Energy Efficiency in Small and Medium-Sized Manufacturing Firms: Order Effects and the Adoption of Process Improvement Recommendations

Abstract

In many manufacturing operations, profitable energy efficiency opportunities remain unexploited. While previous studies have tried to explain the underinvestment, we focus on how the way in which a portfolio of opportunities is presented in a list affects adoption decisions. We use information on over 100,000 energy saving recommendations made to more than 13,000 small and medium-sized manufacturing firms under the Industrial Assessment Centers (IAC) program of the US Department of Energy (DOE).We find that adoption rates are higher for initiatives appearing early in a list of recommendations. This sequence effect is consistent and large: simply moving a recommendation one position lower has the same effect on average as increasing upfront implementation cost by at least 17% from the average value. Given this impact of sequence on adoption of individual recommendations, we utilize variations within our data to examine how various sequencing approaches affect adoption at the portfolio level. Sequences in which recommendations are listed from best to worst payback achieve higher potential energy savings given the investments in energy efficiency made by the firms. We also observe a choice overload effect at the portfolio level, but the magnitude of this effect is small.

Top management and the adoption of energy efficiency practices: Evidence from small and medium-sized manufacturing firms in the US

“…The DOE's IAC program aims at reducing the information acquisition costs by providing free energy assessments to small and medium-sized firms. Anderson and Newell [8] find that implementation decisions in the IAC program depend more on initial cost than on annual savings, and Muthulingam et al [28] find that the sequence in which recommendations are presented also matters. However, a comprehensive explanation of adoption rates remains elusive, and the role of top management and top operations managers' involvement has not yet been explored.…”

“…First, we participated in five assessments conducted by the SDSU IAC during 2008e2009, and in three other follow-up phone calls 8e10 months after audits were done. Second, we contacted several firms audited by the LMU IAC as part of an earlier related project [28]. Third, we interviewed senior personnel from eight other IACs, the IAC program's Technical Field Manager, and the DOE Advanced Manufacturing Office's IAC coordinator.…”

“…Serial Position of Recommendation e Muthulingam et al [28] find that the order in which recommendations appear in the report impacts adoption, so we include serial position SP ij as a control. Total Number of Recommendations in an Assessment e We use this as a control, N j , because choice can be affected by the number of options provided [60].…”

OM Forum—Operations Management Challenges for Some “Cleantech” Firms

“…This paragraph highlights some relevant sources of data. In this special issue on the environment, Jira and Toffel (2013) use data from the Climate Disclosure Project to examine a supplier's willingness to disclose its greenhouse gas emissions, and Muthulingam et al (2013) use data from the U.S. Department of Energy's Industrial Assessment Center program to examine energy efficiency improvement by small manufacturing firms. Popp (2002) and Linn (2008) measure manufacturers' improvements in energy efficiency using data on patents, and data on output and energy expenditures from the U.S. Census of Manufactures, Annual Survey of Manufactures, and Manufacturing Energy Consumption Survey.…”

An inside perspective on carbon disclosure

“…The energy efficiency literature is replete with examples and explanations for why firms so often leave profitable opportunities on the table, including widely-cited papers by DeCanio (1993) and Jaffe and Stavins (1994) and many others since. Evidence that decisions related to energy efficiency are subject to decision biases is presented in Muthulingam et al (2013), who 16 find that simply changing the sequence in which energy efficiency opportunities are listed has a substantial effect on their adoption. In a related context, King and Lenox (2002) find that managers under-estimate the value of waste prevention and hence under-invest in such opportunities.…”