IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v147y2020ics0301421520305681.html
   My bibliography  Save this article

The impact of political instruments on building energy retrofits: A risk-integrated thermal Energy Hub approach

Author

Listed:
  • Ahlrichs, Jakob
  • Rockstuhl, Sebastian
  • Tränkler, Timm
  • Wenninger, Simon

Abstract

Thermal building retrofits are one of the key approaches to mitigate greenhouse gas emissions. Nevertheless, the current rate of retrofits in Germany is around 1%, and the building sector lags behind environmental goals of saving damaging emissions. A potential reason inhibiting investments is the financial risk connected to thermal building retrofits. While recent research focuses on various political instruments to promote environmental investments, their influence on the financial risk of energy efficiency investments has scarcely been considered. In this study, a method to include risk in the financial evaluation of thermal building retrofits is developed. With this method, named as the Risk-Integrated Thermal Energy Hub, the impact of various political instruments such as emission taxes, subsidies, and energy efficiency insurances on investment decisions of homeowners is analyzed. Based on real-world data of 342 one and two-family houses in Germany, this study illustrates how political instruments influence the financial risk and return of example building retrofits. The findings reveal the effectiveness of energy efficiency insurances in mitigating risk, by promoting environmentally friendlier investments relatively cost-efficient compared to subsidies. Further, this case study indicates that emission taxes need to exceed 140€ per CO2 ton to significantly impact investment decisions.

