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A Microeconomic Framework for Evaluating Energy Efficiency Rebound and Some Implications

Severin Borenstein

Year: 2015
Volume: Volume 36
Number: Number 1
DOI: 10.5547/01956574.36.1.1
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Abstract:
Improving energy efficiency can lower the cost of using energy-intensive goods and may create wealth from the energy savings, both of which lead to increased energy use, a "rebound" effect. I present a theoretical framework that parses rebound into economic income and substitution effects. The framework leads to new insights about the magnitude of rebound when goods are not priced at marginal cost and when consumers are imperfect optimizers, as well as the role of technological progress in rebound. I then explore the implications of this framework with illustrative calculations for improved auto fuel economy and lighting efficiency. These suggest that rebound is unlikely to more than offset the savings from energy efficiency investments (known as "backfire"), but rebound likely reduces the net savings by roughly 10% to 40% from these energy efficiency improvements.



Housing Market Fundamentals, Housing Quality and Energy Consumption: Evidence from Germany

Marius Claudy and Claus Michelsen

Year: 2016
Volume: Volume 37
Number: Number 4
DOI: 10.5547/01956574.37.4.mcla
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Abstract:
This study investigates the relationship between regional housing market fundamentals and energy consumption. We argue that dwellings, in particularly rental properties, are not only consumer goods, but also constitute financial market assets. Properties are spatially fixed and traded in regional contexts, where real estate market characteristics like vacancy, income levels, and expectations determine rent and prices, which in turn provide incentives to invest in housing quality. The level of housing quality (e.g. windows, building materials, or heating technology) in turn influences the level of energy consumption. While this view is established in the real estate and urban economics literature, it has only recently found its way into the energy debate. As a result, the relationship between regional housing market fundamentals and energy consumption has received little attention. This study provides a first attempt to address this paucity. Utilizing aggregate data on regional space-heating energy consumption from over 300,000 apartment buildings in 97 German planning regions, the study applies structural equation modeling to estimate the influence of housing market fundamentals on the level housing quality, and subsequently on regional energy consumption. Findings provide first evidence that regional differences in housing market conditions have a significant impact on housing quality and energy consumption. Specifically, the results suggest that carbon abatement programs in buildings should focus on regions with weak housing market fundamentals, as market incentives are unlikely to incentivize investors to invest in housing quality attributes. The authors conclude by highlighting important implications for energy research and avenues for further investigations. Keywords: heating energy demand, energy efficiency gap, regional housing



Incentivizing Energy Efficiency under Private Information: The Social Optimum

Franz Wirl

Year: 2019
Volume: Volume 40
Number: Number 6
DOI: 10.5547/01956574.40.6.fwir
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Abstract:
This paper addresses how far public initiatives should try to eliminate the energy efficiency gap if consumers hold private information about their willingness to pay for efficiency. The major finding is that even socially optimal efficiency programs should only close a fraction of the gap. This conclusion has to be strengthened if the external costs of energy were internalized, because an intervention is then only justified for low costs of public funds and very large payback gaps. Furthermore, the realistic assumption of private information implies that the highest subsidies must be paid to efficient types, which turns incentives based on perfect information upside down.



The Role of Uncertainty in Shaping Individual Preferences for Residential Energy Renovation Decisions

Salomé Bakaloglou and Fateh Belaïd

Year: 2022
Volume: Volume 43
Number: Number 4
DOI: 10.5547/01956574.43.4.sbak
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Abstract:
This article examines a crucial question that has been raised in recent years in both policy and economic literature: the role of uncertainty as a barrier to energy retrofit decisions. We develop a discrete choice experiment to elicit preferences for energy renovation measures. This methodologically innovative experiment design includes two insurance schemes covering potential sources of uncertainty as attributes of the energy retrofit alternatives. We use a mixed logit model to investigate the nature of systematic heterogeneity in household preferences for attributes of energy retrofit solutions. The article shows that uncertainties related to future energy pricing and retrofit quality are negatively perceived during energy-renovation decision making. This impact varies according to household characteristics such as risk aversion and perceptions of the economic context. The results suggest that public policies should support and accompany the development of insurance schemes to increase energy renovation rates.



The Energy Efficiency Gap in the Rental Housing Market: It Takes Both Sides to Build a Bridge

Xavier Lambin, Joachim Schleich, and Corinne Faure

Year: 2023
Volume: Volume 44
Number: Number 1
DOI: 10.5547/01956574.44.1.xlam
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Abstract:
We revisit the issue of the energy efficiency (EE) gap by explicitly acknowledging the two-sided nature of the rental housing market and two-sided asymmetries of information between tenants and landlords. Employing a theoretical matching model, we show that Energy Performance Certificates (EPCs) that signal a dwelling’s energy performance induce optimal EE investments by landlords only if tenants pay their energy expenditures in full. When landlords pay part of the energy expenditures, they seek tenants who will conserve energy. Our model shows that asymmetry of information over tenant characteristics results in suboptimally low investments in EE. This may even render EPCs counterproductive. As a remedy, we show that tenant-side signaling needs to be rolled out jointly with EPCs and may even be sufficient when contracts include energy expenditures. Data from an original survey provides support for these insights and suggests that information on the tenants’ side contributes to more EE investment.





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