Download Presentation - Berkeley Program on Housing and Urban Policy

Evaluating the Slow Adoption of Energy Efficient
Investments: Are Renters Less Likely to Have Energy
Efficient Appliances?
December 2009
Lucas W. Davis
UC – Berkeley
Haas School of Business
Introduction
While public discussion of HR 2454 (the ``Waxman-Markey’’ bill)
has focused on the cap-and-trade program for carbon
emissions, the bill also includes provisions that would tighten
energy efficiency standards for household appliances.
Does it make sense to use standards in conjunction with capand-trade? What is the economic rationale for standards?
Supporters of standards argue that they address additional
market failures that would not be solved by cap-and-trade.
• Principal Agent Problems
• Information Problems
• Positive Externalities from Adoption
• Behavioral Biases
Landlord-Tenant Problem
The principal (the tenant) is hiring the agent (the landlord) to
provide housing services. Problems arise, however, because
the two parties have difference incentives.
Although in theory investments in energy-efficiency could be
passed on in higher rents, it may be difficult for landlords to
effectively convey this information.
The overall magnitude of this market failure may be large.
This Paper
The landlord-tenant problem has been widely discussed.
Blumstein, Krieg, and Schipper (1980); Fisher and Rothkopf (1989); Jaffe
and Stavins (1994); Nadel (2002); Gillingham, Newell and Palmer (2009)
However, the available empirical evidence is very limited.
This paper compares ownership patterns between homeowners
and renters.
Residential Energy Consumption Survey
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Nationally representative, in-home survey
Conducted every 4-5 years by DOE since 1978
Most recent wave 2005
Detailed information about appliances used in home
Demographic characteristics including household income
Accurate information about energy prices and consumption
“Is your refrigerator an energy star appliance?”
• Beginning in 2005 households were asked whether or not their
appliances were “Energy Star”.
• Since 1992, “Energy Star" standards have been established for most
major appliances, designating the most energy efficient appliances
in a particular class.
• The program is voluntary but all major
manufacturers participate and labels are
typically prominently displayed.
• This question was asked for refrigerators,
dishwashers, room air conditioners, and
clothes washers.
Evaluating Alternative Explanations
– Homeowners have better information about Energy Star
– Differential Depreciation Rates
– Omitted Variables
Concluding Remarks
Results provide some empirical support for conventional
wisdom about landlord-tenant problem.
This market failure is difficult to address with policy.
Standards address problem, but are an imperfect tool.
A complementary approach (also imperfect) would be to
provide Energy Star labels for rental units themselves.
This could work well with pending weatherization legislation.