Home Improvement, Wealth Inequality, and the Energy-Efficiency Paradox

Tinbergen Institute Discussion Paper TI 2024-026/IV

54 Pages Posted: 9 May 2024

See all articles by Martijn Dröes

Martijn Dröes

University of Amsterdam

Yasmine Van der Straten

University of Amsterdam - Amsterdam Business School

Date Written: April 17, 2024

Abstract

This article examines the rate at which different households go green and how this affects the distribution of both wealth and CO2 benefits. Using a unique dataset from the Netherlands, we find that lower-income households are less likely to make their homes more energy efficient. At the same time, higher-income households sort themselves into homes that are already more energy efficient to begin with. Over a 15-year horizon, the combined effect on energy savings accumulates to 17% of median net wealth, with ex ante sorting explaining 65% of this effect. Although a policy that encourages lower-income households to own energy-efficient homes reduces wealth inequality and poverty, it leaves 83% of the potential CO2 benefits unrealized because the brownest households are in the upper part of the income distribution. Our results indicate that there is a policy trade-off between sheltering low-income households against climate risk on the one hand and effectively reducing CO2 emissions on the other.

Keywords: Energy efficiency, home improvement, wealth inequality, CO2 emissions

JEL Classification: D31, Q41, Q43, Q54, R31

Suggested Citation

Dröes, Martijn and Van der Straten, Yasmine, Home Improvement, Wealth Inequality, and the Energy-Efficiency Paradox (April 17, 2024). Tinbergen Institute Discussion Paper TI 2024-026/IV, Available at SSRN: https://ssrn.com/abstract=4805017 or http://dx.doi.org/10.2139/ssrn.4805017

Martijn Dröes

University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Yasmine Van der Straten (Contact Author)

University of Amsterdam - Amsterdam Business School ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

HOME PAGE: http://www.yasminevanderstraten.com

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