Editing IPCC:AR6/WGIII/Chapter-9 (section)

== 9.9 Sectoral Barriers and Policies ==

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=== 9.9.1 Barriers, Feasibility and Acceptance ===

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Understanding the reasons why cost-effective investment in building energy efficiency are not taking place as expected by rational economic behaviour is critical to design effective policies for decarbonise the buildings ( [[#Cattano--2013|Cattano et al. 2013]] ; [[#Cattaneo--2019|Cattaneo 2019]] ). Barriers depend from the actors (owner, tenant, utility, regulators, manufacturers, etc.), their role in energy efficiency project and the market, technology, financial economic, social, legal, institutional, regulatory and policy structures ( [[#Reddy--1991|Reddy 1991]] ; [[#Weber--1997|Weber 1997]] ; [[#Sorrell--2000|Sorrell et al. 2000]] ; [[#Reddy--2002|Reddy 2002]] ; [[#Sorrell--2011|Sorrell et al. 2011]] ; Cagno et al. 2012; Bardhan et al., 2014; Bagaini et al. 2020; Vogel et al. 2015; Khosla et al. 2017; Gupta et al. 2017). Barriers identified for the refurbishment of exiting building or construction of new efficient buildings includes: lack of high-performance products, construction methods, monitoring capacity, investment risks, policies intermittency, information gaps, principal agent problems (both tenant and landlord face disincentives to invest in energy efficiency), skills of the installers, lack of a trained and ready workforce, governance arrangements in collectively owned properties and behavioural anomalies (Gillingham and Palmer 2014; Buessler et al. 2017; [[#Yang--2019|Yang et al. 2019]] ; [[#Do--2020|Do et al. 2020]] ; [[#Dutt--2020|Dutt 2020]] ; [[#Song--2020|Song et al. 2020]] ). A better understanding of behavioural barriers ( [[#Frederiks--2015|Frederiks et al. 2015]] ) is essential to design effective policies to decarbonise the building sector. Energy efficiency in buildings faces one additional problem: the sector is highly heterogeneous, with many different building types, sizes and operational uses. Energy efficiency investments do not take place in isolation but in competition with other priorities and as part of a complex, protracted investment process ( [[#Cooremans--2011|Cooremans 2011]] ). Therefore, a focus on overcoming barriers is not enough for effective policy. Organisational context is important because the same barrier might have very different organisational effects and require very different policy responses ( [[#Mallaburn--2018|Mallaburn 2018]] ). Cross-Chapter Box 2 in [[IPCC:Wg3:Chapter:Chapter-2|Chapter 2]] presents a summary of methodologies for estimating the macro-level impact of policies on indices of GHG mitigation.

Reaching deep decarbonisation levels throughout the lifecycle of buildings depends on multidimensional criteria for assessing the feasibility of mitigation measures, including criteria related to geophysical, environmental-ecological, technological, economic, socio-cultural and institutional dimensions. An assessment of 16 feasibility criteria for mitigation measures in the buildings sector indicates whether a specific factor, within broader dimensions, acts as a barrier or helps enabling such mitigation measures (Figure 9.20, Supplementary Material Table 9.SM.6, and Annex II.11). Although mitigation measures are aggregated in the assessment of Figure 9.20 and feasibility results can differ for more specific measures, generally speaking, the barriers to mitigation measures in buildings are few, sometimes including technological and socio-cultural challenges. However, many co-benefits could help enable mitigation in the buildings sector. For instance, many measures can have positive effects on the environment, health and well-being, and distributional potential, all of which can boost their feasibility. The feasibility of mitigation measures varies significantly according to socio-economic differences across and within countries.

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[[File:85db4fc6feaedd415c729350e8c69370 IPCC_AR6_WGIII_Figure_9_20.png]]

'''Figure 9.20 | Summary of the extent to which different factors would enable or inhibit the deployment of mitigation options in buildings.''' Blue bars indicate the extent to which the indicator enables the implementation of the option (E) and orange bars indicate the extent to which an indicator is a barrier (B) to the deployment of the option, relative to the maximum possible barriers and enablers assessed. A ‘X’ signifies the indicator is not applicable or does not affect the feasibility of the option, while a forward slash/indicates that there is no or limited evidence whether the indicator affects the feasibility of the option. The shading indicates the level of confidence, with darker shading signifying higher levels of confidence. Table 9.SM.6 provides an overview of the extent to which the feasibility of options may differ across context (e.g., region), time (e.g., 2030 versus 2050), and scale (e.g., small versus large), and includes a line of sight on which the assessment is based. The assessment method is explained in Annex II.11.

