Split Incentives Research Articles

Split Incentives in Emerging Countries

Split Incentives in Emerging Countries

INCENTIVIZING LANDLORD ENGAGEMENT IN A CLEAN ENERGY TRANSITION IN NOVA SCOTIA, CANADA: A CASE STUDY OF ENERGIZE BRIDGEWATER

ABSTRACT Split incentives, in which the costs and benefits of energy efficiency upgrades are unevenly felt between landlords and tenants, are a powerful barrier that prevents retrofits from taking place. The problem is clearly playing out across the low-income, and inefficient homes of Bridgewater, Nova Scotia, Canada, where greenhouse emissions are high, and a large proportion of residents are burdened by energy poverty. To help solve the problem and facilitate home energy efficiency renovations, a project called Energize Bridgewater was developed. Guided by 10 semi-structured interviews with Energize Bridgewater team members (n = 4) and property managers (n = 6), we present a case study which sought to contextualize and better understand how Energize Bridgewater may incentivize owners of rental houses to participate in this clean energy transition. Our results focus on three main findings: i) the reality of the split incentive problem in Bridgewater; ii) barriers to landlord engagement; and iii) reactions to proposed programming. We close this paper with a discussion of the theoretical and practical implications of our work, including a set of recommendations for Energize Bridgewater and similar projects facing the split incentive problem while working toward a clean and cost-effective energy transition.

Reducing e-waste in Europe: Examining the impact of environmental and financial literacy on the premature replacement of appliances across owner-occupier and rental residential properties using the EVIDENT serious game

AimAs premature replacement of residential appliances drives rising e-waste levels in Europe, analysis of the factors impacting consumer decision-making when faced with opportunities to extend (repair) or reduce appliance lifespans (premature replacement) is needed. This manuscript seeks to explore the impact of environmental and financial literacy on consumer willingness to seek repair of home appliances (over replacement) across owner-occupier and rental properties. The impact of financial salience within the informational frames of these decisions is also explored. MethodAn online discrete choice experiment was conducted using the EVIDENT serious game, a life-simulation game in which players manage a virtual home and face energy decisions. Participants (n = 1056) completed a series of 3 choice experiments exploring repair/replace decision-making and willingness to pay for repair. Prior to the game, measures of environmental literacy, financial literacy, household type, and sociodemographic factors were obtained using a pre-game survey. For rental properties, a further stated preference experiment was conducted to determine the impact of financial incentives on willingness to invest in more efficient appliances for both landlords and tenants. ResultsWhile an overall willingness to seek repair for broken home appliances was found, most participants selected to prematurely replace their broken appliance with a more efficient alternative. Participants aged over 51 were significantly less likely to choose a repair (p < .001), while those in non-full-time employment more likely to select a repair (p < .001). Limited impact of environmental and financial literacy on repair/replace decision-making was found, though financial knowledge, environmental knowledge, and environmental skills were associated with willingness to pay for repair. Willingness towards repair in rental properties (landlords and tenants) was found with tenants willing to pay 34–71.3 % more than homeowners for repair and landlords willing to pay 93.3–108.8 % more depending on the appliance. Mixed impacts of financial incentives in rental properties to surmount impacts of split incentives were found. While 86.6 % of landlords were willing to accept a small fee from tenants towards a more efficient appliances, 65.2 % of tenants were unwilling to pay such a fee. ConclusionResults cast light on the specific impacts of individual financial and environmental literacy, demographic factors, and residence type on early replacement decisions, providing valuable direction for future policy actions.

Is the split incentive problem worse for college student renters: an analysis of landlord self-reported and hypothetical choices?

Is the split incentive problem worse for college student renters: an analysis of landlord self-reported and hypothetical choices?

