Energy efficiency in residential and non-residential buildings: Short-term macroeconomic implications

Abstract

Investments in energy efficiency are vital for reducing greenhouse gas emissions by 2030 given that changes in the structure of the main energy sources cannot be expected in the short to medium term. The greatest potential for energy savings and cutting emissions lies in buildings due to their significant carbon intensity and rapid growth rate. However, gaps remain in what is known about integrating decarbonisation of the built environment into the economy-wide system. The paper addresses such gaps by examining the socio-macroeconomic implications of different scenarios related to building stock investments in a small open economy. The effectiveness of the measures implemented for various building types and the possibility of a rebound effect are also considered. The study is valuable for the peculiarities of the recursive dynamic computable general equilibrium model, GreenMod Slovenia, which was established to analyse the effects of decarbonisation. Two major contributions emerge: (1) projected energy efficiency in buildings is presented separately for commercial services, public services and households in two investment scenarios, namely, the business-as-usual scenario and the energy efficiency scenario with additional investments; and (2) the disaggregation of households into income quintiles to project their consumption of energy inputs. The study reveals vital macroeconomic benefits flowing from the energy efficiency scenario, including higher GDP and employment. Second, energy efficiency improvements in commercial services might encourage higher energy consumption. Finally, low-income households reduced the consumption of energy products the least. In this quintile group, energy efficiency improvement can lead to greater energy consumption, denoting policy failure.