The influence of rebate programs on the demand for water heaters: The case of New South Wales

This paper examines the role of Australian 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 before and after the rebate programs were in place. The other is based on a set of stated preference questions asked of households soon to face a replacement decision. While the former allows us to look at recent responses, the latter enables us to forecast future demand. We find that the programs significantly increase shares of solar/heat pump systems. The programs, however, appear less effective in reducing the stock of electric heaters for households with access to natural gas. This pattern is consistent in both datasets. Results from the discrete choice experiments suggest considerable heterogeneity with respect to household preferences toward different types of water heaters and the discount rates they hold. The effective cost of reducing carbon emissions via incentives for water heater replacement is considered from the counterfactual perspective of no government incentives. •We assess the role of rebate programs on NSW demand for climate-friendly water heaters.•Actual purchase and stated preference data are used to study recent and future responses.•The programs increase solar/heat pump shares but appear less effective for households with access to natural gas.•Preferences toward heater types and implicit discount rates are very heterogeneous.•Carbon costs can be largely underestimated without assessing a counterfactual scenario.