Endogenous Energy Efficiency Improvement of Large-Scale Refurbishment in the Swiss Residential Building Stock

In Switzerland, according to Swiss Federal Office of Energy around 50% of primary energy consumption is attributable to buildings: 30% for heating, air-conditioning and hot water, 14% for electricity and around 6% for construction and maintenance. However, Streicher et al. [2017] show that large-scale energy retrofit of the Swiss residential building stock could result in theoretical energy savings of up 84% of current energy consumption. Of vital importance for energy consumption is the evolution of energy efficiency. In past and current analyses in the field of Swiss energy and climate policies, the speed and extent of energy efficiency improvement is usually set exogenously, i.e., it is assumed to be unaffected even by climate or energy policies designed to foster innovation and the development and adoption of more efficient production and consumption options (Shiell and Lyssenko [2014]). Computable general equilibrium (CGE) models and bottom-up models (e.g. Markal) rely mainly on autonomous energy efficiency improvement (AEEI, see Azar et Dowlatabadi, [1999]) despite clear evidence that technological change is influenced by economic activity and responsive to policies. These effects may be captured in CGEs (Computable General Equilibrium) using the concept of endogenous technical change

Endogenous Energy Efficiency Improvement of Large-Scale Refurbishment in the Swiss Residential Building Stock

In Switzerland, according to Swiss Federal Office of Energy around 50% of primary energy consumption is attributable to buildings: 30% for heating, air-conditioning and hot water, 14% for electricity and around 6% for construction and maintenance. However, Streicher et al. [2017] show that large-scale energy retrofit of the Swiss residential building stock could result in theoretical energy savings of up 84% of current energy consumption. Of vital importance for energy consumption is the evolution of energy efficiency. In past and current analyses in the field of Swiss energy and climate policies, the speed and extent of energy efficiency improvement is usually set exogenously, i.e., it is assumed to be unaffected even by climate or energy policies designed to foster innovation and the development and adoption of more efficient production and consumption options (Shiell and Lyssenko [2014]). Computable general equilibrium (CGE) models and bottom-up models (e.g. Markal) rely mainly on autonomous energy efficiency improvement (AEEI, see Azar et Dowlatabadi, [1999]) despite clear evidence that technological change is influenced by economic activity and responsive to policies. These effects may be captured in CGEs (Computable General Equilibrium) using the concept of endogenous technical change

Endogenous energy efficiency improvements in large-scale retrofits to Swiss residential building stock

In standard analyses of Swiss energy and climate policies, the speed and extent of energy efficiency improvements (EEI) are usually assumed to be unaffected, even by policies designed to foster innovation. This project introduces endogenous EEI and barriers to retrofitting in the housing sector. In order to achieve this, we explain how Swiss building stock has evolved and how retrofitting decisions and heating system improvements may reduce energy consumption. We use a two-step model to illustrate how homeowners take decisions about retrofitting, then we consider several scenarios. Our results showed that in order to achieve deep decarbonisation in the building sector, a number of different economic instruments need to be used simultaneously

A two-step decision model on energy retrofitting buildings

In standard modelling of energy and climate policies, the speed and extent of energy efficiency improvements (EEIs) are usually assumed to be unaffected, even by policies designed to foster innovation. We model endogenous EEI in a model of the Swiss housing stock. Retrofitting results from a two-step decision model for building owners. First, they decide to conduct an energy audit, then they decide for or against retrofitting based on NPV. We use the model to simulate a rising retrofit subsidy, a rising CO2 tax, an information campaign and combinations of these measures. Our results show that the CO2 tax obtains its reduction of emissions at smallest investment cost because it also encourages fuel switching. However, deep decarbonisation requires a greater step-up of the retrofit rate, which is obtained by using the revenues of the CO2 tax to subsidize retrofitting and by adding an information campaign

A two-step decision model on energy retrofitting buildings

In standard modelling of energy and climate policies, the speed and extent of energy efficiency improvements (EEIs) are usually assumed to be unaffected, even by policies designed to foster innovation. We model endogenous EEI in a model of the Swiss housing stock. Retrofitting results from a two-step decision model for building owners. First, they decide to conduct an energy audit, then they decide for or against retrofitting based on NPV. We use the model to simulate a rising retrofit subsidy, a rising CO2 tax, an information campaign and combinations of these measures. Our results show that the CO2 tax obtains its reduction of emissions at the smallest investment cost because it also encourages fuel switching. However, deep decarbonisation requires a greater step-up of the retrofit rate, which is obtained by using the revenues of the CO2 tax to subsidize retrofitting and by adding an information campaign

Endogenous Energy Efficiency Improvement

We managed to construct two novel and functional methodologies to depict the evolution of energy efficiency improvements (EEI) in two Swiss sectors, housing and cement. This allowed us to obtain a better representation of EEI triggered by energy and climate policies. Although we use available data to calibrate the models, the focus of this exercise was not to obtain precise quantitative results, but rather to construct a proof of concept. Simulating different policy scenarios over 2015-2050, we showed that it is important to consider the responsiveness to various types of policies. It is, for example, important to not only consider monetary incentives (such as subsidies or taxes), but also “softer” measures such as information campaigns. This is especially true in the building sectors, as many owners suffer from incomplete information. Consequently, a given target can be achieved at lower cost when using a smart mix of hard and soft policies.LEUREThe actual report has 39 pages and two working papers are attached