Price elasticity in sustainable buying

I got some data from a University of  Queensland professor in response to an article I wrote last year about DPPs that I wanted to dig into. 

Deloitte surveyed Australians about renewable energy. 45% said they'd pay a premium of 1-10% for renewable electricity. But Sustainability Victoria data shows Only 6% of people actually buy GreenPower (the renewable add-on to their electricity).

A 39% difference between what people say and what people do.

I have read quite a lot that ‘consumer demand for sustainability is growing’, I referenced surveys in the aforementioned DPP article. But when you look at what people actually do, not just their intentions, it seems a very different story. Let’s have a look. 

The say vs do gap is consistent

The pattern repeats across countries:

In the UK, a 2024 survey found 41% of people willing to pay higher prices if their energy came from renewables. But according to the Gallery Climate Coalition, only 3% of UK households actually use green tariffs (a program where suppliers commit to match some or all of their energy use with generation from renewables).

 A 38% difference between intention and action.

The Netherlands shows the same pattern. University of Groningen researchers found 33% of people willing to pay a premium for electricity-based heating systems - heat pumps replacing gas boilers. 

These are higher than the general electricity premiums - heating homes matters.

But historical data tells a different story. When Dutch households had to actively choose renewable electricity as a premium option, only 3.4% did it. That was 236,000 households out of 7 million in 2000.

Today, about 80% of Dutch households "buy" renewable electricity (mine included). As comes from default tariffs and hydro imports from Norway - not people voluntarily paying premiums. The gap between what people say they'll pay for heating (33%) and what they actually paid for electricity when it costs extra (2%) is about 31%.

Then there's Spain. I couldn't find data on voluntary green tariffs because Spain seems to have solved the problem differently.

Between 2018 and 2024, Spain went from paying 31.5% more for electricity than the EU average to 20.9% less. They doubled their solar and wind capacity since 2019. And renewables now generate 56% of Spain's electricity. The Bank of Spain estimates wholesale prices would be 40% higher without the switch.

Spain didn't ask consumers to pay premiums, they made renewables the cheaper option.

So with the exception of Spain, that’s a 35-40 % difference between what people say and what they do. Whether it's general electricity in Australia and the UK, or heating in the Netherlands, actual behaviour is similar.

Bain & co surveyed 19,000 consumers globally in 2024. Fewer than 20% were willing to pay premiums above 10%. The average premium people claim they'd pay fell from 7% in 2023 to 5% in 2024. 

If the premium people are saying they’re willing to pay is falling, the optimist would say they’re just getting more accurate, more realistic and the gap will close. The pessimist says the gap will stay the same and the net number of people actually paying premiums for sustainability will decrease. 

This isn’t conclusive, I’m not researching this in great detail it’s only four data points, but it’s the start of a pattern.

Why this matters

It’s economics.

In the UK, REGO certificates let suppliers claim "100% renewable". In actuality, the UK grid runs ~40% renewables, but only 3% of households pay for green tariffs. 

So it’s a sustainability premium that costs suppliers almost nothing, and still only captures 3% of the market? Maybe I’m reading that data wrong, if so correct me, but that seems to be telling. 

The cost-of-living crisis makes this worse. Bain's data shows willingness to pay a premium dropped from 7% to 5%. Wages haven't kept pace with costs. US electricity prices rose 4.5% on average, with some states seeing increases over 10%. Some EU countries saw 20%+ year-over-year increases in the first half of 2024.

Surprise surprise, people prioritise their survival over the environment. 

The 1-5% found to actually pay is where actual behavior lives. In Australia, 25-30% will pay a 1-5% premium, only 10% will pay 6-10%, and fewer than 5% will pay more than 10%. 

Globally, fewer than 20% will pay above 10%. And having read into these numbers and surveys even this feels like a stretch.

So any sustainability initiative depending on consumers paying 10%+ premiums will fail at scale. Extending this we can assume business models built on premium positioning can only capture 3-6% of the market. 

If the trend continues and the economics of using renewables doesn’t improve I doubt any amount of marketing and education campaigns will do much to close this gap.

What works for increasing renewable use

Two strategies seem to have worked.

Make sustainable the default

As I mentioned before, in 2000, 2% of households in the Netherlands voluntarily chose renewable electricity at a premium. Today, 80% "buy" renewable electricity.

I doubt consumer values changed that much - indeed they claim only 33% would pay a premium for renewable heating. 

But they removed the need to choose the more expensive option. Majority renewable electricity became the default tariff - supplemented by Norwegian hydro imports.

It makes sense to me simply from a ‘user perspective’. It follows the same logic we apply to product design - people have limited bandwidth for decisions. 

If you remove the choice of ‘premium pricing’, make it the default, then even if there are cheaper options, if you have to search for them, most won’t bother, they’ll take what’s obvious.

Make sustainable the cheaper option

In 2018, Spanish industry paid 31.5% more for electricity than the EU average. In 2024, they paid 20.9% less. 

Spain doubled their solar and wind capacity since 2019, adding over 40 gigawatts. Renewables now generate 56% of their electricity. 

Once sustainable energy became cheaper, adoption was automatic. This doesn't require behavior change - just rational choices. If no one is paying a premium for sustainability because it’s cheaper does that mean the gap between say and do is bigger or smaller?

LED bulbs now cost less to buy and run than the old incandescent bulbs. Electric vehicles are approaching price parity with combustion engines. Solar panels deliver net-positive ROI in many markets. Recycled materials cost less than virgin material in some categories.

Implications

The implication of all this is something I think everyone would nod at and agree with but I don’t hear a lot about acting on it. Focus on improving the economics first, sustainability second. Indeed, no one should be surprised that if we want to make systematic change we have to change the systems directly, not consumer behaviour. 

For my work at AWARE™ I think the same concept is transferable. For Digital Product Passports and traceability, transparency and or ‘impact metrics’ alone won't drive success. 

We need to use traceability to reduce costs, enable efficiency, and demonstrate compliance. Not to justify higher prices.

This doesn’t mean we don’t build things that enable sustainability, it just means we build them targeting compliance, efficiency, or business opportunity. Not for impact-sake. 

And maybe the biggest thing I’m taking away from this is to stop thinking and designing for the aspirational 73% who say they care. Instead to start designing for the economically rational 100%. 

Make sustainable the default option. Make sustainable the cheaper option. Use regulation to level playing fields. Invest in technology and scale to reach cost parity.