Exploring the role of households’ hurdle rates and demand elasticities in meeting Danish energy-savings target

Kristoffer Steen  Andersen; Catharina  Wiese; Stefan Petrović; Russell McKenna

doi:10.1016/j.enpol.2020.111785

Exploring the role of households’ hurdle rates and demand elasticities in meeting Danish energy-savings target

Kristoffer Steen Andersen^* (Corresponding Author), Catharina Wiese, Stefan Petrović, Russell McKenna

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

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Abstract

The EU’s Energy Efficiency Directive (EED) sets a binding target for energy-savings in EU member states. The EED further requires member states to perform ex-ante evaluations of energy efficiency policies implemented to achieve these savings. However, ex-ante evaluation of energy efficiency policies is difficult as it requires detailed modelling of end-users’ investment and energy demand behaviour. This paper details the Danish IntERACT modelling approach for ex-ante evaluation of energy efficiency policies directed at residential heating. IntERACT integrates the energy system model TIMES-DK into a computable general equilibrium framework. The paper explores the potential for meeting Denmark’s EED-target through a policy-induced increase in households’ investments in energy efficiency retrofits. The paper considers the effect of energy efficiency policies on households’ investment behaviour by applying different levels of hurdle rates on households’ investments in energy efficiency retrofits. The paper shows that reducing the hurdle rate from 25% to 4% could meet more than a third of Danish energy-saving requirements for the period 2021–2030. This result includes a direct rebound effect of 31%. Finally, the paper demonstrates that reducing the hurdle below 10% has a substantial negative impact on households’ disposable income, making such policy less viable from a policy perspective.

Original language	English
Article number	111785
Number of pages	19
Journal	Energy Policy
Volume	146
Early online date	6 Aug 2020
DOIs	https://doi.org/10.1016/j.enpol.2020.111785
Publication status	Published - 30 Nov 2020

Bibliographical note

Acknowledgements:
We would like to thank two anonymous reviewers for their careful reading of our manuscript and their insightful questions, comments and suggestions. We further gratefully acknowledge financial support from the Danish Energy Agency and from Innovation Fund Denmark under the research project SAVE-E, grant no. 4106-00009B. We are solely responsible for any errors or omissions. We note that the views expressed herein are those of the authors and not those of the Danish Energy Agency. The third (SP) and fourth (RM) authors gratefully acknowledge the financial support of the Heat 4.0 project, which has received funding from Innovation Fund Denmark (project no. 8090-00046B), and the Emb3rs project, which received funding under European Union’s Horizon 2020 research and innovation programme with grant agreement N847121. The usual disclaimer applies.

Keywords

Energy Efficiency Directive
Rebound effect
Household behaviour
Implicit discount rate
Hybrid modelling

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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Cite this

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abstract = "The EU{\textquoteright}s Energy Efficiency Directive (EED) sets a binding target for energy-savings in EU member states. The EED further requires member states to perform ex-ante evaluations of energy efficiency policies implemented to achieve these savings. However, ex-ante evaluation of energy efficiency policies is difficult as it requires detailed modelling of end-users{\textquoteright} investment and energy demand behaviour. This paper details the Danish IntERACT modelling approach for ex-ante evaluation of energy efficiency policies directed at residential heating. IntERACT integrates the energy system model TIMES-DK into a computable general equilibrium framework. The paper explores the potential for meeting Denmark{\textquoteright}s EED-target through a policy-induced increase in households{\textquoteright} investments in energy efficiency retrofits. The paper considers the effect of energy efficiency policies on households{\textquoteright} investment behaviour by applying different levels of hurdle rates on households{\textquoteright} investments in energy efficiency retrofits. The paper shows that reducing the hurdle rate from 25% to 4% could meet more than a third of Danish energy-saving requirements for the period 2021–2030. This result includes a direct rebound effect of 31%. Finally, the paper demonstrates that reducing the hurdle below 10% has a substantial negative impact on households{\textquoteright} disposable income, making such policy less viable from a policy perspective.",

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note = "Acknowledgements: We would like to thank two anonymous reviewers for their careful reading of our manuscript and their insightful questions, comments and suggestions. We further gratefully acknowledge financial support from the Danish Energy Agency and from Innovation Fund Denmark under the research project SAVE-E, grant no. 4106-00009B. We are solely responsible for any errors or omissions. We note that the views expressed herein are those of the authors and not those of the Danish Energy Agency. The third (SP) and fourth (RM) authors gratefully acknowledge the financial support of the Heat 4.0 project, which has received funding from Innovation Fund Denmark (project no. 8090-00046B), and the Emb3rs project, which received funding under European Union{\textquoteright}s Horizon 2020 research and innovation programme with grant agreement N847121. The usual disclaimer applies.",

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Exploring the role of households’ hurdle rates and demand elasticities in meeting Danish energy-savings target

Abstract

Bibliographical note

Keywords

UN SDGs

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