Solving the split incentive in rental unit efficiency

Apartment Energy Audit

How do you improve the rental unit efficiency of apartments and other rental units when renters don’t own the property or appliances and landlords don’t see the benefits in their pocketbooks from improvement because they don’t pay the utility bills? It’s a much-debated conundrum that even has a name: the “split incentive” problem.

At first, improving the efficiency of rental properties seems like a straightforward idea. Apartment buildings present a huge opportunity for energy savings because of their high density, and tenants want to save energy because it lowers their utility bills.

But many of the techniques a homeowner can use to save energy—weatherization, window upgrades, or more efficient appliances—aren’t possible because the tenant doesn’t own the property. Landlords, on the other hand, don’t have an incentive to make the upgrades because they aren’t paying the electricity bill.

Split Incentives Solutions

A new report from MN2020, called Sensible Incentives: Enabling Energy Efficiency in Rental Housing, takes a closer look. The report focuses specifically on refrigerators in rental housing units, determining the amount of money and energy saved by swapping inefficient appliances for new, energy-efficient ones.

According to the study, “replacing the nearly 88,000 refrigerators over 10 years of age in Minnesota rental properties would save renters well over a staggering $3.7 million a year.” And that’s just one appliance!

Policy Solutions

Still Need Energy Efficiency Incentives

The report also suggests the following three policy solutions to improve efficiency in rental units:

1. Customized Conservation Improvement Programs for large rental property owners that provide rebates for the replacement of old, inefficient refrigerators

2. Mandated disclosure for apartment buildings’ public energy use so that people know how much they are going to pay in energy costs for a rental unit, similar to how water heaters and refrigerators give you an estimate of estimated annual energy usage already

3. A pilot on-bill financing program for appliance upgrades that serve rental housing— a tool that allows customers to pay for energy efficiency investments though their utility bills by spreading the cost for the improvements out over time and paying them back slowly as part of their utility bills.

The report is based on work by Fresh Energy and Humphrey Institute Capstone students Will Nissen and John Mitchell in 2011 (Nissen is now a policy fellow at MN2020).

Original article at fresh-energy.org