Dynamic Adjustment of Eco-labeling Schemes and Consumer Choice - the Revision of the EU Energy Label as a Missed Opportunity?

Products with a superior environmental performance, such as a high level of energy efficiency, are typically subject to information asymmetries. Therefore these product attributes are often undervalued in purchase decisions. Signaling, e.g. energy labeling, can overcome these asymmetries, with positive implications for effective consumer decisions, competitive advantage for suppliers of energy-efficient goods, and for societal goals such as mitigating climate change. However, there is a scarcity of research investigating how energy labels actually influence consumer choice. The recent revision of the European Union energy label provided a unique opportunity to investigate the effectiveness of energy labeling in a quasi field-experimental setting. We show that the proposed extension of the seven-point A-G rating scale by adding new classes A+, A++, etc. will result in a lower perceived importance of energy efficiency in consumer decision-making. Based on a stated preference survey investigating 2244 choices by German consumers, we conclude that the revision actually undermines the label's ability to overcome information asymmetries, hence potentially contributing to market failure. Copyright (C) 2011 John Wiley & Sons, Ltd and ERP Environment.