Measuring the Welfare Effects of Residential Energy Efficiency Programs
This paper sets out a framework to evaluate the welfare impacts of residential energy efficiency programs in the presence of imperfect information, behavioral biases, and externalities, then estimates key parameters using a 100,000-household field experiment. Several results run counter to conventional wisdom: we find no evidence of informational or behavioral failures thought to reduce program participation, there are large unobserved benefits and costs that traditional evaluations miss, and realized energy savings are only 58 percent of predictions. In the context of the model, the two programs we study reduce social welfare by $0.18 per subsidy dollar spent, both because subsidies are not well-calibrated to estimated externality damages and because of self-selection induced by subsidies that attract households whose participation generates low social value. However, the model predicts that perfectly calibrated subsidies would increase welfare by $2.53 per subsidy dollar, revealing the potential of energy efficiency programs.
We are grateful to Lucas Davis, Amy Finkelstein, Stephen Holland, Pat Kline, Chris Knittel, Nick Kuminoff, Erin Mansur, Magne Mogstad, Nick Muller, Devin Pope, Jim Sallee, Andy Yates, and seminar participants at the 2016 AEA Annual Meeting, Berkeley, Chicago, Georgetown, Harvard, HBS, HKS, the 2015 NBER Summer Institute, Stanford, UCLA, University of Connecticut, the University of North Carolina, and Yale for helpful feedback, to K.V.S. Vinay for dedicated research management, to Harshil Sahai for superb research assistance, to Monica Curtis, Amy Wollangk, and others at the Wisconsin Energy Conservation Corporation for implementation and technical information, to Michael Blasnik, Michael Heaney, Dale Hoffmeyer, Jane Peters, Greg Thomas, and Ed Vine for technical information, and to the MacArthur Foundation for financial support. Code to replicate the analysis is available from https://sites.google.com/site/allcott/research. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
I attest that I have read the NBER disclosure policy and as part of a diversified portfolio, I hold more than $10,000 in stocks and bonds of various companies including those within the energy sector.