Energy Efficiency

, Volume 7, Issue 4, pp 571–590 | Cite as

Looking for free riding: energy efficiency incentives and Italian homeowners

Original Article

Abstract

We examine the effect of energy efficiency incentives on household energy efficiency home improvements. Starting in February 2007, Italian homeowners have been able to avail themselves of tax credits on the purchase and installation costs of certain types of energy efficiency renovations. We examine two such renovations—door/window replacements and heating system replacements—using multi-year cross-section data from the Italian Consumer Expenditure Survey and focusing on a narrow period around the introduction of the tax credits. Our regressions control for dwelling and household characteristics and economy-wide factors likely to influence the replacement rates. The effects of the policy are different for the two types of renovations. With window replacements, the policy is generally associated with a 30 % or stronger increase in the renovation rates and number of renovations. In the simplest econometric models, the effect is not statistically significant, but the results get stronger when we allow for heterogeneous effects across the country. With heating system replacements, simpler models suggest that the tax credits policy had no effect whatsoever or that free riding was rampant, i.e., people are now accepting subsidies for replacements that they would have done anyway. Further examination suggests a strong degree of heterogeneity in the effects across warmer and colder parts of the country, and effects in the colder areas that are even more pronounced than those for window replacements. These results should, however, be interpreted with caution due to the low rates of renovations, which imply that the effects are estimated relatively imprecisely.

