CO2 Emissions Reduction from Residential Buildings: Cost Estimate and Policy Design

We assess the efficiency of a bonus financed by the government to support energy renovation of dwellings and the related CO2 emissions reduction. The bonus considered is a fixed percentage of the cost of the energy improvement. Efficiency of this policy is assessed by comparing the cost of the bonus with the cost of individually tailored subsidies that a fully informed government would have paid to achieve the same CO2 reduction. Relying on the Energy Performance Certificates (EPCs) dataset, which includes information on characteristics of the buildings, recommendations to improve their energy efficiency and related CO2 reduction, we derive the costs and benefits of three bonuses levels (25%, 50%, and 75%) of the upfront cost to implement EPCs recommendation. Matching our data with the socio-economic characteristics of the household most likely to live in the observed dwellings shows that without any bonus, only 15% of the recommended efficiency enhancing investments have a positive private net present value (NPV) and their upfront cost averages about 22% of annual household spending; a bonus of 50% of the upfront costs brings the percentage of recommended investments with positive NPV to 30% and reduces the incidence on the annual household budget to 11%.