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

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  • Nicholas Rivers

    (Graduate School of Public and International Affairs, University of Ottawa, Ottawa, ON)

  • Leslie Shiell

    (Department of Economics, University of Ottawa, Ottawa, ON)

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 70 percent of expenditures under the Canadian subsidy and tax credit programs represented free riding. We estimate that the cost effectiveness of the programs in terms of greenhouse gas reduced was at least $100/t CO2, and potentially as high as $800/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, 2014. "Free-Riding on Energy Efficiency Subsidies: the Case of Natural Gas Furnaces in Canada," Working Papers E1404E, University of Ottawa, Department of Economics.
    • Handle: RePEc:ott:wpaper:e1404e
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    Cited by:

    1. Maya Papineau & Nicholas Rivers & Kareman Yassin, 2022. "Estimates of long-run energy savings and realization rates from a large energy efficiency retrofit program," Carleton Economic Papers 22-09, Carleton University, Department of Economics.
    2. Bettina Chlond & Claire Gavard & Lisa Jeuck, 2023. "How to Support Residential Energy Conservation Cost-Effectively? An analysis of Public Financial Schemes in France," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 85(1), pages 29-63, May.
    3. Hongyu Long & Hongyong Liu & Xingwei Li & Longjun Chen, 2020. "An Evolutionary Game Theory Study for Construction and Demolition Waste Recycling Considering Green Development Performance under the Chinese Government’s Reward–Penalty Mechanism," IJERPH, MDPI, vol. 17(17), pages 1-21, August.
    4. Chlond, Bettina & Gavard, Claire & Jeuck, Lisa, 2021. "Supporting residential energy conservation under constrained public budget: Cost-effectiveness and redistribution analysis of public financial schemes in France," ZEW Discussion Papers 21-056, ZEW - Leibniz Centre for European Economic Research.
    5. Schaufele, Brandon, 2021. "Lessons from a utility-sponsored revenue neutral electricity conservation program," Energy Policy, Elsevier, vol. 150(C).
    6. 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.
    7. Hammerle, Mara & Burke, Paul J., 2022. "From natural gas to electric appliances: Energy use and emissions implications in Australian homes," Energy Economics, Elsevier, vol. 110(C).
    8. Singhal, Puja & Pahle, Michael & Kalkuhl, Matthias & Levesque, Antoine & Sommer, Stephan & Berneiser, Jessica, 2022. "Beyond good faith: Why evidence-based policy is necessary to decarbonize buildings cost-effectively in Germany," Energy Policy, Elsevier, vol. 169(C).
    9. Mathilde Fajardy & David Reiner, 2020. "An overview of the electrification of residential and commercial heating and cooling and prospects for decarbonisation," Working Papers EPGR2037, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    10. Xiang, Di & Lawley, Chad, 2019. "The impact of British Columbia's carbon tax on residential natural gas consumption," Energy Economics, Elsevier, vol. 80(C), pages 206-218.
    11. 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.
    12. 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).

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    More about this item

    Keywords

    household energy efficiency; subsidies;

    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

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