Abstract
A zero-carbon society requires dramatic change everywhere including in buildings, a large and politically sensitive sector. Technical possibilities exist but implementation is slow. Policies include many hard-to-evaluate regulations and may suffer from rebound mechanisms. We use dynamic econometric analysis of European macro data for the period 1990–2018 to systematically examine the importance of changes in energy prices and income on residential energy demand. We find a long-run price elasticity of −0.5. The total long-run income elasticity is around 0.9, but if we control for the increase in income that goes towards larger homes and other factors, the income elasticity is 0.2. These findings have practical implications for climate policy and the EU buildings and energy policy framework.
Highlights
Climate change has become a major focus of European policymaking
Our study stands out from the existing literature in three other important ways: (i) we incorporate prices for district heating in our price variable, which has previously only been done by Ó Broin et al (2015b, c) and (ii) while the vast majority of previous studies analyze the determinants of different measurements of energy efficiency, we focus on demand at the aggregate level
Standard economic theory and common sense suggest that energy demand increases with income and decreases with energy price
Summary
Climate change has become a major focus of European policymaking. Goals have been ratcheted up to more ambitious targets but at the same time, the EU and individual countries like Germany have expressed concerns that progress in the reduction of carbon emissions from the ESR (Effort Sharing Mechanism) sectors such as transport and buildings is too slow (IEA 18 Page 2 of 20Climatic Change (2021) 167: 182020). Climate change has become a major focus of European policymaking. Buildings are the largest energy-consuming sector (40% in the EU), ahead of transport and industry. A fossil-free society requires transformative change across all sectors—including in buildings, which account for 36% of greenhouse gas emissions in the EU (EC 2018). The reality, is millions of buildings waste energy and provide inadequate comfort—even in mild climates. Current policies in this sector consist of a myriad of detailed regulations concerning, e.g., insulation or window glazing but it is often hard to judge their effectiveness (Ó Broin et al 2019a; Thonipara et al 2019). There is a hesitancy on the part of policymakers to use pricing policies since heating costs can have severe consequences on some low-income households and exacerbate incidences of fuel poverty
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