Optimal Consumer Adoption of Energy Efficiency

Despite many decades of research, economically-grounded models that integrate energy consumption and energy-efficiency adoption decisions remain underdeveloped. As a result, critical questions such as the size of the energy-efficiency gap remain contested, and empirical estimates of phenomena like the rebound effect often rely on misspecified models. Moreover, policy prescriptions differ: some researchers advocate for targeted regulation to narrow the energy-efficiency gap or mitigate rebound, whereas others argue that such interventions would reduce welfare by restricting the choice set and suppressing legitimate consumer surplus.

The principal contribution of this dissertation is the development of a unified consumption–investment framework for analysing household energy consumption and energy-efficiency adoption. In contrast to accounting heuristics and static optimisation approaches, the proposed framework formulates adoption as a fully dynamic intertemporal choice problem. This formulation enables a consolidated treatment of preferences, wealth, uncertainty, and flexibility in decision-making, thereby providing a coherent foundation for studying consumer choice under uncertainty.
... mehr

Four subsidiary contributions follow. First, it is demonstrated that rebound and backfire effects arise endogenously as path-dependent outcomes of the optimal strategies, ensuring consistency with welfare analysis. Second, the welfare implications of energy consumption and energy-efficiency adoption decisions are precisely characterised. Third, the resulting social costs are incorporated into a problem of optimal subsidy design which effectively targets agent characteristics such as income. Fourth, by embedding heterogeneous agents in the proposed framework, it is shown how macro-level technology diffusion patterns emerge endogenously from micro-level optimisation in a stochastic environment.

These contributions are operationalised through two decision models developed within the consumption–investment framework. The models demonstrate how consumption and technology adoption respond to changes in wealth, prices, and the stochastic environment, while also illustrating how the proposed definitions of rebound and backfire effects, welfare change, and optimal subsidy design operate in practice. Detailed case studies of energy retrofits of representative German single-family homes illustrate the plausibility of the models, providing concrete examples of how the framework can be applied to realistic adoption scenarios.