Market News

 August 17, 2016
People would buy green products -- if only e-commerce showed them how

 Given the choice to go green when making purchases online, a lot of people would follow through, new research suggests. They just need companies to provide them with enough information to do so.

The new study, just out on Monday in Proceedings of the National Academy of Sciences, indicates that Internet-based companies (which include the likes of Amazon and Airbnb) have the opportunity to slash their products' carbon footprints by providing customers with environmentally friendly choices to cut down on greenhouse gases and other ills. The researchers tested the idea out using mock versions of four types of industries --- online retail, video streaming, ride shares and housing shares --- and found that consumers are willing to make climate-friendly selections when the options are available to them, whether it means purchasing carbon offsets or just choosing the product with the lowest carbon output.

Companies typically have access to data about the carbon footprints of the products and services they sell, said the study's lead author Steven Isley, a behavioral scientist at the National Renewable Energy Laboratory in Golden, Colo. The problem is retailers don't always make this information available to consumers.

"If an individual is going to try to calculate the carbon footprint of anything, that's actually a really hard thing to do and it requires a lot of specialized knowledge," Isley said. "Individuals are actually not in a good position to try to figure out what the environmental impacts are of the different options available to them. Firms can potentially do that once and then share that information across all of their customers."

Isley and the rest of the research team set up a series of experiments designed to test whether making these green choices available to consumers actually influences their decision-making. They created fake (but realistic-looking) versions of the online interfaces for four companies: Amazon Prime, Uber, Netflix and Airbnb. Then, they asked participants to use the interfaces and behave as though they were real customers making real purchases.

For the Netflix and Airbnb experiments, the researchers simply offered participants information about the carbon footprints of the options available to them. For instance, when it comes to video streaming, higher definition content is more carbon-intensive. So participants were given the option to choose standard definition, high definition or ultra-high definition content, along with information about the carbon footprint of each option. Similarly, the most environmentally friendly and energy efficient listings in the Airbnb experiment were denoted with a special leaf icon, so consumers would know they were the greenest choices.

The researchers found that providing such information significantly influenced consumers' decision-making. When the carbon footprints of the streaming options were explained in terms of equivalent miles driven in a vehicle, the result was a 24 percent reduction in the carbon footprints of the videos consumers chose to watch. And the researchers also found that the Airbnb participants were willing to pay slightly more for listings with the environmentally friendly designation.

The researchers also designed several experiments using the Amazon Prime and Uber interfaces to test whether consumers were willing to purchase carbon offsets if the option were available. Purchasing a carbon offset essentially provides financial support for companies to take measures to reduce their carbon output. The price of the offset generally corresponds to the amount of carbon saved.

In this case, the researchers designed ways for consumers to purchase offsets that would negate the carbon footprint of the products they purchased. In Amazon Prime, carbon offsets were offered as a way to make two-day shipping --- which can be much more carbon-intensive than standard shipping --- carbon neutral. And Uber participants had the option to purchase carbon offsets equivalent to the footprint of their ride.

The researchers found there was a market for this type of climate-friendly decision-making as well. In the Amazon Prime experiment, 88.2 percent of participants overall added offsets to their bill when the option was selected by default. Even when the option was not the default, 40 percent of participants went on to select it.

In the Uber experiment, a majority of participants were willing to purchase the offset for at least a single ride, regardless of the price. And at low costs, a majority of participants were also willing to say they would purchase the offset for all future rides. (This willingness decreased substantially for more expensive carbon offsets.)

The takeaway from all the experiments is that a market does exist for climate-friendly options --- and making the information and the choices available really can make a difference in consumer behavior.

"If you decrease the barriers to action, then more people will act, it turns out," Isley said. "I'd say one of the big takeaways is that there are opportunities for a lot of win-win situations where, at very low costs or even negative costs, firms can provide information to consumers that the consumers appreciate, that make their lives better and help the business."

That said, the participants in these experiments weren't making actual purchases --- just hypothetical ones. And there is some concern that their decisions might change in real-life situations. It's an effect known as "hypothetical bias," in which the amount consumers are willing to pay for a product or service in hypothetical situations is greater than what they'd be willing to pay in real life.

But Isley noted that research on hypothetical bias has suggested the effect is strongest for high-dollar purchases, and the experiments his team conducted included generally inexpensive options. The greatest concern about bias would likely exist for the Airbnb experiments, he said, which included room listings with costs of up to $100.

But, of course, the only way to find out for sure how consumers would behave in real life would be for real companies to conduct real tests by experimentally making these types of options available to their customers.

"Online firms in particular are constantly running experiments, they're constantly trying out minor changes," Isley said. "We think that this could be a really promising area for those types of experiments."