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Free riding and rebates for residential energy efficiency upgrades: A multi-country contingent valuation experiment

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  • Olsthoorn, Mark
  • Schleich, Joachim
  • Gassmann, Xavier
  • Faure, Corinne

Abstract

The cost-effectiveness of energy technology upgrade programs critically depends on free riding. This paper assesses ex ante the effects of free riding on the cost-effectiveness of a rebate program that promotes the adoption of energy-efficient heating systems, relying on contingent valuation choice experiments carried out through identical representative surveys in eight EU Members States. The analysis distinguishes between strong and weak free riders: strong free riders already plan to adopt a new heating system in the next five years; weak free riders decide to purchase once propositioned with an attractive technology package (and therefore do not require a rebate to adopt). The reservation rebates for incentivized adopters (those who decide to adopt because of a rebate) differ substantially across countries. On average, they amount to approximately 40% of the heating system's purchasing price, suggesting generally high opportunity costs for premature upgrades. The reservation rebate and weak free-ridership vary with income, risk and time preferences, and environmental identity. At a rebate level that corresponds to half the purchase price of the offered heating system, the estimated share of free riders exceeded 50% for most countries, with a typically higher share of weak free riders than strong free riders. Specific rebate cost estimates (in €/tCO2) differ considerably across countries, suggesting that cooperation can yield budgetary benefits.

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  • Olsthoorn, Mark & Schleich, Joachim & Gassmann, Xavier & Faure, Corinne, 2017. "Free riding and rebates for residential energy efficiency upgrades: A multi-country contingent valuation experiment," Energy Economics, Elsevier, vol. 68(S1), pages 33-44.
  • Handle: RePEc:eee:eneeco:v:68:y:2017:i:s1:p:33-44
    DOI: 10.1016/j.eneco.2018.01.007
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    1. Olsthoorn, Mark & Schleich, Joachim & Wohlfarth, Katharina & Klobasa, Marian, 2019. "How much load flexibility can a euro buy? Findings from a contingent valuation experiment with companies in the German commerce and services sector," Energy Economics, Elsevier, vol. 84(S1).
    2. Florian Knobloch & Hector Pollitt & Unnada Chewpreecha & Vassilis Daioglou & Jean-Francois Mercure, 2017. "Simulating the deep decarbonisation of residential heating for limiting global warming to 1.5C," Papers 1710.11019, arXiv.org, revised May 2018.
    3. Henningsen, Geraldine & Wiese, Catharina, 2019. "Do Household Characteristics Really Matter? A Meta-Analysis on the Determinants of Households’ Energy-Efficiency Investments," MPRA Paper 101701, University Library of Munich, Germany.
    4. Knobloch, Florian & Pollitt, Hector & Chewpreecha, Unnada & Lewney, Richard & Huijbregts, Mark A.J. & Mercure, Jean-Francois, 2021. "FTT:Heat — A simulation model for technological change in the European residential heating sector," Energy Policy, Elsevier, vol. 153(C).
    5. Tu, Gengyang & Faure, Corinne & Schleich, Joachim & Guetlein, Marie-Charlotte, 2021. "The heat is off! The role of technology attributes and individual attitudes in the diffusion of Smart thermostats – findings from a multi-country survey," Technological Forecasting and Social Change, Elsevier, vol. 163(C).
    6. Schleich, Joachim & Faure, Corinne & Meissner, Thomas, 2021. "Adoption of retrofit measures among homeowners in EU countries: The effects of access to capital and debt aversion," Energy Policy, Elsevier, vol. 149(C).
    7. Martin K. Patel & Jean-Sébastien Broc & Haein Cho & Daniel Cabrera & Armin Eberle & Alessandro Federici & Alisa Freyre & Cédric Jeanneret & Kapil Narula & Vlasios Oikonomou & Selin Yilmaz, 2021. "Why We Continue to Need Energy Efficiency Programmes—A Critical Review Based on Experiences in Switzerland and Elsewhere," Energies, MDPI, Open Access Journal, vol. 14(6), pages 1-28, March.
    8. Schleich, Joachim & Faure, Corinne & Guetlein, Marie-Charlotte & Tu, Gengyang, 2020. "Household preferences for new heating systems: Insights from a multi-country discrete choice experiment," Working Papers "Sustainability and Innovation" S05/2020, Fraunhofer Institute for Systems and Innovation Research (ISI).
    9. Andor, Mark A. & Frondel, Manuel & Gerster, Andreas & Sommer, Stephan, 2019. "Cognitive reflection and the valuation of energy efficiency," Energy Economics, Elsevier, vol. 84(S1).
    10. Olsthoorn, Mark & Schleich, Joachim & Wohlfarth, Katharina & Klobasa, Marian, 2018. "How much load flexibility can a euro buy? Findings from a choice experiment with companies in the German commerce and services sector," Working Papers "Sustainability and Innovation" S20/2018, Fraunhofer Institute for Systems and Innovation Research (ISI).
    11. Schleich, Joachim & Faure, Corinne & Meissner, Thomas, 2019. "Adoption of retrofit measures among home-owners in EU countries: The effects of access to capital and debt aversion," Working Papers "Sustainability and Innovation" S08/2019, Fraunhofer Institute for Systems and Innovation Research (ISI).
    12. Collins, Matthew & Curtis, John, 2018. "Willingness-to-pay and free-riding in a national energy efficiency retrofit grant scheme," Energy Policy, Elsevier, vol. 118(C), pages 211-220.
    13. Rana, Anber & Sadiq, Rehan & Alam, M. Shahria & Karunathilake, Hirushie & Hewage, Kasun, 2021. "Evaluation of financial incentives for green buildings in Canadian landscape," Renewable and Sustainable Energy Reviews, Elsevier, vol. 135(C).

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    More about this item

    Keywords

    Free rider; Subsidies; Energy efficiency; Contingent valuation;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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