Free riding and rebates for residential energy efficiency upgrades: A multi-country choice experiment

Panel: 6. Buildings policies, directives and programmes

This is a peer-reviewed paper.

Authors:
Mark Olsthoorn, Grenoble Ecole de Management, France
Joachim Schleich, Grenoble Ecole de Management, France
Corinne Faure, Grenoble Ecole de Management, France
Xavier Gassmann, Grenoble Ecole de Management, France

Abstract

The cost effectiveness of programs designed to upgrade energy technologies critically depends on free riding. This paper assesses ex ante the effects of free riding on the cost effectiveness of a rebate program promoting the adoption of energy-efficient heating systems, relying on contingent valuation choice experiments carried out through identical representative surveys in eight EU Members States. The analysis distinguishes between strong and weak free riders: strong free riders plan to adopt a new heating system in the next five years anyway; weak free riders decide to purchase once made aware of an attractive technology package (and therefore would not need a rebate to adopt). The reservation rebates for incentivized adopters (those who decide to adopt because of a rebate) differ substantially across countries and, on average, amount to slightly more than half the heating system’s purchasing price, suggesting generally high opportunity costs for premature upgrading of heating systems. The reservation rebate and weak free ridership vary with income, environmental identity and with risk and time preferences. At a rebate level that corresponds to half the purchase price of the offered heating system, the share of free riders was estimated at 50 percent for most countries, with the share of weak free riders typically higher than that of strong free riders. Specific abatement costs differ considerably across countries, suggesting efficiency gains from cooperation, but they only appear justifiable for high social costs of carbon.