Vouchers vs. rebates
Change-out program models: Vouchers, rebates, loans, etc.
Most state and local wood stove change-out programs follow one of five general models. In order of popularity, they are: 1) The Voucher Model; 2) The Rebate Model; 3) The Grant Model; 4) The Loan Model; and 5) The Tax Deduction Model. We discuss the general format, as well as the pros and cons, of each below.
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All stove change-out programs seek to reduce wood smoke, but they also operate in different environments and address many different secondary goals, from helping families to heat more affordably to reducing the carbon impact of heating. These factors may determine which model is best for that jurisdiction.
All change-out programs also strive to maximize the benefit of the available funding, but there is little consensus on how to achieve that. Many programs, for better or worse, learn through trial and error. All change-out programs also help address the underlying deterrent of removing a stove for another appliance—the cost—or the perceived cost. Thus the need for change-out funding. However, jurisdictions could do far more to demonstrate that buying and professionally installing a new wood stove does not have to be a $3,500 - $5,000 job. Many consumers know this already and expect to pay only about $2,000 by buying a quality value stove for $750 - $1,300, buying a low cost hearth pad for $100 - $150, and having it professionally installed, often for around $700. Going through a specialty retailer and getting a $1,000 voucher will not always save these people money. But if a $2,000 complete install was prominently advertised, along with a $500 - $1,000 rebate, it could really accelerate stove change-outs in lower income communities and increase the number of rebates a program could offer.
1) The Voucher Model
The majority (~57%) of 2016 change-out programs use the voucher model, which provides program applicants vouchers or coupons (sometimes called "grants" or "rebates") that provides an instant discount off the purchase of a new program-qualifying heating device at participating retailers. Applicants typically must submit a pre-application form to the change-out program administrator and must be approved before receiving a voucher in the mail. However, some programs, such as Massachusetts
, rely on participating retailers to determine applicant qualification, which saves program administrators quite a bit of work, but shifts the burden to retailers. Many retailers refuse to participate in change-out programs, citing both paperwork concerns and because they may not get paid for the job until many months later by the program manager. There may be privacy concerns about retailers having access to the sensitive information needed to assess low-income status. Programs in Washington state that are funded by the Washington State Department of Ecology partner with Community Action
or home assistance programs to help screen applicants. Once awarded, vouchers usually are set to expire in about four to six weeks from the issuance date.
Retailers are usually responsible for installing the new device and disposing of the old device (or supervising and/or coordinating the installation/disposal). They are also usually responsible for submitting the reimbursement paperwork to the change-out administrator. One retailer who is participating in the Western Nevada
change-out program said that the program’s online system
was easy to use. A New England retailer said that the 2016 New Hampshire program
administered by the American Lung Association was one of the most well-designed he has been asked to participate in and required a minimal amount of work on his part.
Participants only need to complete a minimal amount of paperwork from the administrator in the Voucher Model. Pre-qualification forms are generally about a page long and ask participants to provide information about their address, old wood stove, and fuel usage. These forms are usually available on the change-out program’s website and participants are instructed to submit them by mail or email. The Portneuf, Idaho program
asks residents to apply in-person. Pictures of the old device are often required.
Vouchers can take some administrative work off of retailers, but retailers are often still responsible for a lot of paperwork. To recoup the administrative costs and to recycle the old stove, retailers can increase their installation prices.
A typical flowchart for residents who participate in voucher change-out programs. Voucher programs usually require fewer steps and less paperwork for participants than rebate programs.