Adoption of energy-efficiency measures by Australian low-income households

Increasing the adoption of energy-efficiency measures (EEM) by households is one of the practical strategies to increase energy efficiency and reduce greenhouse gas emissions. For the 3.24 million low-income households in Australia, partly due to their potentially disproportionately large waste of usable energy, there is a gap between the potential for energy efficiency through existing EEM and the actual energy-efficiency level. Many measures increase energy efficiency in buildings; however, barriers persist for such households to adopt these measures, of which limited research has yet to be conducted. In response, this study examines the relationships involved by a questionnaire survey of 212 low-income households in Australia, showing that financial barriers have the greatest influence followed by split incentive barriers, with the provision of information having no significant role to play. This paper contributes to filling the gap of limited energy-efficiency research involving low-income households, revealing the effect of energy-efficiency barriers on their adoption of EEM.

Analysis of business models for delivering energy efficiency through smart energy services to the European commercial rented sector.

In this paper, we perform a comparative analysis of business models used by Energy Service Companies (ESCOs), suitable for the deployment of energy efficiency measures in the commercial rented sector across Europe. These models can effectively contribute to solving the split-incentive issue that arises in the rented building scenario. Some of them are obtained from their "traditional" counterparts, which do not consider the rented scenario, but just a bipartite agreement between an Energy Service Company and its client. The EU Horizon 2020 project SmartSPIN (Smart energy services to solve the SPlit INcentive problem in the commercial rented sector) targets delivery of enhanced energy services for commercial rented sector. These enhanced energy services (a) combine demand management services and energy efficiency interventions, (b) facilitate the adoption of renewables, (c) optimize the balance between demand and supply, (d) alleviate the split incentive issue. The pilot implementation of SmartSPIN is in progress in a business park in Greece, in an office building in Ireland and in two shopping centers in Spain. Key recommendations toward the implementation of such a smart energy service are provided in this paper. They have been obtained from a detailed analysis of ten interviews of key stakeholders of the energy efficiency sector and of the commercial rented sector, along with an analysis of a selection of the most relevant technical literature. This paper argues that the classical shared savings and guaranteed savings ESCOs models may be adapted to the commercial rented sector and used at SmartSPIN's demonstration sites in Spain, Greece and Ireland. The guaranteed savings model appears to be the most appropriate one to use when the building owner is funding the energy efficiency project using own funds or liaising directly with a bank or other finance provider. The validation method for the comparative analysis of business models and selection of the most appropriate one is based on both literature review and consultation of selected stakeholders' (stakeholder value creation framework).

Unraveling the Knowledge Roadmap of Building Policy Mixes: A Scientometric Analysis

Improving energy efficiency and reducing carbon emissions from buildings are crucial for achieving sustainable development. To realize these goals, it is essential to adopt a policy mix. However, despite much effort in this field, there is a lack of comprehensive understanding on building policy mixes (BPMs), which challenges building sustainability. To address this research gap, this study attempted to uncover the knowledge landscape of BPM through scientometric analysis. By employing methods such as keywords co-occurrence analysis, clustering analysis, co-citation analysis, and research trend analysis, this study systematically examined the current status, hot topics, underlying knowledge framework, knowledge domains, and frontiers of BPM research. The findings revealed that the existing BPM research primarily focuses on various aspects, including policy-related topics such as building energy efficiency policies and policy instruments, as well as topics like green affordable housing, hindering factors, carbon pricing, use obligation, construction waste reduction, and sustainable construction methods. Furthermore, the analysis identified research frontiers in BPM, encompassing policy considerations (e.g., building efficiency policy, split incentive, carbon tax, and carbon pricing), energy-related aspects (e.g., consumption, green transition), political dimensions (e.g., governance, management), building-related factors (e.g., green building, retrofitting), the innovation system, and the evolutionary game. Based on these findings, this study suggests that future research in BPM can deepen insight into interdisciplinary policy mixes by focusing on policy strategies, processes, and features. This study contributes to a holistic understanding of BPM and offers insightful guidance for both researchers and practitioners seeking to advance sustainable practices in the building sector.

