Income Inequality in the Uptake of Environmentally Friendly Products
16 Pages Posted: 2 May 2023 Last revised: 4 Jun 2023
Date Written: April 20, 2023
Uptake of environmentally friendly products is known to be unequal and dependent on income. Whether it be solar panels, electric vehicles or light bulbs, lower income groups find themselves “locked out” of the benefits they offer. To make matters worse, commonly used policies to encourage adoption of environmentally friendly products have been shown to replicate or even exacerbate existing inequalities. We therefore conduct an experiment with an agent-based model to study the mechanisms driving this inequality trap and what policy makers can do to ensure lower income groups are not left behind. We consider psychological mechanisms, product characteristics and community characteristics and compare results across income quartiles. Our findings indicate that higher income groups are much more sensitive to product characteristics and psychological factors, including environmental awareness, peer effects and product visibility. However, the adoption behaviour of lower income groups is almost exclusively governed by financial constraints, such as income and product cost. To design an inclusive policy, a targeted approach is needed that addresses the financial barriers of lower income groups in addition to any community-wide interventions. Otherwise, it will be difficult to meaningfully boost the adoption ratio of lower income groups, or achieve a just energy transition.
Keywords: equality, income, energy justice, energy transition, product diffusion, renewable energy technology, agent-based modeling
JEL Classification: Q28, Q21, Q55, Q56
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