Residential Energy Efficiency Programs
Introduction
Allcott and Greenstone (2024) study two home retrofit programs in Wisconsin that took place from 2010 to 2013: Green Madison and Milwaukee Energy Efficiency. Both programs were funded through the federal Better Buildings Neighborhood Program as part of the initial 2009 economic stimulus bill. Households were randomized into the treatment group which received a promotional letter advertising a home energy audit as well as a varied additional subsidy amount for this service. The control group did not receive a letter and were only eligible to receive the standard program subsidy. During a home energy audit an “energy consultant” would inspect the home and provide a report with suggested energy efficiency investments (weatherization) and the predicted energy savings from each. After auditing, all households were offered subsidies on the energy efficient investments and elected which, if any, to make.
Allcott and Greenstone (2024) find that while the audit subsidies increased take-up of audits, it had a small and insignificant impact on households’ decisions to invest in weatherization. Allcott and Greenstone (2024) combine this experimental variation with observational variation in household energy use to determine the energy savings from both the audit and retrofit stages of the weatherization. This allows the paper to estimate an MVPF for home energy subsidies.
MVPF = 0.9
Net Cost
The net cost is estimated as the direct cost of the subsidies. The estimate excludes overhead costs including program design, administration, and marketing. The paper estimates a cost of $11.35 in subsidies per household in the population.
Willingness to Pay
The willingness to pay is comprised of the transfer benefits, environmental externality, and loss in producer profits. The paper estimates these components normalized per household in the population.
The paper assumes households believed the predictions of energy savings from weatherization that were communicated in the intervention. This leads to an estimate that households valued the transfer at $10.79 (2013 USD). However, because energy savings fell short of predictions, the paper also estimates an “investment takeup distortion” component of -$0.91 to account for the difference between the perceived utility from estimated savings and the actual utility from realized savings.
The paper estimates an environmental externality from carbon dioxide and local pollutants of $0.87 per household. This comes from a social cost of carbon of $172 (2013 USD) which follows the U.S. EPA (2023) proposal of $190 for 2020.
Finally, the paper estimates that producers lose $0.21 in profits from reduced energy usage.
This leads to a total willingness-to-pay of $10.79 – $0.91 + $0.87 – $0.21 = $10.54.
MVPF Summary
The paper estimates a willingness-to-pay of $10.54 and a government cost of $11.35 which leads to an MVPF of 0.93 for home energy subsidies.
References
Allcott, Hunt and Michael Greenstone (2024). “Measuring the Welfare Effects of Residential Energy Efficiency Programs.” NBER Working Paper 23386. http://www.nber.org/papers/w23386
EPA (U.S. Environmental Protection Agency) (2023). “Report on the Social Cost of Greenhouse
Gases: Estimates Incorporating Recent Scientific Advances.” https://www.epa.gov/system/files/documents/2023-12/epa_scghg_2023_report_final.pdf
Policy Features
- Category
- Environment
- Sub-Category
- Environmental Subsidies
- Beneficiary Type(s)
- Adults
- Country of Implementation
- United States
- Year of Implementation
- 2010
- Empirical Method
- RCT
- Research Type
- Primary
- Peer Reviewed
- No
- MVPF Publication Link
- www.nber.org/papers/w23386