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not only does Energy Efficiency generate
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large environmental benefits it often
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does but there's also potentially really
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big Financial benefits right most
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obviously if you're using less energy
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your energy bills are going to go down
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and so Energy Efficiency becomes not
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just about environmental goals but also
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just finding ways to reduce these
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expenditures for low-income families
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that allow them to spend their money on
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other things that they might need to
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spend their money on such as food or
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education or Healthcare welcome to the
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ripple effect the podcast that takes you
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on a journey through the minds of work
00:00:30
and faculty I'm your host Dan Loney and
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in each episode we'll be diving deep
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into the inspiration behind the
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groundbreaking research that Wharton
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professors have conducted and exploring
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how their findings resonate with the
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world today we'll be covering a diverse
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range of topics bringing you the latest
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insights and knowledge that you can
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apply to your life and to work so get
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ready to dive into new ideas with the
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ripple effect
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well Susanna
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we know that you're very interested in
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the issues around climate change and
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inequality how was it that this first
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came to be an interest of yours
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so when I was younger I spent a lot of
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time living in different countries
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including Sri Lanka Egypt Kenya Costa
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Rica and so I've always been interested
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in trying to understand why you know
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there's huge differences in income for
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example across countries and and within
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countries as well so as I kind of became
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an economist I was interested in trying
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to understand income inequality uh what
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policies might work for reducing poverty
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and then more recently kind of one of
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the most important issues for people
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living in poverty over the next several
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decades and it's already starting today
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our environmental issues are issues
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related to climate change or energy
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access and things like this and so my
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research and my kind of policy
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engagement really lies at the
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intersection of poverty and trying to
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reduce poverty while also understanding
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environmental change that's happening
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why is it you think that that low-income
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populations realistically are the ones
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that have become especially vulnerable
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uh in the last couple of decades yeah
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great question so I think when we talk
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about low-income populations that's both
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you know the majority of people living
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in low-income countries for example or
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middle-income countries but also here in
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the US there's obviously uh low-income
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populations as well and there's some
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things that you can identify that are
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pretty similar even across what looked
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like pretty different contexts I think
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uh one of those things is access to
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Legal institutions right so if you uh
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want to engage the government or engage
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other businesses on issues that you're
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having having access or like recourse
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basically to to address the issues that
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you're facing can be really difficult
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for low-income populations
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um things like Financial access access
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to the financial system to financial
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infrastructure things like credit uh
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which are kind of crucial if you're
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thinking about adapting to different
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risks that you might face low income
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populations tend to have much less
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access to those types of financial tools
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that might help them Bridge those types
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of risks so I think those are some some
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of the primary differences obviously
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kind of like political influence or or
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political care or something obviously
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that that people living on poverty tend
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to have much less of as well and that
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can interfere with their economic growth
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and well-being well that was one of the
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things I I thought I should ask you is
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that to what level do you think that
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governments are looking at this issue
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and how much do they still have they
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missed at this point where they can
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really affect some positive change here
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in the future
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yeah so when you think about
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environmentalism it's really a classic
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case of a negative externality as we
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would say in economics right where some
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transactions happening between other
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people are affecting a third party that
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isn't engaging and this is exactly where
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you want government intervention so
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addressing a negative externality and so
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environmental issues is really a key
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space where government regulation can
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really improve welfare for everybody
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especially people living in poverty who
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don't have access to you know
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negotiations or financial tools as we
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were just talking about
