The Limits of Financing for Energy Efficiency

August 1, 2012

EMP researchers sounding a cautionary note on banking on financing alone to accelerate energy efficiency. Their report shows that financing can, in some cases, increase the leverage of public dollars. In most cases, however, it is not able to drive demand to the same degree as direct incentives like rebates and so cannot be expected to replace other incentives in the current marketplace. The report also shows that subsidizing financing for those who already have access to capital may be a poor use of public funds and that increasing access for those who are currently underserved will likely require ongoing subsidy. While energy efficiency is often the lowest-cost energy resource, and financing is an important tool for enabling efficiency, the focus on financing by policy makers, program administrators, and advocates is often out of scale with what financing can be expected to accomplish — and certainly out of scale with what financing has accomplished to date.Findings to date suggest that financing is only useful once the “product” has been sold to the customer, just as a car loan can only be appealing once you want a car (and then only if there are no better payment options available). Financing cannot address the range of challenges to scaling energy efficiency investment — barriers which include information and hassle costs, split incentives, performance uncertainty, and lack of monetization of public benefits. View the full report here

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