Meet the latest research by Nils van der Vegte
Across the Netherlands and Europe, concerns are growing about the rapid expansion of subsidies for the green transition. Are these subsidies actually increasing the adoption of clean technologies, or are they simply financing investments that households and firms would have made anyway?
The stakes are high. Achieving climate targets requires substantial investments by households in residential energy efficiency, from heat pumps and insulation to solar panels. To encourage these investments, governments around the world rely heavily on financial incentives.
But this raises a central question: how many households are actually being pushed toward greener homes because of public money?
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“To evaluate the effectiveness of subsidies, we need to know what households would have done in the absence of financial support. If they would have adopted the technology anyway, the subsidy mainly becomes a transfer to so-called inframarginal adopters.”
— Nils van der Vegte
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Evidence from several countries suggests that many subsidies for residential solar panels have gone to households that were already likely to adopt. In the short run, this makes subsidies look expensive and inefficient.
But this may not be the full story. New research by Nils van der Vegte shows that the impact of subsidies can extend well beyond the households that receive them directly. Subsidies may not only affect the first adopter; they may also influence friends, relatives, neighbors, colleagues, and other people in the adopter’s social network.
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16%
higher likelihood of adoption after one family member adopts
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15k–80k
fewer solar homes in 2021 without the early-stage subsidy
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2.9–18.0x
multiplier relative to the initially subsidized homes
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The research shows that solar-panel adoption in the Netherlands caused by a Dutch subsidy increased the likelihood that others in the adopter’s social network would also install solar panels. The effect is especially strong among family members. One adoption by a family member increases the likelihood of adoption by 16% relative to the average adoption rate.
These second-order effects substantially increase the total effect of the subsidy. According to the study, without the early-stage Dutch subsidy for solar panels, solar adoption in 2021 would have been 1.5% to 7.6% lower. That corresponds to roughly 15,000 to 80,000 fewer homes with solar panels.
This is striking because the subsidy itself directly supported only 4,200 homes. Once second-order effects and spillovers are taken into account, the multiplier ranges from 2.9 to 18.0 times the number of initially subsidized homes.
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A more nuanced view of green subsidies
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In the short run, green subsidies may appear costly and poorly targeted, especially when they reach households that might have adopted anyway. But in the longer run, subsidies can help build momentum. They can make new technologies more visible, reduce uncertainty, and encourage adoption through social networks and other diffusion channels.
This does not mean that all subsidies are effective, or that concerns about equity and redistribution should be ignored. Subsidy design remains crucial. But when second-order effects are taken seriously, green subsidies may be more powerful than they first appear — not only as a financial incentive for individual households, but as a catalyst for broader technological diffusion.
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Maastricht Center for Real Estate
Research insights on real estate, sustainability, finance, and the built environment.
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