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um and so I think governments are
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increasingly realizing the importance of
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this of course they have lots of
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different incentives they have political
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incentives Financial incentives
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different governments will have
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different goals but I think increasingly
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as the science becomes overwhelmingly
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clear governments are realizing the
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importance of addressing environmental
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issues by you know implementing the
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policies that they're able to but
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doesn't the public have to have a uh the
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public in that region I should say have
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to have a say in in this process as well
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you know this is what democracy he
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functions as right people there's
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elections for this particular purpose of
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course uh the electorate is also uh you
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know or elections are often subject to
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financial forces Financial influences
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especially in the US that's the case uh
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as has been discussed pretty frequently
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um but I think as governments kind of
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are realizing that the majority of their
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populations are going to be affected by
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this they don't have any other choice
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but to address it and and make sure that
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they are responding to the needs of uh
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the electorate
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so you talk a lot about infrastructure
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uh and the component that potentially
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can be improved as we move forward what
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is it about infrastructure that that you
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focus on specifically yeah so most of
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the research that I've done on
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infrastructure is on how large uh Banks
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or investors so specifically things like
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the World Bank or the African
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Development Bank or the Millennium
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challenge Corporation how they invest in
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infrastructure primarily electricity
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infrastructure for example and thinking
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about you know the effectiveness of
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those Investments and also how you can
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provide oversight on investments often
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these Investments are done by private
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sector Partners so you have
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public-private Partnerships how can you
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provide oversight in a way that is not
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excessively burdensome administratively
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so not unnecessarily introducing
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additional bureaucracy or administrative
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burden but of course you don't want to
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provide too much discretion because then
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uh you might worry about things like
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corruption or leakage where you're not
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sure where the the funds are going so
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trying to identify what are the best
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ways that you can provide oversight into
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how these funds are being spent how to
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make sure that they're being spent in
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the way that effectively improves the
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economic conditions on the ground while
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still not unnecessarily overburdening
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these companies and you know trying to
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find methods that are you know that
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still enable a smooth continuation of of
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the project so you mentioned energy uh a
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little while ago and obviously there's
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lots of conversation going on around
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energy and pricing and and more
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efficiency to try and find it in
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different uh places around the globe how
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specifically in some of the countries
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that you have visited is the issue of
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Energy Efficiency being addressed or or
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to a degree maybe even not being
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addressed enough so that it really does
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have a positive impact on a lot of
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low-income families in the in those
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parts of the world
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yeah so
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yeah assertion I think often off times
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when people hear the words Energy
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Efficiency they think about
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um you know conservation with the goal
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of reducing your environmental footprint
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right this could be the case for
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households in the U.S even factories in
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the U.S or uh you know factories that
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are using a lot of energy as well but
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also in low-income context of course
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um and actually what some of my research
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has pointed out is that not only does
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Energy Efficiency generate large
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environmental benefits it often does but
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there's also potentially really big
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Financial benefits right most obviously
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if you're using less energy your energy
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bills are going to go down right and for
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many people and also for many firms
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their energy bills can be a pretty
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substantial part of their expenditures
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for really low income families both in
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the U.S and abroad
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um they might spend more than 10 percent
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or even up to 20 percent of their income
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on energy related expenditures that
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could be cooking or heating or lighting
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and so Energy Efficiency becomes not
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just about environmental goals but also
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just finding ways to reduce these
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expenditures for low-income families
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that allow them to spend their money on
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other things that they might need to
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spend their money on such as food or or
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education or Healthcare right and that
