Preserving Customer Choice vs. Effective Heat Decarbonisation: A Delicate Balance

Dr Tanja Groth, CLT Director

Introduction:

Preserving the sanctity of customer choice is an integral part of our society but may be a barrier to achieving effective heat decarbonisation. As an economist working in the climatetech sector, I have observed the challenges faced by government schemes and programmes aimed at promoting sustainable heating solutions. In this blog, I explore the concept of the paradox of choice and its impact on the UK heating market. Using examples such as the Boiler Upgrade Scheme and the Clean Heat Streets project (Heat Pump Ready programme), I look at how simplifying decision-making processes can facilitate the transition to low-carbon heating systems and how offering a limited amount of choices can help (or hinder) effective decision-making.

The Boiler Upgrade Scheme:

The Boiler Upgrade Scheme, aimed at reducing carbon emissions, offers financial incentives to homeowners in England and Wales to replace their gas, oil, or electric heating systems with alternatives. Eligible participants can receive £5,000 towards an air source heat pump or biomass boiler or £6,000 towards a ground source heat pump. However, the scheme’s uptake has been disappointingly low, with estimates suggesting only 14,000 heat pumps installed in its first year, falling short of the target of 30,000 installations annually (target also includes biomass boilers).

The Paradox of Choice:

The paradox of choice, coined by psychologist Barry Schwartz, highlights the conflicting relationship between an individual’s freedom and their decision-making. On one hand, more options are assumed to provide greater freedom and satisfaction. On the other hand, an overwhelming number of choices can lead to decision paralysis and dissatisfaction. While having a variety of options seems desirable, research suggests that an excess of choices can lead to decision paralysis and self-doubt, which some have coined as the “Tinder effect.”

Applying the Paradox of Choice to the Heating Market:

In the context of the heating market, the paradox of choice has significant implications. Where the Boiler Upgrade Scheme design succeeds is in prioritising just three technology options, simplifying the customer choice journey (debating on whether these three options are the best options is best left for a separate article). However, homeowners are then faced with numerous installers to choose from, which may lead them to feel overwhelmed and struggle to make informed decisions.

The Role of Limited Choices:

Offering a limited number of choices can streamline decision-making processes. For example, the Clean Heat Streets project in Oxford simplifies the selection process by providing a single heat pump option through a designated installer. This approach reduces the burden on consumers and accelerates the adoption of sustainable heating solutions who can opt in or out within a given timeframe.

Lessons for the Heat Industry:

To drive effective heat decarbonisation, the heat industry (including Government) should consider the following strategies:

Simplified Decision Making:
To simplify decision making, it is crucial to strike a balance. Offering a limited number of choices can expedite the decision-making process. For instance, the Boiler Upgrade Scheme presents three options: air source heat pumps, ground source heat pumps or biomass boilers. While this may not cater to every individual’s needs, it streamlines the process. On the other hand, programmes like the Clean Heat Streets project in Oxford City adopt an opt-in approach, providing a single installer and one heat pump option. This simplified approach declutters decision making, potentially increasing uptake.
Single Choice Aversion and the Decoy Effect:
Single choice aversion is where people are unwilling to choose an attractive option if there are no alternative options since they have nothing to compare it against. This is relevant for those working with heat zoning and one core lesson learned from deploying mandatory connection obligations to heat networks in Denmark 20-30 years ago was that you have to give people an alternative – which in this example was that if they had an alternate low carbon heating measure installed for their property, they could be exempted from joining the network.

When you instead are given three choices, you sometimes have what is called the Decoy Effect – one option which is significantly worse than the preferred option and moderately worse than the second-best option. Using the Boiler Upgrade Scheme example again, as a person living in a London flat, the biomass boiler is a significantly worse option than either of the two other options, but it makes me feel better about making a choice between the two others (or would, if I was eligible for the scheme in the first place).
Embracing Demand-Pull Approaches:
To drive innovation and entrepreneurship in the heating market, demand-pull approaches prove effective. These approaches rely on volume, growth rates, and concentrated demand within specific regions or cities. By identifying the concentration of demand through strategies like Local Heat and Energy Efficiency Strategies, Local Area Energy Plans and Heat Zoning, we can encourage quality installations tailored to individual homes while establishing robust supply chains and affordable financing options. Such concerted efforts require a solid pipeline of expected activity and year-on-year growth in a defined geographic area.
Ensuring Quality Installations and Clear Messaging:
To gain public trust and drive adoption, it is essential to provide quality installations tailored to individual homes. Robust supply chains, affordable financing options, and transparent information about system functionality are crucial elements.

Conclusion:

In the pursuit of timely and cost-effective heat decarbonisation, we must recognize the delicate balance between customer choice and simplified decision making. Understanding the paradox of choice allows us to optimize our strategies and maximize uptake. By adopting demand-pull approaches, investing in quality installations, and facilitating supply chain development, we can transform the heating industry and contribute to the transition to a sustainable future. By providing a reasonable number of options, streamlining the selection of installers, and offering clear information on system functionality and performance, we can encourage more homeowners to embrace sustainable heating solutions.

Dr Tanja Groth presented this paper at the All-Energy Exhibition & Conference in Glasgow (May 2023).