Income targeting in consumer energy efficiency programs

Abstract

Consumer energy efficiency programs are common around the world, and they frequently include some form of income-based targeting, whether intentional or not. In this paper, we ask: What are the environmental and welfare impacts of income-based targeting in consumer energy efficiency programs? To that end, we present a model with high- and low-income consumers, and we analyze how income targeting affects consumer welfare, distribution, and input (fuel) externalities. We derive a number of policy-relevant expressions that illuminate how initial appliance stocks, energy service demand levels, and demand responsiveness underpin these welfare impacts, and we analyze how these expressions differ across various real-world applications. We furthermore illustrate core trade-offs using two simulations. We offer actionable and easy-to-implement guidance to policymakers and program managers considering income targeting provisions.