A Warm and Dry Place to Live: Energy Efficiency and Rental Accommodation

• Author: Barry Barton
• Position: Faculty of Law and Director of the Centre for Environmental, Resources and Energy Law, University of Waikato
• Pages: 1-25

1

(iv)

A WARM AND DRY PLACE TO LIVE:

ENERGY EFFICIENCY AND R ENTAL ACCOMMODATION

B B *

I. I

In residential tenancies, it is usual for the la ndlord to be responsible for

the fabric of the building and the main appliances, and for the tenant to be

responsible for paying for electricity, gas and other fuel. It is also the tenant

who is aected by the building’s heating and ventilation performance –

whether it can be kept warm and dr y without undue expense. A landlord

has no nancial incentive to invest in ex tra insulation or better appliances,

because the benets will be reaped by the tenant in lower energy bills and

higher levels of comfort, and because t he improvements do not have a direct

inuence on the rent that the landlord can charge. e result is that energy

eciency investments tend not to get made. In policy terms, the interests of

the landlord and tenant are not aligned; the incentives are split. It is a classic

example of a principal-agent gap, and as the “landlord-tenant problem” is

one of the market failures that a ects eciency in market s for energy and

energy products.1 e energy u se aected by the principal-agent problem

in the United States residential sector for refrigerators, space heating, water

heating and lighting has been estimated as 31.4 per cent of the total sectoral

energy use;2 so the issue is a substantia l one. e problem of energy eciency

in rental accommodation is therefore the subject of this ar ticle.

* Faculty of Law a nd Director of the Centre for Environmenta l, Resources a nd Energy Law,

University of Waikato.  anks to Janet St ephenson and Philipp a Howden-Chapman for

comments on a draf t. A version of these research resu lts is published a s “Energy Ecienc y

and Rental Ac commodation: Deal ing with Split Incentive s” in Paul Babie and Paul Lead beter

(eds) Law as Change: Enga ging with the Life and Schol arship of Adrian Bradb rook (University of

Adelaide Press, 2014).

1 International E nergy Agency Mind the Gap: Qu antifying Principal-Agent P roblems in Energy

Eciency (OECD/IEA, Pa ris, 2007). In spite of the substanti al international underst anding

of the issue, duri ng the 1990s, the New Z ealand Treasury disputed t he existence of market

failures in r elation to insul ation, saying th at there was no rea son to suggest t hat rental

streams a nd property values did not a dequately reect energ y-eciency investme nt decisions.

Parliamenta ry Commis sioner for the Environment Ge tting More fr om Less: A Review of

Progress on Ene rgy Ecie ncy and Renew able Energ y Initiatives in New Ze aland ( Well ingt on,

2000) at 60-65.

2 Mind the Gap at 191. Analysis su ggestin g that the issue i s smaller is K Gi llingha m, M

Harding and D R apson, “Split Incenti ves in Residentia l Energy C onsumption” (2012) 33

Energy Journa l 37.

2 Canterbury Law R eview [Vol 19, 2014]

In New Zealand dwelling houses are often colder than international

standards stipulate,3 and that causes health problems, especially for the

young, the old, and other vulnerable members of the popul ation. Energ y

law and policy are also important because of the signica nt adverse eect on

the environment of the production of energy and its use; in most countries

energy use is the main source of greenhouse gas emissions.4 In tackling these

problems, we must address energy demand and eciency and not focus

unduly on energy product ion and renewables.5 is i mportant truth is borne

out by comprehensive studies by the International Energy Agency in its

annua l World Energy Outlook, in its scenarios for energy supply and demand

through to 2035, dierentiated mainly on the basis of government policies

globally.6 In the New Policies Scenario, energy demand to 2035 increases

by one-third, compared with almost 45 per cent in the Current Policies

Scenario, and the energy savings are mostly energy eciency (72 per cent)

and closely-related fuel and technology switching (12 per cent). In terms of

the emissions of carbon dioxide that cause climate change, energy eciency

alone contributes 49 per cent of the abatement produced by the New Policies

Scenario, and fuel and technology switching another 6 per cent. By contrast,

renewables contribute only 25 per cent.7 Another study shows that the most

cost-eective technologies to reduce greenhouse gas emissions are eciency

measures; in fact many have a negative cost.8 e key message is t hat energy

eciency is where the big gains are to be made.

3 N Isaacs a nd others, ‘Energy in New Zea land Houses: Comfort, Physic s and Consumption’

(2010) 38 Building Resea rch & Information 470.

4 e drivers of government energ y eciency polic ies have recently be en summar ized under

the heading s of: energy sec urity, economic development a nd competitivenes s, climate

change, and pu blic health. S Pasquier and A S aussay, Progress Implement ing the IEA 25 Energy

Eiciency Policy Recommendations: 2011 Evaluation (OECD/IEA Insights Ser ies, Paris,

2012) p 13. Another good recent expla nation of the var ious rationale s of energy ecienc y

action general ly is L Ryan and N Campbell Sp reading the Net: e Multiple Be nets of Energy

Eciency Improvements (2nd ed) (OECD/IEA In sights Series, Paris, 2012) at 14.

5 B Ba rton “e Denominator Pr oblem: Energy Dema nd in a Sustai nable Energy Polic y”

(2013) 9 Policy Quarterly 3.

6 Internationa l Energy Agency World En ergy Outlook 2013 (OECD/IE A, 2013) at 35-36, 241.

e Current Policies Scen ario takes into account mea sures formally enacted mi d-2013. e

New Policies Scena rio also takes a ccount of other announce d relevant commitments . e 450

Scenario show s what is needed to set the global ener gy sector on a course compatible wit h a

near 50% chanc e of limiting the long-term inc rease in the average g lobal temperature to 2°C.

7 A t 260. e world energy-rel ated CO2 emissions ab atement in the New Policies S cenario

relative to the Cur rent Policies Scenar io by 2035: energy serv ice demand 9%, end-u se

eciency 42%, supply e ciency 7%, fue l and technolog y switching i n end-uses 6%,

renewables 25%, biofuels 3% , nuclear 5%, carbon capture a nd storage 2%.

8 P-A Enkvist, J D inkel and C Lin, Impact of the Finan cial Crisis on Carbon Economi cs: Version

2.1 of the Global Gree nhouse Gas Abat ement Cost Cur ve (McKinse y & Co, 2010)

solutions.mckin sey.com/climatedesk/>. e origina l version was P-A Enkvist, T Nauclé r and

J Rosander, “A Cost Curve for Gree nhouse Gas Reduction” (2007) 1 McK insey Q.