Looking for free riding: energy efficiency incentives and Italian homeowners
- 479 Downloads
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.
KeywordsEnergy efficiency policy Household behavior Italy Energy consumption survey
JEL ClassificationQ41 D12 H3
The authors are very grateful to Francesco Bosello, Cristina Cattaneo, Roberta Distante, Massimo Filippini, and Elena Verdolini for helpful discussions. We are also grateful to the attendees of the 12th IEAEE congress in Venice, the 5th EMEE workshop in Berlin, and the CEPE seminar series at ETH Zurich, where this paper was presented, for their comments and suggestions. This research was funded by the European Union’s Seventh Framework Programme (FP7/2007–2013) under grant agreement No. 265325 (PURGE—Public health impacts in URban environments of Greenhouse gas Emissions reduction strategies).
- 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.
- Boomhower, J., & Davis, L. W. (2013). Free riders and the high cost of energy-efficiency subsidies. Berkeley: University of California. March.Google Scholar
- 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).
- Dubin, J. A., & McFadden, D. (1984). An econometric analysis of residential electric appliance holdings and consumption. Econometrica, 52(2), 345–362.Google Scholar
- 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.
- 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.
- 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.
- 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
- Gillingham, K., & Palmer, K. (2013). “Bridging the energy efficiency gap,” Resources for the Future discussion paper 13-02, Washington, DC, January.Google Scholar
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- Young, D. (2008). Who pays for the ‘beer fridge’? Evidence from Canada. Energy Policy, 36, 353–560.Google Scholar