Electrifying labels: Environmental quality labelling schemes and the extent of their effect on Icelandic consumers purchasing intention in electricity

Abstract

When the electricity markets were liberalized there was made room for differentiation. In the first years, most of the differentiation was in the pricing of electricity and fierce competition. This competition did not lead to a lot of consumers switching electricity providers and since then switch rate has been poor, to say the least. Companies have more and more started utilizing branding strategies for them to gain an advantage in the electricity markets. Focusing on differentiation there have been identified four different ways for electricity to differentiate themselves, one of which is environmental qualities of the electricity. Consumers attitude towards renewable electricity has been mostly positive but they have not been taking a step towards more renewable electricity options. This is due to consumers being unable to verify the claims made by renewable electricity about its environmental qualities. They are faced with information asymmetry in the electricity market, mostly due to the nature of electricity. For manufacturers in other markets with similar asymmetry as the electricity market, they have started utilizing environmental labels. They aim to minimize asymmetry by increasing the products traceability, trustworthiness, and credibility. This research aims to find the extent of environmental labeling schemes effect on consumers purchasing method. To start with the literature was reviewed and from that derived nine hypotheses which set the basis for the qualitative research in the form of a questionnaire. Results of the questionnaire were then used to map out the effects and identify important aspects which may allow further research to identify how they may make consumers more interested in environmental labeling schemes. Results of the survey shows that environmental labeling schemes can influence consumers towards more environmentally friendly electricity, but consumers are somewhat neutral or lack of knowledge for the environmental labeling schemes to have an effect.