Policies to Encourage Home Energy Efficiency Improvements: Comparing Loans, Subsidies, and Standards

Resources for the Future Discussion Paper No. 12-47

34 Pages Posted: 9 Jan 2013

See all articles by Margaret Walls

Margaret Walls

Resources for the Future - Quality of the Environment Division

Date Written: December 6, 2013

Abstract

Residential buildings are responsible for approximately 20 percent of U.S. energy consumption, and single-family homes alone account for about 16 percent. Older homes are less energy efficient than newer ones, and although many experts have identified upgrades and improvements that can yield significant energy savings at relatively low, or even negative, cost, it has proved difficult to spur most homeowners to make these investments. In this study, I analyze the energy and carbon dioxide (CO2) impacts from three policies aimed at improving home energy efficiency: a subsidy for the purchase of efficient space heating, cooling, and water heating equipment; a loan for the same purchases; and efficiency standards for such equipment. I use a version of the U.S. Energy Information Administration’s National Energy Modeling System, NEMS-RFF, to compute the energy and CO2 effects and standard formulas in economics to calculate the welfare costs of the policies. I find that the loan is quite cost-effective but provides only a very small reduction in emissions and energy use. The subsidy and the standard are both more costly but generate emissions reductions seven times larger than the loan. The subsidy promotes consumer adoption of very high-efficiency equipment, whereas the standard leads to purchases of equipment that just reach the standard. The discount rate used to discount energy savings from the policies has a large effect on the welfare cost estimates.

Keywords: energy efficiency, building retrofits, welfare costs, cost-effectiveness

JEL Classification: L94, L95, Q40

Suggested Citation

Walls, Margaret, Policies to Encourage Home Energy Efficiency Improvements: Comparing Loans, Subsidies, and Standards (December 6, 2013). Resources for the Future Discussion Paper No. 12-47, Available at SSRN: https://ssrn.com/abstract=2197992 or http://dx.doi.org/10.2139/ssrn.2197992

Margaret Walls (Contact Author)

Resources for the Future - Quality of the Environment Division ( email )

1616 P Street, NW
Washington, DC 20036
United States

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