Cost sharing mechanisms for carbon pricing: What drives support in the housing sector?

Abstract

The building sector offers an important lever for reducing carbon emissions, with carbon pricing considered as one essential policy instrument to unleash this potential. Yet, carbon pricing in residential buildings faces challenges, particularly in rental housing, as the financial burden and thus the incentives to reduce carbon emissions may be distributed differently between landlords and tenants, presenting a principal–agent problem that may lead to conflict and low public support. Using extensive survey data from about 12,000 households, we analyze the support for different concepts to share the cost burden owed to carbon pricing between landlords and tenants. We particularly examine the role of perceived cost, effectiveness, and fairness and experimentally study the impact of revenue use and carbon price level on public preferences. Our results suggest that the price level and revenue use hardly affect support, whereas tenancy – and thus self-interest – as well as perceived fairness of the sharing concept strongly correlate with preferences. Overall, a sharing mechanism according to the energy efficiency of the building is the most preferred cost allocation among our participants.