IDEAS home Printed from https://ideas.repec.org/a/sae/enejou/v37y2016i4p239-266.html

Free Riding on Energy Efficiency Subsidies: The Case of Natural Gas Furnaces in Canada

Author

Listed:
  • Nicholas Rivers
  • Leslie Shiell

Abstract

We assess the extent to which subsidies for home energy efficiency improvements in Canada have been paid to households that would have undertaken the improvements anyway—the so-called free rider rate. We focus on forced-air natural gas furnaces, replaced between April 1, 2007 and March 31, 2011, under both federal and provincial subsidy programs as well as the 2009 federal Home Renovation Tax Credit. Our results indicate that around 50 percent of expenditures under the Canadian subsidy and tax credit programs represented free riding. In the long run, our estimates suggest that over 80 percent of grant recipients would have chosen an identical furnace at the time of replacement. We estimate that the cost effectiveness of the programs in terms of greenhouse gas reduced was between $70 and $110/t CO2, depending on the assumptions made. Further, we find that a substantial majority of the grants were received by middle- and high-income households, such that the grant had a regressive effect on the distribution of income. We conclude that such grants are not an optimal way to improve residential energy efficiency.

Suggested Citation

  • Nicholas Rivers & Leslie Shiell, 2016. "Free Riding on Energy Efficiency Subsidies: The Case of Natural Gas Furnaces in Canada," The Energy Journal, , vol. 37(4), pages 239-266, October.
    • Handle: RePEc:sae:enejou:v:37:y:2016:i:4:p:239-266
    DOI: 10.5547/01956574.37.4.nriv
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.5547/01956574.37.4.nriv
    Download Restriction: no
    File URL: https://libkey.io/10.5547/01956574.37.4.nriv?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kenneth Gillingham & Richard G. Newell & Karen Palmer, 2009. "Energy Efficiency Economics and Policy," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 597-620, September.
    2. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, January.
    3. Jerry A. Hausman, 1979. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 33-54, Spring.
    4. Grösche, Peter & Schmidt, Christoph M. & Vance, Colin, 2009. "Identifying Free-Riding in Energy-Conservation Programs Using Revealed Preference Data," Ruhr Economic Papers 99, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. David Revelt & Kenneth Train, 1998. "Mixed Logit With Repeated Choices: Households' Choices Of Appliance Efficiency Level," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 647-657, November.
    6. repec:aen:journl:1995v16-01-a04 is not listed on IDEAS
    7. Hartman, Raymond S, 1988. "Self-Selection Bias in the Evaluation of Voluntary Energy Conservation Programs," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 448-458, August.
    8. Hunt Allcott & Michael Greenstone, 2012. "Is There an Energy Efficiency Gap?," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 3-28, Winter.
    9. Train, Kenneth, 1985. "Discount rates in consumers' energy-related decisions: A review of the literature," Energy, Elsevier, vol. 10(12), pages 1243-1253.
    10. Goto, Hisanori & Goto, Mika & Sueyoshi, Toshiyuki, 2011. "Consumer choice on ecologically efficient water heaters: Marketing strategy and policy implications in Japan," Energy Economics, Elsevier, vol. 33(2), pages 195-208, March.
    11. Vaage, Kjell, 2000. "Heating technology and energy use: a discrete/continuous choice approach to Norwegian household energy demand," Energy Economics, Elsevier, vol. 22(6), pages 649-666, December.
    12. Manski, Charles F & Lerman, Steven R, 1977. "The Estimation of Choice Probabilities from Choice Based Samples," Econometrica, Econometric Society, vol. 45(8), pages 1977-1988, November.
    13. A. Greening, Lorna & Greene, David L. & Difiglio, Carmen, 2000. "Energy efficiency and consumption -- the rebound effect -- a survey," Energy Policy, Elsevier, vol. 28(6-7), pages 389-401, June.
    14. Kenneth Gillingham & Karen Palmer, 2014. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 18-38, January.
    15. Cameron, Trudy Ann, 1985. "A Nested Logit Model of Energy Conservation Activity by Owners of Existing Single Family Dwellings," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 205-211, May.
    16. repec:aen:journl:2009v30-02-a07 is not listed on IDEAS
    17. Peter Grösche & Christoph M. Schmidt & Colin Vance, 2009. "Identifying Free-Riding in Energy-Conservation Programs Using Revealed Preference Data," Ruhr Economic Papers 0099, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lauren Giandomenico & Maya Papineau & Nicholas Rivers, 2022. "A Systematic Review of Energy Efficiency Home Retrofit Evaluation Studies," Annual Review of Resource Economics, Annual Reviews, vol. 14(1), pages 689-708, October.
