What Will Motivate More People to Make Their Homes More Energy Efficient?
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What Will Motivate More People to Make Their Homes More Energy Efficient?

Researchers find that certain kinds of financial incentives are more effective than others

By LISA WARD
Fri, Dec 1, 2023 8:50amGrey Clock 5 min

How do you get people to reduce their home’s carbon footprint?

The U.S. government hopes the answer is to appeal to their pocketbooks. As part of the Inflation Reduction Act, the government is rolling out increased federal tax credits and rebates to help offset the cost of energy-efficient upgrades such as electric heat pumps and added insulation, and adoption of clean-energy technologies such as rooftop solar.

But recent research suggests that some financial incentives might be more effective than others when it comes to getting middle- and lower-income consumers to make energy upgrades. Researchers also have found that social pressure can be effective: Consumers notice what their neighbors do, and energy providers might be able to leverage that to get people to make changes, researchers say.

Here is a closer look at what researchers have found that does and doesn’t work:

Money makes a difference—sometimes

One concern about many clean-energy tax credits is that historically they have disproportionately benefited the rich. Researchers say wealthier people are more likely to live in single-family homes, where it is easier to install things like rooftop solar and charge electric cars. It also could be that lower-income families have much lower taxes and thus benefit less from these kinds of tax breaks. So for many households, tax credits don’t talk.

But recent research from Lucas Davis, a professor at the University of California, Berkeley’s Haas School of Business, suggests that one of the enhanced energy tax credits in the Inflation Reduction Act could prove to be an exception to this rule.

In a study published this year, Davis and his co-authors found that 14% of U.S. households have a heat pump as their primary heating equipment, and that adoption levels are remarkably similar across different income levels, and even between homeowners and renters. Heat pumps often cost less than installing separate heating and cooling systems. And states with low electricity prices tend to have more heat-pump users since they cost less to operate in those areas.

Those findings suggest that the federal tax credit for purchasing and installing a heat pump—which increased to $2,000 from $300—has the potential to be more widely distributed across income levels than subsidies for many other low-carbon technologies, says Davis, and consequently get more people to invest in the equipment.

Another recent study looked at residential solar-adoption trajectories and why some communities lag behind others. The authors used satellite imagery and computer vision to capture the year-over-year growth of residential solar panels in 46 states between 2006 and 2017. They then looked at what the federal, state and municipal incentives were in place when the panels were installed.

They found that performance-based incentives—payments made to solar-panel owners based on how much electricity their system generates over a certain period—were associated with higher solar adoption rates in lower-income and middle-income communities than incentives tied to property taxes or rebates paid via lower state or municipal taxes.

In some cases, consumers can benefit from both performance-based incentives and net-metering programs, where homeowners can sell back to the utility any surplus power their solar system produces on sunny days, and use those credits to offset the cost of the power they pull from the grid at night or on cloudy days, resulting in a lower electric bill.

“Performance-based incentives reduce the upfront costs of solar panels for homeowners,” says Ram Rajagopal, an associate professor at Stanford University and one of the paper’s co-authors, explaining that if solar installers collect the performance-based incentives, homeowners can lease the panels at a discounted rate and still get the benefit of saving on their monthly electric bill.

A third recent study, meanwhile, finds that net metering and high electricity are two big factors that correlate with rooftop-solar adoption across the U.S. The authors conclude that anticipated electricity-cost savings could stimulate further solar deployment, especially in areas where people are skeptical about global warming, and should be incorporated into promotional campaigns.

Taken together, the recent studies suggest that when it comes to solar adoption, incentives that provide an immediate financial benefit—say, lower upfront installation costs and savings on electricity bills—could be more motivating to low- and middle-income households than tax credits they have to wait to collect.

Keeping up with the Joneses

Researchers also are examining whether social networks and connections can be leveraged to convince more households to make energy upgrades.

“Social norms and interactions affect people’s behaviour, and alternative energy is no exception,” says Kenneth Gillingham, a professor of economics and senior associate dean at Yale School of the Environment, whose work suggests solar-panel adoptions tend to happen in regional or geographic clusters.

Among Gillingham’s findings are that households are more likely to install solar panels if they can see their neighbours’ solar panels from the road. A forthcoming study of his finds that solar-panel installers are likely to reduce prices for customers whose homes are in centralised locations, since their installation is likely to encourage others to follow suit.

Researchers also are studying if the neighbour effect can be used to recruit households in lower-income communities for state and municipal programs that offer free home-energy audits or subsidised solar-panel installations.

The administrators of such programs often struggle to identify which households are eligible. And potential customers often lack key information, are turned off by the paperwork or don’t trust program providers, says Kim Wolske, a research associate professor at the University of Chicago’s Harris School of Public Policy.

“Even when the energy upgrades are free, past research suggests it can be difficult to recruit lower-income households,” she says.

In a recent study, Wolske and her co-authors asked 7,680 low-income homeowners who recently received free installation of solar panels if they could refer other potential customers.

