The BC Sustainable Energy Association, “a non-profit association of citizens, professionals and practitioners, committed to promoting sustainable energy in British Columbia,” has produced an analysis of the split incentive problem in British Columbia and a proposal to fix the problem through its Green Landlords Project. (Split incentives happen when owners of multi-unit housing have no interest in energy improvements because they don’t pay the energy bills and tenants don’t have an interest improvements because they don’t own the property).
The Project’s report starts off on the right path by quantifying the impacts of energy inefficiencies in rental housing. Rental housing makes up a third of BC’s housing and produces about 1.4 million tons of greenhouse gas emissions per year. It is also the slice of the housing sector that provides housing for low and middle-income households where energy costs make up more than 10 percent of total household income.
The report acknowledges what we discussed in earlier posts; most efficiency programs are targeting single family homes to the exclusion of multi-unit rental homes where there are huge potential savings for the lowest income families.
What will solve this problem?
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The Green Landlord’s proposal puts all the best ideas together in one place. The report recommends a comprehensive package of changes including energy labeling, financial incentives for landlords, training for green jobs and effective marketing. The report also promotes the “Pay As You Save” (PAYS) method of paying for energy efficiencies. PAYS allows the costs and savings from improvements to appear on the utility bill of individual apartment units and stay with individual units until the improvement is paid for—even if a tenant moves.
But the most interesting and important part of the proposal is its recommendation for one dedicated agency that would oversee all aspects of energy efficiency coordinated by an energy efficiency “concierge.”
The concierge approach has been used in London with some success. The agency and concierge idea might just work in BC too. The problem with split incentives isn’t just financing or creating payment schemes or even training people to perform energy audits, but all these things together, combined with an overall lack of awareness of the problem and opportunities for savings. Many of the financing schemes need consistent explanation. Usually the person doing the audit understands energy efficiency and not financing. Each link on the chain of a project has very little incentive to move a landlord or a tenant on to the next step. It’s smart practice to dedicate one person—or entity—who ensures audits are completed, that the improvements are made and that energy savings are actually realized after their completion.
While an agency sounds like be expensive and slow things down it’s the only solution that I have seen that combines a level of important government mandates (required energy labeling) with incentives (low interest financing) and coherent marketing to both tenants and landlords. It also could ensure that the best improvements are made in places where there are the greatest opportunities for savings and reduction of emissions.
As the report suggests this problem is as complicated as a Rubik’s cube. It will take more than just one organization or approach to solve it—but one agency’s oversight can line up all the pieces and ensure wider participation and benefits.