Upstream vs. Downstream Rebate Programs


Let’s assume you manage a facility which is littered with T-12 fixtures which you want to replace with T-8 fixtures (and if you’re not swapping them out, you should be!).  Typically, you would purchase equipment, have it installed, apply for a rebate, and have a check mailed to you.

This is a classic example of a downstream program.  This type of program helps a consumer offset the first cost of the equipment and reduces the payback period to a manageable timeframe.  The additional money helps the consumer purchase a higher end, more energy-efficient product which they might not otherwise afford, increasing their energy savings.

There are incentive programs however which don’t provide incentives “downstream”, programs like Southern California Edison’s HVAC rebate program or Florida Power & Light’s lighting rebate program.  In those programs, the consumer purchases equipment and the installing contractor, distributor, or equipment manufacturer receives the rebate.  The check is mailed directly to the contractor who may or may not reflect the incentive as a credit on the cost of the new equipment.

This is the structure of an upstream incentive program.  Upstream programs are designed to encourage distributors to stock the most energy efficient equipment.  Upstream programs generally are more effective with HVAC systems retrofits than with lighting systems retrofits since many HVAC replacements are done on an emergency basis, a situation which essentially forces the consumer to purchase whatever product is most readily available.

Downstream programs encourage John Q. Consumer to make better buying choices.  The customer purchases a more efficient product; the utility gives them a little “pat on the back” (monetarily, of course); everyone wins.  Upstream programs encourage manufacturers to develop more efficient products and encourage distributors to keep high efficiency products in stock, to assist the consumer in making smarter purchasing decisions.

It may be a little easier to understand how the two different incentive program methodologies work using a different context.

  • Since the 1970’s governments at the state, local, and Federal level have been adopting legislature to encourage the recycling of plastics, metals, paper, etc. in order to free up space in landfills and manage our nation’s natural resources.  In order to encourage recycling we’ve created local recyclable pick-up mandates.  We’ve provided incentives to switch to paperless billing and notification options.  These are downstream solutions which essentially provide a “patch” to fix the underlying problem of consumer waste management.
  • But let’s say we want to attack the problems at the source, and stop the inefficiencies within the system before they are even created.  Maybe we develop new materials which are made to decompose over a given time period.  Maybe we find a way to create paper from something other than trees.  These are upstream solutions, eliminating the need for a patch in the first place.

In summary, while both upstream and downstream incentive programs can be useful towards attaining our ongoing energy consumption reduction goals they each have their own unique pro’s and con’s.

Upstream programs have the ability to influence consumer choices on a much broader scale and in turn more quickly change the market standards of energy efficient technologies.   However, incentives paid on upstream programs don’t always find their way into the consumers’ pockets to help offset energy efficient equipment costs.  Most upstream programs do not require the distributor to expose the full amount of the rebate or incentive to the consumer/end user; therefore, the distributor has an opportunity to “pocket” a portion of the incentive as profit margin against the cost of the project.

Downstream programs present the largest opportunity for consumers to receive incentives, but at a National level, may take longer to influence consumers’ decision making and provide a slower, more temporary fix to our energy consumption goals.

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