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=== 9.9.2 Rebound Effects ===

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In the buildings sector energy efficiency improvements and promotion of cleaner fuels can lead to all types of rebound effects, while sufficiency measures lead only to indirect and secondary effects ( [[#Chitnis--2013|Chitnis et al. 2013]] ). The consideration of the rebound effects as a behavioural economic response of the consumers to cheaper energy services can only partially explain the gap between the expected and actual energy savings ( [[#Galvin--2017|Galvin and Sunikka-Blank 2017]] ). The prebound effect, a term used to describe the situation where there is a significant difference between expected and observed energy consumption of non-refurbished buildings, is usually implicated in high rebound effects upon retrofitting ( [[#Teli--2016|Teli et al. 2016]] ; [[#Calì--2016|Calì et al. 2016]] ; [[#Galvin--2017|Galvin and Sunikka-Blank 2017]] ). The access for all to modern energy services such as heating and cooling is one of the well-being objectives governments aim for. However, ensuring this access leads to an increase of energy demand which is considered as a rebound effect by ( [[#Chitnis--2013|Chitnis et al. 2013]] ; [[#Orea--2015|Orea et al. 2015]] ; [[#Poon--2015|Poon 2015]] ; [[#Teli--2016|Teli et al. 2016]] ; [[#Seebauer--2018|Seebauer 2018]] ; [[#Sorrell--2018|Sorrell et al. 2018]] ; [[#Berger--2019|Berger and Höltl 2019]] ). [[#Aydin--2017|Aydin et al. (2017)]] found that in the Netherlands the rebound effect for the lowest wealth quantile is double compared to the highest wealth quantile. Similar, energy access in developing countries leads to an increase consumption compared to very low baselines which is considered by some authors as rebound ( [[#Copiello--2017|Copiello 2017]] ). On the other hand, in households whose members have a higher level of education and/or strong environmental values, the rebound is lower ( [[#Seebauer--2018|Seebauer 2018]] ).

Rebound effects in the building sector could be a co-benefit, in cases where the mechanisms involved provide faster access to affordable energy and/or contribute to improved social well-being, or a trade-off, to the extent that the external costs of the increased energy consumption exceed the welfare benefits of the increased energy service consumption ( [[#Chan--2015|Chan and Gillingham 2015]] ; [[#Borenstein--2015|Borenstein 2015]] ; [[#Galvin--2017|Galvin and Sunikka-Blank 2017]] ; [[#Sorrell--2018|Sorrell et al. 2018]] ). In cases where rebound effects are undesirable, appropriate policies could be implemented for their mitigation.

There is great variation in estimates of the direct and indirect rebound effects, which stems from the end-uses included in the analysis, differences in definitions and methods used to estimate the rebound effects, the quality of the data utilised, the period of analysis and the geographical area in consideration ( [[#International%20Risk%20Governance%20Council--2013|International Risk Governance Council 2013]] ; [[#Galvin--2014|Galvin 2014]] ; [[#Gillingham--2016|Gillingham et al. 2016]] ). Several studies examined in the context of this assessment (see Supplementary Material Table 9.SM.7) showed that direct rebound effects for residential energy consumption, which includes heating, are significant and range between –9% and 127%. The direct rebound effects for energy services other than heating may be lower ( [[#Chen--2018|Chen et al. 2018]] ; [[#Sorrell--2018|Sorrell et al. 2018]] ). The rebound effects may be reduced with the time as the occupants learn how to optimally use the systems installed in energy renovated buildings ( [[#Calì--2016|Calì et al. 2016]] ) and seem to be lower in the case of major renovations leading to NZEB ( [[#Corrado--2016|Corrado et al. 2016]] ). The combined direct and indirect or the indirect only rebound effects were found to range between –2% and 80%, with a median at 12% (see Supplementary Material Table 9.SM.7). In non-residential buildings the rebound effects may be smaller, as the commercial sector is characterised by lower price elasticities of energy demand, while the comfort level in commercial buildings before renovation is likely to be better compared to residential buildings ( [[#Qiu--2014|Qiu 2014]] ).

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=== 9.9.3 Policy Packages for the Decarbonisation of Buildings ===

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There is no single energy efficiency policy ( [[#Wiese--2018|Wiese et al. 2018]] ) able to decarbonise the building sector, but a range of polices are needed, often included in a policy package ( [[#Kern--2017|Kern et al., 2017]] ; [[#Rosenow--2017|Rosenow et al. 2017]] ) to enhance robustness against risks and uncertainties in both short and long-term and addressing the different stakeholder perspectives ( [[#Forouli--2019|Forouli et al. 2019]] ; [[#Nikas--2020|Nikas et al. 2020]] ; [[#Doukas--2020|Doukas and Nikas 2020]] ). This is due to: the many barriers; the different types of buildings (residential, non-residential, etc.); the different socio-economic groups of the population (social housing, informal settlement, etc.); the country development status; the local climate (cooling and/or heating), ownership structure (tenant or owner), the age of buildings. Effective policy packages include mandatory standards, codes, the provision of information, carbon pricing, financing, and technical assistance for end-users. Important element related to policy packages is whether the policies reinforce each other or diminish the impact of individual policies, due to policy ‘overcrowding’. Examples are the EU policy package for efficiency in buildings ( [[#Rosenow--2017|Rosenow and Bayer 2017]] ; BPIE, 2020; [[#Economidou--2020|Economidou et al. 2020]] ) and China goal of 10 million m 2 NZEB during the 13th Five-Year Plan, presented in the Supplementary Material (Supplementary Material Section 9.SM.4) (see also Cross-Chapter Box 10 in [[IPCC:Wg3:Chapter:Chapter-14|Chapter 14]] for integrated policymaking for sector transitions).

