Taxing carrots and sticks: Incentivising efficiency through property taxes

Panel: 5B. Cutting the energy use of buildings: Policy and programmes

This is a peer-reviewed paper.

Authors:
Darryl Croft, Abelscroft EI, United Kingdom
Ian Preston, Centre for Sustainable Energy, United Kingdom

Abstract

The introduction of building energy labelling provides a mechanism by which domestic property taxes can be varied by the energy performance of the home, creating both a carrot and a stick to drive improved efficiency. An Energy Efficient Property Purchase Tax (EEPPT) would see the rate of tax payable upon property purchase reduce as the efficiency of that property increases. As efficient properties become lower tax properties (and hence more attractive on the market), energy efficiency becomes embedded in the value of a home in a way that energy labelling alone has thus far failed to deliver.

Previous analysis has shown that such an EEPPT in the UK could make it cost-effective for 44 per cent of properties to increase their energy performance by one efficiency band: the cost of the improvements being less than the reduction in tax. Since this original proposal, interest in an EEPPT has focussed on its potential to help increase take-up of energy efficiency financing mechanisms that remove upfront costs but otherwise reduce the on-going benefits of improved efficiency.

This paper builds on the initial findings: specifically it explores how an EEPPT can integrate with a financing mechanism (the UK's 'Green Deal'), extends the approach to an energy efficient municipal tax (EEMT), and presents an integrated home improvement model that assesses the impact of efficiency deployment scenarios on tax revenues under different efficiency tax differentials. The aim is to understand the magnitude and impact of the EEPPT/EEMT carrot/stick, and the resulting change in the underlying (non-efficiency) component of the tax required to ensure that any amendments to the tax system are revenue neutral.