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