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Abstract
In the past decade the Australian Federal government and state governments have established
a wide range of programs to cut greenhouse gas emissions from all sectors. This paper
examines the role of hot water system rebate programs in shifting the existing stock of
electric water heaters toward more climate friendly versions using two unique data sets from
New South Wales homeowners. The first data set is based on a survey of households who
recently purchased a water heater and exploits a natural experiment created by the rebate
program to quantify its effects. The other data set is based on a set of stated preference
questions asked of households who own an older water heater and will in the reasonably near
future face a replacement decision. We find that recent rebate programs significantly
increased the share of solar/heat pump systems. For households without access to natural gas,
this increased share comes directly from inefficient electric water heaters. For households
with access to natural gas, older existing electric water heaters would likely have been
replaced with gas water heaters in the absence of the rebate programs. The rebate program
appears to be much less effective when water heaters are replaced on an emergency basis.
Data from discrete choice experiments was analysed using several flexible choice models. A
newly proposed model that combines a latent class approach with a random coefficients
approach clearly dominates the other models in terms of statistical fit. Predictions based on
this model estimate are reasonably consistent with actual purchase data. Results from it point
to considerable heterogeneity with respect to household preferences toward different types of
water heaters and with respect to the discount rates they hold.