Split Incentives Quantification Tool

The “Split Incentives Quantification Tool” (Q-SpliT) is a tool that seeks to identify the share of the triggered benefits from the implementation of energy efficiency interventions between landlords and tenants in order to quantify the appropriate allocation of costs or subsidy rates for both sides, towards several renovation scenarios in seven EU countries (i.e., Austria, Croatia, Estonia, Germany, Greece, Italy, Netherlands).

Background

“Split incentives” refer to any situation where the benefits of a transaction do not accrue to the actor who pays for the transaction. In the context of energy efficiency in buildings, split incentives are linked with cost recovery issues related to energy efficiency upgrade investments due to the failure of distributing effectively financial obligations and rewards of these investments between concerned actors. Especially, in the Private Rented Sector (PRS), which accommodates the 30% of the European Union (EU)’s housing, split incentives among landlords and tenants, or the “Landlord-Tenant” dilemma, is one of the main barriers when it comes to energy efficiency policy implementation, and alleviation of energy poverty.

Methodology

For the quantification of the share of benefits for landlords and tenants towards the implementation of energy efficiency interventions, the tool’s is based on the quantification of the energy savings, along with the positive externalities related to energy efficiency interventions in the PRS. Positive externalities are defined as the “non-energy”, socio-economic and environmental impacts that energy efficiency interventions can have. Four different types of externalities are assessed within the framework of the Q-SpliT (i.e., Gross Domestic Product, the increase in building value, environmental impacts, multiple benefits, such as improved comfort and health).

Key Features/Implications

The main premise behind the development of the Q-SpliT tool has been to bridge the gap between landlords and tenants, and promote transparency, minimise conflicts and optimise the financial outcomes for both parties. By doing so, the tool provides a deeper understanding on the issue of split incentives in the PRS, aiming to contribute to the uptake of energy efficiency investments and contribute to the alleviation of energy poverty in the sector.

Overall, the Q-SpliT tool encompasses the following:

Transparent Cost Allocation: The tool provides a clear breakdown of energy efficiency interventions costs, enabling landlords and tenants to transparently understand and allocate each side’s expenses, minimising disputes and promoting fair sharing of financial responsibilities.
Customised Outcomes: The tool can generate customised outcomes tailored to the specific case under study, allowing for flexible analysis of split incentives based on variables such as the property characteristics, the lease terms, etc.
Highlight of benefits- landlords: By identifying and quantifying the impacts from energy efficiency interventions in a more holistic way, the tool empowers and incentivises landlords to make informed decisions that can lead to cost savings, while also increasing the value of their property and promoting sustainability.
Highlight of benefits- tenants: The tool showcases the long-term financial gains, cost savings, and improved living conditions resulting from energy efficiency interventions. By doing so, the tool can increase the willingness of tenants to either contribute to the interventions or accept justified rent increases.
Enhanced communication: The information provided by the tool empowers the engagement of landlords and tenants in meaningful conversations about energy efficiency interventions, sharing insights and fostering the informed decision-making.
Support in policy making: The tool offers policymakers valuable data on cost distribution, enabling them to formulate effective subsidy strategies. This support ensures that policies align with the nuanced cost distribution between landlords and tenants, fostering a conducive environment for the uptake of energy efficiency practices in the PRS.

Impact

The Q-SpliT tool has been developed and applied in the context of the European Commission (EC)-funded Horizon 2020 ENPOR project (October 2023). Our intention is to further exploit the tool in more EC-funded projects (e.g., the RENOVERTY project), scientific articles, and policymakers across Europe.

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