As temperatures rise and climate change has an increasingly severe impact on human life, individuals and institutions alike are becoming more concerned regarding greenhouse gas emissions and the adoption of technologies which can decarbonize the world. While the majority of greenhouse gas emissions is generated by industrial and commercial activity[1] and the decarbonization of one individual’s life will have minimal impact on the world’s carbon footprint, it is still important to consider the decarbonization of consumer life. Not only is there overlap between the technologies that can decarbonize consumer life and commercial activities, but corporations serve the end consumer – shifting consumer demand away from high emissions goods and services will incentivize corporations to boost supply of sustainable technology. Increased consumer decarbonization may lead to a positive feedback loop with consumers placing more pressure on corporations to decarbonize and governments to drive policies supporting environmental sustainability.
Where should investors look to maximize the impact of their dollars on decarbonizing consumer life? What will drive consumers to opt for sustainable solutions, and how are ecosystem players such as startups, governments, and financial institutions working to accelerate consumer adoption of green technology? This article will explore the state of the world and the potential solutions for speeding up the voluntary decarbonization of consumer life.
State of the World: Consumer Emissions
Research shows that the major sources of emissions in consumer life are Transportation and Housing, followed by Food as a relatively distant third major source of emissions.[2]
Total carbon footprint of the typical U.S. household: 48 t CO2e/yr. Blue indicates direct emissions, green indicates indirect emissions. Source: “Quantifying Carbon Footprint Reduction Opportunities for U.S. Households and Communities”, 2010
As shown in the figure above, the single largest source of direct consumer emissions is motor vehicle fuel. While this figure may vary in different parts of the world (particularly those with a less dominant car culture than the US), it is apparent that the most impactful way to decarbonize consumer life is to minimize the use of traditional ICE vehicles, either through increased adoption of public transportation or adoption of electric vehicles.
Consumers generate emissions from Housing in the form of electricity usage; as electricity grids in most countries are still driven by fossil fuels, this generates indirect emissions in consumer life. Removing emissions from this sector therefore means reducing energy consumption from the grid via residential solar installation. Further, reducing total energy consumption by the consumer will automatically reduce consumption from the grid. The primary usage of electricity in residential buildings is related to Heating, Ventilation, and Air Conditioning (HVAC) systems for heating and cooling buildings. Therefore, consumers can further reduce emissions by installing energy efficiency tools or optimizing home insulation (allowing HVAC systems to operate more efficiently).
While the data above is focused on the US market, there are similar findings throughout the rest of the world. Studies in the European market also look at housing, mobility and food as the key emissions sectors for policy makers to tackle. The importance of energy and housing in consumer emissions is even more prevalent in developing markets and low-income households as the bulk of these emissions are driven by energy consumption.[3] Despite the availability of green alternatives for transportation and housing, adoption by consumers has been limited. EVs only accounted for 12% of US passenger vehicle sales in 2023[4]; only 5% of US homes have rooftop solar installed.[5] In recent years, the rate of adoption has improved; the next sections will discuss the driving factors that can contribute to increased adoption as well as various approaches by governments, startups, and financial institutions which will continue to accelerate consumer decarbonization.
How to Accelerate Consumer Adoption of Sustainable Technology
Given the emissions sources identified above, what is the key to decarbonizing consumer life? While carbon credits are often cited as a market mechanism for decarbonization, the uncertainty surrounding their value and effectiveness makes carbon credits a poor option for driving consumer decarbonization. On the individual scale, carbon credits provide insufficient financial incentive (if any), and alternatives such as green reward tokens have limited use and may not be particularly useful to the average consumer. Unlike the corporate sector, there are also no regulations enforcing consumers to decarbonize their lives, thus all consumer decarbonization is voluntary.
For consumer transportation and housing, much of the technology required for decarbonization is already available and proven to work, but adoption of these technologies has been slow to materialize. Despite multiple reports indicating the majority of consumers are concerned about sustainability and are looking to adopt sustainable technology and products, concerns around additional costs of sustainable living may prevent rapid adoption.[6] As will be discussed below, it is also often the case that choosing the sustainable option will not result in higher cost of living. In these instances, if consumers are still slow to make the choice to decarbonize, it suggests that there are still non-financial barriers to adoption that must be overcome. In considering why consumers have been slow to adopt sustainable technology and how governments and businesses can improve adoption, it is useful to think about the triggers for changes in human behavior (such as internal motivations, financial considerations, or simply removal of friction). This consideration leads to the assumption that voluntary decarbonization by consumers will require at least one of the following conditions: a shift in consumer mindset, a financial incentive, and/or sufficient quality and access to sustainable alternatives.
