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Energy Efficiency Premium Issues and Revealing the Pure Label Effect

Aras Khazal and Ole Jakob Sonstebo

Year: 2023
Volume: Volume 44
Number: Number 1
DOI: 10.5547/01956574.44.1.akha
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Abstract:
Following the European Union's implementation of Energy Performance Certificates (EPCs) for buildings, the capitalization of energy efficiency in transaction prices and rents has been subject to much research. This paper uses different identification strategies for the Norwegian residential sales (N = 750,000) and rental (N = 670,000) markets to highlight the endogeneity and methodological limitations associated with assessing the price effects of energy efficiency and the signaling effect of label adoption. We find that the valuation of energy efficiency is subject to unobserved location and quality bias, that labeling has immediate, short-run, and long-run price effects and that different effects are observed in different submarkets. We provide evidence that sample selection issues related to location and time, with methodological and data limitations, are essential factors that must be considered when assessing the effects of the EPC implementation.



Energy Performance Certificates and the Capitalization of Utility Costs in Rents: The Potential Role of Asymmetric Information and Uncertainty

Aras Khazal and Ole Jakob Sonstebo

Year: 2024
Volume: Volume 45
Number: Number 1
DOI: 10.5547/01956574.45.1.akha
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Abstract:
This paper is the first to investigate the relationship between the energy efficiency of dwellings, measured by the energy performance certificate (EPC), and utility cost inclusion in rental prices. First, we investigate potential drivers behind the decision to include utility costs in rents. We find that labeled dwellings are more likely to include utility costs and that this likelihood is higher among energy-efficient dwellings than among inefficient dwellings. Next, we surprisingly find that utility costs seem to be under-capitalized in energy-inefficient dwellings. These results are confirmed with the counterfactual decomposition approach. Overall, the findings indicate that the EPC labeling policy may be important for both landlord and tenant decision-making and may enhance market efficiency.





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