The French tax credit dedicated to sustainable development: an econometric evaluation

A tax credit dedicated to sustainable development was first introduced in France in 2005 in order to encourage households to invest in energy conservation and to install renewable energy equipments. It was a big success: between 2005 and 2008 about one primary residence in sixteen was renovated asking for this green tax credit (Clerc, Marcus, Mauroux 2010). In this article we take advantage of an exogenous increase of the tax credit rate to assess its incentive impact. In 2006 the tax credit rate on energy conservation expenditures was raised from 25% to 40% but only for the subset of homeowners living for less than 3 years in a building completed before 1977. We estimate on exhaustive fiscal data the impact of this marginal increase of the tax credit rate on the declaration rate of eligible households using a matching method combined with triple differences, based on Heckman, Ichimura, Smith and Todd (1998). If the tax credit rate had not been raised, in 2006 one eligible household in fifteen among the declarants living for less than three years in a dwelling completed between 1969 and 1976 would not have used this tax credit, one in eight in 2007 and in 2008. Between 2006 and 2008, the additional public cost due to the tax credit increase is at least 80 million euros for the sub-sample of homeowners living for less than 3 years in a dwelling completed between 1969 and 1976, i.e. an average cost between 6,550 and 10,360 euros per additional retrofitted dwelling. Except if the average CO2 emission reductions per household are greater than 10 tonnes each year over the equipment life span, the public cost of a tonne of CO2 avoided by additional declarant among the eligible living in a building completed between 1969 and 1973 would be higher than 32 €, the tutelary value of carbon in 2008.