Rebate programs for water efficient appliances: Are municipalities just flushing money down the drain?

1. Rebate programs for water efficient appliances: Are municipalities just flushing money down the drain? Jonathan Lee Center for Environmental & Resource Economic Policy NC State University

2. Managing Municipal Water Demand • Federal policy affecting household water demand is generally technology-based standards • Local utilities/municipalities often are required to go further in demand management.

3. Managing Municipal Water Demand • Toolkit for household demand management: • Pricing (rarely) • Voluntary and mandatory water use restrictions • Applies to outdoor only • Incentive/rebate programs • Over 100 WaterSense rebate programs

4. Are Rebate Programs Cost-effective Policy Tools? • To answer this question: • What are the actual reductions in resource use? • Engineering estimates vs. actual reductions. • Automobile fuel economy (e.g., Greene et al. 1999) • Energy efficiency (e.g., Haas et al. 1998; Schwarz and Taylor 1995) • Water Heater (Hartman, 1984) • Toilets?? • Is the technology replacement due to the program?

5. High Efficiency Toilet (HET) Retrofit Rebate Program • Town of Cary began program in June 2008 • Rebate of $150 per toilet was offered • Old toilets must use at least 3.5 gallons per flush (gpf) • Must be replaced with WaterSense labeled HET using 1.28 gpf

6. High Efficiency Toilet (HET) Retrofit Rebate Program • Rebates limited to three per residence • Verification of replacement included: • Submission of original receipts • On-site inspections to verify toilets were installed • In first year of the program, rebates were issued to 305 households that replaced 592 toilets.

7. HET Program Data • Survey of program participants • Monthly water-use data 1.5 years prior up to 2 years after program participation • Monthly water-use of matched neighbors over same time frame.

8. Survey Overview • June 2010, 305 surveys mailed • Response rate of 80% • Information collected: • Demographic data • House construction data • Reason old toilets were replaced

9. Survey Overview • 3 types of replacements • Full savings – rebate program was the reason they replaced their old toilet • Small savings – rebate program was the reason they chose an HET over a new 1.6 gpf toilet • No savings – household planned to replace toilet with an HET anyway

10. Distribution of Consumption Savings

11. Water Meter Data • Monthly water use January 2007 to July 2010 • Covers 680 rebate recipients over two years • Includes 25,177matched households • Parcel is within a 0.5 mile radius of the HET house • Parcel is same land class (e.g., single-family resid.) • Parcel is within 0.1 acre of the HET home’s acreage • Parcel is within 350 square feet of HET house • “Matched neighbor” is not another HET house

12. Monthly Water Usage: HET vs Non-HET Program Start

13. How much water is saved by an HET replacement? • Engineering estimates are simply: (GPF of old toilet – GPF of HET) * # flushes/year • Mean savings per HET: 4,577 • Mean savings per hh: 9,057 • Total (for 469 HET Toilets): 2,146,446

14. Estimation Techniques • Matching – generally do not find statistically significant differences in monthly water usage between HET households and control households prior to installation of an HET • 1 HET hh’s-2/24 months sig. pre-treatment difference • 2 HET hh’s-13/24 months • 3 HET hh’s-0/24 months

15. Estimation Techniques contd… • Some evidence that conservation minded people may be selecting into the program • All 15 groups with significant pretreatment differences have lower water usage for HET hh’s • Difference-in-Differences (DID) chosen as preferred estimation technique

16. How much water is saved by an HET replacement? • DID estimator: Wi,t = a + β1D1,i + β2D2,i + β3D3,i + γtMt + δ1DT1,i,t + δ2DT2,i,t + δ3DT3,i,t + εi,t • Where: • D1(2,3) = 1 if household replaced 1 (2, 3) toilets = 0 otherwise • Mt = monthly dummy variables • DT1(2, 3)= 1 after household installs their 1st (2nd, 3rd) toilet = 0 before 1st(2nd, 3rd) toilet install and after subsequent toilet installs

17. DID Results

18. DID Estimate of Water Savings (gallons/year) • Estimated mean savings per HET: 3,950 • Estimate mean savings per hh: 7,817 • Total (for 469 HET Toilets): 1,852,632

19. Comparison of DID and Engineering Estimates of Water Savings • DID Estimated mean savings per HET: • 3,950 gallons per month • 95% confidence interval of [3,123 – 4,782] • Engineering estimated mean savings per HET: • 4,577

20. How much water savings is due to the rebate program? • Water Savings per flush calculated for the three groups as follows: • Full Savings: WS1 = (gpf0 – gpfHET) * #flushes/year • Small Savings: WS2 = (1.6 – gpfHET) * #flushes/year • No Savings: WS3 = 0

21. Rebate-Induced Estimates of Water Savings (gallons per year) • Total for 469 HET Toilets analyzed: 751,506 gallons • Estimated mean savings per HET: 1,756 gallons • Estimate mean savings per hh: 3,400 gallons • Estimated median savings per hh: 571 gallons

22. Cost-Effectiveness • NPV = -$89,700 + 30 year sum of benefits of the rebate program to the utility

23. Cost-Effectiveness

24. Policy Implications • How to improve cost-effectiveness? • Increase benefit • Targeting full savings hh’s • Feasibility?? • Lower upfront costs • $115 HET rebate would be cost effective assuming no behavioral responses…