Revisions in tenant and condominium law are necessary for reducing disincentives between landlord and tenant or between multiple owners, these acts alone cannot incentivise them to uptake an energy efficiency upgrade in a property ( [[#Economidou--2019|Economidou and Serrenho, 2019]] ). A package addressing split incentives include regulatory measures, information measures, labels, individual metering rules and financial models designed to distribute costs and benefits to tenants and owners in a transparent and fair way ( [[#Bird--2012|Bird and Hernández 2012]] ; [[#Economidou--2015|Economidou and Bertoldi 2015]] ; [[#Castellazi--2017|Castellazi et al. 2017]] ). A more active engagement of building occupants in energy saving practices, the development of agreements benefitting all involved actors, acknowledgement of real energy consumption and establishment of cost recovery models attached to the property instead of the owner are useful measures to address misalignments between actors.

In Developed Countries policy packages are targeted to increase the number and depth of renovations of existing building, while for developing countries policies focus on new construction, including regulatory measures and incentives, while carbon pricing would be more problematic unless there is a strong recycling of the revenues. Building energy codes and labels could be based on LCA emissions, rather than energy consumption during the use phase of buildings, as it is the case in Switzerland and Finland ( [[#Kuittinen--2020|Kuittinen and Häkkinen 2020]] ).

Policy packages should also combine sufficiency, efficiency, and renewable energy instruments for buildings, for example some national building energy codes already include minimum requirements for the use of renewable energy in buildings.

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==== 9.9.3.1 Sufficiency and Efficiency Policies ====

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Recently the concept of sufficiency complementary to energy efficiency has been introduced in policy making (Brischke et al. 2015; [[#Hewitt--2018|Hewitt 2018]] ; [[#Thomas--2019|Thomas et al. 2019]] ; [[#Bertoldi--2020|Bertoldi 2020]] ; [[#Saheb--2021|Saheb 2021]] ) (Box 9.1). Lorek and Spangenberg (2019b) investigated the limitations of the theories of planned behaviour and social practice and proposed an approach combining both theories resulting in a heuristic sufficiency policy [[#footnote-000|2]] tool. Lorek and Spangenberg (2019b) showed that increased living area per person counteracts efficiency gains in buildings and called for sufficiency policy instruments to efficiency by limit building size. This could be achieved via mandatory and prescriptive measures, for example, progressive building energy codes ( [[#IEA--2013|IEA 2013]] ), or financial penalties in the form of property taxation (e.g., non-linear and progressive taxation), or with mandatory limits on building size per capita. [[#Heindl--2016|Heindl and Kanschik (2016)]] suggested that voluntary policies promoting sufficiency and proposed that sufficiency should be ‘integrated in a more comprehensive normative framework related to welfare and social justice’. Alcott highlighted that in sufficiency there is a loss of utility or welfare ( [[#Alcott--2008|Alcott, 2008]] ). [[#Thomas--2019|Thomas et al. (2019)]] described some of the possible policies, some based on the sharing economy principles, for examples co-sharing space, public authorities facilitating the exchange house between young and expanding families with elderly people, with reduced need for space. Policies for sufficiency include land-use and urban planning policies. Berril et al. (2021) proposed removing policies, which support supply of larger home typologies, for example, single-family home or local land-use regulations restricting construction of multifamily buildings. In non-residential building, sufficiency could be implemented through the sharing economy, for example with flexible offices space with hot-desking.

Scholars have identified the ‘energy efficiency gap’ ( [[#Hirst--1990|Hirst and Brown 1990]] ; [[#Jaffe--1994|Jaffe and Stavins 1994]] ; Alcott and Greenstone 2012; Gillingham and Palmer 2014; Stadelmann 2017) and policies to overcome it. [[#Markandya--2015|Markandya et al. (2015)]] and [[#Shen--2016|Shen et al. (2016)]] have classified energy efficiency policies in three broad categories: the command and control (e.g., mandatory building energy codes; mandatory appliances standards, etc.); price instruments (e.g., taxes, subsides, tax deductions, credits, permits and tradable obligations, etc.); and information instruments (e.g., labels, energy audits, smart meters and feed-back, etc.). Based on the EU Energy Efficiency Directive, the MURE and the IEA energy efficiency policy databases ( [[#Bertoldi--2020|Bertoldi and Mosconi 2020]] ), [[#Bertoldi--2020|Bertoldi (2020)]] proposed six policy categories: regulatory, financial and fiscal; information and awareness; qualification, training and quality assurance; market-based instruments: voluntary action. The categorisation of energy efficiency policies used in this chapter is aligned with the taxonomy used in Chapter 13, sub-section 13.5.1 (economic or market-based instruments, regulatory instruments, and other policies). However, the classification used here is more granular in order to capture the complexity of end-use energy efficiency and buildings.

