Does the Stick make the Carrot more attractive? State Mandates and Uptake of Renewable Heating Technologies

Command and control regulation is a popular tool for mitigating greenhouse gas emissions from the building stock. We exploit the introduction of a state-specific mandate in Germany on renewable heating when replacing the heating system in existing homes. We study the effect of the mandate on the uptake of subsidies for renewable heating technologies using unique data from a pre-existing federal government subsidy scheme. Using a geographic discontinuity design we find that the mandate has positive effects on take-up of these subsidies with 2 additional subsidized installations per 1000 eligible buildings in the existing building stock on average. Effects are larger in municipalities where adoption rates as measured by the subsidy scheme were below median prior to the introduction of the mandate. However, we also find suggestive evidence that retrofitting activities in the state declined in response to the introduction of the mandate.

Germeshausen, Robert, Kathrine von Graevenitz and Martin Achtnicht (2022), Does the Stick make the Carrot more attractive? State Mandates and Uptake of Renewable Heating Technologies, Regional Science and Urban Economics 92