Suggested Citation

  • Ahlrichs, Jakob & Rockstuhl, Sebastian & Tränkler, Timm & Wenninger, Simon, 2020. "The impact of political instruments on building energy retrofits: A risk-integrated thermal Energy Hub approach," Energy Policy, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:enepol:v:147:y:2020:i:c:s0301421520305681
    DOI: 10.1016/j.enpol.2020.111851
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421520305681
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2020.111851?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Todd D. Gerarden & Richard G. Newell & Robert N. Stavins, 2017. "Assessing the Energy-Efficiency Gap," Journal of Economic Literature, American Economic Association, vol. 55(4), pages 1486-1525, December.
    2. Brown, Marilyn A., 2001. "Market failures and barriers as a basis for clean energy policies," Energy Policy, Elsevier, vol. 29(14), pages 1197-1207, November.
    3. Egbue, Ona & Long, Suzanna, 2012. "Barriers to widespread adoption of electric vehicles: An analysis of consumer attitudes and perceptions," Energy Policy, Elsevier, vol. 48(C), pages 717-729.
    4. Jaffe Adam B. & Stavins Robert N., 1995. "Dynamic Incentives of Environmental Regulations: The Effects of Alternative Policy Instruments on Technology Diffusion," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 43-63, November.
    5. Dubin, Jeffrey A & McFadden, Daniel L, 1984. "An Econometric Analysis of Residential Electric Appliance Holdings and Consumption," Econometrica, Econometric Society, vol. 52(2), pages 345-362, March.
    6. Beerepoot, Milou & Beerepoot, Niels, 2007. "Government regulation as an impetus for innovation: Evidence from energy performance regulation in the Dutch residential building sector," Energy Policy, Elsevier, vol. 35(10), pages 4812-4825, October.
    7. Luc Bauwens & Sébastien Laurent & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109, January.
    8. Mensi, Walid & Hammoudeh, Shawkat & Nguyen, Duc Khuong & Yoon, Seong-Min, 2014. "Dynamic spillovers among major energy and cereal commodity prices," Energy Economics, Elsevier, vol. 43(C), pages 225-243.
    9. Mlecnik, Erwin & Visscher, Henk & van Hal, Anke, 2010. "Barriers and opportunities for labels for highly energy-efficient houses," Energy Policy, Elsevier, vol. 38(8), pages 4592-4603, August.
    10. Fang, Tingting & Lahdelma, Risto, 2016. "Evaluation of a multiple linear regression model and SARIMA model in forecasting heat demand for district heating system," Applied Energy, Elsevier, vol. 179(C), pages 544-552.
    11. Min, Jihoon & Azevedo, Inês L. & Michalek, Jeremy & de Bruin, Wändi Bruine, 2014. "Labeling energy cost on light bulbs lowers implicit discount rates," Ecological Economics, Elsevier, vol. 97(C), pages 42-50.
    12. Bergek, Anna & Berggren, Christian, 2014. "The impact of environmental policy instruments on innovation: A review of energy and automotive industry studies," Ecological Economics, Elsevier, vol. 106(C), pages 112-123.
    13. Thonipara, Anita & Runst, Petrik & Ochsner, Christian & Bizer, Kilian, 2019. "Energy efficiency of residential buildings in the European Union – An exploratory analysis of cross-country consumption patterns," Energy Policy, Elsevier, vol. 129(C), pages 1156-1167.
    14. Bloess, Andreas, 2019. "Impacts of heat sector transformation on Germany’s power system through increased use of power-to-heat," Applied Energy, Elsevier, vol. 239(C), pages 560-580.
    15. Mills, Evan & Kromer, Steve & Weiss, Gary & Mathew, Paul A., 2006. "From volatility to value: analysing and managing financial and performance risk in energy savings projects," Energy Policy, Elsevier, vol. 34(2), pages 188-199, January.
    16. Schleich, Joachim, 2009. "Barriers to energy efficiency: A comparison across the German commercial and services sector," Ecological Economics, Elsevier, vol. 68(7), pages 2150-2159, May.
    17. Achtnicht, Martin & Madlener, Reinhard, 2014. "Factors influencing German house owners' preferences on energy retrofits," Energy Policy, Elsevier, vol. 68(C), pages 254-263.
    18. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    19. Aasness, Jorgen & Bye, Torstein & Mysen, Hans Terje, 1996. "Welfare effects of emission taxes in Norway," Energy Economics, Elsevier, vol. 18(4), pages 335-346, October.
    20. Thompson, Philip B, 1997. "Evaluating energy efficiency investments: accounting for risk in the discounting process," Energy Policy, Elsevier, vol. 25(12), pages 989-996, October.
    21. Menezes, Anna Carolina & Cripps, Andrew & Bouchlaghem, Dino & Buswell, Richard, 2012. "Predicted vs. actual energy performance of non-domestic buildings: Using post-occupancy evaluation data to reduce the performance gap," Applied Energy, Elsevier, vol. 97(C), pages 355-364.
    22. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    23. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 629-649.
    24. Fabrizio, Enrico & Corrado, Vincenzo & Filippi, Marco, 2010. "A model to design and optimize multi-energy systems in buildings at the design concept stage," Renewable Energy, Elsevier, vol. 35(3), pages 644-655.
