What if US$42 could help solve a climate challenge affecting billions of people? In New Delhi, a surprisingly simple approach is showing how targeted financial incentives can transform residential air conditioner markets for the better. By offering first-time AC buyers a modest rebate toward energy-efficient models, researchers have discovered a scalable way to shift consumer choices at a critical decision point.
This small intervention has the potential to materially change the trajectory of air conditioning emissions across India—addressing the growing climate impact of new ACs being installed each year.
The problem: Rising temperatures, growing incomes, and climate consequences
In India, rising temperatures, growing incomes, and rapid urbanization are driving unprecedented demand for cooling. Today, less than 10 percent of Indian homes have air conditioners, but that’s changing rapidly. Experts predict India alone will need about one billion new AC units by 2050 – roughly a third of the world’s projected growth.
This surge comes with enormous climate implications. In the summer, air conditioning already causes 40-60 percent of peak electricity use in major Indian cities such as Delhi and Mumbai. If most buyers continue to favor cheaper, inefficient models, the environmental impact will be locked in for decades.
Unfortunately, that’s exactly what’s happening. Environmentally-friendly ACs that use 40 percent less energy already exist, but they cost US$80 more than standard models. This price gap has kept efficient units below 30 percent of market share, creating a stubborn market trap:
- Consumers buy cheaper, energy-hungry ACs
- Manufacturers keep producing inefficient units
- The cycle continues despite everyone losing in the long run
While some power companies offer rebates for energy-efficient ACs, these programs typically target only customers replacing old units—missing the larger market of first-time buyers.
The Experiment: Breaking the market trap
CHAI’s India affiliate, the William J Clinton Foundation (WJCF), saw an opportunity to break this cycle. Working with Tata Power-Delhi Distribution Limited (TPDDL) and supported by Cadence Giving Foundation, they designed an experiment to test a straightforward question:
What happens when you cut the price gap for efficient ACs in half with a US$42 rebate?
The team built a comprehensive program that:
- Followed the money: WJCF partnered with manufacturers to secure additional discounts on efficient ACs
- Spread the word: They created awareness about the program through text messages, emails, social media, and in-person outreach
- Made it simple: They established a system that connected retail stores with the power company’s database to make sure only eligible customers got rebates
- Mimicked real conditions: They tested the mechanics needed for scaling—arranging bulk orders, working with multiple retailers, and testing customer verification systems
This wasn’t just about offering rebates. It was about redesigning the entire purchasing ecosystem to make the more efficient choices easier.
The Results: Creating a blueprint for sustainable cooling
The experiment delivered clear results: when people were given financial incentives that significantly reduced—but didn’t completely eliminate—the price difference, they chose more efficient ACs.
This success has already inspired TPDDL to propose a first-of-its-kind three-year rebate program for first-time AC buyers. The program, which is currently awaiting regulatory approval, is expected to launch in summer 2026. The program will help thousands of consumers purchase efficient units while serving as a template for other power companies across India.
Four key insights emerged that will guide future scaling:
- Ecosystem alignment matters: Success requires coordination between utilities, manufacturers, retailers, and customers
- Meet consumers where they shop: Rebates must be available at the point of sale with easy customer eligibility verification
- Channel readiness varies: Large retail chains integrated easily while small shops that lacked computer systems and data collection had more difficult participating in the program
- Financing multiplies impact: Offering payment plans, including credit card cashback and monthly installment options, significantly increased adoption
Next steps: Expanding the model nationwide
The New Delhi experiment demonstrates the power of CHAI’s market-shaping approach – the same methodology that helped reduce HIV medication costs by up to 90 percent over the past two decades.
Many critical climate technologies already exist but face systemic barriers. These include cost gaps, fragmented markets, information asymmetries, policy hurdles, and financing constraints. By addressing these barriers strategically, we can accelerate adoption of existing solutions.
WJCF’s plans for expansion with support from Cadence Giving Foundation include:
- Working with more power companies across India
- Engaging government officials on supportive policies
- Deepening partnerships with retailers and financing companies
- Using lessons learned to increase both coverage and impact nationwide
The bigger picture: Bright spots for climate action
The AC rebate program represents one of many potential “bright spots” where targeted innovative market-based interventions can create outsized climate impact. By focusing on strategic points of leverage, we can transform markets and drive meaningful progress on our climate goals.
In a world of complex climate challenges, these bright spots remind us that solutions don’t always require technological breakthroughs or massive investments. Sometimes, understanding markets and human behavior is enough to create ripple effects throughout entire systems.
The next time you hear about the overwhelming scale of climate change, remember this: sometimes, the solutions start with something as simple as US$42.
