What Will Motivate More People to Make Their Homes More Energy Efficient? - Kanebridge News
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What Will Motivate More People to Make Their Homes More Energy Efficient?

Researchers find that certain kinds of financial incentives are more effective than others

By LISA WARD
Fri, Dec 1, 2023 8:57amGrey Clock 5 min

How do you get people to reduce their home’s carbon footprint?

The U.S. government hopes the answer is to appeal to their pocketbooks. As part of the Inflation Reduction Act, the government is rolling out increased federal tax credits and rebates to help offset the cost of energy-efficient upgrades such as electric heat pumps and added insulation, and adoption of clean-energy technologies such as rooftop solar.

But recent research suggests that some financial incentives might be more effective than others when it comes to getting middle- and lower-income consumers to make energy upgrades. Researchers also have found that social pressure can be effective: Consumers notice what their neighbours do, and energy providers might be able to leverage that to get people to make changes, researchers say.

Here is a closer look at what researchers have found that does and doesn’t work:

Money makes a difference—sometimes

One concern about many clean-energy tax credits is that historically they have disproportionately benefited the rich. Researchers say wealthier people are more likely to live in single-family homes, where it is easier to install things like rooftop solar and charge electric cars. It also could be that lower-income families have much lower taxes and thus benefit less from these kinds of tax breaks. So for many households, tax credits don’t talk.

But recent research from Lucas Davis, a professor at the University of California, Berkeley’s Haas School of Business, suggests that one of the enhanced energy tax credits in the Inflation Reduction Act could prove to be an exception to this rule.

In a study published this year, Davis and his co-authors found that 14% of U.S. households have a heat pump as their primary heating equipment, and that adoption levels are remarkably similar across different income levels, and even between homeowners and renters. Heat pumps often cost less than installing separate heating and cooling systems. And states with low electricity prices tend to have more heat-pump users since they cost less to operate in those areas.

Those findings suggest that the federal tax credit for purchasing and installing a heat pump—which increased to $2,000 from $300—has the potential to be more widely distributed across income levels than subsidies for many other low-carbon technologies, says Davis, and consequently get more people to invest in the equipment.

Another recent study looked at residential solar-adoption trajectories and why some communities lag behind others. The authors used satellite imagery and computer vision to capture the year-over-year growth of residential solar panels in 46 states between 2006 and 2017. They then looked at what the federal, state and municipal incentives were in place when the panels were installed.

They found that performance-based incentives—payments made to solar-panel owners based on how much electricity their system generates over a certain period—were associated with higher solar adoption rates in lower-income and middle-income communities than incentives tied to property taxes or rebates paid via lower state or municipal taxes.

In some cases, consumers can benefit from both performance-based incentives and net-metering programs, where homeowners can sell back to the utility any surplus power their solar system produces on sunny days, and use those credits to offset the cost of the power they pull from the grid at night or on cloudy days, resulting in a lower electric bill.

“Performance-based incentives reduce the upfront costs of solar panels for homeowners,” says Ram Rajagopal, an associate professor at Stanford University and one of the paper’s co-authors, explaining that if solar installers collect the performance-based incentives, homeowners can lease the panels at a discounted rate and still get the benefit of saving on their monthly electric bill.

A third recent study, meanwhile, finds that net metering and high electricity are two big factors that correlate with rooftop-solar adoption across the U.S. The authors conclude that anticipated electricity-cost savings could stimulate further solar deployment, especially in areas where people are skeptical about global warming, and should be incorporated into promotional campaigns.

Taken together, the recent studies suggest that when it comes to solar adoption, incentives that provide an immediate financial benefit—say, lower upfront installation costs and savings on electricity bills—could be more motivating to low- and middle-income households than tax credits they have to wait to collect.

Keeping up with the Joneses

Researchers also are examining whether social networks and connections can be leveraged to convince more households to make energy upgrades.

“Social norms and interactions affect people’s behaviour, and alternative energy is no exception,” says Kenneth Gillingham, a professor of economics and senior associate dean at Yale School of the Environment, whose work suggests solar-panel adoptions tend to happen in regional or geographic clusters.

Among Gillingham’s findings are that households are more likely to install solar panels if they can see their neighbours’ solar panels from the road. A forthcoming study of his finds that solar-panel installers are likely to reduce prices for customers whose homes are in centralised locations, since their installation is likely to encourage others to follow suit.

Researchers also are studying if the neighbour effect can be used to recruit households in lower-income communities for state and municipal programs that offer free home-energy audits or subsidised solar-panel installations.

The administrators of such programs often struggle to identify which households are eligible. And potential customers often lack key information, are turned off by the paperwork or don’t trust program providers, says Kim Wolske, a research associate professor at the University of Chicago’s Harris School of Public Policy.

“Even when the energy upgrades are free, past research suggests it can be difficult to recruit lower-income households,” she says.

In a recent study, Wolske and her co-authors asked 7,680 low-income homeowners who recently received free installation of solar panels if they could refer other potential customers.

To identify the best approach, the authors divided homeowners into three groups. The control group received a postcard saying they could get $200 for every referral that signed up for solar panels. The second group received that same offer plus a $1 thank-you gift, designed to remind them of the value of the installed solar panels (about $20,000) and to encourage them to return the kindness by referring another homeowner. The third group received the $200 offer, the $1 gift and a form where three referrals could be made along with a stamped and addressed envelope.