    25. Baltuttis, Dennik & Töppel, Jannick & Tränkler, Timm & Wiethe, Christian, 2020. "Managing the risks of energy efficiency insurances in a portfolio context: An actuarial diversification approach," International Review of Financial Analysis, Elsevier, vol. 68(C).
    26. Diakaki, Christina & Grigoroudis, Evangelos & Kabelis, Nikos & Kolokotsa, Dionyssia & Kalaitzakis, Kostas & Stavrakakis, George, 2010. "A multi-objective decision model for the improvement of energy efficiency in buildings," Energy, Elsevier, vol. 35(12), pages 5483-5496.
    27. Niemierko, Rochus & Töppel, Jannick & Tränkler, Timm, 2019. "A D-vine copula quantile regression approach for the prediction of residential heating energy consumption based on historical data," Applied Energy, Elsevier, vol. 233, pages 691-708.
    28. Shiferaw, Yegnanew A., 2019. "Time-varying correlation between agricultural commodity and energy price dynamics with Bayesian multivariate DCC-GARCH models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 526(C).
    29. Mohamed Hamdy & Gerardo Maria Mauro, 2017. "Multi-Objective Optimization of Building Energy Design to Reconcile Collective and Private Perspectives: CO 2 -eq vs. Discounted Payback Time," Energies, MDPI, vol. 10(7), pages 1-26, July.
    30. Chua, K.J. & Chou, S.K. & Yang, W.M., 2010. "Advances in heat pump systems: A review," Applied Energy, Elsevier, vol. 87(12), pages 3611-3624, December.
    31. Greening, Lorna A. & Bernow, Steve, 2004. "Design of coordinated energy and environmental policies: use of multi-criteria decision-making," Energy Policy, Elsevier, vol. 32(6), pages 721-735, April.
    32. Amasyali, Kadir & El-Gohary, Nora M., 2018. "A review of data-driven building energy consumption prediction studies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 81(P1), pages 1192-1205.
    33. Jackson, Jerry, 2010. "Promoting energy efficiency investments with risk management decision tools," Energy Policy, Elsevier, vol. 38(8), pages 3865-3873, August.
    34. Hinz, Fabian & Schmidt, Matthew & Möst, Dominik, 2018. "Regional distribution effects of different electricity network tariff designs with a distributed generation structure: The case of Germany," Energy Policy, Elsevier, vol. 113(C), pages 97-111.
    35. Mills, Evan, 2003. "Risk transfer via energy-savings insurance," Energy Policy, Elsevier, vol. 31(3), pages 273-281, February.
    36. Lawrence H. Goulder & Ian W. H. Parry, 2008. "Instrument Choice in Environmental Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(2), pages 152-174, Summer.
    37. Nguyen, Anh-Tuan & Reiter, Sigrid & Rigo, Philippe, 2014. "A review on simulation-based optimization methods applied to building performance analysis," Applied Energy, Elsevier, vol. 113(C), pages 1043-1058.
    38. Olonscheck, Mady & Holsten, Anne & Kropp, Jürgen P., 2011. "Heating and cooling energy demand and related emissions of the German residential building stock under climate change," Energy Policy, Elsevier, vol. 39(9), pages 4795-4806, September.
    39. Häckel, Björn & Pfosser, Stefan & Tränkler, Timm, 2017. "Explaining the energy efficiency gap - Expected Utility Theory versus Cumulative Prospect Theory," Energy Policy, Elsevier, vol. 111(C), pages 414-426.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ahlrichs, Jakob & Rockstuhl, Sebastian, 2022. "Estimating fair rent increases after building retrofits: A max-min fairness approach," Energy Policy, Elsevier, vol. 164(C).
    2. Rockstuhl, Sebastian & Wenninger, Simon & Wiethe, Christian & Ahlrichs, Jakob, 2022. "The influence of risk perception on energy efficiency investments: Evidence from a German survey," Energy Policy, Elsevier, vol. 167(C).
    3. Simon Wenninger & Christian Wiethe, 2022. "The Human’s Comfort Mystery—Supporting Energy Transition with Light-Color Dimmable Room Lighting," Sustainability, MDPI, vol. 14(4), pages 1-10, February.
    4. Rockstuhl, Sebastian & Wenninger, Simon & Wiethe, Christian & Häckel, Björn, 2021. "Understanding the risk perception of energy efficiency investments: Investment perspective vs. energy bill perspective," Energy Policy, Elsevier, vol. 159(C).
    5. Bragolusi, Paolo & D'Alpaos, Chiara, 2022. "The valuation of buildings energy retrofitting: A multiple-criteria approach to reconcile cost-benefit trade-offs and energy savings," Applied Energy, Elsevier, vol. 310(C).
    6. Simon Wenninger & Christian Wiethe, 2021. "Benchmarking Energy Quantification Methods to Predict Heating Energy Performance of Residential Buildings in Germany," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 63(3), pages 223-242, June.
    7. Chersoni, Giulia & DellaValle, Nives & Fontana, Magda, 2022. "Modelling thermal insulation investment choice in the EU via a behaviourally informed agent-based model," Energy Policy, Elsevier, vol. 163(C).
    8. Li, X. & Arbabi, H. & Bennett, G. & Oreszczyn, T. & Densley Tingley, D., 2022. "Net zero by 2050: Investigating carbon-budget compliant retrofit measures for the English housing stock," Renewable and Sustainable Energy Reviews, Elsevier, vol. 161(C).
    9. Wenninger, Simon & Kaymakci, Can & Wiethe, Christian, 2022. "Explainable long-term building energy consumption prediction using QLattice," Applied Energy, Elsevier, vol. 308(C).
