Why do actors in the commercial property market not adopt risk-free energy efficiency projects?

Abstract

The world calls for climate mitigation, and energy efficiency presents an unique opportunity. Energy efficiency is the most resource-efficient and sustainable means to reach net zero by 2050. A magnitude of energy efficiency investments are even profitable, but they fail to be adopted. This is referred to as the efficiency gap. The gap is a result of barriers to energy efficiency. Two of the most commonly cited barriers creating this gap are the split incentive and lack of access to capital. Performance-based services allows adopters to take no risk when investing in energy efficiency and pay for the achieved savings instead. These instruments are still not closing the efficiency gap, despite answering to these prevalent barriers. This issue was studied as a case study, interviewing sales representatives from an energy advisor in the commercial property market. The sellers were interviewed about their interactions with potential customers to services with alternative financing. A major finding of the study is that such offers struggle to penetrate in cases of multiple parties because there are so many interests that have to align, failing to answer the split incentive. There were also reports of the offer said to be “too good to be true” where potential customers failed to recognize the true potential in the offer.