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How do lenders price energy efficiency? Evidence from posted interest rates for unsecured credit in France

Comment les créditeurs valorisent-ils l'efficacité énergétique? Une analyse des taux d'intérêt offerts pour le crédit à la consommation en France

Louis-Gaëtan Giraudet, Anna Petronevich and Laurent Faucheux
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Laurent Faucheux: CIRED - Centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - AgroParisTech - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique

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Abstract: Basic principles of loan pricing predict that the interest rate charged for energy efficiency investment is lower than for conventional investment. We test this hypothesis using a unique dataset of posted interest rates retrieved on a weekly basis from the websites of 15 lending institutions covering the near totality of the French market for unsecured credit. Crucially, our data are immune from sorting bias based on borrower characteristics. We find that the interest rate spread between conventional and energy efficiency investment was negative in 2015 and turned positive in 2016. A similar switch occurred to the spread between home renovation investment and vehicle investment. These results together imply that loans for home energy renovation were consistently charged relatively high interest rates. This can be interpreted as a new barrier to energy efficiency, with adverse consequences for scaling up home energy renovation. One possible explanation is that lenders use project characteristics as a screening device of unobservable borrower characteristics.

Keywords: energy efficiency gap; unsecured loan; home energy retrofit (search for similar items in EconPapers)
Date: 2018-10-08
New Economics Papers: this item is included in nep-ene and nep-reg
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