Incentives to make the right decision:

Policy measures to enhance consumer decarbonisation

Lisa Ryan

25th October 2018

ESIPP Symposium, UCD

Future energy systems: how to decarbonise?

Policy targets:

• Renewable energy

• Energy efficiency improvements

• Low CO2 emissions

• Security of supply and cost recovery for energy network and supply utilities

How can energy consumer behaviour be harnessed for low carbon energy systems?

Electricity Users

Infrastructure Electricity

Supply

Fixed and variable costs

Investments: RE EE technology

Retail price

Choices

Renewable energy %Energy efficiency

CO2 emissions

‐ Insulation/windows

- Efficient lighting and appliances

- Heating system

- Renewable heat or electricity

- Transport mode and fuel

‐ Energy bill savings

‐ Warmer home

‐ Increased disposable income

‐ Poverty alleviation

‐ Asset value

‐ Health and wellbeing

‐ Clean air

Household energy choices

Household action Direct Impact Multiple benefits

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Policy Options for Consumer Clean Energy: Information, Regulation,

Economic incentives

Fiscal instruments

Tax relief

Taxes

User charges

Financial measures

Loans

Grants

Market-based instruments

Price design

Emissions trading schemes

White certificate schemes

Feed in tariffs

Economic instruments for EE in industry, transport and buildings

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Transport

• Vehicle tax incentives

• Advanced vehicle subsidies

• Fuel taxes

• User charges

• Infrastructure investment

• CO2 emissions trading

Buildings

• Grants for EE equipment

• Loans/grants for refurbishment

• Direct investment in social housing

• 3rd party finance and ESCOs

• Tax relief

• Energy prices

Industry

• Tax relief

• Audit support

• CO2 emissions trading

• Energy management support

• R&D incentives

• Energy prices

• 3rd party finance and ESCOs

Price and consumer behaviour

• Energy price level and structure key drivers of investment and consumption patterns

• Electricity tariff example:

Policy target Flat rateTime-of-

use tariffsBlock tariffs

Net metering

Energy efficiency √ √ √√ √

Demand response X √√√ X X

Renewable generation

√ √√ √ √√√

Cost recovery ~ √ ~ XNotes: √ = good for the policy target; X = bad for the policy target;

~ = ambiguous or not applicable.9

Ryan et al., 2018 ‘Harnessing electricity retail tariffs to support climate change policy’, WCERE 2018, Gothenburg.

Smart metering trial

• Smart meters trialled at over 5,000 homes in Ireland in 2009 and 2010, included four time-of use tariffs

• Reduction of 2.5 percent reduction in overall electricity demand;

• Peak-time demand reduction of 8.8 percent (di Cosmo 2014)

• Real-time information, ie smart meter, produced greater pricing impact

• Experiences from other European countries show total energy savings from smart metering in the range of two to three percent, broadly in line with the results from the Irish smart metering trials.

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Price design – CRU decision Ireland

• Suppliers’ Standard Smart Tariff should seek to promote more efficient use of energy by applying meaningful price differences which reflect the costs borne by the supplier in supplying that customer

Features:

A supplier’s Standard Smart Tariff offering to domestic electricity customers must also have the following features:

• a) A three-rate tariff with the following Time Bands (all local time, IST): i. Day = 08:00 to 23:00 (excluding ‘Peak’) ii. Night = 23:00 to 08:00 (single night rate) iii. Peak = 17:00-19:00

• b) Unit rates: i. Unit rates across the three periods (time bands) must have meaningful price

differences and reflect the costs borne by the supplier in supplying that particular class of customer;

ii. Unit rates will be limited to a maximum of three and apply to all days

Go-live Q4 2019!

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• Policy objective: to encourage purchase of cars with low CO2 emissions/fuel economy

• Shift from engine size to CO2-based system in July 2008

Case study 1: Change in passenger car tax design

CO2 Band (g/km) Annual Tax

0 - 1 €120

1 - 80 €170

2 - 80 €170

81 - 100 €180

101 - 110 €190

111 - 120 €200

121 - 130 €270

131 - 140 €280

141 - 155 €390

156 - 170 €570

171 - 190 €750

191 - 225 €1200

226 - 999 €2350

Motor tax rates pre-2008 Motor tax rates 2008

Tax Band (Engine CC) Annual Tax

0 - 1000 €1991001 - 1100 €2991101 - 1200 €3301201 - 1300 €3581301 - 1400 €3851401 - 1500 €4131501 - 1600 €5141601 - 1700 €5441701 - 1800 €6361801 - 1900 €6731901 - 2000 €7102001 - 2100 €9062101 - 2200 €9512201 - 2300 €9942301 - 2400 €10342401 - 2500 €10802501 - 2600 €12942601 - 2700 €13452701 - 2800 €1391

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Case study: Policy impact

Source: CSO and SEAI

• 18% shift to diesel in the first year

• Over 10 years:- CO2 emissions ↓- NOx emissions ↑- PM emissions ↑

• AMT and VRT revenue: €2.3 billion ↓

• Consumers pay lower taxes

• Marginal impact on overall emissions -> more ambitious objective needed

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Case study 2: Building energy ratings

BER Database

• BER – Building Energy Rating: An objective measure of the energy performance of a building

• Estimated based on space insulation, hot water heating, ventilation and lighting

• Compulsory from 2009 to display BER cert at point of sale or lease

• 2013 – Legislation extended to advertising of rental properties.

