Energy efficiency and the role of energy-related financial literacy: evidence from the European residential sector

Abstract

In this paper, we analyze the level of efficiency in the use of electricity in the European residential sector relying on a cross-sectional data set comprised of 1375 households located in Italy, the Netherlands, andSwitzerland and observed in 2016. To do this, we estimate an electricity demand frontier function using astochastic frontier approach. The empirical results show that the residential sector in these three European countries could save approximately 20% of its total electricity consumption on average if it improves the level ofefficiency in the use of electricity. These figures are inline with recent studies for Switzerland and for the US residential sector. Moreover, we link energy efficiencyto energy-related financial literacy. We find that while energy-relevant knowledge per se does not play a significant role, stronger cognitive abilities are associated with higher levels of energy efficiency.