Policy Modelling for Ambitious Energy Efficiency Investment in the EU Residential Buildings

Abstract

This paper presents the challenges of increasing the energy efficiency investments in European Union (EU) residential buildings in the context of achieving climate neutrality by 2050. The paper presents the results of the PRIMES buildings model in key energy policy applications to support cost-effective and fair policy making in buildings across Europe. The model covers, in detail, the building sector for all the EU Member States (MS), segmenting the buildings into many categories. The approach proposed includes non-market barriers in conventional microeconomic modelling, which combined with idiosyncratic preferences can capture poor energy efficiency choices and still represent rational behaviours. The model includes a detailed portrayal of policies specific to the sector, comprising economic and regulatory policies as well as institutional measures. The results of the model show that the removal of non-market barriers is of great importance in reducing energy consumption and increasing both the pace and the depth of renovation investment. However, the institutional measures alone are not enough to induce energy efficiency improvement to the scale required to achieve the climate neutrality objectives. Economic (i.e., subsidies) or regulatory measures (i.e., energy performance standards) are also required to decrease emissions and energy consumption in buildings and the paper compares different configurations thereof. The optimum policy mix obviously derives from a compromise among various aims including the cost-effectiveness of the policy budget and the distributional impacts across building and consumer types.