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Policy options for the split incentive: Increasing energy efficiency for low-income renters


The split incentive problem concerns the lack of appropriate incentives to implement energy efficiency measures. In particular, low income tenants face a phenomenon of energy poverty in which they allocate significantly more of their household income to energy expenditures than other renters. This problem is substantial, affecting 1.89% of all United States' energy use. If effectively addressed, it would create a range of savings between 4 and 11 billion dollars per year for many of the nation's poorest residents. We argue that a carefully designed program of incentives for participants (including landlords) in conjunction with a unique type of utility-managed on-bill financing mechanism has significant potential to solve many of the complications. We focus on three kinds of split incentives, five concerns inherent to addressing split incentive problems (scale, endurance, incentives, savings, political disfavor), and provide a detailed policy proposal designed to surpass those problems, with a particular focus on low-income tenants in a U.S. context.