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ends up being realistic in many cases
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kind of a quality of life uh issue as
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you as you're able to prove one side
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that helps their life in general overall
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I absolutely yeah exactly and so I kind
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of
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kind of committing that first saying
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okay how can these
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in these to families uh the next
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question you might ask is well what are
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the barriers for adopting these types of
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Technologies and this is kind of going
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back to the financial barriers that we
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discussed earlier uh where often if you
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want to invest in Energy Efficiency it
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might require a large lump sum
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investment up front you know if you
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think about refrigerators in a store the
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more energy efficient version might just
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be a lot more expensive than the
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standard one and so if you don't have
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access to credit you might just have to
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buy the cheaper one because you know
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that's the only cash that you have
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available on the day that you're buying
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it even though you know over a two-year
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period for example the total cost might
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actually be a lot lower for the energy
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efficient version because your
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electricity bills would go down so much
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and so there's kind of you know the
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friction here is your total cost would
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be a lot lower but low income families
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just don't have the upfront finances uh
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to pay for it if they don't have the
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credit to borrow
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um even though you know they could
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pretty well pay back the loan using the
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reductions in the energy expenditures
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that they've gained so that's kind of
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example of how Financial friction that's
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pretty common in a low income setting
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can prevent them from investing in
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energy efficient technologies that have
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both environmental benefits as well as
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Financial benefits well and you had done
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some research around the adoption and
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use of cook stoves uh in Kenya which was
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a very interesting study give us a
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little bit of a background on that yeah
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so uh the study that we did here was uh
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on the
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charcoal stove which is produced by bird
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manufacturing they have a factory just
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outside of Nairobi and for the study we
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worked with a thousand individuals
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living in low-income areas in Nairobi
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all of these individuals used charcoal
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cook stoves and then we gave them the
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opportunity to adopt the Chica KOA this
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more energy efficient versions also a
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charcoal stove so they're actually
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pretty similar it's just that the
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chicacoa is constructed using improved
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materials in a kind of modern Factory
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and so it uses much less charcoal to
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cook you know the same meals it takes
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less time to cook those meals and so
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because people had to buy less charcoal
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that saved them a lot of money a lot of
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the existing research on cook stove has
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been done in rural areas and so what we
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found in these urban areas is that
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charcoal is really expensive right if
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you live in a rural area often people
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gather firewood obviously that costs
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time but but it's often free but in
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urban areas people are spending a ton of
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money uh buying charcoal and so there
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was this huge Financial savings from
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adopting this more efficient charcoal
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stove
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so were there and I guess this is part
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of the decision process of people in
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some of these areas of either staying
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with the old stove that they had or
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adopting with the new stove as well
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yeah so that was kind of what we were
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trying to understand is how are people
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making that decision what are the costs
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and benefits that they're weighing uh
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and if there are people who want to
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adopt the more efficient stove what are
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the barriers for them from doing it and
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you know more recently there's been an
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emphasis on psychology in economics or
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behavioral economics perhaps people are
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focused on that sticker price up front
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and they're not really thinking so much
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about the energy costs you know maybe if
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you're just spending a dollar a day say
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on on energy you're not realizing how
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much that adds up to that you would
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actually stand to save a lot of money
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um we actually didn't find that that was
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the case it seemed you know potentially
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because if you're living in poverty
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you're so aware of your financial
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expenditures
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um people didn't need to be reminded and
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instead we found that this uh Financial
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barrier The Upfront cost was really uh
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the big thing that was preventing people
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from from adopting it um and so that's
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kind of the first step in the past few
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years since we did that study there's
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been huge uptake of LPG which is
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potentially even cleaner uh then
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charcoal stoves we're not currently