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===== 1. Regulatory instruments =====

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'''Building energy codes.''' Several scholars highlighted the key role of mandatory building energy codes and minimum energy performance requirements for buildings ( [[#Enker--2017|Enker and Morrison 2017]] ). [[#Wang--2019|Wang et al. (2019)]] finds that, ‘Building energy efficiency standards (BEES) are one of the most effective policies to reduce building energy consumption, especially in the case of the rapid urbanisation content in China’. ''Ex post'' policy evaluation shows that stringent buildings’ codes reduce energy consumption in buildings and CO 2 emissions and are cost-effective ( [[#Aroonruengsawat--2012|Aroonruengsawat 2012]] ; [[#Jacobsen--2013|Jacobsen and Kotchen 2013]] ; [[#Scott--2015|Scott et al. 2015]] ; [[#Levinson--2016|Levinson 2016]] ; [[#Kotchen--2017|Kotchen 2017]] ; Yu et al. 2017; [[#Yu--2018|Yu et al. 2018]] ; Aydin and Brounen 2019). Progressive building energy codes include requirements on efficiency improvement but also on sufficiency and share of renewables (Clune et al. 2012; Rosenberg et al., 2017) and on embodied emissions ( [[#Schwarz--2020|Schwarz et al. 2020]] ), for example the 2022 ASHRAE Standard 90.1 includes prescriptive on-site renewable energy requirements for non-residential building. Evans et al. (2017; 2018) calls for strengthen the compliance checkswith efficiency requirements or codes when buildings are in operation and highlighted the need for enforcement of building energy codes to achieve the estimate energy and carbon savings recommending actions to improve enforcements, including institutional capacity and adequate resources.

Evans et al. (2017; 2018) identified strengthening the compliance checks with codes when buildings are in operation and the need for enforcement of building energy codes in order to achieve the estimate energy and carbon savings, recommending actions to improve enforcements, including institutional capacity and adequate resources. Another important issue to be addressed by policies is the ‘Energy Performance Gap’ (EPG), that is, the gap between design and policy intent and actual outcomes. Regulatory and market support regimes are based on predictive models ( [[#Cohen--2015|Cohen and Bordass 2015]] ) with general assumptions about building types, the way they are used and are not covering all energy consumption. In the perspective of moving towards net zero carbon, it is important that policy capture and address the actual in-use performance of buildings ( [[#Gupta--2015|Gupta et al. 2015]] ; [[#Gupta--2018|Gupta and Kotopouleas 2018]] ). Outcome-based codes are increasingly important because they overcome some limitations of prescriptive building energy codes, which typically do not regulate all building energy uses or do not regulate measured operational energy use in buildings. Regulating all loads, especially plug and process loads, is important because they account for an increasingly large percentage of total energy use as building envelope and space-conditioning equipment are becoming more efficient ( [[#Denniston--2011|Denniston et al. 2011]] ; [[#Colker--2012|Colker 2012]] ; [[#Enker--2020|Enker and Morrison 2020]] ).

Building codes could also foster the usage of wood and timber as a construction in particular for multi-storey buildings and in the long term penalise carbon intensive building materials ( [[#Ludwig--2019|Ludwig 2019]] ) with policies based on environmental performance assessment of buildings and the ‘wood first’ principle ( [[#Ludwig--2019|Ludwig 2019]] ; [[#Ramage--2017|Ramage et al. 2017]] ).

Retro-commissioning is a cost-effective process to periodically check the energy performance of existing building and assure energy savings are maintained overtime ( [[#Kong--2019|Kong et al. 2019]] ; [[#Ssembatya--2021|Ssembatya et al. 2021]] ).

In countries with low rate of new construction, it is important to consider mandatory building energy codes for existing buildings, but this may also be relevant for countries with high new construction, as they will have soon a large existing building stock. The EU has requirements already in place when building undergo a major renovation ( [[#Economidou--2020|Economidou et al. 2020]] ). Countries considering mandatory regulations for existing buildings include Canada, the US (specific cities), China and Singapore. Policies include mandating energy retrofits for low performances existing buildings, when sold or rented. In countries with increasing building stock, in particular in developing countries, policies are more effective when targeting new buildings ( [[#Kamal--2019|Kamal et al. 2019]] ).

NZEBs definitions are proposed by ( [[#Marszal--2011|Marszal et al. 2011]] ; [[#Deng--2014|Deng and Wu 2014]] ; [[#Zhang--2015|Zhang and Zhou 2015]] ; [[#Williams--2016|Williams et al. 2016]] ; [[#Wells--2018|Wells et al. 2018]] ), covering different geographical areas, developing and Developed Countries, and both existing buildings and new buildings. In 2019, China issued the national standard Technical Standard for Nearly Zero Energy Building ( [[#MoHURD--2019|MoHURD, 2019]] ). California has also adopted a building energy code mandating for NZEBs for new residential buildings in 2020 and 2030 for commercial buildings ( [[#Feng--2019|Feng et al. 2019]] ). Several countries have adopted targets, roadmaps or mandatory building energy codes requiring net zero energy buildings (NZEBs) for some classes of new buildings ( [[#Feng--2019|Feng et al. 2019]] ).

