Encouraging Private Investment in Energy Efficiency

Abstract

Combating the negative effects of climate change requires finding ways to increase energy production while reducing energy demand. Many states have programs in place to encourage home and business owners to improve the energy efficiency of their buildings. Despite the clear financial and environmental benefits that result from energy efficiency upgrades, most people have not taken advantage of the programs being offered by their states. This paper begins by addressing the structure of federal and state energy efficiency programs, as well as the existing funding for those programs. It then describes key barriers that prevent energy efficiency programs from motivating more people to retrofit their homes and businesses. These barriers can be broken down into problems with the structure of the energy efficiency incentive programs, and problems that result from the behavior of energy consumers. The paper then provides solutions that states and localities can use to overcome some of these barriers. By implementing these solutions, cities and states should see increased participation in their energy efficiency programs. Hopefully, this will result in a greater number of building owners undertaking retrofits, thus decreasing energy demand. However, in order to achieve the deep energy savings necessary to truly combat the negative effects of climate change, it may also be necessary to impose mandates in addition to, or instead of, incentives.

Keywords: climate change, energy efficiency, incentives, mandates, behavior, building, local government

JEL Classification: K11, K23, K32, Q48