• SEAI grants available to upgrade properties with BER

• BER database: 438,316 observations in total - 50,327 rental BER’s• 387,989 controls

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Case study 2: Policy impact

-16.5%

8.5%

9.5%

7.3%

9.3%

7.8%

4.5%3.3%

2.7%

-1.2%-2.4% -2.9%

-4.7%

-7.1%

-6.1%

-1.0%

11.5%

6.5%

10.7%

7.0%

3.5%1.7% 2.2%

0.1%

-0.7%

-2.3%

-4.8%

-11.3%

-18%

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

A1 A2 A3 B1 B2 B3 C1 C2 C3 D1 D2 E1 E2 F G

Dublin Rest of Ireland Expected Premium

*

*

**

*

**

**

* *

**

* *

**

*

* *

*

*

**

𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑃𝑟𝑒𝑚𝑖𝑢𝑚𝑔 =

ℎ=1

ℎ

1 −

𝐵𝐸𝑅𝑔(𝑚2)𝑝ℎ12

+ 𝑅

𝐵𝐸𝑅𝐷1(𝑚2)𝑝ℎ12 + 𝑅

𝑤ℎ

* indicates statistical significance at p<0.05

• Rental properties with higher BER command rental premium

• Premium is in line with expected costs

Petrov, I. and L. Ryan (2018) ‘Information Asymmetry, Split Incentives and Energy Efficiency in the Residential Rental Market’, WCERE 2018, Gothenburg.

Case study 3a: Consumer attitudes to new technologies – Electric Vehicles

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24%

26%

52%

39%

59%

35%

66%

3%

6%

8%

11%

11%

12%

49%

Free motorway tolls for electric cars

More public charging points

Free public charging for electric cars

Free parking for electric cars

Lower annual motor taxes for electric cars

A low interest loan to purchase electric cars

A grant to purchase an electric cars

Policy incentives

Top incentive Any mention

18%8%

18% 12%20% 21% 29% 28%

37%21%

44%39%

45% 52%33% 37%

45%

71%

37%49%

35% 28%38%

35%

An electric car wouldsave me money

Electric cars could begood for theenvironment

Electric cars arereliable

Electric cars are easyto use

Electric cars are fastand efficient

If I buy an electriccar, my

friends/relativeswould appreciate it

I will consider buyingan electric car

Existing homeinfrastructure is

compatible for anelectric car

View on electric vehicles

Disagree Neutral Agree

Case study 3b: Consumer attitudes to new technologies – Heat Pumps

17

9%

12%

18%

32%

39%

44%

79%

66%

1%

2%

2%

4%

5%

9%

38%

40%

Influenced of others who already own a…

Having funds available to invest

Concern for environment (e.g. global…

Reduce energy bill/ save money

Drivers for uptake

Top trigger Any mention

28%

39%

41%

58%

52%

83%

3%

3%

4%

9%

11%

69%

Law requiring all home renovations to…

Free expert advice on heat pump

Availability of information on heat pumps…

Free BER assessment with each heat pump…

Low interest loan to purchase heat pump

Grant to purchase a heat pump

Policy incentives

Top incentive Any mention

Case study 3c: Consumer attitudes to new technologies – Solar PV

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9% 5% 10% 14%30%

21% 20%22%

16%

27%

53%40%

38% 35%

69%79%

63%

33% 30%41% 45%

Installing a solar PV panelcould save money

A solar PV panel could begood for the environment

A solar PV panel could betoo expensive

If I install a solar PV panelat my home, my

friends/relatives wouldappreciate it

A solar PV panel createstoo much trouble to

install

My existing homeinfrastructure is

compatible for a solar PVpanel

I will consider installing asolar PV panel at my

house

Views on solar PV

Disagree Neither Agree

24%

29%

27%

37%

44%

58%

82%

2%

2%

3%

6%

10%

11%

65%

Law requiring all home renovations to include solar panels

Availability of information on solar panels and installers

Free expert advice on solar panels

Payment at full price for electricity generated by solar panel

Low interest loan to purchase solar panel

Payment at lower price for electricity generated by solar…

Grant to purchase solar panel

Policy incentives

Top incentive Anymention

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Conclusions

Vital to engage consumers in energy transition

Financial incentives: carrot for consumer investment and behaviour

Policy packages required: Financial incentives + information + regulation alignment

Underlying prices have to be right

Understanding consumer attitudes is first step

More ex-post analysis and forward-looking research necessary!

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This publication has emanated from research conducted with thefinancial support of Science Foundation Ireland under the SFI StrategicPartnership Programme Grant Number SFI/15/SPP/E3125. Theopinions, findings and conclusions or recommendations expressed inthis material are those of the author(s) and do not necessarily reflectthe views of the Science Foundation Ireland.

Contact Details

Lisa.ryan@ucd.ie

www.esipp.ie