Private Law as a Tool to Overcome Split Incentives on Energy Efficiency in the Residential Rental Market

Private Law as a Tool to Overcome Split Incentives on Energy Efficiency in the Residential Rental Market

Overcoming the “tenant-owner dilemma” to foster energy efficiency in residential private rented housing

Purpose The Recast Energy Efficiency Directive 2023 has defined the concept of “split incentive,” also known as “tenant-owner dilemma.” This dilemma refers to the situation where neither landlords nor tenants have incentives to invest in energy efficiency upgrades. Although the Energy Efficiency Directive calls Member States to overcome legal barriers to remove split incentives and to encourage retrofits, the list of possible measures is too vague. This paper aims to discuss tenancy law measures designed to increase the energy efficiency of residential housing and to detect which Member States have already addressed this phenomenon. Design/methodology/approach This paper analyses, from a civil legal perspective, the possible private law barriers arising from the tenant-owner dilemma when performing energy efficiency works in selected countries and proposes legal reforms in tenancy law and related policies to overcome them. To do so, this paper follows a legal-dogmatic and comparative law methodology. Findings This paper concludes that some tenancy law provisions, such as the possibility to increase the rent after energy efficiency renovations and long-term leases, may challenge the tenant-owner dilemma in private rented markets, thus promoting renovations and retrofitting for energy efficiency purposes. It also proposes other policies intended to increase parties’ willingness to undertake works. Research limitations/implications More research on the economic and legal efficiency to regulate some of the civil law measures to challenge the tenant-owner dilemma should be necessary. Practical implications The civil law measures included in this paper may help national policymakers meet the energy efficiency targets, according to what is established in the Recast Energy Efficiency Directive 2023. Originality/value Based on the economic theory of the tenant-owner dilemma, this paper investigates the elements of tenancy law that may contribute to less energy-efficient homes, proposing policies for those countries interested in addressing the energy-efficiency challenge from a private law point of view.

To What Extent Could Alternative Economic Models Increase Investment in the Renovation of and Reduce Energy Poverty in Social Housing in Flanders?

An important share of the social housing stock in Flanders is outdated, resulting in a high energy demand for heating. Energetic renovation is hence urgently needed. The current economic model, however, does not stimulate this due to a split incentive. As energy prices have increased in the past few years, more tenants have suffered from energy poverty. This paper investigates three alternative economic models aiming at increasing the incentive for renovation, while financially protecting the tenants. In the first alternative model, tenants are protected by inducing a maximal cost of living based on their income. In the second alternative model, a fixed rent is applied, while the third alternative model proposes to share the cost benefits of the energetic renovation. The paper analyses the alternative models by assessing the costs and income for social housing companies and the costs for tenants for an unrenovated building, a renovation with a low investment cost and a deep energetic renovation. The results show that limiting the cost of living based on income seems most interesting as this is beneficial for the tenants and gives an incentive for the social housing companies to renovate. To reduce energy poverty, a deep renovation is necessary.

Investment preference for either technical or operational energy efficiency measures to achieve sustainable maritime shipping

AbstractThe reduction in energy consumption in shipping is a crucial issue to achieve a more sustainable sector. Nevertheless, investments in energy efficiency are inhibited by barriers. Consequently, under a Principal-Agent approach, this study aims to analyze the factors affecting the investment preference for either technical or operational measures. To date, the research problem has barely been addressed from a similar approach. This work further integrates agency theory with the identification of barriers and drivers, as well as the cost–benefit ratio from both an environmental and a financial perspective. This makes it possible to consider shipping management from a more comprehensive perspective. The study sample is current and representative (658 individual bulk carriers). The research was carried out utilizing two binominal logistic models that provide similar results when testing the proposed hypotheses. The outcomes show that regulatory factors, such as the distance of a vessel’s technical emissions from EEDI requirements (standardized coefficients: −2.8352 and −2.5069), and Principal-Agent problems, such as split incentives (standardized coefficients: −1.0059 and −0.9828), have the greatest influence on investment preferences. As a consequence of Principal-Agent problems, vessels operating under Time Charter contracts are less likely to invest in technical measures than in operational ones. Verified information and activity promote technical measures. Maritime regulation promotes technical measures in younger vessels, especially those meeting only the minimum requirements. Better knowledge can help achieve a more environmentally responsible shipping sector. The role of shipowners and charterers should be highlighted, and transparency should be promoted to enable well-informed decisions to be made.

