Do Energy Efficiency Investments Deliver? Evidence from the Weatherization Assistance Program

Conventional wisdom suggests that individuals and firms fail to undertake energy efficiency investments that are predicted by engineering models to have private returns greatly in excess of their costs. Policymakers have seized on this so-called "energy efficiency gap" with a wide variety of interventions that promise both private benefits and reductions in environmental damages, especially declines in the greenhouse gases that cause climate change. This study applies experimental and quasi-experimental techniques to assess the private and social returns to energy efficiency investments using detailed data from the application of the nation’s largest residential energy efficiency program, the Federal Weatherization Assistance Program (WAP), in Michigan. We find that participating households’ energy consumption declined significantly. We also present suggestive evidence that households modestly increased indoor temperatures by about 0.6 degrees F, providing some of the first direct evidence on compensatory response to a reduction in the price of energy services (i.e., the “rebound” effect) in the building sector. Accounting for the energy savings and consumers’ valuations of the higher indoor temperatures, the data indicate that these investments have negative annual returns both privately and socially (i.e., when the monteized value of the greenhouse gas savings are included).