    2. Papineau, Maya & Rivers, Nicholas & Yassin, Kareman, 2025. "Household benefits from energy efficiency retrofits: Implications for net zero housing policy," Energy Economics, Elsevier, vol. 143(C).
    3. Benjamin Dachis, 2018. "Fiscal Soundness and Economic Growth: An Economic Program for Ontario," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 505, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:aen:journl:ej37-4-shiell is not listed on IDEAS
    2. Li, Jia & Just, Richard E., 2018. "Modeling household energy consumption and adoption of energy efficient technology," Energy Economics, Elsevier, vol. 72(C), pages 404-415.
    3. Wasi, Nada & Carson, Richard T., 2013. "The influence of rebate programs on the demand for water heaters: The case of New South Wales," Energy Economics, Elsevier, vol. 40(C), pages 645-656.
    4. Samdruk Dharshing & Stefanie Lena Hille, 2017. "The Energy Paradox Revisited: Analyzing the Role of Individual Differences and Framing Effects in Information Perception," Journal of Consumer Policy, Springer, vol. 40(4), pages 485-508, December.
    5. Fischbacher, Urs & Schudy, Simeon & Teyssier, Sabrina, 2021. "Heterogeneous preferences and investments in energy saving measures," Resource and Energy Economics, Elsevier, vol. 63(C).
    6. Stefanie Heinzle, 2012. "Disclosure of Energy Operating Cost Information: A Silver Bullet for Overcoming the Energy-Efficiency Gap?," Journal of Consumer Policy, Springer, vol. 35(1), pages 43-64, March.
    7. Louis-Gaëtan Giraudet & S. Houde, 2013. "Double moral hazard and the energy efficiency gap," Post-Print hal-00799725, HAL.
    8. Schueftan, Alejandra & Aravena, Claudia & Reyes, René, 2021. "Financing energy efficiency retrofits in Chilean households: The role of financial instruments, savings and uncertainty in energy transition," Resource and Energy Economics, Elsevier, vol. 66(C).
    9. Andersen, Kristoffer Steen & Wiese, Catharina & Petrovic, Stefan & McKenna, Russell, 2020. "Exploring the role of households’ hurdle rates and demand elasticities in meeting Danish energy-savings target," Energy Policy, Elsevier, vol. 146(C).
    10. Giraudet, Louis-Gaëtan, 2020. "Energy efficiency as a credence good: A review of informational barriers to energy savings in the building sector," Energy Economics, Elsevier, vol. 87(C).
    11. Louis-Gaëtan Giraudet & Antoine Missemer, 2023. "The History of Energy Efficiency in Economics: Breakpoints and Regularities," Post-Print halshs-02301636, HAL.
    12. Fran�ois Cohen & Matthieu Glachant & Magnus S�derberg, 2015. "The impact of energy prices on energy efficiency: Evidence from the UK refrigerator market," GRI Working Papers 179, Grantham Research Institute on Climate Change and the Environment.
    13. Schleich, Joachim & Gassmann, Xavier & Faure, Corinne & Meissner, Thomas, 2016. "Making the implicit explicit: A look inside the implicit discount rate," Energy Policy, Elsevier, vol. 97(C), pages 321-331.
    14. Louis-Gaëtan Giraudet & Sébastien Houde, 2015. "Double Moral Hazard and the Energy Efficiency Gap," Working Papers hal-01260907, HAL.
    15. Carrasco-Garcés, Moisés & Vásquez-Lavín, Felipe & Ponce Oliva, Roberto D. & Diaz Pincheira, Francisco & Barrientos, Manuel, 2021. "Estimating the implicit discount rate for new technology adoption of wood-burning stoves," Energy Policy, Elsevier, vol. 156(C).
    16. 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.
    17. Louis-Gaëtan Giraudet, 2018. "Energy efficiency as a credence good: A review of informational barriers to building energy savings," Working Papers 2018.07, FAERE - French Association of Environmental and Resource Economists.
    18. Richard G. Newell & Juha Siikamäki, 2014. "Nudging Energy Efficiency Behavior: The Role of Information Labels," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(4), pages 555-598.
    19. Louis-Gaëtan Giraudet & Sébastien Houde & Joseph Maher, 2018. "Moral Hazard and the Energy Efficiency Gap: Theory and Evidence," Working Papers hal-01420872, HAL.
    20. Aydin, Erdal, 2016. "Energy conservation in the residential sector : The role of policy and market forces," Other publications TiSEM b9cedba8-1310-4097-90fb-b, Tilburg University, School of Economics and Management.
    21. Mitsutsugu Hamamoto, 2023. "Estimating consumers’ discount rates in energy-saving investment decisions: a comparison of revealed and stated approaches," SN Business & Economics, Springer, vol. 3(7), pages 1-19, July.

    More about this item

    Keywords

    ;
    ;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:enejou:v:37:y:2016:i:4:p:239-266. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.