BPIE: Europe's buildings under the microscope - PU Europe

IV. Separation of expenditure and benefit
This is probably the most complex and long-standing barrier relating to existing buildings, particularly in
countries where there is a high share of rental accommodation in the residential sector, but also because
of the structure of occupancy in the non-residential sector. This barrier has been known under various
names throughout the years. Most recently it is known as the ‘split incentives barrier’ or the ‘landlord/
tenant barrier’, the ‘investor/user barrier’ and the ‘principal/agent barrier’, to name the main ones.
This barrier was identified as the fourth most important barrier in the BPIE survey, although there were no
first place positions amongst the countries. This barrier is sometimes considered a financial barrier and,
understandably, there are financial implications. It is also sometimes considered to be an institutional
barrier. This is presented separately herein due to its importance in retrofit strategies.
The problem originates from the fact that one person or organisation owns a building and someone else
uses it. For the owner, any investment has to bring a benefit which is not necessarily through energy
savings, unless it is a situation where the landlord pays the energy bills (this may sometimes be the case).
Since the tenant does not own the facility, any investment in lowering energy bills has to be seen as
financially advantageous for both actors. This often leads to a stalemate with nothing happening.
There are many examples where the party investing in a building may not be the party reaping the
financial returns (in full or in part). Examples include:
• Landlords investing in a property where tenants pay the energy bill;
• Landlords’ inability (through legislative restrictions or other reasons) to raise rents after a building
renovation; and
• Developers constructing a new building or renovating an existing one, where market prices do not
reflect the energy performance of the building.
As evidence from Germany 26 has shown, this is one of the most relevant barriers needing increased
attention, particularly since many leases include heating charges and so the actual consumer has a lack of
understanding of actual energy consumption. A comprehensive analysis on split incentives undertaken
by the International Energy Agency in 2007 showed that this barrier accounts for about 30% of sectorial
energy use, which is highly significant. It stated, however, that no single policy instrument can address
it. The IEA stated 27 :
“Neither regulatory mechanisms, (e.g. minimum energy performance standards, or regulated contract
design), nor information-based instruments (i.e. awareness campaigns) alone will resolve them. Instead,
governments should help design well-targeted policy packages to address PA problems in their specific
national contexts, and within the particular constraints of a given sector. These packages should include
measures to: a) address contract design to ensure end-users face energy prices, b) regulate the level of
energy efficiency in appliances and buildings, c) improve access to information about energy efficiency
performance.”
This is an important point to remember in designing renovation policy pages, as will be seen in Part 3.
26
BPIE database
27
IEA, Mind the Gap, IEA/OECD, Paris, 2007, p. 12.
60 | Europe’s buildings under the microscope