Will stamp duty ‘nudge’ budge householders from ignoring energy efficiency?

December 2, 2013

Energy policy moves fast. As was trailed last week, the Government has announced details of its rolling back of the green levies. We have said before that we are in favour of rolling back some of the ‘green crap’, but would probably focus on some of the large renewables costs heading down the road rather than energy efficiency.

This blog is concerned with the ‘surprise’ measure to give new homeowners a £1,000 bung to do energy efficiency work.

The measure will likely attract some support from the energy efficiency industry (although not sure it will sweeten the ECO-cuts pill). The UK Green Building Council has been pushing for something similar for a while.

Will it work? Understanding why people do not take up energy efficiency measures is not straightforward. The best attempt I have seen recently is work by Andrew Leicester and George Stoye at that upmarket think tank, the Institute for Fiscal Studies. Using household-level survey data, they tried to assess what types of homes and occupants are more or less likely to take out key measures. They found that credit constraints were unlikely to be a barrier (perhaps why Green Deal has struggled, although this may be a reflection of previous energy efficiency schemes’ success in targeting the poorest households). They also found that the landlord-tenant relationship was a key barrier to taking up measures. If you don’t pay the bills, why would you care about improving the energy efficiency of the house, the argument goes. Regulation may be the only way to solve this long-term, although subsidies for landlords, as the government announced, may also help.

Another finding was that people who have lived in houses for a long time are less likely to have loft insulation or double glazing. One potential explanation is hassle. You have lived in a property for a while, your loft is full of Christmas decorations, unused children’s toy, dead bodies etc. Moving them out of the way to get your loft lagged is a pain.

This may mean that the best time to target people for energy efficiency measures is when they first move into a house (it also means we need the kind of loft-clearing schemes like this one at B&Q). If they don’t do it then, the logic goes, they won’t do it. Giving them a nudge in the right direction when they are likely considering a new kitchen and other decorations should also be helpful.

The nudge, in its behavioural economics sense, may also be helpful. In short, as the Behavioural Insights Team notes, ‘we usually prefer smaller, more immediate payoffs to larger, more distant ones’. This is part of the reason people are not draft-proofing and lagging already, even though it is in their best interests. Yes, we are stupid. So let’s take advantage of it.

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