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Individual metering and charging in rental housing: creating the right incentives for energy saving?
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management, Building and Real Estate Economics.ORCID iD: 0000-0003-2736-5176
2011 (English)Report (Other academic)
Abstract [en]

 Changing user behavior by individually metering and charging tenants for their use of heating and hot water has been put forward as a means to reduce energy consumption in the building sector. This would give the tenant incentives to save energy, but at the same time weakens the landlord’s incentives for improving energy efficiency in the building, since she is no longer responsible for energy costs. These split incentives problems should be possible to avoid if there is a net gain from improving energy efficiency and/or installing individual metering that could be shared between the parties.

The aim of this article is to problematize the concept of individual metering, to show through simulations that there are ways to avoid the split incentives problem involved, and to show that it should be possible to design contracts that give both landlord and tenant incentives to save energy.

The results indicate that few energy efficiency investments will manage to bear their own investment costs, given how low the present value of the energy savings is at given energy prices. The results also show how split incentives may hinder the energy efficiency investments, but that there are conditions under which such investments and/or individual metering may increase welfare for landlord, tenant or both. Without negotiations this gain will not be reached, but through co-operation this welfare gain could be split which would benefit both landlord and tenant and this should be considered when designing contracts. Finally the findings highlight the importance to take into account the interaction of different means to save energy to avoid over-investment.

Place, publisher, year, edition, pages
2011. , 26 p.
Keyword [en]
split incentives, individual metering, incentives for energy efficiency, energy savings, principal-agent problem
National Category
Economics and Business
URN: urn:nbn:se:kth:diva-35451OAI: diva2:428469
Available from: 2011-06-30 Created: 2011-06-30 Last updated: 2011-06-30Bibliographically approved
In thesis
1. Incentives for energy efficiency measures in post-war multi-family dwellings
Open this publication in new window or tab >>Incentives for energy efficiency measures in post-war multi-family dwellings
2011 (English)Licentiate thesis, comprehensive summary (Other academic)
Abstract [en]

Energy efficiency is an important question to society as well as to individuals and firms. Improving energy efficiency in the building sector is considered an important means to climate mitigation. For real estate owners energy is also a central expenditure item and reducing energy consumption may directly reduce operation costs while at the same time serve as insurance against future energy price increases. Since new buildings only add a few percent annually to the building stock, the potential to reduce total energy consumption primarily lies within the existing building stock. The building stock is ageing and the post-war part of the stock that is in need of renovation is growing. This has been suggested as a window of opportunity to improve energy efficiency, but so far the results have been few. Several factors have been put forward to explain the so called energy efficiency gap – the difference between actual and optimal energy efficiency – one of which is split incentives. What adds to complexity in this case is that distinct differences have been observed in the level of ambition between the real estate companies that have renovated so far. Some companies have undertaken extensive renovation and energy efficiency measures, whereas other companies have done little more than urgent maintenance measures. It seems that real estate owners in general don´t have strong economic incentives to improve energy efficiency in connection to renovation – but what can then explain the differences between strategies?

This licentiate thesis examines the incentives among real estate owners to improve energy efficiency, particularly in post-war, multi-family buildings in need of renovation. The purpose is to add knowledge about decisions concerning measures that improve energy efficiency - in terms of incentives, barriers and different motives for real estate owners’ strategies and actions.

Results show that real estate owners lack strong economic incentives to invest in energy efficiency in multi-family buildings and the level of investment is dependent on the different motivations, grouped in three levels of ambition, that real estate companies have. One important conclusion is that the heterogeneity between companies that was exposed in the interviews and survey implies that they will not respond similarly to policy stimuli. The heterogeneity should thus be considered when designing policy measures so that public and company resources can be allocated as efficiently as possible, as there are many challenges facing owners of post-war residential buildings. Another conclusion is that from an economic point of view it is important to take the interaction between different measures into account, e.g. between physical measures and measures focusing on changing household behavior.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2011. 99 p.
, Trita-FOB-LIC, 2011:3
energy efficiency, housing companies, sustainable renovation, residential buildings, split incentives
National Category
Economics and Business
urn:nbn:se:kth:diva-35259 (URN)978-91-978692-7-0 (ISBN)
2011-06-13, L1, Drottning Kristinas väg 30, KTH, Stockholm, 11:41 (Swedish)
QC 20110630Available from: 2011-06-30 Created: 2011-06-23 Last updated: 2011-11-10Bibliographically approved

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