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

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A WARM AND DRY PLACE TO LIVE:

ENERGY EFFICIENCY AND RENTAL ACCOMMODATION

B B*

I. I

In residential tenancies, it is usual for the landlord 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 dry without undue expense. A landlord

has no nancial incentive to invest in extra 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 the 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 markets for energy and

energy products.1 e energy use 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 article.

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

University of Waikato. anks to Janet Stephenson and Philippa Howden-Chapman for

comments on a draf t. A version of these research results is published as “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 relation to insulation, saying that there was no reason to suggest that rental

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

Parliamentary Commissioner for the Environment Getting More from Less: A Review of

Progress on Energy Eciency and Renewable Energy Initiatives in New Zealand (Well ington,

2000) at 60-65.

2 Mind the Gap at 191. Analysis suggesting that the issue is smaller is K Gillingham, M

Harding and D Rapson, “Split Incentives in Residential Energy Consumption” (2012) 33

Energy Journa l 37.

2Canterbury 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 population. Energy

law and policy are also important because of the signicant 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 important 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 that 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 energy eciency policies have recently been summarized under

the headings of: energy security, economic development and competitiveness, 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 Series, Paris,

2012) p 13. Another good recent explanation of the various rationales of energy eciency

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 Barton “e Denominator Problem: Energy Demand in a Sustainable Energy Policy”

(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 At 260. e world energy-related CO2 emissions abatement in the New Policies Scenario

relative to the Current Policies Scenario by 2035: energy service demand 9%, end-use

eciency 42%, supply eciency 7%, fuel and technology switching in 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 Greenhouse Gas Abatement Cost Curve (McKinsey & 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.