Demand Side Limitations of Financing Household Energy Efficiency Investments : A Regional approach

Dobi-Rózsa, Anikó and Balaci, Adrian (2023) Demand Side Limitations of Financing Household Energy Efficiency Investments : A Regional approach. ECONOMY AND FINANCE: ENGLISH-LANGUAGE EDITION OF GAZDASÁG ÉS PÉNZÜGY, 10 (4). pp. 340-368. ISSN 2415-9379

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Abstract

The building sector represents 40% of the total energy use in the European Union. Without exploiting the energy efficiency potential of the sector, neither the Paris Agreement nor the related commitments of the European Union can be achieved. This paper takes a comparative regional approach, differentiating between Northern, Western and Central-Eastern Europe and aims to study the drivers for and barriers to residential energy efficiency investments based on the various demand side indicators related to the housing stock and financial capacity of households. This study finds that financing challenges are more striking in Central-Eastern Europe where households are more cost sensitive and risk averse. Although they are strongly motivated by higher energy bills relative to their income, they are often prevented from making the right investment decision by a number of market and behavioral failures. Public policy, meant to facilitate commercial lending activity on this market, should consider aiming at reducing the real or perceived costs of borrowing via grants, interest rate subsidies and portfolio guarantees. It could encourage households with similar risk profiles to form loan borrowing communities to spread, and thus mitigate, the risk of financing. The innovative public policy suggestions, addressing the demand side, presented in this paper and the topic in general require more research.

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