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Financing energy renovations in the European building stock

Created by M. ECONOMIDOU
Economics and Financing
Buildings

Introduction

With the right set of policy tools, it is generally accepted that governments can play a crucial role in promoting energy efficiency and leveraging more investments in the building sector, especially in the existing stock. Buildings are responsible for 40% of total energy consumption of the EU and their modernisation is considered to be pivotal in our shift towards a low carbon economy.

Current experience shows that actual energy efficiency investments in this segment of the building stock neither meet the scale nor the quality aligned with its overall potential. There is a wide range of policies at EU level which require Member States to set a number of regulatory, informative and economic measures with the aim to improve the energy performance of buildings.  For now, economic instruments appear to dominate the policy framework for existing buildings, while the need for more market action and enhanced private sector involvement is increasingly highlighted as this offers the only sustainable route for scaling up existing efforts.

Economic instruments for energy renovations

Economic instruments for energy renovations are divided in financial instruments such as loans, grants and subsidies, fiscal instruments such as tax credits or VAT reductions and market-based instruments such as energy saving obligations or white certificates.

Types of conventional economic instruments
Financial incentives Fiscal instruments Market-based instruments
Loans, Grants, Subsidies Income tax credit or deduction; Accelerated depreciation; VAT reduction; Property taxation; Tax rebates Energy saving obligations; White certificates;

 

Evaluation of economic policy instruments

The analysis of the economic instruments can be structured along each phase of their policy cycle: (1) design, (2) implementation (3) impact and evaluation. These phases typically form part of a natural review process by the end of which lessons learned are drawn and changes are incorporated in a planned redesign phase, thus allowing for constant programme improvements during its lifetime.

From a policy design perspective, the following elements are examined:

  • Motivation, objectives, timelines and targets set;
  • Recipients & main stakeholders involved; targeted building segments;
  • Financial architecture and intervention measure design;
  • Interaction with other policy instruments.

 

From an implementation point of view, the following information is tracked:

  • Main financing sources and their contribution to the disbursed budget;
  • Yearly budget allocation;
  • Intermediaries and implementing agents involved;
  • Flow of disbursed finance from the source to the intermediary and sector
  • Volume of investment;
  • Outreach strategies.

 

For impact and evaluation, data on the following parameters are collected:

  • participation in the programme;
  • impact assessment;
  • methods used to measure energy savings;
  • planned improvements.

European landscape of economic instruments for energy renovations

Many countries choose to deploy a combination of different economic instruments, each tailored to address different barriers, specific segments and recipient groups within the building sector.  The table below provides an EU28 overview of the economic instrument types on energy efficiency investments in existing buildings operating in the year 2013. Most of the economic instruments targeted the residential sector, however some instruments concerned commercial buildings or public buildings or a combination of different building types (see Figure 2). Financial support is predominantly offered in the form of grants/subsidies, followed by loans and tax incentives. Energy efficiency obligations and white certificates are set up in a handful of Member States, but this is likely to change with the implementation of the Energy Efficiency Directive (2012/27/EU) and introduction of article 7 on energy efficiency obligations. The renovation strategies (article 4 of Directive 2012/27/EU), are also likely to change the policy scene of existing buildings

Main EU28 economic instruments in 2013 targeting energy renovations

 

AT

BE

BG

CY

CZ

DE

DK

EE

ES

FI

FR

EL

HU

HR

Grants/subsidies

x

x

x

x

x

x

 

x

x

x

x

x

x

x

Loans

 

x

x

 

x

x

 

x

x

 

x

x

x

x

Tax incentives

 

x

 

 

 

 

x

 

 

x

x

 

 

 

EEO/WC

 

x

 

 

 

 

x

 

 

 

x

 

 

 

 

IE

IT

LT

LU

LV

MT

NL

PL

PT

RO

SE

SI

SK

UK

Grants/subsidies

x

x

x

x

x

x

x

x

x

x

 

x

x

 

Loans

 

 

x

 

 

 

x

x

 

x

 

 

x

x

Tax incentives

 

x

 

 

 

 

x

 

 

 

 

 

 

 

EEO/WC

 

x

 

 

 

 

 

 

 

 

 

 

 

x

A large range of groups were targeted by current instruments (Figure 3), reflecting the long complex chain of actors involved in the building sector.  These ranged from households, housing associations to public authorities, commercial companies, ESCOs and many others. Tenants also formed part of the target group in certain programmes, however the success in terms of engaging tenants in energy efficiency investments is not clear. 


Depth of renovations targeted

Disbursed budget

Interaction with other policy instruments

Impact assessment

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