The Energy Efficiency Gap in the US Building Sector

Join us on April 28 at 3:30 p.m. for this Sustainable Energy Seminar presentation by Christopher Timmins, Professor of Real Estate & Urban Land Economics at UW-Madison.

Abstract

Buildings are responsible for approximately 40% of US energy use (80% in cities), and incorporating energy efficient building techniques is viewed as an important strategy for mitigating carbon emissions. Engineering estimates would suggest that these investments offer a win-win opportunity – providing savings and reducing environmental consequences. There is, however, a perception that developers and homeowners fail to undertake privately profitable investments in energy efficiency when they are readily available. We will discuss the leading theories for why this might happen – imperfect information and inattentiveness, asymmetric information, bounded rationality, and credit constraints. Another possibility is that engineering estimates are systematically overly-optimistic. Much of the research in this area is mixed, but empirical evidence based on causal identification techniques suggests that housing markets do account for energy costs associated with home heating in determining house values. This is important for the success of carbon taxes, tradable carbon credits, and other price-based climate policies. In situations where home buyers and renters of commercial real estate fail to account for the value of energy savings, government policy can play an important role. We will discuss the ways in which building codes, disclosure and certification policies can help to overcome information problems. "Nudges", reference points, and other behavioral policies may also provide low-cost tools to encourage energy efficient investments and practices.