Applying behavioural economics to residential energy efficiency policy

Overview: Behavioural economics (BE) provides a perspective to better understand and predict the decision-making mechanism of individuals. In the last decades, numerous literature discussed the application of BE in various subjects from both theoretical and practical aspects. There is also an increasing trend for the governments to incorporate the BE approach into the policy-making process.To date, however, research on the role of BE in energy policy are mainly at the academic level. Some critical researchers argue that BE needs to establish its reliability before generalising the laboratory results to policy initiatives.This paper will take a closer look at the influence BE has had on both residential energy efficiency and policy-making, and provide an estimation of further research orientations.Methods: This research will provide a panorama of the literature in BE with an application of the energy efficiency issue, collect examples that integrate BE approach in the making of policy to promote residential energy efficiency worldwide, summarise the generalised principles, tools and models, and accordingly, discuss the future opportunities, challenges and limitations.Results: Research of BE has been widespread in recent years, especially in developed countries, with respect to policy-making. In the field of residential energy efficiency, well-designed BE policies can contribute by providing countermeasures towards, or even taking advantage of individuals’ irrational behaviour and prevalent cognitive biases, and influence residences' behaviour patterns of energy usage. However, interest in research will not automatically translate into actual action steps. More empirical research and rigorous experiments should be carried out to realise the implementation of BE policy.Conclusions: This research highlights the potential of BE to improve the residential energy efficiency. The insights from BE can help policymakers to design effective differentiated policy interventions through the understanding and prediction of consumer behaviour, especially phenomena that neoclassical economics failed to explain, to better achieve the energy efficiency goals. Given the current overall trend and vast scope, the issue of BE is likely to continue and deserves a further attention.