'''Building labels and Energy Performance Certificates (EPCs).''' Buildings labels are an important instrument, with some limitations. [[#Li--2019b|Li et al. (2019b)]] reviewed the EU mandatory Energy Performance Certificates for buildings and proposed several measures to make the EPC more effective in driving the markets towards low consumption buildings. Some authors have indicated that the EPC based on the physical properties of the buildings (asset rating) may be misleading due to occupancy behaviour ( [[#Cohen--2015|Cohen and Bordass 2015]] ) and calculation errors ( [[#Crawley--2019|Crawley et al. 2019]] ). Control authorities can have a large impact on the quality of the label ( [[#Mallaburn--2018|Mallaburn 2018]] ). Labels can also include information on the GHG embedded in building material or be based on LCA.

US EPA Energy Star and NABERS ( [[#Gui--2020|Gui and Gou, 2020]] ) are building performance labels based on performance, not on modelled energy use. Singapore has mandatory building energy labels, as do many cities in the US, while India and Brazil have mandatory labels for public buildings.

Mandatory energy performance disclosure and benchmarking of building energy consumption is a powerful policy instrument in particular for non-residential buildings ( [[#Trencher--2016|Trencher et al. 2016]] ) and could be more accurate than energy audits. [[#Gabe--2016|Gabe (2016)]] showed that mandatory disclosure is more effective than voluntary disclosure. Some US cities (e.g., New York) have adopted Emissions Performance Standards for buildings, capping CO 2 emissions. Accurate statistics related to energy use are very important for reducing GHG in building sector. In 2015, the Republic of Korea stablished the National Building Energy Integrated Management System, where building data and energy consumption information are collected for policy development and public information.

'''Energy audits.''' Energy audits, help to overcome the information barriers to efficiency investments, in particular buildings owned or occupied by small companies ( [[#Kalantzis--2019|Kalantzis and Revoltella, 2019]] ). In the EU energy audits are mandatory for large companies under the Energy Efficiency Directive ( [[#Nabitz--2019|Nabitz and Hirzel 2019]] ), with some EU Member States having a long experience with energy audits, as part of national voluntary agreements with the private sector ( [[#Rezessy--2011|Rezessy and Bertoldi 2011]] ; [[#Cornelis--2019|Cornelis 2019]] ). Singapore has adopted mandatory audit for buildings ( [[#Shen--2016|Shen et al. 2016]] ). In the United States, several cities have adopted energy informational policies in recent years, including mandatory buildings audits ( [[#Trencher--2016|Trencher et al. 2016]] ; [[#Kontokosta--2020|Kontokosta et al. 2020]] ). The State of New York has in place a subsidised energy audit for residential building since 2010 ( [[#Boucher--2018|Boucher et al. 2018]] ). It is important to assure the training of auditors and the quality of the audit.

'''Minimum Energy Performance Standards (MEPSs).''' Mandatory minimum efficiency standards for building technical equipment and appliances (e.g., HVAC, appliances, ICT, lighting, etc.) is a very common, tested and successful policy in most of the OECD countries (e.g., EU, US, Canada, Australia, etc.) for improving energy efficiency ( [[#Scott--2015|Scott et al. 2015]] ; [[#Wu--2019|Wu et al. 2019]] ; [[#Sonnenschein--2019|Sonnenschein et al. 2019]] ). [[#Brucal--2019|Brucal and Roberts (2019)]] showed that efficiency standards reduce product price. [[#McNeil--2019|McNeil et al. (2019)]] highlighted how efficiency standards will help developing countries in reducing the power peak demand by a factor of two, thus reducing large investment costs in new generation, transmission, and distribution networks. Mandatory standards have been implemented also other large economies, for example, Russia, Brazil, India, South Africa, China, Ghana, Kenya and Malaysia ( [[#Salleh--2019|Salleh et al. 2019]] ), with an increase in the uptake also in developing countries, for example, Ghana, Kenya, Tunisia, and so on. In Japan, there is a successful voluntary programme the Top Runner, with similar results of mandatory efficiency standards ( [[#Inoue--2019|Inoue and Matsumoto 2019]] ).

'''Appliance energy labelling.''' Mandatory energy labelling schemes for building technical equipment and appliances are very often implemented together with minimum efficiency standards, with the mandatory standard pushing the market towards higher efficiency and the label pulling the market ( [[#Bertoldi--2019|Bertoldi, 2019]] ). OECD countries, and many developing countries (for example China, Ghana, Kenya, India, South Africa, etc.) ( [[#Chunekar--2014|Chunekar 2014]] ; [[#Diawuo--2018|Diawuo et al. 2018]] ; [[#Issock--2018|Issock et al. 2018]] ) have adopted mandatory energy labelling. Other labelling schemes are of voluntary nature, for example, the Energy Star programme in the US ( [[#Ohler--2020|Ohler et al. 2020]] ), which covers many different appliances.

