Do Environmental Benefits Matter? A Choice Experiment Among House Owners in Germany

The residential building sector is a major emitter of the greenhouse gas carbon dioxide (CO2) due to the high energy demand for electricity and heating, particularly in industrialised countries. In Germany, for example, approximately 30 percent of the total energy produced is consumed in residential buildings, with space (74 percent) and water heating (11 percent) dominating. Given the European Union Greenhouse Gas Emission Trading System (EU ETS), decentralised heat generation is of particular relevance for future climate policy. Unlike electricity and district heating, emissions arising from decentralised heat generation are not covered by the EU ETS. Therefore, measures to save heat energy in residential buildings are likely to result in effective CO2 abatement and not just in a shift of emissions. In view of an annual refurbishment rate of approximately one to two percent, there is still considerable energy-saving potential. However, German regulations currently in force mostly prescribe standards, and thus ignore individual preferences. In order to know house owners' preferences on heating and insulation technologies and to learn more about their decisions we conducted a choice experiment concerning energy retrofits for existing houses in Germany. The sample consists solely of owner-occupiers of single-family detached houses, semidetached houses and row houses. In the experiment, participating house owners could either choose a modern heating system or an improved thermal insulation for their house. Unlike previous studies, we explicitly included both cost and environmental benefits of energy-saving measures. In particular, we find environmental benefits to have a significant impact on choices of heating systems. However, they played no role in terms of insulation choices. We further obtain substantial WTP measures for CO2 savings. Therefore, we conclude that house owners are aware of their responsibility and willing to contribute to climate protection. However, there are a lot of uncertainties which hinder investments in energy-efficient technologies in the real world, but which were abstracted in the experiment. Our results suggest that future policies should address the market failure of information asymmetry and reduce related uncertainties as far as possible, rather than implement further and stricter standards.

Achtnicht, Martin (2010), Do Environmental Benefits Matter? A Choice Experiment Among House Owners in Germany, ZEW Discussion Paper No. 10-094, Mannheim.