a model of the decision to adopt energy conservation measures is developed and tested empirically using data on actual adoption behavior by 243 industrial firms in 12 developing countries. The empirical results indicate that the profitability, technical risk/uncertainty, and estimated investment requirements of an energy conservation measure significantly affect the probability of adoption, with firms being less likely to adopt measures that have long payback periods, high risk, and large investment requirements. Certain characteristics of the firm are also found to have a significant impact on the probability of adoption. A firm is more likely to adopt an energy conservation measure if energy costs account for a large share of total production costs. The results also suggest that company ownership is an important factor in adoption. Energy conservation measures are more likely to be adopted by privately-owned firms and by firms that are foreign owned. The results were also found to differ by country. Overall, the factors that appear to have the largest impact on the probability of adoption are technical risk, energy costs as a share of production costs when they are at high levels, relative investment size, and whether the energy conservation measure was identified in certain countries. Profitability does not appear to be the most important factor in adoption.
Three types of policy options are identified that could increase the adoption of energy conservation measures by industrial firms in developing countries: (1) financial incentives and special financing programs, (2) information and training programs, and (3) rationalization of energy prices. In conclusion, the study calls for a combined economics-psychology approach to analyzing energy conservation adoption decisions that goes beyond objective economic factors to include attitudes, risk perceptions, cultural characteristics, and other behavioral factors.
0384: Behaviorial sciences