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Policies To Encourage Home Energy Efficiency Improvements: Comparing Loans, Subsidies, and Standards


  • Walls, Margaret

    () (Resources for the Future)


Residential buildings are responsible for approximately 20 percent of U.S. energy consumption, and single-family homes alone account for about 16 percent. Older homes are less energy efficient than newer ones, and although many experts have identified upgrades and improvements that can yield significant energy savings at relatively low, or even negative, cost, it has proved difficult to spur most homeowners to make these investments. In this study, I analyze the energy and carbon dioxide (CO2) impacts from three policies aimed at improving home energy efficiency: a subsidy for the purchase of efficient space heating, cooling, and water heating equipment; a loan for the same purchases; and efficiency standards for such equipment. I use a version of the U.S. Energy Information Administration’s National Energy Modeling System, NEMS-RFF, to compute the energy and CO2 effects and standard formulas in economics to calculate the welfare costs of the policies. I find that the loan is quite cost-effective but provides only a very small reduction in emissions and energy use. The subsidy and the standard are both more costly but generate emissions reductions seven times larger than the loan. The subsidy promotes consumer adoption of very high-efficiency equipment, whereas the standard leads to purchases of equipment that just reach the standard. The discount rate used to discount energy savings from the policies has a large effect on the welfare cost estimates.

Suggested Citation

  • Walls, Margaret, 2012. "Policies To Encourage Home Energy Efficiency Improvements: Comparing Loans, Subsidies, and Standards," Discussion Papers dp-12-47, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-12-47

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    References listed on IDEAS

    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. Hausman, Jerry A & Joskow, Paul L, 1982. "Evaluating the Costs and Benefits of Appliance Efficiency Standards," American Economic Review, American Economic Association, vol. 72(2), pages 220-225, May.
    3. 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.
    4. Harberger, Arnold C, 1971. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, American Economic Association, vol. 9(3), pages 785-797, September.
    5. Richard E, Just & Darrell L. Heuth & Andrew Schmitz, 2004. "The Welfare Economics of Public Policy," Books, Edward Elgar Publishing, number 3342.
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    More about this item


    energy efficiency; building retrofits; welfare costs; cost-effectiveness;

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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