The required shift in consumer mindset is for consumers to see sustainability as necessary to the point that they are willing to make sacrifices or pay a green premium to adopt sustainable technologies. By definition, this is a willingness to adopt new technology prior to price parity. This kind of radical shift in mindset is difficult to control or implement, and likely will take a long time (and possibly an extreme and harmful crisis to trigger a true shift in mindset). Further, trying to push consumers to pay a premium for green technologies also presents problems with respect to income inequality – many consumers in developing markets do not have the financial resources to pay any kind of premium.
Financial incentives in this framework refer to any mechanism that makes the adoption of sustainable technology cheaper than the traditional alternative. This includes direct subsidies or tax incentives, as well as financing models that can alter payment horizons. In the context of this framework, “financial incentives” also includes technological improvements which can decrease the cost of production of green goods or services below their non-sustainable counterparts.
Sufficient quality and access to sustainable alternatives may be hard to quantify, but for the purpose of this framework, “sufficient” means enough to enable consumers to willingly adopt technology to decarbonize their lives when the “green” and “not green” options are equal in price. The assumption that consumers will adopt at price parity (whether that parity is achieved by technological/production improvements to decrease the intrinsic cost or through the aforementioned financial incentives) ignores the non-monetary and unquantifiable aspects of a product or technology. For example, switching to public transportation instead of driving is likely to save a consumer money (and certainly is unlikely to require them to pay a green premium), however in many cases switching to public transportation may increase the difficulty for an individual to reach their intended destination. Alternatively, green solutions may be equivalent in price, but consumers may lack awareness of how to access the relevant subsidies or lack understanding of what solutions to implement (for example, what products improve home insulation and therefore lead to lower HVAC energy usage). “Sufficient quality and access to sustainable alternatives” is therefore meant to improvements in technology or business models which can reduce these non-financial barriers to adoption.
While a shift in consumer mindset may be necessary in the long run to drive full decarbonization of consumer life, it is clear that in the short run, ecosystem players hoping to drive consumer decarbonization should be focusing on how to improve financial incentives, quality and access to decarbonization technologies, or both. This can be achieved by reducing the financial barriers through government subsidies or innovative financing models, or by improving the access to or useability of green technology.
How Are Ecosystem Players Tackling Consumer Decarbonization?
Using the framework above, effective models for boosting consumer adoption of sustainable technology can be divided into two categories: models for providing financial incentives or reducing the financial barriers to adoption, and businesses aimed at improving the access to and useability of decarbonization technology. Initiatives to support consumer decarbonization can come from across the ecosystem. It may appear that governments and financial institutions are best placed to focus on financial incentives while startups and technology companies focus on improving access and useability, however, as will be demonstrated below, there are opportunities for all of these players in both categories. It is also important to note that financial incentives alone may not be enough – the most effective models often combine financial incentives with frictionless access/useability.
Financial Incentive Models
Governments are typically the best (if not only) entity for providing direct financial incentives. Decarbonization creates a public good, and if there is an increased cost for individuals to adopt sustainable technology, governments are the right entity to cover any increased costs to encourage faster adoption by individuals. There are many examples around the world of governments stepping in with policy initiatives designed to financially incentivize consumers to look for sustainable options. The US Inflation Reduction Act provides a federal tax credit for 30% of the cost of residential solar installation.[7] In Thailand, the government has allocated 7.12 billion THB to fund its EV subsidy program.[8] The EV 3.5 scheme provides consumer subsidies for EV car purchases of up to 100,000 THB (depending on the vehicle’s battery size and the year of purchase), as well as decreasing excise taxes (from 8% down to 2%) and import duties (by up to 40%) in order to make EV adoption more financially attractive for consumers.[9]
While subsidies are the simplest form of financial incentives to understand, efforts to financially incentivize voluntary consumer decarbonization are not limited to governments; financial institutions and technology startups are also finding new financing models to encourage consumers to adopt sustainability. Banks and solar installers can collaborate to provide consumers with different financing options such as solar leases or power purchase agreements (PPA) to decrease the upfront costs of solar installation. In Southeast Asia, technology startups like Helios and Okapi work with partners across the residential solar and financial supply chain to enable homebuyers to access affordable solar installation. On the other end of the cost-benefit spectrum, companies like Powerledger are leveraging blockchain technology to enable P2P energy trading not only for businesses, but within residential communities.[10] At scale, P2P energy trading platforms could enable consumers to generate additional future income from their solar panels, providing more attractive returns in exchange for the upfront cost of adopting solar technology in their homes.
