Welfare Trade-Offs of Energy-Efficient Homes: Poverty, Environment and Comfort

Abstract

Energy efficiency improvements in low-income housing are increasingly used as a policy instrument to tackle poverty. Our paper shows that targeting the poor comes at the expense of lower environmental benefits. We perform a quasi-experimental evaluation of a large Dutch nationwide residential heating efficiency program. Unlike earlier literature, we examine the income heterogeneity in program effects and derive formally the behavioral mechanisms behind this heterogeneity. Our empirical work follows a sample of 125,000 households during eight years, exploiting a unique conditionally random treatment assignment; the results are then combined with a computable microeconomic choice model. Our findings suggest that the poorest realize one third lower than average energy and environmental savings. This is only partly compensated by the significant comfort gains they realize. We show further that, under the high gas prices that have been observed since 2022, the heating efficiency home upgrades likely generate positive private returns, also for the poor.

Keywords: Energy-efficient homes, Poverty, Quasi-experiment, Consumer choice model, Welfare effects