Consumers' Willingness to Pay for Energy Labels on Household Appliances

Voluntary environmental labeling or certification programs provide information about the environmental characteristics of one or more aspects of a product’s life cycle to consumers. The U.S. Environmental Protection Agency and Department of Energy were among the first governmental agencies in the world to adopt environmental information programs. This study examines two U.S. programs – Energy Star, an energy efficiency labeling program, and Green Power Partnership (GPP), a green energy purchasing program, and estimates how much consumers are willing to pay for refrigerators that have been awarded these labels and what factors motivate that willingness to pay. The data were obtained from a survey conducted in March and April of 2009 via an online research panel, which was constructed to be representative of the U.S. population. Analysis of the data was conducted using conditional logit regression models with fixed parameters and mixed logit regression models with random parameters. Results revealed that consumers, on average, have a willingness to pay ranging from $237.81 to $350.54 for the Energy Star label and a willingness to pay ranging from $48.52 to $70.95 for the GPP label. The results also indicate that consumer demographics and attitudes influence WTP. In particular, individuals with greater levels of stated concern for the environment or individuals exhibiting strong perceptions on the effectiveness of consumers to affect product design and the ambient environment had a greater likelihood of choosing a labeled alternative, and thus, a greater WTP for both the Energy Star and GPP label. To manufacturers and government regulators, these results suggest that energy labels can play a significant role in a consumer’s decision making process when selecting a new appliance.