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studying the LPG but I think it's
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important to recognize that that
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adoption is kind of one step in
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potentially many steps you know and in
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the US you're then seeing the next step
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which is going from gas stoves all the
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way to electric stoves as well but but
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did the public in your study the people
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that you worked with did they was it
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even a thought process uh you know as
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they were thinking about which stove to
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adopt about the potential benefits that
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they could get down the road or was that
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not even really in their in their
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thinking in the Here and Now
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so that's why we ran kind of a
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randomized experiment and so of the
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thousand people that we worked with we
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randomly assign them to two groups one
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group was the group control group so the
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comparison group basically and the other
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group we actually went through a whole
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kind of accounting exercise where we
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walked through how much they would save
00:13:03
on a daily basis on a weekly basis on a
00:13:06
monthly basis what would you do with
00:13:07
these savings we did that for a whole
00:13:09
year so we said okay next February you
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might save say fifteen dollars in your
00:13:14
charcoal expenditures what are you going
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to do with that money maybe you're going
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to buy more food Etc so we've really uh
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worked hard to emphasize just how much
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money they would save from adopting the
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stove
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and then after we did that we can
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compare that group with the control
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group where we didn't do all those
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reminders and we can compare the rates
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at which they bought the improved stove
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and we really didn't see any difference
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there so doing all those reminders
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really didn't have any impact so from
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that we can conclude that it seemed like
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people were already pretty aware of
00:13:45
these long-term benefits
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what then do you think is kind of the
00:13:50
future in terms of focusing uh more
00:13:55
longer term on the issue of inequality
00:13:57
in and around climate change
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so I think one of the key defining
00:14:01
characteristics of climate change is
00:14:04
risk and uncertainty this applies for
00:14:07
you know low-income households who may
00:14:10
not know what types of weather is going
00:14:12
to be realized they might rely on the
00:14:14
agriculture that they produce for to
00:14:16
feed their own homes their own
00:14:18
households
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um so from kind of the poorest Farmers
00:14:20
that you can think of all the way to the
00:14:23
largest corporations in the U.S right
00:14:25
risk and uncertainty especially
00:14:26
associated with climate change is one of
00:14:28
the defining characteristics even of why
00:14:30
we have financial markets and so I think
00:14:33
in order to address those risks and that
00:14:35
uncertainty evolution of financial tools
00:14:38
for example insurance or savings or new
00:14:41
types of technologies that allow people
00:14:43
to kind of better leverage these
00:14:45
different types of financial tools could
00:14:47
be potentially really crucial in
00:14:49
enabling households and firms to respond
00:14:53
to these risks and uncertainties that
00:14:54
climate change is is causing so
00:14:57
seemingly there's already a lot of focus
00:14:59
it sounds like in around the insurance
00:15:01
industry using that as an example of the
00:15:03
issue of risk and what you're going to
00:15:06
need to see in the future so this is a
00:15:08
process that it sounds like it's ongoing
00:15:10
but it will will eventually get better
00:15:13
over time
00:15:14
yeah I think so I think as uh especially
00:15:17
private sector players you know
00:15:18
for-profit companies are realizing how
00:15:20
important it is to uh factor in these
00:15:23
types of risks and uncertainties into
00:15:24
their daily operations you're seeing a
00:15:26
recognition of that and as a result more
00:15:28
development of financial products that
00:15:31
could help with that and you know as
00:15:33
those products are being rolled out
00:15:34
often initially in Europe or the US
00:15:37
um you know then we also want to
00:15:38
understand how can we bring these
00:15:40
products to even lower income uh
00:15:42
countries so I think one of the great
00:15:44
recent Innovations on this has been a
00:15:46
shift from Indemnity insurance where you
00:15:48
know somebody from the insurance company
00:15:50
has to evaluate what damages you
00:15:52
incurred in a certain storm a shift
00:15:55
towards parametric insurance which
00:15:57
basically just says if there was a storm
00:15:59
that was near where you live you're
00:16:01
going to get a fixed payout and so that
00:16:04
that really changes the accounting and
00:16:06
the economics of insurance and so we're
00:16:08
trying to understand how exactly that
00:16:10
changes the take-up decision how it
00:16:12
influences people's ability to mitigate
00:16:15
the risks and also how we can get that
00:16:17
product
00:16:18
um you know available to low-income
00:16:20
families in low-income countries so
00:16:22
probably like a lot of areas right now
00:16:24
uh the focus around the data that you
00:16:27
need to make a lot of these decisions is
00:16:29
going to be important to that process as
00:16:31
well correct yeah absolutely I mean one
00:16:34
of the key things is you know different
00:16:36
parts of the world will have huge
00:16:38
differences in how much risk they're
00:16:40
facing
00:16:41
um and so trying to understand you know
00:16:43
the exact risk over time is one of the
00:16:46
key things that you might want to do
00:16:47
there's a huge increase in data
00:16:49
availability over the past 10 years you
00:16:51
know satellite imagery administrative
00:16:52
records there's always attention I think
00:16:56
where on the one hand you might want
00:17:00
these types of administrative records
00:17:02
because it's really representative it
00:17:04
doesn't rely on um
00:17:06
asking people questions or trying to you
00:17:08
know telling people or asking people to
00:17:10
respond to surveys and such but actually
00:17:12
looking at how people actually make
00:17:14
decisions you know how many people took
00:17:15
up Insurance how many people chose to
00:17:18
invest in a certain savings account or
00:17:20
something like that so getting those
00:17:21
administrative records can be really
00:17:23
useful I think increasingly researchers
00:17:26
are benefiting from those types of data
00:17:27
sets at the same time you want to be
00:17:30
really concerned about confidentiality
00:17:31
and privacy and making sure you're doing
00:17:33
this in a way that's Anonymous
00:17:35
respectful of what people were intending
00:17:37
to do with their data so there's
00:17:38
definitely a tension there between you
00:17:40
know the quality of the research that
00:17:42
you want to do and also respecting the
00:17:43
privacy concerns that that people have
00:17:45
justifiably raised so how is this
00:17:48
impacting the research not only that
00:17:50
you've done in the past but where you
00:17:52
want to take this in the future what are
00:17:54
the areas that you seemingly are
00:17:56
focusing on right now that are kind of
00:17:59
on your radar for the next several years
00:18:00
yeah so I think um the really the
00:18:03
interplay with financial decision making
00:18:05
so I have some some ongoing work on how
00:18:07
people make financial decisions how
00:18:09
people perceive risk and uncertainty
00:18:11
when they're choosing how much to save
00:18:12
or how much to consume in the context of
00:18:15
climate insurance as well in the context
00:18:17
of Energy Efficiency adoption and then
00:18:20
I'm also of course pretty excited about
00:18:21
Wharton's new ESG initiative as part of
00:18:24
that they launched the climate Center so
00:18:26
there's faculty not just in economics
00:18:28
but also from Real Estate from Finance
00:18:31
from accounting lots of Faculty from
00:18:34
across Wharton who are working on
00:18:35
climate related issues we just launched
00:18:37
that last year and so I'm pretty excited
00:18:39
to see what is going to happen with that
00:18:40
initiative over the next you know five
00:18:42
to ten years or so
00:18:44
thank you for listening to the ripple
00:18:46
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00:18:48
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