Achieving net zero goals in residential buildings

This paper discusses recent evidence of a large, unrealised energy savings potential in the UK residential sector. It discusses authoritative policy reviews critiquing the Net Zero Strategy and the Heat and Buildings Strategy as well as the economic literature on the energy-efficiency gap. These sources point to four main potential explanations for the lack of progress towards net zero in residential buildings in the UK: 1) historical and current ŋuntargeted subsidies to energy prices (e.g., energy price guarantee); 2) poor scheme implementation and lack of workforce training; 3) regulatory barriers such as planning restrictions and lack of policy coordination across stakeholders; 4) split incentives. To overcome these barriers, the paper recommends better access to data to foster evidence-based policy-making and support for innovative, local-authority-led projects.

Preferences on financing mechanisms for thermal retrofit measures in multi-owner buildings: A discrete choice experiment with landlords and owner-occupiers in France

Thermal retrofit of existing buildings is a major challenge for the energy transition. Retrofitting multi-owner buildings is particularly challenging because it involves multiple co-owners with heterogeneous preferences and incentives to renovate. We conduct a discrete choice experiment on thermal retrofit measures with landlords and owner-occupiers of condominiums in multi-owner buildings in France. Attributes include financing mechanisms (equity, private loan, and collective loan), transferability of loans (i.e. loans, which may be transferred to the next owner in case the condominium is sold), heating cost savings (absolute and relative to other co-owners in the same building), and investment costs. Results from estimating mixed logit models suggest that participants prefer on average equity financing over loan financing and collective loans over private loans. Aversion to loan financing appears to be partly due to debt aversion. The results also suggest that for loan financing, co-owners prefer transferable loans. Further, co-owners do not like retrofit measures that result in higher heating cost savings for other co-owners in the same building than for themselves. Thus, asymmetric distribution of benefits of thermal retrofit measures may impede acceptability of such measures in multi-owner buildings. Finally, the findings provide no evidence for a landlord-tenant split incentives problem in our sample.

Evidence of a Homeowner-Renter Gap for Electric Appliances

This paper provides the first empirical analysis of the homeowner-renter gap for electric appliances. Using U.S. nationally representative data, the analysis shows that renters are significantly more likely than homeowners to have electric heat, electric hot water heating, an electric stove, and an electric dryer. The gap is highly statistically significant, prevalent across regions, and holds after controlling for the type, size, and age of the home, as well as for climate and household characteristics. The paper argues that this gap arises from the same split incentives that lead to the “landlord-tenant problem” and discusses the implications of the gap for an emerging set of policies aimed at reducing carbon dioxide emissions through building electrification.

Split incentive problem in the uptake of new ATM technology

Split incentive problem in the uptake of new ATM technology

Barriers to implementation of energy-efficient technologies in building construction projects — Results from a Swedish case study

About 12% of the EU’s greenhouse gas emissions derive from construction of and energy use in buildings. To decrease energy use in buildings, more energy-efficient technologies must be implemented. However, there are barriers to the implementation of energy-efficient technologies. In this study, interviews were conducted with different stakeholders within a city district development project to find barriers towards the implementation of energy-efficient technologies in buildings. First, an investigation of barrier theory followed by three pre-interviews was conducted, which helped in forming questions for the interview study, which involved a total of 18 respondents. The respondents were from the client, facility manager, developer, consultants, project planners, contractor, and the local energy supplier. The barriers mentioned in the interviews were connected to different phases of a building project. There is a scarcity of studies where barriers in various phases of the construction process are explored. In conclusion, the most frequently mentioned barriers were connected to the Planning Program phase and the Project Planning phase. Two new barrier categories are suggested: Lack of Knowledge and Fear . The most prominent barriers to implementation of energy-efficient technologies were Inertia, Risk, Access to Capital and Lack of Knowledge . To increase the implementation of energy-efficient technologies in buildings, knowledge needs to be increased throughout the whole industry, and stakeholders need to step out of their comfort zone and not always do as they have done before. A key policy implication is the importance of capacity building in the early phases of the building process. • Two new barrier categories suggested: Lack of Knowledge , and Fear . • Barriers can be connected to various phases of a building process. • Most barriers relate to the Planning Program , and the Project Planning phase. • Major barriers found: Lack of knowledge, Inertia, Risk, and Access to capital . • Split incentives should be called Multiple split incentives in some cases.

