Energy efficiency and the role of energy-related financial literacy: evidence from the European residential sector

In this paper, we analyze the level of efficiency in the use of electricity in the European residential sector relying on a cross-sectional data set comprised of 1375 households located in Italy, the Netherlands, and Switzerland and observed in 2016. To do this, we estimate an electricity demand frontier function using a stochastic frontier approach. The empirical results show that the residential sector in these three European countries could save approximately 20% of its total electricity consumption on average if it improves the level of efficiency in the use of electricity. These figures are in line with recent studies for Switzerland and for the US residential sector. Moreover, we link energy efficiency to energy-related financial literacy. We find that while energy-relevant knowledge per se does not play a significant role, stronger cognitive abilities are associated with higher levels of energy efficiency.