Michael Greenstone

This paper sets out a framework to evaluate the welfare impacts of residential energy effi- ciency 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 $0.17 per subsidy dollar spent, both because subsidies are not well-calibrated to currently-estimated externality damages and because of self-selection induced by subsidies that attract households whose par- ticipation 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.

Areas of Focus: Energy Markets
Definition
Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Energy Efficiency
Definition
Energy Efficiency
Improving energy efficiency is lauded as a promising way reduce emissions and lower energy costs. Yet, a robust body of research demonstrates that not all efficiency investments deliver. EPIC faculty...