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

Mark Olsthoorn, Joachim Schleich, Xavier Gassmann and Corinne Faure

Energy Economics, 2017, vol. 68, issue S1, 33-44

Abstract: The cost-effectiveness of energy technology upgrade programs critically depends on free riding. This paper assesses ex ante the effects of free riding on the cost-effectiveness of a rebate program that promotes 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 already plan to adopt a new heating system in the next five years; weak free riders decide to purchase once propositioned with an attractive technology package (and therefore do not require a rebate to adopt). The reservation rebates for incentivized adopters (those who decide to adopt because of a rebate) differ substantially across countries. On average, they amount to approximately 40% of the heating system's purchasing price, suggesting generally high opportunity costs for premature upgrades. The reservation rebate and weak free-ridership vary with income, risk and time preferences, and environmental identity. At a rebate level that corresponds to half the purchase price of the offered heating system, the estimated share of free riders exceeded 50% for most countries, with a typically higher share of weak free riders than strong free riders. Specific rebate cost estimates (in €/tCO2) differ considerably across countries, suggesting that cooperation can yield budgetary benefits.

Keywords: Free rider; Subsidies; Energy efficiency; Contingent valuation (search for similar items in EconPapers)
JEL-codes: Q41 Q48 Q51 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/j.eneco.2018.01.007

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