Digested From "Split Incentive Stalls Energy Efficiency in Rental Housing"
Sightline Daily by Roger Valdez
Making changes that increase energy efficiency can decrease greenhouse gas emissions and save money on energy bills. Too often, though, those who live in rental units and their apartment managers resist efficiency investments. The main cause is split incentives. Owners do not make investments in energy efficiency because they are not paying the utility bills, and apartment residents typically do not invest in communities that they have no ownership stake in. One solution is green leases that allow owners to spend money on efficiency enhancements and save money on their costs by raising rent as much as the savings minus an amount that is passed on to the resident. An example of this would be a refrigerator replacement. An apartment resident will not purchase a new refrigerator because he/she may not be in the unit long enough to recoup the initial investment, and the owner will typically purchase the cheapest model because he is not paying the electric bill. However, the owner could raise the rent enough to pay for the model, but since the utility bill will be lower, the resident will end up saving money. Such leases can be complicated, but they have been successfully implemented in other commercial real estate rental settings and tend to work. Legal energy performance standards could also solve the problem in the rental apartment market. By nudging more owners toward energy efficiency, the practice could become more widespread.
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