'''Information campaign.''' Provision of information (e.g., public campaigns, targeted technical information, etc.) is a common policy instrument to change end-user behaviour. Many authors agree that the effect of both targeted and general advertisement and campaigns have a short lifetime and the effects tend to decrease over time ( [[#Reiss--2008|Reiss and White 2008]] ; [[#Simcock--2014|Simcock et al. 2014]] ; [[#Diffney--2013|Diffney et al. 2013]] ). The meta-analysis carried out by ( [[#Delmas--2013|Delmas et al. 2013]] ) showed that energy audits and personal information were the most effective followed by providing individuals with comparisons with their peers’ energy use including ‘non-monetary, information-based’ ( [[#Delmas--2013|Delmas et al. 2013]] ). An effective approach integrates the social norm as the basis for information and awareness measures on energy behaviour ( [[#Schultz--2007|Schultz et al. 2007]] ; [[#Gifford--2011|Gifford 2011]] ). Information is more successful when it inspires and engages people: how people feel about a given situation often has a potent influence on their decisions ( [[#Slovic--2006|Slovic and Peters 2006]] ). The message needs to be carefully selected and kept as simple as possible focusing on the following: entertain, engage, embed and educate ( [[#Dewick--2015|Dewick and Owen 2015]] ) ''.''

Energy consumption feedback with smart meters, smart billing and dedicated devices and apps is another instrument recently exploited to reduce energy consumption ( [[#Karlin--2015|Karlin et al. 2015]] ; [[#Buchanan--2018|Buchanan et al. 2018]] ; Zangheri et al. 2019) very often coupled with contest-based interventions or norm-based interventions ( [[#Bergquist--2019|Bergquist et al. 2019]] ). [[#Hargreaves--2018|Hargreaves et al. (2018)]] proposes five core types of action to reduce energy use: turn it off, use it less, use it more carefully, improve its performance, and replace it/use an alternative. According to [[#Aydin--2018|Aydin et al. (2018)]] , technology alone will not be enough to achieve the desired energy savings due to the rebound effect. The lack of interest from household occupants, confusing feedback message and difficulty to relate it to practical intervention, overemphasis on financial savings and the risks of ‘fallback effects’ where energy use returns to previous levels after a short time or rebound effects has been pointed out ( [[#Buchanan--2015|Buchanan et al. 2015]] ) as the main reasons for the failing of traditional feedback. Labanca and [[#Bertoldi--2018|Bertoldi (2018)]] highlight the current limitations of policies for energy conservation and suggests complementary policy approach based on social practices theories.

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===== 2. Market-based instruments =====

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'''Carbon allowances.''' A number of authors ( [[#Raux--2015|Raux et al. 2015]] ; [[#Fan--2016|Fan et al. 2016]] ; [[#Fawcett--2017|Fawcett and Parag 2017]] ; [[#Li--2015|Li et al. 2015]] , 2018; [[#Marek--2018|Marek et al. 2018]] ; [[#Wadud--2019|Wadud and Chintakayala 2019]] ) have investigated personal carbon allowances introduced previously ( [[#Ayres--1995|Ayres 1995]] ; [[#Fleming--1997|Fleming 1997]] ; [[#Raux--2005|Raux and Marlot 2005]] ; [[#Bristow--2010|Bristow et al. 2010]] ; [[#Fawcett--2010|Fawcett 2010]] ; [[#Starkey--2012|Starkey 2012]] ). Although there is not yet any practical implementation of this policy, it offers an alternative to carbon taxes, although there are some practical issues to be solved before it could be rolled out. Recently the city of Lahti in Finland has introduced a personal carbon allowance in the transport sector ( [[#Kuokkanen--2020|Kuokkanen et al. 2020]] ). Under this policy instrument governments allocate (free allocation, but allowances could also be auctioned) allowances to cover the carbon emission for one year, associated with energy consumption. Trade of allowances between people can be organised. Personal carbon allowances can also foster renewable energies (energy consumption without carbon emissions) both in the grid and in buildings (e.g., solar thermal). Personal carbon allowances can make the carbon price more explicit to consumers, allowing them to know from the market value of each allowance (e.g., 1 kg of CO 2 ). This policy instrument will shift the responsibility to the individual. Some categories may have limited ability to change their carbon budget or to be engaged by this policy instruments. In addition, in common with many other environmental policies the distributional effects have to be assessed carefully as this policy instrument may favour well off people able to purchase additional carbon allowances or install technologies that reduce their carbon emissions ( [[#Burgess--2016|Burgess 2016]] ; [[#Wang--2017|Wang et al. 2017]] ).

The concept of carbon allowances or carbon budget can also be applied to buildings, by assigning a yearly CO 2 emissions budget to each building. This policy would be a less complex than personal allowances as buildings have metered or billed energy sources (e.g., gas, electricity, delivered heat, heating oil, etc.). The scheme stimulates investments in energy efficiency and on-site renewable energies and energy savings resulting from behaviour by buildings occupant. For commercial buildings, similar schemes were implemented in the UK CRC Energy Efficiency Scheme (closed in 2019) or the Tokyo Metropolitan Carbon and Trade Scheme ( [[#Nishida--2011|Nishida and Hua 2011]] ; [[#Bertoldi--2013a|Bertoldi et al. 2013a]] ). Since 2015 the Republic of Korea implemented an Emission Trading Scheme, covering buildings ( [[#Park--2014|Park and Hong 2014]] ; [[#Lee--2017|Lee and]] [[#Yu--2017|Yu 2017]] ; [[#Narassimhan--2018|Narassimhan et al. 2018]] ). More recently under the New York Climate Mobilization Act enacted in 2019 New York City Local Law 97 established ‘Carbon Allowances’ for large buildings ( [[#Spiegel-Feld--2019|Spiegel-Feld 2019]] ; [[#Lee--2020|Lee 2020]] ).

