Synthesis and Outlook
6.3 Energy efficiency first?
As mentioned in the introduction of this thesis, the role of buildings in climate mitigation strategies is often framed along a dominant narrative we can summarize in three points:
• There is a large potential for energy demand reductions. By using this potential, consumers would not only conserve energy, they would also save money
• Barriers to energy efficiency prevail in many energy service markets and preclude consumers from taking savings opportunities
• Policies should therefore remove barriers to efficiency for the sake of energy con-sumers
This narrative is best illustrated by three of the first four highlights taken from the Exec-utive Summary of the IPCC AR5 Buildings Chapter (Lucon et al., 2014):
• “In contrast to a doubling or tripling, final energy use may stay constant or even decline by mid-century, as compared to today’s levels, if today’s cost-effective best practices and technologies are broadly diffused (medium ev-idence, high agreement). [...]
• “Strong barriers hinder the market uptake of these cost-effective opportu-nities, and large potentials will remain untapped without adequate policies (robust evidence, high agreement). [...]
6.3 Energy efficiency first? 189
• “There is a broad portfolio of effective policy instruments available to re-move these barriers, some of them being implemented also in developing countries, thus saving emissions at large negative costs (robust evidence, high agreement)”.
This narrative exerts an influence beyond the research arena. In policy circles for instance, the European Commission has included the “Energy Energy First!” principle in the top position in theClean Energy For All Europeanspackage (Directorate-General for Energy (European Commission), 2019). This principle stipulates that energy efficiency should be prioritized over other energy investments because this is the cheapest option available (Commission, 2016):
“Putting energy efficiency first reflects the fact that the cheapest and cleanest source of energy is the energy that does not need to be produced or used. This means making sure that energy efficiency is taken into account throughout the energy system, i.e. actively managing demand so as to optimize energy con-sumption, reduce costs for consumers and import dependency, while treating investment in energy efficiency infrastructure as a cost-effective pathway to-wards a low-carbon and circular economy.”
Interpreted to its extreme, this narrative can also lead to surprising statements. For exam-ple in a position paper, the EURIMA association, a lobbying group for insulation manu-facturers, arguesagainstthe implementation of a carbon price for the European buildings sector (EURIMA, 2019):
“According to the International Energy Agency, most of the energy efficiency potential is available at a negative cost. This means that these efficiency mea-sures already pay for themselves, even in the absence of a carbon price.
“The reasons why these measures, such as energy renovation, are not taken are usually not economic in nature, but rather the result of market-barriers and -imperfections. In the case of the building sector, these barriers include split in-centives between those making investments (i.e. home-owners) and those pay-ing energy bills (i.e. tenants), the inability to come up with high upfront costs and a lack of information on renovation opportunities and financing options.
“Including the building sector in the EU ETS would do nothing to overcome these barriers to make buildings more energy-efficient. Even worse, the intro-duction of a carbon price for the heating and cooling of buildings could lead to higher energy bills for tenants or homeowners who are not able to, or cannot afford to, renovate their homes.”
This narrative presents however important weaknesses. The first reason for caution lies in the energy efficiency gap debate (cf. Section 1.2). Economists and engineers have devoted vast amounts of efforts and literature to argue about the depth, the explanations, the policy implications of the energy efficiency gap. Based on a series of evidence concerning the individual components of the gap, some economists even called into question the very existence of the gap (Allcott and Greenstone, 2012). For instance, the agency issues in
190 Chapter 6 Synthesis and Outlook energy service markets do not seem to cause a significant over-consumption of energy.
On the other end, well-known proponents of energy efficiency continue to claim a huge potential for cost-effective demand reductions (Lovins, 2018).
Against this background, an interesting source of evidence are efficiency policy evalu-ations. The study led by Meredith Fowlie (2018) is of particular relevance because of its high methodological quality and because it investigates a large scale program. Her findings are unfortunately sobering: actual savings are three times lower than projected savings, which jeopardizes the profitability of the efficiency investments. The return rate computed by the authors drops to -7.8% based on the observed outcome and the CO2 abatement cost rises as high as $161-$403 against a projected range of $22-$117. The breadth of ranges reflects different assumptions made about the lifetime of the project or the discount rate applied. This pessimistic view is shared in other economic studies, how-ever often with a lower methodological quality (Galvin, 2010; Galvin and Sunikka-Blank, 2013; Davis et al., 2014; Levinson, 2016). Of course, other studies find a more positive impact of energy efficiency policies (Hoffman et al., 2017; Jacobsen and Kotchen, 2013;
Kotchen, 2017). Overall, the impression that emerges from the energy efficiency gap debate is however that opportunities to save energy and save costs at the same time are probably more limited than thought in the first place.
A second weakness of the narrative roots in the rebound effect. Following an improve-ment in the efficiency of buildings envelopes or appliances, the variable price of energy services drops. Consumers could therefore be tempted to increase their demand for energy services, offsetting parts of the energy savings derived from the efficiency improvements.
Per se, rebound effects are not a bad thing, they are even likely to raise the welfare of consumers. Increasing the room temperature can for instance prevent the development of diseases or simply improve comfort. While the rebound effect can certainly be regarded as a positive effect from a welfare perspective, it is different when it comes to climate change mitigation. By reducing energy savings, the rebound also reduces the emissions savings from efficiency improvements. This reduces the role efficiency could play in mitigation strategies.
A third weakness of this narrative is that it oversees the interactions of buildings energy demand with the whole energy system. This is especially important in decarbonization scenarios, as the increased availability of low-carbon energy carriers changes the rules of the game for the decarbonization of buildings energy demand. This topic has already been identified in former IAM analyzes. For instance, the IPCC AR5 Chapter based on IAM studies (Clarke et al., 2014) reads:
“The two major groups of options in energy end use sectors are those that focus on reducing the use of energy and/or those that focus on using energy carriers produced from low-carbon sources. Three important issues are therefore the potential for fuel switching, the potential for reductions of energy use per unit of output/service, and the relationship and timing between the two.”
This thesis adds an important contribution to that third weakness. In particular, chapter 5 assesses the contributions of both options cited above: reducing the use of energy, and reducing the emissions per unit of energy consumed through supply side decarbonization and fuel switching. One of the main findings from the chapter is that more than 80% of
6.4 A revisited narrative for the role of buildings in mitigation strategies 191 the decrease in buildings emissions can be attributed to a decrease of emissions per unit of energy consumed, and less than 20% to energy demand reductions. What is more, at the marginal level, a further decrease of energy demand by 1% would reduce emissions by 12 to 24 MtCO2/yr while an increase of 1% in the share of virtually carbon-free fuels like electricity at the expense of natural gas would reduce emissions by 65 MtCO2/yr. These figures clearly show that reducing the carbon content of energy is absolutely primordial in the decarbonization strategy of buildings. Yet the conventional narrative on the role of buildings in mitigation strategies does not address that strategy. On the other hand, effi-ciency remains an important part of the decarbonization of buildings. Energy effieffi-ciency is projected to rise substantially over time, and, in the absence of energy supply decar-bonization, suppresses a doubling of emissions that would otherwise be expected due to a rise in living standards.