Keywords

Energy efficiency policy Household behavior Italy Energy consumption survey 

JEL Classification

Q41 D12 H3 

References

  1. Allaire, M., & Brown, S., (2012). “US energy subsidies: effects on energy markets and carbon emission,” prepared for the Pew Charitable Trusts, http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Fiscal_and_Budget_Policy/EnergySubsidiesFINAL.pdf.
  2. Allcott, H., & Greenstone, M. (2012). Is there an energy efficiency gap? Journal of Economic Perspectives, 26(1), 3–28.CrossRefGoogle Scholar
  3. Auffhammer, M., Blumstein, C., & Fowlie, M. (2008). Demand-side management and energy efficiency revisited. The Energy Journal, 29(3), 91–104.CrossRefGoogle Scholar
  4. Blumstein, C. (2010). Program evaluation and incentives for administrators of energy efficiency programs: can evaluation solve the principal/agent problem? Energy Policy, 38, 6232–6239.CrossRefGoogle Scholar
  5. Boomhower, J., & Davis, L. W. (2013). Free riders and the high cost of energy-efficiency subsidies. Berkeley: University of California. March.Google Scholar
  6. Choi Granade, H. et al. (2009). Unlocking Energy Efficiency in the U.S. Economy, McKinsey Global Energy and Materials, available at http://www.mckinsey.com/en/Client_Service/Electric_Power_and_Natural_Gas/Latest_thinking/Unlocking_energy_efficiency_in_the_US_economy.aspx (last accessed 17 August 2011).
  7. Dubin, J. A., & McFadden, D. (1984). An econometric analysis of residential electric appliance holdings and consumption. Econometrica, 52(2), 345–362.Google Scholar
  8. ENEA (2008). Le detrazioni fiscali del 55 % per la riqualificazione energetica del patrimonio edilizio esistente nel 2007, Rome, Italy. http://efficienzaenergetica.acs.enea.it/doc/rapporto_2007.pdf.
  9. ENEA (2009). Le detrazioni fiscali del 55 % per la riqualificazione energetica del patrimonio edilizio esistente nel 2008, Rome, Italy. http://efficienzaenergetica.acs.enea.it/doc/rapporto_2008.pdf.
  10. ENEA (2010). Le detrazioni fiscali del 55 % per la riqualificazione energetica del patrimonio edilizio esistente nel 2009, Rome, Italy. http://efficienzaenergetica.acs.enea.it/doc/rapporto_2009.pdf.
  11. Evans, W. N., & Schwab, R. (1995). Finishing high school and starting college: do catholic schools make a difference? Quarterly Journal of Economics, CX(4), 941–974.CrossRefGoogle Scholar
  12. Gans, W. L. (2012). The role of prices and information in residential energy consumption and investment behavior. PhD dissertation, University of Maryland, College Park, April.Google Scholar
  13. Gans, W., Alberini, A., & Longo, A. (2013). Smart meter devices and the effect of feedback on residential electricity consumption: evidence from a natural experiment in Northern Ireland. Energy Economics, 36, 729–743.CrossRefGoogle Scholar
  14. Gillingham, K., & Palmer, K. (2013). “Bridging the energy efficiency gap,” Resources for the Future discussion paper 13-02, Washington, DC, January.Google Scholar
  15. Golove, W. H., & Eto, J. H. (1996). Market barriers to energy efficiency: a critical reappraisal of the rationale for public policies to promote energy efficiency. Berkeley: Lawrence Berkeley Laboratory, UC Berkeley.Google Scholar
  16. Grösche, P., & Vance, C. (2009). Willingness-to-pay for energy conservation and free-ridership on subsidization: evidence from Germany. The Energy Journal, 30, 141–160.CrossRefGoogle Scholar
  17. Grösche, P., Schmidt, C. M., & Vance, C. (2013). Identifying free-riding in home-renovation programs using revealed preference data. Journal of Economics and Statistics, 233, 600–618.Google Scholar
  18. Haberl, H., Adensam, H., & Geissler, S. (1998). Optimal climate protection strategies for space heating: the case of Austria. Energy Policy, 26(15), 1125–1135.CrossRefGoogle Scholar
  19. Hartman, R. S. (1988). Self-selection bias in the evaluation of voluntary energy conservation programs. The Review of Economics and Statistics, 70(3), 448–458.Google Scholar
  20. Hassett, K. A., & Metcalf, G. E. (1995). Energy tax credits and residential conservation investment: evidence from panel data. Journal of Public Economics, 57, 201–217.CrossRefGoogle Scholar
  21. Jaffe, A. B., & Stavins, R. N. (1994). The energy efficiency gap. What does it mean? Energy Policy, 22(10), 804–810.CrossRefGoogle Scholar
  22. Joskow, P. L., & Marron, D. B. (1992). What does a megawatt really cost? Evidence from utility conservation programs. The Energy Journal, 13, 41–73.CrossRefGoogle Scholar
  23. Kushler, M., Vine, E., & York, D. (2003). Using energy efficiency to help address electric systems reliability: an initial examination of 2001 experience. Energy, 28, 303–317.CrossRefGoogle Scholar
  24. Levine, M., Ürge-Vorsatz, D., Blok, K., Geng, L., Harvey, D., Lang, S., Levermore, G., Mehlwana, A. M., Mirasgedis, S., Novikova, A., Rilling, J., & Yoshino, H. (2007). “Residential and commercial buildings,” (pp 53–58) in Climate Change 2007.Google Scholar
  25. Loughran, D. S., & Kulik, J. (2004). Demand-side management and energy efficiency in the United States. The Energy Journal, 25(1), 19–43.CrossRefGoogle Scholar
  26. Malm, E. (1996). An action-based estimate of the free-rider fraction in electric utility DSM programs. The Energy Journal, 25, 19–44.Google Scholar
  27. Mansur, E., Mendelsohn, R., & Morrison, W. (2008). Climate change adaptation: a study of fuel choice and consumption in the US. Journal of Environmental Economics and Management, 55(2), 175–193.Google Scholar
  28. Meier, H., & Rehdanz, K. (2010). Determinants of residential space heating expenditures in Great Britain. Energy Economics, 32, 949–959.CrossRefGoogle Scholar
  29. Moulton, B. R. (1990). An illustration of a pitfall in estimating the effect of aggregate variable on micro units. The Review of Economics and Statistics, 72, 334–338.Google Scholar
  30. Shorrock, L. D. (1999). An analysis of the effect of government grants on the uptake of home insulation measures. Energy Policy, 27, 155–171.CrossRefGoogle Scholar
  31. Vine, E. (2003). Opportunities for promoting energy efficiency in buildings as an air quality compliance approach. Energy, 28, 319–341.CrossRefGoogle Scholar
  32. Vine, E., du Pont, P., & Waide, P. (2001). Evaluating the impact of appliance efficiency labeling programs and standards: process, impact, and market transformation evaluations. Energy, 26, 1041–1039.CrossRefGoogle Scholar
  33. Waldman, D. M., & Ozog, M. T. (1996). Natural and incentive-induced conservation in voluntary energy management programs. Southern Economic Journal, 62(4), 1054–1071.Google Scholar
  34. Walsh, M. J. (1989). Energy tax credits and housing improvements. Energy Economics, 11(4), 275–284.CrossRefGoogle Scholar
  35. Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data (2nd ed.). Cambridge: MIT Press.MATHGoogle Scholar
  36. Young, D. (2008). Who pays for the ‘beer fridge’? Evidence from Canada. Energy Policy, 36, 353–560.Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  1. 1.Department of Agricultural and Resource Economics, ARECUniversity of MarylandCollege ParkUSA
  2. 2.Fondazione Eni Enrico MatteiVeniceItaly
  3. 3.CEPE, ETHZurichSwitzerland
  4. 4.Fondazione Eni Enrico MatteiMilanItaly
  5. 5.Euro-Mediterranean Centre for Climate ChangeVeniceItaly
  6. 6.Euro-Mediterranean Centre for Climate ChangeLecceItaly
  7. 7.Queen’s UniversityBelfastNorthern Ireland

Personalised recommendations