Conference Agenda

This paper utilises a Latent Class model estimated using the Expectation-Maximisation (EM) algorithm to investigate the impacts of financial literacy and energy literacy on households’ investment decisions for a low-carbon heating system across income classes. This is done utilising a Discrete Choice Experiment (DCE) for low-carbon heating alternatives; geothermal district heating, hydrogen boilers, solar electric boilers and air source heat pumps. Implicit Discount Rates (IDRs) were extracted from the Latent Class model parameter estimates to understand the investment analysis conducted by the respondents. The low-income class in the Latent Class model displayed consistently higher implicit discount rates in comparison to the middle to high-income class, illustrating that future costs are more heavily discounted within the implicit net present value determination for an investment in a heating system. Heterogeneity in price sensitivity and implicit discount rates across income groups highlights the need for tailored policy interventions in order to effectively incentivise household investment in low-carbon heating systems, and to minimise the potential for creating regressivity in policies aimed at households.