Free riding and rebates for residential energy efficiency upgrades: A multi-country choice experiment

The cost effectiveness of programs designed to upgrade energy technologies can be significantly affected by free riding. This paper assesses ex ante the effects of free riding on the cost effectiveness of a rebate program promoting the adoption of energy-efficient heating systems, relying on contingent valuation choice experiments carried out through identical representative surveys in eight EU Members States. The analysis distinguishes between strong and weak free riders: strong free riders plan to adopt a new heating system in the next five years anyway; weak free riders decide to purchase once made aware of an attractive technology package (and therefore would not need a rebate to adopt). The mean minimum rebate households require to adopt differs substantially across countries and, on average, amounts to slightly more than half of the heating system's purchasing price, suggesting generally high opportunity costs for premature upgrading of heating systems. The minimum acceptable rebate and weak free ridership vary with income, environmental identity, and with risk and time preferences. At a rebate level that corresponds to half the purchase price of the offered heating system, the share of free riders was estimated at 50 percent for most countries, with the share of weak free riders typically higher than that of strong free riders. Public spending costs per reduced ton of CO2 differ considerably across countries and only compare to high social costs of carbon.