The energy efficiency paradox, split-incentives and affordability : the elephants in England's residential sector

The ‘energy efficiency paradox’ poses a significant challenge to the UK Government on three fronts – behavioural failures, agency problems and affordability – inasmuch as failing to address these issues in the residential sector will crucially hinder the nation’s ability to fight against climate change and fuel poverty. This proposition is explored in a three-paper series. \n \nThe first paper investigates the decision-making process leading residential consumers to adopt district-heating technology, a greener alternative to individual heating systems, contained within a specially designed quasi-experimental survey of 784 households. Exploiting the random variation in prices, the paper utilises an ordered probit model to estimate the discount rate implied by the consumers’ preferences. Nesting the neo-classical approach within a behavioural framework, the paper sheds new light on the prevalence of the energy efficiency paradox. \n \nThe second paper explores the split-incentives in heterogeneous landlord-tenant arrangements, which may produce a sub-optimal level of energy efficiency in privately rented housing, from an objective and subjective perspective. The analysis is conducted using Ordinary Least Squares regression, applied to a nationally representative sample of households and housing stock. A pseudo-panel analysis with a fractional response is executed to investigate problems of endogeneity. \n \nUsing the English Housing Survey, the final paper brings together two leading indicators of relative poverty to identify three dimensions of fuel poverty: income-poverty-high-cost, housing-induced-poverty-high-cost and fuel-induced-poverty-high-cost. In doing so an alternative empirical strategy is proposed, utilising a multinomial logit model that helps identify the households most in need of support from energy efficiency schemes. \n \nThis thesis reveals that a largescale deployment of energy efficient technologies will be hampered if policy does not 1) target consumer inattention and heuristic decision making, 2) promote insulation in the private rented sector, while combatting landlords taking advantage of inattention and vulnerability and 3) adopt a more flexible fuel poverty framework that can pinpoint the socio-economic characteristics of those most in need as we move towards a low-carbon, distributed energy market.