Summary:

  • Energy efficiency improvements are central components of several major energy policy initiatives globally and a core pillar of most long-term carbon abatement strategies. However, there is a gap between the uptake of efficiency measures and their perceived attractiveness based on projected costs and benefits.
  • To explore these issues, a research team from the University of Chicago and the University of California, Berkeley, conducted a first-of-its kind field test of one energy efficiency program: the Federal Weatherization Assistance Program. The analysis was based on a randomized controlled trial conducted with a sample of more than 30,000 households in the state of Michigan. Such experiments are considered the gold standard for evidence.
  • The study found that the costs of the energy efficiency investments were about double households’ energy savings. Further, the energy savings projected in advance by engineering calculations are roughly 2.5 times the savings found by the study, underscoring that these models’ results must be validated in the field.
  • Past studies have claimed that energy efficiency investments don’t deliver the expected energy savings because of a ‘rebound effect’: households adjust their behaviors and consume more energy services than they had before the investments were made. However, the study found no evidence that households turned up their thermostats in the winter indicating no evidence of this ‘rebound effect.’
  • Even when accounting for the broader societal benefits of energy efficiency investments, the costs still substantially outweigh the benefits. The average annual rate of return is -9.5 percent when judged from society’s perspective. This finding of low, indeed negative, returns may help explain why energy efficiency investments have low take-up rates. The weatherization upgrades were also found to be expensive ways to cut carbon. The cost per ton of CO2 avoided in the sample amounted to $329, significantly larger than the $38 per ton that the federal government estimates as the social cost of carbon.

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Areas of Focus: Energy Markets
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