Policy options for the split incentive: Increasing energy efficiency for low-income renters

http://dx.doi.org/10.1016/j.enpol.2012.05.03  

Abstract:The split incentive problem concerns the lack of appropriate incentives to implement energy efficiency measures. In particular, low income tenants face a phenomenon of energy poverty in which they allocate significantly more of their household income to energy expenditures than other renters. This problem is substantial, affecting 1.89% of all United States' energy use. If effectively addressed, it would create a range of savings between 4 and 11 billion dollars per year for many of the nation's poorest residents. We argue that a carefully designed program of incentives for participants (including landlords) in conjunction with a unique type of utility-managed on-bill financing mechanism has significant potential to solve many of the complications. We focus on three kinds of split incentives, five concerns inherent to addressing split incentive problems (scale, endurance, incentives, savings, political disfavor), and provide a detailed policy proposal designed to surpass those problems, with a particular focus on low-income tenants in a U.S. context.

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Highlights

► We demonstrate the significant impact of the split incentive on low-income tenants.
► We discuss split incentive characteristics, and policy failures.
► We described an on-bill financing model with unique features.
► This policy has protections and incentives for tenants and landlords.
 

Fig. 1. Two examples of an on-bill financing scheme for low-income rental unit(s). 

by Stephen Bird^a, ,and Diana Hernández^{b, 1}  

^a Clarkson University, 8 Clarkson Avenue-5750, Potsdam, NY 13699, United States 

^b Columbia University, 722 West 168th Street, #546, New York, NY 10032, United States 

Energy Policy via Elsevier Science Direct www.ScienceDirect.com

Volume 48, September 2012, Pages 506–514

Keywords: Split incentive; Energy poverty; Energy efficiency