The researchers found that homeowners in the third group, who received the stamped and addressed envelope, were 7.5 times as likely to make referrals than the control group, and those referrals were 5.2 times as likely to result in a new solar contract.

How do you compare?

Energy providers, meanwhile, are testing whether they can nudge homeowners to make energy-efficiency improvements by comparing their energy use with that of neighbours.

Not only do such home-energy reports coax people into changing their behaviour—say, turning off unused lights or turning down the heat—they also encourage people to make energy-efficient updates in their home, like buying Energy Star appliances, research shows.

A study published in 2022 found that energy consumption in homes that received a home-energy report remained low even after utilities stopped sending the reports and the owners sold the home, suggesting that the long-lasting benefits of these programs come from energy-efficient upgrades.

Another study in Southern California looked at the effect of sending home-energy reports and an additional nudge, called a peak energy report. Peak energy reports are automated phone calls or emails, reminding energy customers to reduce energy consumption during peak hours when demand for electricity exceeds supply.

The researchers found that when customers received both the home energy report and the peak-energy nudge, they reduced their electricity consumption on average by about 6.8%. Customers who received just one of the nudges also reduced their consumption but less so.

“Comparing customers provides a reference for energy usage and taps into their social consciousness,” says Robert Metcalfe, an associate professor of economics at the University of Southern California and author of the two studies on nudges.



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Manhattan’s office-vacancy rate climbed to more than 15% this year, a record high. About 80 miles away in Philadelphia, occupancy also is at historically low levels. But a 24-storey office tower located between the two cities has more than doubled its occupancy over the past five years.

Developer American Equity Partners bought the New Jersey office tower, known as 1 Tower Center, for $38 million in 2019. At the time, the 40-year-old building felt dated. It had no gym, tenant lounge or car-charging stations.  The low price enabled the firm to spend more than $20 million overhauling and luring tenants to the 435,000-square-foot property.

Now, the suburban building is nearly fully leased at competitive rents, mopping up tenants from other buildings after the owner added a new lobby, movie theatre, golf simulator, fitness centre and a tenant lounge featuring arcade games and ping-pong tables.

“Our tenants told us what they needed in order to fill up their offices,” said David Elkouby , a co-founder of American Equity, which owns about 4 million square feet of New Jersey office space.

The new owner also liked the location at the 14-acre hotel and conference-centre complex, off the New Jersey Turnpike’s Exit 9 in East Brunswick. The site is a relatively short commute for millions of workers in central New Jersey and is passed by 160,000 vehicles daily.

The property’s turnaround shows how office buildings can thrive even during dismal times for most of the U.S. office market, where vacancies remain much higher than pre pandemic.

Success often requires an ideal location—one that shortens the commute time of employees used to working at home—and the sort of upgrades and amenities companies say are necessary to lure employees back to the workspace.

One Vanderbilt, a deluxe office tower with a Michelin-star chef’s restaurant and plenty of outdoor space in Midtown Manhattan, is fully leased while charging some of the highest rents in the country.

The 11-story Entrada office building, in Culver City, Calif., is making the same formula work on the other coast. It opened two years ago with a sky deck, concierge services and recessed balconies. A restaurant is in the works. The owner said this month that it has signed three of the largest leases in the Los Angeles area this year.

1 Tower Center shows how the strategy can be effective even in less glamorous suburban locations. The tower is prospering while neighbouring buildings that are harder to reach with outdated facilities and poor food options struggle to fill desks even at reduced rents.

The recent interest-rate cut and reports that some big companies such as Amazon .com are re-instituting a five-day office workweek have raised hopes that the office market might be getting closer to turning.

But with more than 900 million square feet of vacant space nationwide and remote work still weighing on office demand, more creditors are seizing properties that are in default on debt payments.

Rates are still much higher than they were when tens of billions of dollars of office loans were made, and much of that debt is now maturing. The recent interest-rate cut doesn’t mean “office-sector woes are now over,” said Ermengarde Jabir, director of economic research for Moody’s commercial real-estate division.

Lenders are dumping distressed properties at steep discounts to what the buildings were worth before the pandemic. Some buyers are trying to compete simply by cutting their rents.

“Most owners don’t have the wherewithal to do what is required,” said Jamie Drummond, the Newmark senior managing director who is 1 Tower Center’s leasing agent. “Owners positioned to highly amenitise their buildings are the ones who are successful.”

HCLTech, a global technology company, illustrates the appeal. It greatly expanded its presence in New Jersey by moving this year to a 40,000-square-foot space designed for its East Coast headquarters at 1 Tower Center.

The India-based company said it was drawn to the building’s amenities and design. That made possible a variety of workspaces for employees, from quiet nooks to an artificial-intelligence lab. “You can’t just open an office and expect [employees] to be there,” said Meenakshi Benjwal , HCLTech’s head of Americas marketing.

HCLTech also liked the location near the homes of its employees and clients in the pharmaceutical, financial-services and other businesses.

Finally, it didn’t hurt that the building is a short drive from nearby MetLife Stadium. The company has a 75-person suite on the 50 yard line where it entertains clients at concerts and National Football League games.

“All of our clients love to fly from distant locations to experience the suite and stadium,” Benjwal said.