- Better for mid- and low-income families to get discount at the register, instead of having to pay entire amount up-front and get rebates weeks or months later
- Majority of the paperwork is the responsibility of the retailer; may streamline the change-out process for administrators and participants
- Professional installation is usually required
- Less likely that big box stores will participate (although they may be eligible) due to administrative burden
- Hearth specialty shops may have to wait to get paid by administrator, which can be difficult for smaller shops if administrator does not pay quickly
- Administrators are likely to be flooded with pre-applications once the program goes live, and may face a greater chance that homeowners will apply for a voucher but not use it
- Administrators have less direct contact with participants; education is left to the retailers
Notable, medium-sized 2016 voucher programs include Portneuf Valley, Idaho
($200,000 budget) Massachusetts
($700,000 budget), and Northern Colorado
2) The Rebate Model
The Rebate Model is the second most popular among 2016 change-out programs, used by about one in four programs. Programs that follow this model usually issue rebates after participants submit the required documents showing that they have installed a new heating device and properly disposed of their old appliance. These programs typically offer applicants the ability to purchase a qualifying device from any store (including big box hardware stores), and some, such as Marin County, CA
, also provide a list of local retailers offering additional discounts. Some rebate Model programs allow the new appliance to be self-installed, but require local building permit officers to inspect the installation. The Bay Area
program is one of the few 2016 rebate programs of this type that forbids self-installation and requires participants to select a licensed contractor.
Programs that follow the Rebate Model tend to place the paperwork burden on the participants and administrators, not retailers. To ensure that change-out funds are not awarded retroactively to those who have already replaced their old devices, participants are often required to first submit a pre-application form (similar to the Voucher Model form in terms of length and questions) before beginning work on the project. After receiving confirmation from the change-out program administrator, participants are usually given a set amount of time, which can range from 90 days (Bay Area
) to six months (El Dorado
), to obtain the necessary permits, dispose of the old stove, install the new device, receive necessary inspections, and submit the reimbursement paperwork. There are often strict requirements on these steps, and the participant usually needs to submit forms and photos verifying the disposal of the old device and installation. Once the reimbursement paperwork is reviewed and accepted, administrators will mail a rebate check to the participant or deposit the amount in their bank account.
Typical procedure for residents who replace an old wood stove through a change-out program that follows the rebate model. Rebate programs tend to be the most involved for residents due to the number of steps involved, and residents must wait longer for reimbursement.
- Usually requires participants to obtain a building permit and inspection
- Allows participants more choices for how to install the stove and where to purchase the new device, hearth pad and stove pipe, which can be very expensive when purchased from specialty retailers
- Administrators have more direct contact with participants
- Complex application process; longer time to obtain rebate and strict deadlines
- More paperwork for participants and administrators to complete
- Participants may have a small window to complete necessary steps
Notable, mid- to large-sized Rebate Model programs include the Bay Area
($3 million dollar budget) and El Dorado County, CA
($193,939 budget).3) The Grant Model
Two 2016 change-out programs follow the Grant Model, which covers the entire cost of replacing an old wood-burning device with a new appliance (including the cost of installation). Grant model programs typically do not offer participants much flexibility to choose their new device as program administrators may purchase one or a few models in bulk to save on costs. The final Makah, WA change-out report
discusses how this 2008 grant program allowed local contractors to bid for the project, which aimed to install 40 new stoves. They hoped to pay around $2,300 per stove including install. In the end, program administrators decided to go with a Kuma Classic as the replacement stove used for this change-out at a negotiated cost of $2,434 (low range) to $3,015 (high range) per stove installed. This translates to $1,350 for each stove and $1,085 for each standard installation, plus a variable cost of $561 per stove for non-standard installation. In 2016, the Kuma Classic stove itself has a retail price of $2,230 in Washington State, so we can assume the program received a fairly steep discount of perhaps 30 to 40%. The change-out program ultimately replaced 45 stoves at an average cost of $2,104 per stove installation, which they thought was a good value.
Comparison table from the Final Makah change-out report (pg. 10) that shows the different contractor bids. The program administrators ultimately chose Thurman’s as the contractor and the Kuma Classic as the stove model for the program, due to the Kuma having a perceivably larger burn box that seemed easier to operate.
A similar bulk purchase model is now commonplace with solar PV, allowing communities to drive purchase and installation costs down. This model could be used to buy 50 - 100 stoves at a time directly from a value stove manufacturer such as Englander, which makes good quality wood stoves at very low prices. Acquiring stoves at $500 apiece and working with local professionals to install them in the off-season could enable a program to double the number of stove removals and installs, whether it be a grant, voucher or rebate model. However, selecting just one manufacturer for the program may be difficult for program managers to justify. Program managers may find it easier to get the support of the local hearth industry association if they allow participants to purchase appliances from local hearth specialty retailers and exclude big box stores.