Public money can be used to reward and give incentives to energy saved, as a result of technology implementation, and/or as a result of energy conservation and sufficiency ( [[#Eyre--2013|Eyre 2013]] ; [[#Bertoldi--2013b|Bertoldi et al. 2013b]] ; [[#Prasanna--2018|Prasanna et al. 2018]] ). This can be seen as a core feature of the Energy Savings Feed-in Tariff (ES-FiT). The ES-FiT is a performance-based subsidy, whereby actions undertaken by end-users – for example, investments in energy efficiency technology measures – are awarded based on the real energy savings achieved.

'''Utilities programmes, energy efficiency resource standard and energy efficiency obligations.''' Ratepayer-funded efficiency programmes, energy efficiency obligations, energy efficiency resource standards and white certificates have been introduced in some EU Member States, in several US States, Australia, South Korea and Brazil ( [[#Bertoldi--2013a|Bertoldi et al. 2013a]] ; [[#Palmer--2013|Palmer et al. 2013]] ; [[#Brennan--2013|Brennan and Palmer 2013]] ; [[#Giraudet--2015|Giraudet and Finon 2015]] ; [[#Wirl--2015|Wirl 2015]] ; [[#Rosenow--2017|Rosenow and Bayer 2017]] ; [[#Aldrich--2018|Aldrich and Koerner 2018]] ; [[#Choi--2018a|Choi et al. 2018a]] ; Fawcett and Darby 2018; [[#Fawcett--2019|Fawcett et al. 2019]] ; [[#Nadel--2019|Nadel, 2019]] ; [[#Sliger--2019|Sliger and Colburn, 2019]] ; [[#Goldman--2020|Goldman et al. 2020]] ). This policy instrument helps in improving energy efficiency in buildings, but there is no evidence that it can foster deep renovations of existing buildings. Recently this policy instrument has been investigated is some non-OECD countries such as Turkey, where white certificates could deliver energy savings with some limitations ( [[#Duzgun--2014|Duzgun and Komurgoz 2014]] ) and UAE, as a useful instrument to foster energy efficiency in buildings ( [[#Friedrich--2015|Friedrich and Afshari 2015]] ). Another similar market based instrument is the energy saving auction mechanism implemented in some US states, Switzerland, and in Germany ( [[#Langreder--2019|Langreder et al. 2019]] ; [[#Rosenow--2019|Rosenow et al. 2019]] ; [[#Thomas--2020|Thomas and Rosenow 2020]] ). Energy efficiency projects participate in auctions for energy savings based on the cost of the energy saved and receive a financial incentive, if successful.

'''Energy or carbon taxes.''' Energy and/or carbon taxes are a climate policy, which can help in reducing energy consumption ( [[#Sen--2018|Sen and Vollebergh 2018]] ) and manage the rebound effect ( [[#Font%20Vivanco--2016|Font Vivanco et al. 2016]] ; [[#Peng--2019|Peng et al. 2019]] ; [[#Freire-González--2020|Freire-González 2020]] ; [[#Bertoldi--2020|Bertoldi 2020]] ). The carbon tax has been adopted mainly in OECD countries and in particular in EU Member States ( [[#Sen--2018|Sen and Vollebergh 2018]] ; [[#Hájek--2019|Hájek et al. 2019]] ; [[#Bertoldi--2020|Bertoldi 2020]] ). There is high agreement that carbon taxes can be effective in reducing CO 2 emissions ( [[#Andersson--2017|Andersson 2017]] ; [[#IPCC--2018|IPCC 2018]] ; [[#Hájek--2019|Hájek et al. 2019]] ). It is hard to define the optimum level of taxation in order to achieve the desired level of energy consumption or CO 2 emission reduction (Weisbach et al. 2009). As for other energy efficiency policy distributional effect and equity considerations have to be carefully considered and mitigated ( [[#Borozan--2019|Borozan 2019]] ). High energy prices tend to reduce the energy consumption particularly in less affluent households, and thus attention is needed in order to avoid unintended effects such as energy poverty. Bourgeois et al. (2021) showed that using carbon tax revenue to finance energy efficiency investment reduces fuel poverty and increases cost-effectiveness. ( [[#Giraudet--2021|Giraudet et al. 2021]] ) assessed the cost-effectiveness of various energy efficiency policies in France, concluding that a carbon tax is the most effective. In particular, revenues could be invested in frontline services that can provide a range of support – including advising householders on how to improve their homes. Hence, the introduction of a carbon tax can be neutral or even positive to the economy, as investments in clean technologies generate additional revenues. In addition, in the long term, a carbon/energy tax could gradually replace the tax on labour reducing labour cost (e.g., the example of the German Eco-tax), thus helping to create additional jobs in the economy. In literature, this is known as double dividend ( [[#Murtagh--2013|Murtagh et al. 2013]] ; [[#Freire-González--2019|Freire-González and Ho 2019]] ). Urban economic researches ( [[#Creutzig--2014|Creutzig 2014]] ; [[#Borck--2018|Borck and Brueckner 2018]] ; [[#Rafaj--2018|Rafaj et al. 2018]] ) have highlighted that higher carbon price would translate in incentives for citizens to live closer to the city centre, which often means less floor space, less commuting distance and thus reduced emissions. [[#Xiang--2019|Xiang and Lawley (2019)]] indicated that the carbon tax in British Columbia substantially reduced residential natural gas consumption. [[#Saelim--2019|Saelim (2019)]] showed that simulated carbon tax on residential consumption in Thailand will have a low impact on welfare and it will be slightly progressive. [[#Lin--2011|Lin and Li (2011)]] indicate that a carbon tax could reduce the energy consumption and boost the uptake of energy efficiency and renewable energies, while at the same time may impact social welfare and the competitiveness of industry. [[#Solaymani--2017|Solaymani (2017)]] showed that in Malaysia a tax with revenue recycling increases inthe welfare of rural and urban households. Van Heerden et al. (2016) explored economic and environmental effects of the CO 2 tax in South Africa highlighting the negative impact on GDP. This negative impact of the carbon tax on GDP is, however, greatly reduced by the manner in which the tax revenue is recycled. National circumstances shall be taken into consideration in introducing energy taxes, considering the local taxation and energy prices context with regard to sustainable development, justice and equity.

