Liquidity Constraint, LPG Stoves and Charcoal Consumption: Evidence from a Randomised Controlled Trial

• Development Workshop

Date and Location

Monday, November 23, 2015, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

The high start-up cost of modern cooking appliances has been shown to be the key factor that hinders transition of households from biomass energy to clean energy in developing countries. We designed a randomised controlled trial to identify the impact of relaxing households’ liquidity constraints on LPG stove adoption and charcoal use in urban Tanzania. In collaboration with a local micro-finance institution, we randomly assigned households into a subsidy treatment and a credit treatment, which included different repayment arrangements. We show that, relative to households in the control group, adoption of LPG stoves reduced charcoal use by 47.5% in the treated group. However, providing subsidies for stove purchases resulted in a much larger reduction in charcoal use (54%) than did providing access to credit (41%). We highlight the importance of relaxing households’ financial constraints and improving access to credit to encourage urban households to switch to clean energy sources and save the remaining forest resources of Africa.