The Efficacy of Energy Efficiency: Measuring the Returns to Home Insulation

Energy efficiency in the housing market is considered an important means to reducing energy consumption and carbon emissions, as well as enhancing energy independence. When improving the energy efficiency of a home, insulation plays an important role. However, the impact of insulation measures on actual gas consumption is typically based on engineering predictions, and the efficacy of insulation measures is subject to debate. This study exploits a unique sample of insulation interventions, combined with detailed household micro data on actual gas consumption before and after these interventions, and information on the socio-economic characteristics of occupants. Using a difference-in-difference approach, we document that home insulation reduces gas consumption by about 20%, on average, both for owner-occupied and rental homes. For the latter, the treatment is plausibly exogenous. We find no evidence of a rebound effect over time: the reduction in gas consumption is consistent up to ten years after the intervention. At 2022 gas prices, and for the average home in our sample, the treatment effect translates into an €866 reduction in the annual gas bill, and an average rate of return of 41.6%.