The Chronicle of Higher Education has a pieceÂ Â announcing the “Better Buildings Initiative, an effort to improve building efficiency by 20 percentâ€”will get $2-billion from government agencies through aÂ presidential memorandum, and colleges and universities, cities, private companies, and other entities will collectively contribute the other $2-billion.”
So, this appears to be a subsidy to nudge building managers to pursue energy efficiency. Â If the price of electricity is expected to go up, and if managers must pay their own electricity bills, then will energy efficiency be pursued? Â Why is government intervention necessary here? Â Will you point to the carbon externality associated with electricity consumption? Or will you point to soft budget constraints? Â Or inertia and a lack of information about the future benefits of such long term investments relative to the upfront costs? Â For a subtle discussion, see Tom Tietenberg’s paper in REEP.