Macroeconomic effects of energetic building retrofit: input-output sensitivity analyses

Abstract

Energy efficiency measures in buildings are essential for climate protection, but are not always recognized by the investor in common profitability calculations. To provide a quantitative scientific base for policymakers, the aim is to identify and quantify the impact of these measures on Germany’s economy with a static open input-output model. Moreover, this investigation analyses how much the chosen base year affects the calculated macroeconomic impact, to obtain a clearer view of involved dynamics. The energy efficiency measures in buildings and their impact on energy demand and investments were simulated in the bottom-up building model INVERT/EE-Lab up to 2020. The methodological addition of this research is to identify and map the resulting impulses to the according macroeconomic sectors. Based on this stimulus a static input-output analysis is conducted using a range of base years. The results show that efficiency measures in buildings have a significant positive effect on macroeconomic key figures. The magnitude of the calculated impact depends on chosen base year data and varies for value added and employment. As a conclusion, the macroeconomic impact constitutes a co-benefit supporting the economic attractiveness of energy efficiency. However, studies based on a single base year dataset like many computable general equilibrium models may need to reflect the errors caused by that choice.

Keywords:

• Building industry
• building stock
• construction sector
• energy consumption
• input-output analysis

Acknowledgements

We would like to thank Sibylle Braungardt and Matthias Pfaff for their valuable inputs, Barbara Sinnemann for proof reading and four anonymous referees for their very helpful comments. This study was partially funded by the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety.

Notes

1. Profitability calculations commonly include cash in and outflows mostly limited over shorter time periods in cost-benefit analysis (Perman et al., 2003).

2. Energy Performance of Buildings Directive cost optimality.

3. As specified in the energy concept (BMU, 2011), the retrofit rate is supposed to increase from 1% to 2%.

4. In the base scenario policy measures implemented until 31 December 2014 were considered.

5. The heat reduction of 20% until 2020 was not to be achieved with realistic retrofit rates, thus we arranged the scenario to stay on track for the 2050 primary energy reduction goal of 80%.

6. As specified in the energy concept (BMU, 2011), the retrofit rate is supposed to double.

7. Note here that there is a distinction between the microeconomic understanding of investments, which are financial commitments whose use extends over a longer period and the macroeconomic understanding of investments, which is done by firms. All financial payments done by private households are categorized as consumption in macroeconomics.

8. To the authors’ knowledge there exists merely one survey which tries to identify sources of finance for building retrofit measures (Stieß et al., 2010) This (non-representative) survey states a share of 39% of credit for energetically ambitious retrofit measures; however, more than one answer was possible in this survey and the respective share of the financing instrument is not stated. Therefore, we relied on expert judgment. We did not distinguish further between alternative financing sources, such as building savings agreements or more innovative sources like energy service company financing (Sweatman and Managan, 2010), since data availability was low. It should be noted, however, that some authors regard the lack of sufficient financial resources or (further) credit availability as barriers to the implementation of retrofit measures (Weiss et al., 2012). While this is certainly a point to consider, we do not discuss this in depth here since it is not the main focus of this paper. The considered 7% are made up of 5% average building loan (derived from loan interest statistics (German Central Bank, 2015) plus a 40% provision or service fee of the 5 percentage points (Galvin, 2009).

9. A Social Accounting Matrix (SAM) for Germany was officially only published for the year 2000. It would have been inconsistent to use IO tables differing yearly and one single SAM.

10. It could be argued that subsidies would alter the primary input matrix of the IO tables, but this would not affect the construction sector, only the sector of rental services. Since we deduct those subsidies from the increase of rents we made sure that the subsidies did not artificially increase our results.

11. A rent increase of 11% of the investment cannot always be implemented depending on the local market, but due to a lack of appropriate market data we rely on this assumption. It would be beneficial to access the effects of alternatives of this landlord–tenant-dilemma like a different treatment of surcharges or delayed possibilities for rent increases; however, these alternatives are currently solely in proposal state (Neitzel et al., 2011).

12. German Civil Code (http://www.gesetze-im-internet.de/englisch_bgb/englisch_bgb.html#p2149) where §559 regulates the rent increase after modernization measures.

13. www.invert.at

14. This differentiation is made for further macroeconomic analysis, that may use the data for an in-depth review.

15. A detailed explanation for the choice of this period is given below.

16. In CGE models one would either take respective sectoral elasticities from other studies or estimate them from scratch. Since this is beyond the scope of our study and would require further data examination, we omitted this extra complexity. Furthermore, we feel that this rather neoclassical assumption is somewhat at odds with the input-output framework.

17. The 20% energy reduction is evaluated against the year 2010, so the difference between energy reductions in both scenarios is much less. The 5.5% reduction refers to an overall reduction regarding all buildings.

18. Employed persons include freelancers.

19. German Civil Code (http://www.gesetze-im-internet.de/englisch_bgb/englisch_bgb.html#p2149) where §559 regulates the rent increase after modernization measures.

20. The impact of socio-cultural variables on energy consumption is of minor importance (Wier et al., 2001), but placement does play a role.