The Grant model is more common for pilot programs, such as the 2016 Phoenix and Glendale, Arizona
program, or programs that target low-income or heavily polluted areas, such as the 2016 Butte-Silver Bow, Montana
program. The first phase of the 2007-2008 Libby program
is a famous example of a high-budget ($2.7 million) pilot change-out Grant Model program that targeted a low-income and heavily polluted area. Tribal programs in the past have also tended to follow this model (see: Makah, WA: 2007-2008
; Nez Perce, ID: 2006-2009
). In general, programs that follow the Grant Model tend to consider both outdoor and indoor air quality as priorities, rather than primarily focusing on ambient PM2.5 reductions.
To save costs, most programs partner with a single retailer and/or contractor. Many allow wood-to-wood change-outs only (Butte-Silver Bow
), although the Phoenix and Glendale
pilot program (for fireplaces) allows participants to switch out their wood-burning fireplaces to gas, or retrofit them with catalysts. Compared to other models, grant programs are usually more exclusive and invest more resources into outreach. The average cost per device changed-out tends to be comparatively high (~$2,500 to ~$3,600) because participants are not required to contribute.
Typical procedure for residents who participate in change-out programs that follow the grant model. Residents who are awarded a grant to change-out a stove typically receive more personalized attention from program administrators.
- Usually targeted for communities most in need
- Usually includes more of an education component
- Can reduce overall price of installation
4) The Loan Model
- Limited choice for participants
- High administration and overall costs
- Lack of cash "buy-in" from consumers may make them less engaged
Two 2016 programs offer zero-interest loans on a new heating device for residents who replace an uncertified wood appliance. Both of these are city-wide programs: Pendleton, Oregon
and Fort Collins, Colorado
. Residents of Pendleton, Oregon are eligible to receive a five-year loan of up to $3,000 for a new heating system. Fort Collins, Colorado residents are eligible for $1,000-$3,000 loans from the local utility covering up to 90% of the project costs. Neither the Fort Collins nor the Pendleton loan covers costs associated with self-installation, although Pendleton allows it (but the loan only covers device costs). Residents who take out loans for these projects must submit paperwork verifying the old stove has been properly disposed of, among other loan paperwork. Both programs use a pre-application form. Fort Collins requires applicants to first undergo a credit check.
These are the typical steps residents who take a loan for a new stove need to follow.
- Applicants can choose from a variety of devices and installation options
- Stable funding source allows the program to continue for a long time
5) The Tax Deduction Model
- Typically only open to homeowners with good credit
- May not be feasible/attractive for low-income applicants
- May not attract many participants without some additional type of discount
- Requires staff to run or legal agreements with providers; may take years to establish
Only one 2016 change-out program, covering the entire state of Idaho
, follows this model. Idaho allows taxpayers to deduct up to 40% of the cost of purchasing and installing an eligible heating device the first year, and 20% each of the following three years (capped at $5,000 annually), if they replace an uncertified wood stove. They must submit paperwork stating that they disposed of their old stove at an approved site when filing taxes. Participants of the Portneuf
change-out program are eligible for the state deduction in addition to the local incentive. Professional installation of the new device is not required for this program, but the old device must be disposed of within 30 days of purchasing the new appliance.
- Multiple-year incentive may be attractive to participants
- Stable funding source allows the program to continue for a long time
Typical procedure for residents who receive a tax deduction for changing out an old stove. This procedure is similar to most rebate programs, except that residents who apply for tax deductions usually do not need to seek pre-approval before beginning a project.Conclusion: Freeriders and the Rebound Effect
- Cannot be used in the 11 states that do not collect state income tax
- Usually only open to homeowners/taxpayers
- May not be feasible/attractive for low-income applicants
- Consumer may have to wait a year or more for the tax deduction
Our analysis of 2016 wood stove change-out programs
shows that U.S. programs employ a variety of incentives to encourage residents to replace their old wood stoves with newer heating systems, the most popular of which are vouchers and rebates. Change-out program managers may be curious to know which incentive type is best to use, all things being equal. It is a crucial question, but difficult to answer because voucher and rebate programs offer a different set of advantages and disadvantages to the different parties involved; i.e., consumers, retailers, and program managers.