Models to Improve Access and Useability
The other significant opportunity to decarbonize consumer life lies in improving consumer access to sustainable technology and improvements in the practical useability of sustainable technology. This factor is often the last remaining gap to cross to ensure frictionless adoption for consumers – if adoption of a technology is falling short of targets despite financial incentives, it is likely that there is still a quality gap, an implied sacrifice consumers are being asked to make in their daily lives to shift to sustainable technology. For example, one major concern for consumers when considering purchasing an electric vehicle is the charging infrastructure and the distances they may need to travel in between available charge points. Governments, financial institutions, and investors should consider that investing in EV infrastructure is essential to accelerating the switch from traditional ICE vehicles to electric alternatives. In Thailand, Kasikornbank has launched WATT’S UP, an EV motorcycle rental and battery swapping platform to promote easier access and increased usage of EV motorcycles.[11] Several startups throughout the Southeast Asian region are working to enable cross-platform charging and ensure drivers have easy access to multiple charging options in the same way that ICE vehicles are able to refuel at any gas station regardless of vehicle brand. Alternatively, startups are also tackling green innovations in the public transportation sector, which could make the switch to public transportation more feasible for consumers. Muvmi, a Thai startup, provides electrified last-mile transport to bridge the gap between established public transit stations and the consumer’s final destination (such as office buildings, popular shopping destinations, or homes).
When looking at ways to decarbonize residential housing, electrification can have a major impact on a consumer’s carbon footprint. Home electrification projects such as installation of solar panels or electric heat pumps, deployment of EV chargers and battery storage, or weatherization to reduce in-home energy consumption can both decarbonize the home and lead to long-term cost savings. Startups across the globe, but particularly in developed markets like the US, are leveraging digital technology to solve these kinds of problems. Companies like Pika and Zero Homes have designed software solutions to enable contractors to simplify the sales process for home electrification projects and improve sales efficiency to speed up adoption by consumers; many startups combine digital tools for sales agents and installers with streamlined payment processes to automate the consumer’s access to financial incentives and minimize the friction in the homeowner’s decision making process.
Conclusion
While many discussions on consumer decarbonization may naturally focus on food or consumer goods (which are often more visible issues in the media), a greater degree of impact can be created by focusing solely on decarbonizing home energy usage and consumer transportation. Past efforts to push decarbonization have also relied on consumers to make the “right” choice, requiring them to pay green premiums or to make sacrifices in their daily lives in order to adopt sustainable technology, which largely results in slow voluntary adoption of said technology. Consumer mindsets may slowly shift over time, but there is an opportunity in the current market to speed up adoption in the near-term by focusing on reducing the financial barriers and improving accessibility and useability of green solutions. Governments seeking to hit Paris Agreement targets and financial institutions looking to achieve their net-zero commitments are actively providing financial incentives and new payment models which can reduce the financial burden for consumers to decarbonize. As discussed previously, financial incentives alone may not be sufficient to trigger mass adoption of green technologies, and therefore many businesses seeking to accelerate their sale of such technologies to the consumer segment look for opportunities, investments, and business models that make the green options easier to use, easier to access, and requiring minimal change from the consumer’s perceived status-quo. By focusing on these specific areas, ecosystem players seeking to accelerate consumer decarbonization can identify opportunities which can maximize the impact of their investment.
Author: Krongkamol deLeon (Joy)
Editors: Benjamas Tusakul (Air), Woraphot Kingkawkantong (Ping)
Reference
[1] https://cz.boell.org/en/2023/07/26/individual-carbon-footprint-how-much-does-it-actually-matter
[2] Christopher M Jones and Daniel M Kammen, “Quantifying Carbon Footprint Reduction Opportunities for U.S. Households and Communities,” Environmental Science & Technology, Vol 45/Issue 9, https://pubs.acs.org/doi/10.1021/es102221h
[3] https://link.springer.com/article/10.1007/s10018-019-00253-7?fromPaywallRec=false
[4] https://www.rabobank.com/knowledge/d011429876-the-rise-of-electric-vehicles-in-the-us-and-the-road-ahead
[5] https://www.rewiringamerica.org/research/pace-of-progress-home-electrification-transition
[6] https://www.bain.com/insights/ten-takeaways-from-our-2024-sustainability-survey-of-consumers-infographic-ceo-sustainability-guide-2024/
[7] https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics
[8] https://www.bangkokpost.com/business/motoring/2871632/cabinet-allots-b7-12bn-for-ev-subsidies#:~:text=Under%20the%20EV%203.5%20scheme,to%2050%2C000%20baht%20per%20vehicle.
[9] https://www.ryt9.com/s/iq03/3479762
[10] https://powerledger.io/platform-features/xgrid/
[11] https://www.kasikornbank.com/en/news/pages/wattsup.aspx