Deceptive greenwashing by retail electricity providers under renewable portfolio standards: The impact of market transparency

Abstract

Retail electricity providers (REPs) are attempting to leverage the growing environmental concerns to promote themselves as “more renewable” to support climate change mitigation. Critics argue that they often intentionally exaggerate renewable energy proportions in electricity contracts as a marketing gimmick, known as greenwashing. This paper develops a signaling game model of duopoly competition to investigate the occurrence mechanism of greenwashing under information asymmetry in the context of Renewable portfolio standards (RPS), with a primary focus on market transparency, penalties for failing to meet quota, environmental consciousness, and renewable energy premiums. Furthermore, the effects of greenwashing are examined based on the perfect Bayesian Nash equilibrium outcomes. The conclusions indicate that greenwashing is more likely to occur in environments with weak penalties for failing to meet quota and low transparency. Counterintuitively, greenwashing may increase competitors’ profits and reduce carbon emissions in some cases. However, what can be established is that greenwashing will certainly undermine the achievement of decarbonization goals, reduce consumer surplus, and negatively impact overall social welfare when renewable energy consumption is profitable. This research contributes to the formulation of more effective strategies and policies for stakeholders in the power industry and policymakers aiming to advance renewable energy consumption.