Consumer valuations of energy efficiency investments: The case of Vietnam's Air Conditioner market

Abstract

Research on the energy-efficiency gap in developing countries remains very scant. In this study, we apply the hedonic price model to investigate how Vietnamese consumers value the energy efficiency of air conditioners (ACs). We assume that the energy efficiency of ACs in the Vietnamese market improves to that of ACs in the Japanese market. Then, we calculate the payback period by dividing the capital cost to improve the energy efficiency by the annual electricity cost saving. We show that the initial investment cost can be recovered in a short time. In addition, we calculate the implicit discount rate to show how Vietnamese consumers value energy efficiency investment. We find that the implicit discount rate in Vietnam's AC market is much higher than the rates found in studies on developed countries. Hence, consumers in developing countries place much lower value on energy efficiency investment than consumers in developing countries, even though purchasing energy-efficient appliances offers opportunities to save substantial amounts.