Multiple benefits of renovation in buildings - PU Europe

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Multiple benefits of investing in energy efficient renovation of buildings bourg, Malta and United Kingdom on electricity, cf. Figure 21, while VAT on heating is also reduced in most of the same countries, including Portugal. Figure 21 Reduced VAT on energy consumption per cent reduction 16 14 12 10 8 6 4 2 0 Reduced VAT on electricity Reduced VAT on heat Note: All countries with reduced VAT rates on energy electricity and heating is included in the figure Source: Copenhagen Economics based on DG TAXUD (2012) One study which assessed policies with the objective of mitigating so called fuel poverty in UK, Ireland and USA found that in 2010 the UK and the US together spent €6 billion on income-supplementing fuel payments and social tariffs to reduce effective energy prices. 33 Such subsidies to energy consumption are typically based on distributional concerns, as the energy bill typically constitutes a relatively large share of especially low-income families’ budgets. While acknowledging these income distribution considerations, we note that the subsidies are inefficient and costly for public budgets in addition to harming the environment. Income distribution concerns will much more effectively and efficiently be addressed through targeted income redistribution. Indeed our proposal, as noted later, is to push for deep and economically viable energy savings programmes that will reduce the need for energy subsidies in the first place while replacing general energy subsidies to all households with income transfers to the households most severely affected by the unwinding of the subsidies. The net effect will be public savings, energy savings, and safeguarding of income distribution objectives. Indeed if the EU removed existing general reduced VAT-rates on energy consumption (heating and electricity), energy consumption in EU would fall by app. 0.8 per cent, 34 and public budgets would be improved by €3.4 billion corresponding to 0.03 per cent of GDP. 35 These energy saving estimates are medi- 33 IEA (2011a), p. 7 34 Copenhagen Economics (2008), p. 66. The model simulations in this study are based on reduced VAT rates present in 2008. Some countries have removed these reduced rates since giving rise to a lower expected reduction in energy consumption. 35 Copenhagen Economics (2008), p. 68. Some countries have removed these reduced rates since giving rise to a lower expected increased in VAT revenue 32
Multiple benefits of investing in energy efficient renovation of buildings um term effects, and the longer term effects are likely to be much larger, as the increased implicit energy price affects investment incentives, and leads to e.g. more energy efficient buildings. If this is broadened to include all energy consumption tax breaks in the largest EU countries, public budgets could be improved by €11.7 billion. 36,37 Regulation of public investment and ownership of buildings Several studies have suggested that regulation of public ownership of, and investments in, buildings provides insufficient incentives, and even restricts investments in energy efficient renovations of buildings. As the public sector owns 29 per cent of non-residential buildings in the EU, cf. Figure 22, this may be a significant barrier to overall energy efficiency investments. Figure 22 Share of public ownership of non-residential buildings 1% 29% Private Public Other/mixed 70% Source: Copenhagen Economics based on BPIE (2011) A typical governance structure in EU Member States is to assign ownership of public buildings such as schools, hospitals, recreational centres etc. to local municipalities. In many countries, the municipalities are not allowed to borrow externally to finance investments, which imply that energy efficiency investments typically must be taken out of the annual budgets. In fact, a survey of public officials in UK, Germany and France showed that while access to finance instruments from banks was not considered a barrier, insufficient budgets and to some extent high upfront cost for energy efficiency improvements were considered as important barriers for energy efficiency improvements. 38 This consequently implies that behaviour tends to focus on shorter term cash flow effects as opposed to the long term benefits accruing over the life time of the assets they own. In 36 OECD (2011c). 37 Under the assumption of no rebound effect 38 Institute for building efficiency (2011a), p. 5 33
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