There are a bunch of “small ball” investments that could be made to reduce a home’s monthly electricity bill. Can targeted subsidies increase residential energy efficiency? In California, “Homeowners who pursue a “basic” energy efficient upgrade will get a rebate of $1,000. Property owners who choose an advanced package qualify for rebates from $1,250 to $4,000. The rebates depend on the energy savings achieved and the utility provider.”
Dora Costa and I show in this paper that the more inefficient homes were built in the 1970s in areas where electricity prices were low when the home was first constructed. An interesting economic incidence issue will arise. Anticipating this new large retrofit subsidy, will “energy efficiency” firms raise the prices they charge for performing a retrofit? If this is a competitive industry, then they won’t be able to.