What Drives WTP for Energy Efficiency when Moving? Evidence from a Germany-wide Household Survey

The political discussion on energy efficiency is focusing more and more on the building sector due to its susceptibility to potential market failures. In Germany, for example, about 30% of the total final energy consumption is used in private households, mainly for space and water heating. Hence, this sector contributes to a considerable amount of greenhouse gas emissions which cause negative external environmental effects. As the sector is absent in the European Union Emissions Trading System (EU ETS), well defined and effective policy instruments may help to reduce CO2 emissions and mitigate pollution externalities. Moreover, the landlord/tenant-dilemma provides further sources of economic inefficiencies. Concretely, asymmetric information between sellers/tenants and buyers/hirers on the energy condition of a specific building may lead to adverse selection and thus result in economic welfare losses. Furthermore, incentive problems appear because the German landlord and tenant laws harm permanent shifting of (energy cost reducing) investments on rents. Despite all funding programmes and information campaigns, the demand for energy-efficient technologies in the building sector has not significantly increased yet. According to the German Federal Ministry of Transport, Building and Urban Development, about 75% of the 17 million residential buildings in German had been built before the first Heat Insulation Ordinance was launched in 1977 and most of them have not been redeveloped yet. Between 1989 and 2006 less than 30% of all energy-efficient refurbishment possibilities were realized, notwithstanding a slight increase of the annual refurbishment quota during the last years. Most empirical studies on barriers and drivers for energy efficiency in existing residential buildings focus on preferences of owner-occupiers. Since more than half of German households are tenants, an important research challenge is to extend the identification of possible drivers for energy efficiency in further living conditions. Using a discrete choice approach, this paper aims at deriving factors which increase the willingness to pay (WTP) for energy efficiency in an upcoming move. A multinominal logit model is used to analyse micro data of a survey among German households. The estimation results suggest that the WTP is not mainly determined by socioeconomic attributes like household income or formal education, but rather by environmental concerns and energy awareness. Although there is evidence for similarities to research on WTP for green daily consumer goods, the building sector is not clearly perceived as an essential possibility to contribute to climate protection. The heterogeneity in demand within this sector has important implications for effective policy making. Financial programmes, for example, offered by KfW bank (Reconstruction Loan Corporation) should ensure access to capital markets, minimise information and transaction costs and reduce market asymmetries. Moreover, labelling instruments like the energy pass are useful to reduce asymmetric information between suppliers and demanders.

Kesternich, Martin (2011), What Drives WTP for Energy Efficiency when Moving? Evidence from a Germany-wide Household Survey, ZEW Discussion Paper No. 11-004, Mannheim.