The Efficacy of Energy Efficiency: Measuring the Returns to Home Insulation

Abstract

Energy efficiency in the housing market is key in reducing energy consumption and carbon emissions, as well as to enhance national energy independence and protect consumer budgets. Insulation plays an important role in improving the energy efficiency of a home. However, studies of the impact of insulation measures on actual gas consumption are typically based on engineering predictions, and the efficacy of insulation measures is subject to debate. This study exploits a large sample of home insulation interventions, combined with detailed household data on actual gas consumption before and after these interventions, and information on the socioeconomic characteristics of occupants. Using a difference-indifference approach, we document that home insulation reduces gas consumption by about 19%, on average, both for owner-occupied and rental homes. For the latter, the treatment is plausibly exogenous. Importantly, we find strong evidence of persistence: the reduction in gas consumption is consistent up to ten years after the intervention. The average treatment effect translates into a €350 reduction in the annual gas bill, and an average rate of return of 19.9% on the initial investment.

Keywords: energy, carbon emissions, insulation, housing, construction, design, energy efficiency, economics

JEL Classification: Q01, Q31, Q40