Common sense suggests that consumers, especially lower-income consumers, would be more likely to purchase new appliances such as wood stoves if they received a voucher for an instant deduction at the register, rather than a rebate after the fact (or a tax deduction, which works in a similar way) that they must claim later. Studies and surveys have shown that consumers of renewable energy and energy efficient appliances are more likely to prefer vouchers to rebates or tax deductions
and rebates or tax deductions to loans
. A study on hybrid vehicle incentives by Gallagher and Muehlegger (2008)
found that voucher programs created a seven-fold increase in sales as compared to income tax credit programs. But a voucher program might not always create the best outcome for the community, due to the problem of free-riders and the rebound effect
. The rebound effect is when, for example, a consumer buys a stove that is 20% more efficient, but instead of saving 20% more wood, they keep their house hotter or use the stove more often, because they like it more, and thus they only save 10% of wood. The rebound effect can also show up on the showroom floor, when a consumer buys a larger stove than they had before because they are getting a rebate or incentive. This effect might be mitigated if the change-out program requires participating retailers to sign an agreement saying that will provide sizing advice and not sell over-sized stoves to participants.
On the other hand, retailers and installers may be less likely to want to participate in voucher programs because it usually means more paperwork for them. The retailers we heard from mentioned that they are reluctant to participate in change-out programs that require too much effort on their part, as they often do not receive too high of a sale boost from these programs—they might only close 3-4 new sales due to the high number of free-riders. Even so, most retailers we spoke to seemed to think that voucher programs they participated in were worth it as long as they were well-managed and well-designed. Change-out programs that received high marks from participating retailers include the American Lung Association’s New England program
and the Western Nevada program
, with its online dealer portal, managed by the Nevada Business Environmental Program at the University of Nevada, Reno.
Stove change-out program administrators often try to accomplish several goals at once. Apart from improving ambient air quality, one of the goals might be to reduce energy use (and emissions) by improving the efficiency of the home heating system. With change-out programs, there’s the possibility that the incentives could entice more free-riders into "upsizing" their heating system, thereby increasing their net energy consumption. A study by Alberini, Gans, and Towe (2013)
observed that recipients of an electric heat pump replacement program in Maryland experienced virtually no decrease in their electricity use, while residents who replaced their heat pumps on their own experienced an average 16% decline. Moreover, the authors found that the size of incentive was tied to the magnitude of the rebound effect: the higher the incentive, the lower the net energy savings, especially if the incentive was $1,000 or more. The results of this study suggest that higher stove replacement incentives may encourage more free-riders to purchase bigger heating systems than they otherwise would.
Change-out programs have used a few strategies in an attempt to cut down on the number of free-riders. A common one is to hold the program in the off-season or summer months when people are less likely to consider upgrading their heating system. Year-round programs could consider stopping applications from September 1 to January 1 to reduce the incentive going to people who would buy anyway. Those programs could still give the retailer $200 for any stove they recycled from one of their customers.
Some recurring change-out programs, such as Massachusetts
, purposefully do not disclose when the program will begin so that people don’t wait for the "sale," which just depresses business for retailers in months leading up to the change-out program. Another strategy is to prioritize the distribution of vouchers or rebates to those most in need. Rebate, grant, or voucher programs that require pre-approval can set aside a portion of their budget for low-income households, households with individuals more vulnerable to air pollution, or poor air quality districts (see: Fairbanks, Alaska
and Kittitas, Washington
or other Washington State Department of Ecology-funded change-out programs for good examples). The downside of this is that there will be more work for administrators.