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Does Retrofitted Insulation Reduce Household Energy Use? Theory and Practice

We analyze the household energy use impacts of a large-scale, universally available, subsidized retrofit insulation and clean heat scheme. Theory shows that the energy-saving effects of such schemes are ambiguous. Our difference-in-difference model of energy impacts resulting from each of insulation and clean heat treatment uses a sample of more than 12,000 treated houses. Retrofitted insulation treatment under the Warm Up New Zealand: Heat Smart program resulted in a statistically significant reduction in metered household energy consumption of almost 2%. Clean heat (heat pump) treatment resulted in increased electricity use but little change in total metered energy use other than at warmer temperatures, when heat pumps may have been used as air conditioners. Actual energy savings from insulation are approximately one-third of the modeled energy savings predicted by an engineering model. Keywords: Energy efficiency, Heat pump, Retrofitted insulation, Take-back effect

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Energy Specializations: Natural Gas – Markets and Prices; Electricity – Markets and Prices ; Energy Investment and Finance – Public and Private Risks, Risk Management; Energy and the Economy –Economic Growth and Energy Demand; Energy Efficiency – Residential and Commercial Buildings; Energy Efficiency

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
D42 - Market Structure, Pricing, and Design: Monopoly
D81 - Criteria for Decision-Making under Risk and Uncertainty
O13 - Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Q59 - Environmental Economics: Other
Q55 - Environmental Economics: Technological Innovation

Keywords: Energy efficiency, Heat pump, Retrofitted insulation, Take-back effect

DOI: 10.5547/01956574.37.4.agri

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Published in Volume 37, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.