Energy efficiency at building sites: barriers and drivers

The construction industry is an important societal sector and a major consumer of energy. Improved energy efficiency is important for this sector, but energy efficiency at construction sites has so far been under-researched. The aim of this article is to analyse the drivers of and barriers to improved energy efficiency at construction sites, as perceived by professional actors. The peer-reviewed research and the grey literature on the topic were reviewed, and semi-structured interviews were conducted with 20 relevant professionals in Sweden. The identified barriers were related to lack of money, split incentives, lack of standards and procedures, low electricity prices, lack or regulations, lack of knowledge and information and the conservatism of the industry. The identified drivers were regulations forcing actors to implement energy efficiency, environmental and building certifications, internal education, be part of an industry network, engaged electricity utility company providing information, supportive top and site managers, competition between construction sites, the existence of a plan, checklists or project database, back-office support and client demand of energy efficiency.

Split incentive problem in the uptake of new ATM technology

We analyse the problem of split incentives between Air Navigation Service Providers (ANSP) and airlines in adopting disruptive technologies. We develop a theoretical model allowing us to analyse the uptake of technologies based on the potential efficiency gains of both the ANSP and the airlines. Next, we illustrate this model numerically. Our first, intuitive, result is that while regulation of navigation fees is necessary, it also hinders the investments in new technologies. Secondly, we see that the uptake of technologies would be faster in a one-to-one setting. Thirdly, it is not certain that increased competition between ANSPs will stimulate innovation. Finally, an overall technological mandate can be welfare improving as it reduces uncertainty.

Investigating the adoption of energy-saving measures in residential sector: The contribution to carbon neutrality of China and Europe

China and Europe have both announced plans to be carbon neutral by 2060 and 2050 respectively. In residential sector, energy-saving technologies and behaviours are important measures to achieve carbon neutrality. This study investigated the adoption of technical and behavioural energy-saving measures in Northern China and Western Europe as important paths to achieve carbon neutrality in residential sector. The prevalence of six measures was investigated using a survey, which also enquired about the reasons for the adoption and non-adoption of such measures. The study highlighted remarkable differences in the measures adopted and the reasons for them. People in Northern China were more likely to adopt technical energy-saving measures but less likely to adopt behavioural energy-saving measures than people in Western Europe. Differences in respondents’ socio-demographic backgrounds, building details, environmental concerns, or beliefs played a role in the differences observed, but not a great one according to our econometric analysis. Two important reasons for the observed differences were subsidy policies and split incentives due to principal-agent issues between energy companies and energy users. The results showed that the residential sectors in China and Europe are working towards carbon-neutral targets, but in different ways. In Northern China, the direct energy-saving subsidy policy encouraged residents to adopt technical energy-saving measures. In Western Europe, the relatively reasonable energy charging system encouraged people to adopt behavioural energy-saving measures.

Analysis of business models for delivering energy efficiency through smart energy services to the European commercial rented sector

In this paper, we perform a comparative analysis of business models used by Energy Service Companies (ESCOs), suitable for the deployment of energy efficiency measures in the commercial rented sector across Europe. These models can effectively contribute to solving the split-incentive issue that arises in the rented building scenario. Some of them are obtained from their “traditional” counterparts, which do not consider the rented scenario, but just a bipartite agreement between an Energy Service Company and its client. The EU Horizon 2020 project SmartSPIN (Smart energy services to solve the SPlit INcentive problem in the commercial rented sector) targets delivery of enhanced energy services for commercial rented sector. These enhanced energy services (a) combine demand management services and energy efficiency interventions, (b) facilitate the adoption of renewables, (c) optimize the balance between demand and supply, (d) alleviate the split incentive issue. The pilot implementation of project will be performed in a business park in Greece, in an office building in Ireland and in two shopping centers in Spain. Key recommendations toward the implementation of such a smart energy service are provided in this paper. They have been obtained from a detailed analysis of ten interviews of key stakeholders of the energy efficiency section and of the commercial rented sector, along with an analysis of a selection of the most relevant technical literature.