Energy efficiency policy instruments in the residential sector: Implementing mechanisms for successful low-carbon transitions in households

Cristina Penasco, University of Cambridge

Overview and relevance of the topic

Improving energy efficiency (EE) is vital to ensure an economic, environmental and social sustainable energy system. According to the International Energy Agency (IEA), increasing EE in buildings represents one of the most cost-effective ways to improve energy security and reduce the environmental damages from the current system. Residential sector represents approximately 19% of the total final energy consumption in the OECD in 2015, reaching a 30% in the UK, one of the highest rates in Europe (IEA, 2016). Many studies have highlighted the important role that public policy can play to reduce energy consumption in residential buildings (Geller et al. 2006). The IEA estimates that public policies can reduce energy consumption in residential buildings by 30-80%, while increasing energy security and improving welfare conditions. This is an ex-ante engineering-based assessment that makes important assumptions regarding the impact of new policies. However, there are a large number of policy and academic assessments of the impact of policies in building energy consumption that may not be accounting for social factors, information asymmetries and other costs or preferences (Sovacool et al., 2017; Gillingham et al., 2016).

Hence, the first objective is to systematically  evaluate the differences in the ex-ante and ex-post assessments of different policy instruments focused on EE in the residential sector on the UK in terms of energy savings and emissions reductions.   Secondly, the responsiveness of household energy demand and the welfare effects related to factors influencing energy demand in the 2005–2014 period are analysed to check the responsiveness of different income groups to energy efficiency policies in the British residential sector. This goal is particularly important given the poor efficiency of housing stock in UK (UKERC, 2017), which has high residential energy bills and a documented threat of fuel poverty.

Applying quantile regression methods, the paper analyses the relationships between: 1. The type of policy for energy efficiency in the residential sector, 2. Electricity and heating demand and prices, 3. The carbon intensity in households, 4. Energy savings, and 5. The income level of the household. Data from the Odysee-Mure database, IEA EE databases, and the European Community Statistics on Income and Living Conditions are used.

Results and Implications
We expect that actual performance of the EE policy instruments in households, in terms of the energy savings and emission reductions, is systematically lower than that projected when the policies were enacted. Delays on the adoption of measures due to social challenges are expected which generates more costs than the projected ones; and the factors influencing energy demand are expected to have a more negative impact on the welfare of the poorest households than on the medium and high-income households. The paper contributes to: (1) understanding what type of policies may have the largest impacts in terms of reducing residential energy consumption; (2) differentiating between the impact of policies on household electricity and heating consumption, and the extent to which households of different income levels are responding to policies; and (3) understanding how to conduct more accurate ex-ante assessments to include in cost-benefit analysis.

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