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Free Riding, Upsizing, and Energy Efficiency Incentives in Maryland Homes

We use a unique dataset that combines an original survey of households, information about the structural characteristics of their homes, utility-provided electricity usage records and program participation status, to study the uptake of energy efficiency incentives and their effect on residential electricity consumption. Attention is restricted to homes where heating and cooling is provided exclusively by air-source heat pumps. We deploy a difference-in-difference study design and find that replacing a heat pump with a new one does reduce electricity usage by 8% on average. The effect differs dramatically across households based upon whether they receive an incentive towards the purchase of a new heat pump. Among incentive recipients, the effect is small, and the larger the incentive, the smaller the reduction in electricity usage. These findings suggest that capital costs are incorporated into the (long-term) cost of energy, generating an apparent rebound effect that is much more pronounced for incentive recipients.

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Keywords: Energy Efficiency, Household Behavior, Energy Efficiency Incentives, Electricity Usage, Rebound Effect, Free Rider

DOI: 10.5547/01956574.37.1.aalb

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Published in Volume 37, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.