Economics Seminar - "Policy Trade-offs from Complementary Resource Consumption: PV Adoption and Residential Water Use"

Co-authored with Nic Irwin

Recent rapid growth in residential solar photovoltaic (PV) adoption has spurred investigation into whether households exhibit a “rebound effect,” increasing overall electricity consumption post-adoption. The extent to which these rebound effects spillover onto complementary goods such as water is unknown. We examine such spillovers in the adoption of PV systems on water usage using panel data from the city of Henderson, Nevada. We find that PV installation increases water usage by 1-2 percent relative to pre-installation, indicating a complementarity rebound effect. Our findings uncover a unique policy trade-off, as solar potential is spatially correlated with water scarcity. We quantify misallocation of solar technology by applying our estimates to solar potential and water scarcity data from the United States. Our findings demonstrate that ignoring the water impacts of PV adoption may inadvertently exacerbate water scarcity issues, particularly in regions where water conservation is most critical, and may create severe problems for program evaluation.