The "split incentive" problem creates a deadlock: landlords pay for upgrades, but renters get the lower utility bills. This gap prevents low-income housing from transitioning to heat pumps and better insulation.
Governments can break this by offering direct grants that cover the upfront cost of retrofits in exchange for rent-stabilization agreements. This removes the financial risk from the owner. Alternatively, "Green Leases" allow landlords to recover some investment costs through a small rent increase, provided the tenant's total monthly spend—rent plus energy—stays flat or drops.
Mandatory Energy Performance Certificates (EPC) provide another lever. By banning the rental of properties below a certain efficiency grade, policy forces the owner's hand. These mandates work best when paired with low-interest loans or tax credits specifically for multi-family dwellings.
Some jurisdictions use On-Bill Recovery. Here, the upgrade cost is paid back through the actual energy savings on the utility bill. These tools move the financial burden away from the renter, ensuring that energy justice results in physical changes to the building's envelope rather than just lower subsidies for fossil fuels.
