Multiple benefits of renovation in buildings - PU Europe

More documents

Recommendations

Info

Multiple benefits of investing in energy efficient renovation of buildings Externalities The costs of adverse effects on health and worker productivity from buildings with outdated energy efficiency management will often be born not by the owner of the building but potentially the society at large. This is certainly the case for reduced health from air pollution linked to energy production both from electricity production and heating. These costs to society are not included in the building-owner’s decision to invest in renovations. Consequently, there will be invested too little in energy efficient renovation of buildings from society’s point of view. Households have too short term perspective A number of studies suggest that some barriers are particularly predominant in the residential sector. One finding is that households tend to value present and short-term events much higher than future events. In the economic literature this is known as having a high implicit discount rate. This implies that households typically like to see early pay back on investments, and may be reluctant to make too high up-front investments. 48 One reason for this is that households are typically more risk averse than e.g. companies. The actual realised energy savings will be uncertain, and households may be unwilling to invest an amount of money which may make up a large share of the household budgets and/or savings. In addition, households may not be sure that they will continue to live in the same building for a sufficiently long period of time in order to reap enough of the benefits from the investment to make it financially attractive. 49 In addition, they may not expect to be able to fully capitalise the benefits into the property’s market value. Energy efficient renovation of buildings – especially “deep renovations” – typically come with a significant inconvenience cost for households. This includes costs of preparing a project, obtaining permits and financing, finding contractors, supervising their work, possibly moving out during the renovation etc. 50 As these costs are contained in the upfront investment costs, it is given high value in the households’ decision. These inconvenience costs are typically compounded for multi-family homes. An issue such as coordination may turn out to have large transaction costs. In addition, in multifamily homes, the number of households that expect to find new homes within a foreseeable future may be significant. These households may try to block otherwise profitable renovations, as the up-front inconvenience costs outweigh the expected longer term benefits from reduced energy costs. We expect such coordination problems to be greatest in the Baltics and Italy, but also in several of the EU-12 countries as the share of multifamily homes is especially high in these countries, cf. Figure 23. 48 Economic research has also suggested that households may have so called hyperbolic discount functions, meaning that they will place a higher value on the near future than on the more distant future. See e.g. Frederick, Loewenstein and O’Donoghue (2002). 49 In the UK e.g., households move every seven years on average. See UK government Energy Bill, Green Deal Impact Assessment (2010) 50 European Commission (2012) 38
Multiple benefits of investing in energy efficient renovation of buildings Figure 23 Share of multi-family homes pct. 80 70 60 50 40 30 20 10 0 Source: Copenhagen Economics based on Fraunhofer ISI et al. (2009), page 101. 2.4 Policy response Substantial evidence suggests that there exists a large and unfulfilled potential for increasing profitable investments in energy efficient renovation of buildings. In addition, much evidence suggests that there are significant barriers holding these profitable investments back. This calls for government action to spur demand for investments by breaking these barriers. In several EU Member States, governments have tried to address these barriers by establishing financial promotion activities, cf. Box 4. 39
Page 1 and 2: Multiple benefits of investing in e
Page 39: Multiple benefits of investing in e

Multiple benefits of renovation in buildings - PU Europe

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?