    10. Gnekpe, Christian & Tchuente, Dieudonné & Nyawa, Serge & Dey, Prasanta Kumar, 2024. "Energy Performance of Building Refurbishments: Predictive and Prescriptive AI-based Machine Learning Approaches," Journal of Business Research, Elsevier, vol. 183(C).
    11. Moeller, Simon & Bauer, Amelie, 2022. "Energy (in)efficient comfort practices: How building retrofits influence energy behaviours in multi-apartment buildings," Energy Policy, Elsevier, vol. 168(C).
    12. Wiethe, Christian & Wenninger, Simon, 2023. "The influence of building energy performance prediction accuracy on retrofit rates," Energy Policy, Elsevier, vol. 177(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rockstuhl, Sebastian & Wenninger, Simon & Wiethe, Christian & Häckel, Björn, 2021. "Understanding the risk perception of energy efficiency investments: Investment perspective vs. energy bill perspective," Energy Policy, Elsevier, vol. 159(C).
    2. Ahlrichs, Jakob & Rockstuhl, Sebastian, 2022. "Estimating fair rent increases after building retrofits: A max-min fairness approach," Energy Policy, Elsevier, vol. 164(C).
    3. Rockstuhl, Sebastian & Wenninger, Simon & Wiethe, Christian & Ahlrichs, Jakob, 2022. "The influence of risk perception on energy efficiency investments: Evidence from a German survey," Energy Policy, Elsevier, vol. 167(C).
    4. Töppel, Jannick & Tränkler, Timm, 2019. "Modeling energy efficiency insurances and energy performance contracts for a quantitative comparison of risk mitigation potential," Energy Economics, Elsevier, vol. 80(C), pages 842-859.
    5. Baltuttis, Dennik & Töppel, Jannick & Tränkler, Timm & Wiethe, Christian, 2020. "Managing the risks of energy efficiency insurances in a portfolio context: An actuarial diversification approach," International Review of Financial Analysis, Elsevier, vol. 68(C).
    6. Häckel, Björn & Pfosser, Stefan & Tränkler, Timm, 2017. "Explaining the energy efficiency gap - Expected Utility Theory versus Cumulative Prospect Theory," Energy Policy, Elsevier, vol. 111(C), pages 414-426.
    7. Jackson, Jerry, 2010. "Promoting energy efficiency investments with risk management decision tools," Energy Policy, Elsevier, vol. 38(8), pages 3865-3873, August.
    8. Schleich, Joachim & Gassmann, Xavier & Faure, Corinne & Meissner, Thomas, 2016. "Making the implicit explicit: A look inside the implicit discount rate," Energy Policy, Elsevier, vol. 97(C), pages 321-331.
    9. Wiethe, Christian & Wenninger, Simon, 2023. "The influence of building energy performance prediction accuracy on retrofit rates," Energy Policy, Elsevier, vol. 177(C).
    10. Niemierko, Rochus & Töppel, Jannick & Tränkler, Timm, 2019. "A D-vine copula quantile regression approach for the prediction of residential heating energy consumption based on historical data," Applied Energy, Elsevier, vol. 233, pages 691-708.
    11. Simon Wenninger & Christian Wiethe, 2021. "Benchmarking Energy Quantification Methods to Predict Heating Energy Performance of Residential Buildings in Germany," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 63(3), pages 223-242, June.
    12. Qiu, Yueming & Colson, Gregory & Grebitus, Carola, 2014. "Risk preferences and purchase of energy-efficient technologies in the residential sector," Ecological Economics, Elsevier, vol. 107(C), pages 216-229.
    13. Todd D. Gerarden & Richard G. Newell & Robert N. Stavins, 2017. "Assessing the Energy-Efficiency Gap," Journal of Economic Literature, American Economic Association, vol. 55(4), pages 1486-1525, December.
    14. Ling Jia & Queena K. Qian & Frits Meijer & Henk Visscher, 2020. "Stakeholders’ Risk Perception: A Perspective for Proactive Risk Management in Residential Building Energy Retrofits in China," Sustainability, MDPI, vol. 12(7), pages 1-25, April.
    15. Grafström, Jonas & Poudineh, Rahmat, 2023. "No evidence of counteracting policy effects on European solar power invention and diffusion," Energy Policy, Elsevier, vol. 172(C).
    16. Zhuo Chen & Bo Yan & Hanwen Kang, 2022. "Dynamic correlation between crude oil and agricultural futures markets," Review of Development Economics, Wiley Blackwell, vol. 26(3), pages 1798-1849, August.
    17. Carroll, James & Denny, Eleanor & Lyons, Ronan C. & Petrov, Ivan, 2024. "Better energy cost information changes household property investment decisions: Evidence from a nationwide experiment," Energy Economics, Elsevier, vol. 139(C).
    18. Heutel, Garth, 2019. "Prospect theory and energy efficiency," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 236-254.
    19. Carroll, James & Denny, Eleanor & Lyons, Ronan C. & Petrov, Ivan, 2024. "Better energy cost information changes household property investment decisions: Evidence from a nationwide experiment," Energy Economics, Elsevier, vol. 139(C).
    20. Fleiter, Tobias & Schleich, Joachim & Ravivanpong, Ployplearn, 2012. "Adoption of energy-efficiency measures in SMEs—An empirical analysis based on energy audit data from Germany," Energy Policy, Elsevier, vol. 51(C), pages 863-875.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:147:y:2020:i:c:s0301421520305681. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.