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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.

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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


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 cap-and-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
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
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
Residential Energy Consumption Survey
  • 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
“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
Evaluating Alternative Explanations
  • Homeowners have better information about Energy Star
  • Differential Depreciation Rates
  • Omitted Variables
concluding remarks
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.