To identify the best approach, the authors divided homeowners into three groups. The control group received a postcard saying they could get $200 for every referral that signed up for solar panels. The second group received that same offer plus a $1 thank-you gift, designed to remind them of the value of the installed solar panels (about $20,000) and to encourage them to return the kindness by referring another homeowner. The third group received the $200 offer, the $1 gift and a form where three referrals could be made along with a stamped and addressed envelope.

The researchers found that homeowners in the third group, who received the stamped and addressed envelope, were 7.5 times as likely to make referrals than the control group, and those referrals were 5.2 times as likely to result in a new solar contract.

How do you compare?

Energy providers, meanwhile, are testing whether they can nudge homeowners to make energy-efficiency improvements by comparing their energy use with that of neighbours.

Not only do such home-energy reports coax people into changing their behavior—say, turning off unused lights or turning down the heat—they also encourage people to make energy-efficient updates in their home, like buying Energy Star appliances, research shows.

A study published in 2022 found that energy consumption in homes that received a home-energy report remained low even after utilities stopped sending the reports and the owners sold the home, suggesting that the long-lasting benefits of these programs come from energy-efficient upgrades.

Another study in Southern California looked at the effect of sending home-energy reports and an additional nudge, called a peak energy report. Peak energy reports are automated phone calls or emails, reminding energy customers to reduce energy consumption during peak hours when demand for electricity exceeds supply.

The researchers found that when customers received both the home energy report and the peak-energy nudge, they reduced their electricity consumption on average by about 6.8%. Customers who received just one of the nudges also reduced their consumption but less so.

“Comparing customers provides a reference for energy usage and taps into their social consciousness,” says Robert Metcalfe, an associate professor of economics at the University of Southern California and author of the two studies on nudges.



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Hong Kong Takes Drastic Action to Avert Property Slump

The city’s real-estate market has been hurt by high interest rates and mainland China’s economic slowdown

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Hong Kong has taken a bold step to ease a real-estate slump, scrapping a series of property taxes in an effort to turn around a market that is often seen as a proxy for the city’s beleaguered economy.

The government has removed longstanding property taxes that were imposed on nonpermanent residents, those buying a second home, or people reselling a property within two years after buying, Financial Secretary Paul Chan said in his annual budget speech on Wednesday.

The move is an attempt to revive a property market that is still one of the most expensive in the world, but that has been badly shaken by social unrest, the fallout of the government’s strict approach to containing Covid-19 and the slowdown of China’s economy . Hong Kong’s high interest rates, which track U.S. rates due to its currency peg,  have increased the pressure .

The decision to ease the tax burden could encourage more buying from people in mainland China, who have been a driving force in Hong Kong’s property market for years. Chinese tycoons, squeezed by problems at home, have  in some cases become forced sellers  of Hong Kong real estate—dealing major damage to the luxury segment.

Hong Kong’s super luxury homes  have lost more than a quarter of their value  since the middle of 2022.

The additional taxes were introduced in a series of announcements starting in 2010, when the government was focused on cooling down soaring home prices that had made Hong Kong one of the world’s least affordable property markets. They are all in the form of stamp duty, a tax imposed on property sales.

“The relevant measures are no longer necessary amidst the current economic and market conditions,” Chan said.

The tax cuts will lead to more buying and support prices in the coming months, said Eddie Kwok, senior director of valuation and advisory services at CBRE Hong Kong, a property consultant. But in the longer term, the market will remain sensitive to the level of interest rates and developers may still need to lower their prices to attract demand thanks to a stockpile of new homes, he said.

Hong Kong’s authorities had already relaxed rules last year to help revive the market, allowing home buyers to pay less upfront when buying certain properties, and cutting by half the taxes for those buying a second property and for home purchases by foreigners. By the end of 2023, the price index for private homes reached a seven-year low, according to Hong Kong’s Rating and Valuation Department.

The city’s monetary authority relaxed mortgage rules further on Wednesday, allowing potential buyers to borrow more for homes valued at around $4 million.

The shares of Hong Kong’s property developers jumped after the announcement, defying a selloff in the wider market. New World Development , Sun Hung Kai Properties and Henderson Land Development were higher in afternoon trading, clawing back some of their losses from a slide in their stock prices this year.

The city’s budget deficit will widen to about $13 billion in the coming fiscal year, which starts on April 1. That is larger than expected, Chan said. Revenues from land sales and leases, an important source of government income, will fall to about $2.5 billion, about $8.4 billion lower than the original estimate and far lower than the previous year, according to Chan.

The sweeping property measures are part of broader plans by Hong Kong’s government to prop up the city amid competition from Singapore and elsewhere. Stringent pandemic controls and anxieties about Beijing’s political crackdown led to  an exodus of local residents and foreigners  from the Asian financial centre.

But tens of thousands of Chinese nationals have arrived in the past year, the result of Hong Kong  rolling out new visa rules aimed at luring talent in 2022.

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