Theoretical Background
In recent years, some researchers have looked at eco-labeling and certification as a way to motivate green consumption behavior. Most eco-labeling initiatives target the choice phase of the purchase decision by informing consumers about ingredients, production methods, or in-use resource efficiency. Other forms of labeling are starting to emerge, such as lifespan labeling, which gives consumers extra information about the lifespan of a product (Rex & Baumann, 2007). Indeed, labels can help to address the lack of environmental literacy among consumers and the erosion of trust between producers and consumers due to “greenwashing” (Rex & Baumann, 2007). However, some research also suggests that labeling can grab attention and interest and can stimulate additional consumption, therefore negating the desired effect to the label itself (Bougherara et al., 2005; Dosi & Morretto, 2001).
Energy Efficiency Labeling and Certification
In a recent review of the trends of energy efficiency ratings in Australia, Hurst (2012) describes what is known about the role of the consumer, the influence of such labeling on behavior, and other important factors. Below is a brief adaptation of these findings.
The consumer. As noted above, with big purchases, consumers often seek professional advice and/or other information to inform their decision. With respect to real estate property information about energy efficiency, it is likely to be very difficult for inexperienced consumers to be able to make sense of the information and how it corresponds to occupant use. Indeed, consumers often have trouble making sense of the information at hand and will sometimes buy the wrong house as a result of inaccurate cost estimates or make uneconomic retrofit investments as a results of poor recommendations (Stein & Meier, 2000). Ostensibly, the purpose of an energy efficiency rating is to inform consumers of the energy costs associated with a particular home. While the ratings are intended to be house-specific, the consumer is likely to view them as relative. Indeed, as described above, it is natural during the information search process for consumers to compare product characteristics when making a decision, and houses are no different. It is through this process of comparison that the market may begin to discern the price of a home and its worth to homebuyers.
Indeed, there is some evidence that providing environmental information such as energy efficiency ratings may be of interest to homebuyers and may be a characteristic that influences purchasing decisions. In a study on willingness to pay for energy efficient homes, Mandell and Wilhelmsson (2011) found that people reported being more willing to pay a premium for homes with many environmental features. However, another study found that homebuyers were not willing to pay a premium for energy efficient features despite interest in having them (Purdie, 2009).
While it is unclear if environmental information affects final purchasing decisions, there is evidence to suggest it is of interest to the majority of buyers. According to a 2013 National Association of Home Builders report, buyers have a “wish list” of features they want in a home. Half of homebuyers wanted a new home; they wanted to spend around $203,000 and have 2,226 (median) square feet. The report’s “most wanted” list shows that buyers have a strong desire for energy efficiency and storage/organization. Ninety-four percent “must have” or “want” Energy Star–rated appliances and windows and 93 percent wanted Energy Star–rated homes (Quint, 2013).
This shows that given the option, buyers will choose these features if they are available within their price range. According to Quint (2013, p. 6):
Although the majority of home buyers are concerned about the environment in general, most are not willing to pay more for a “greener” house. In fact, 67 percent of buyers report wanting an environment friendly home or being concerned about the environment in general, but at the same time would not pay more for such a home (or even consider the impact of building the home on the environment).
The report did say that the majority of home buyers would choose a smaller home with energy efficient options. Furthermore, we are starting to see the average square footage of homes decreasing from 2,300 square feet in the 2000s to 2,100 square feet in the 2010s (Benfield, 2012). Efficiency is starting to seep into the American homebuyer mindset. Buyers are also looking to technology to have their homes perform more efficiently. According to the aforementioned National Association of Home Builders report, roughly 50 percent of
homeowners already have a programmable thermostat, and a sizable minority has or wants lighting control, an energy management system or display, and smart irrigation systems. People are learning about energy efficiency, but housing inventory options with these features nonetheless are lagging behind.
Influence on behavior. Economic theories of consumption behavior suggest that people are not likely to look for and consider energy efficiency rating information until the perceived or actual benefits outweigh the costs of not doing so. Indeed, if people are aware of and understand the long-term benefits of energy efficiency in terms of reduced costs and comfort, they may seek out this type of information when purchasing a home, but people are not likely to even consider such information until they are motivated to do so. In this context, for example, consumers would need to be able to make the link between energy efficient features and energy consumption and its relevance to their lives before we would expect them to seek such information. Information processing theory suggests that before being able to consider such information and use it in the decision making process, they also must possess the ability to do so. Indeed, research suggests that energy efficiency ratings need to be clear and understandable and the relevance of energy efficiency to the consumer must also be made clear (Dewick & Miozzo, 2002; Burdock et al., 2001).
Turning to the literature on green consumption, we find that additional factors may determine whether a homebuyer will take home energy efficiency information into account, such as social processes, social norms, and
situational context. Thus, both internal and external pressures come to bear on individuals when they are confronted with energy efficiency information.
Other influences. When we consider social processes, social norms, and situational context, research suggests that awareness of the benefits of energy efficient housing is increasing, as are indications that homebuyers are willing to pay for such features (Eves & Kippes, 2010; Kriese & Scholz, 2011). However, there is still lack of consensus on whether consumers are actually willing to pay for these features, and not all segments of the homebuyer population are amenable to energy efficiency for a variety of reasons, including economics. Thus, there is confusion as to what the true value of energy efficiency is to the consumer (Gill et al., 2010).
Moreover, the influence of energy efficiency ratings on consumer decision making and market value remains understudied, in part because of the lack of penetration of such systems in the market. Furthermore, a study by Gill et al. (2010) found that energy consumption in highly energy efficient housing plays a large role in the actual amount of energy saved. This result suggests that more than just energy efficiency of a home should be advertised. Homebuyers of energy efficient properties should be made aware of how to use such features to maximize their efficiency.