Home improvement, wealth inequality, and the energy-efficiency paradox

This article examines the rate at which different households go green and how this affects the distribution of both wealth and CO2 benefits. Using a unique dataset from the Netherlands, we find that lower-income households are less likely to make their homes more energy efficient. At the same time, higher-income households sort themselves into homes that are already more energy efficient to begin with. Over a 15-year horizon, the combined effect on energy savings accumulates to 17% of median net wealth, with ex ante sorting explaining 65% of this effect. Although a policy that encourages lower-income households to own energy-efficient homes reduces wealth inequality and poverty, it leaves 83% of the potential CO2 benefits unrealized because the brownest households are in the upper part of the income distribution. Our results indicate that there is a policy trade-off between sheltering low-income households against climate risk on the one hand and effectively reducing CO2 emissions on the other.