A policy, which can have similar impact to a carbon tax and is the energy price/subsidy reform, which also involves raising energy prices. Energy price/subsidy reform reduces energy consumption and greenhouse gas emissions and encourages investment in energy efficiency ( [[#Coady--2018|Coady et al. 2018]] ; [[#Aldubyan--2021|Aldubyan and Gasim, 2021]] ). In a similar manner, government revenues from subsidies reforms can be used to mitigate the distributional impact on vulnerable population groups, including direct cash transfer programmes (Rentschler and Brazilian 2017; [[#Schaffitzel--2020|Schaffitzel et al. 2020]] ).

Taxes could also be used to penalise inefficient behaviour and favour the adoption of efficient behaviour and technologies. Taxes are used in some jurisdictions to promote energy efficient appliances with lower VAT. Similarly, the annual building/property tax (and also the purchase tax) could be based on the CO 2 emissions of the buildings, rather than on the value of the building. Tax credits are also an important subsidy for the renovation of buildings in France ( [[#Giraudet--2020|Giraudet 2020]] ), Italy ( [[#Alberini--2015|Alberini and Bigano 2015]] ) and other countries.

<div id="9.9.4" class="h2-container"></div>

<span id="financing-mechanisms-and-business-models-for-reducing-energy-demand"></span>
=== 9.9.4 Financing Mechanisms and Business Models for Reducing Energy Demand ===

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Grants and subsidies are traditional financing instruments used by governments when optimal levels of investments cannot be fully supported by the market alone. They can partly help overcoming the upfront cost barrier as they directly fill an immediate financial gap and thus enable a temporary shift in the market ( [[#Newell--2019|Newell et al. 2019]] ). These forms of support are usually part of policy mixes including further fiscal and financial instruments such as feed-in tariffs and tax breaks ( [[#Polzin--2019|Polzin et al. 2019]] ). Potential issues with subsidies are the limited availability of public financing, the stop and go due to annual budget and the competition with commercial financing.

Loans provide liquidity and direct access to capital important in deep renovation projects ( [[#Rosenow--2014|Rosenow et al. 2014]] ). There is empirical evidence ( [[#Giraudet--2021|Giraudet et al. 2021]] ), that banks make large profits on personal loans for renovation purposes. International financing institutions (IFIs) and national governments provided subsidies in public-private partnerships so that financial institutions can offer customers loans with attractive terms ( [[#Olmos--2012|Olmos et al. 2012]] ). Loan guarantees are effective in reducing intervention borrowing costs ( [[#Soumaré--2016|Soumaré and Lai 2016]] ). Combination of grants and subsidised loans financed by IFIs could be an effective instrument together with guarantees. An important role in financing energy efficiency can be played by green banks, which are publicly capitalised entities set up to facilitate private investment in low-carbon, including energy efficiency ( [[#Bahl--2012|Bahl 2012]] ; Tu and Yen 2015; Linh and Anh 2017; [[#Khan--2018|Khan 2018]] ). Green banks have been established at the national level (e.g., UK, Poland) and in the US at state and city level.

Wholesaling of EE of loans and utilities programmes, are other important financing instruments. Another financing mechanism for building efficiency upgrades, mainly implemented so far in the US, is efficiency-as-a-service under an energy services agreement (ESA), where the building owners or tenant pay to the efficiency service provider a charge based on realised energy savings without any upfront cost (Kim et al. 2012; [[#Bertoldi--2020|Bertoldi, 2020]] ). ESA providers give performance guarantees assuming the risk that expected savings would occur ( [[#Bertoldi--2020|Bertoldi, 2020]] ).

Energy Performance Contracting (EPC) is an agreement between a building owner and Energy Services Company (ESCO) for energy efficiency improvements. EPC is a common financing vehicle for large buildings and it is well developed in several markets ( [[#Carvallo--2015|Carvallo et al. 2015]] ; Bertoldi and Boza Kiss, 2017; Stuart et al. 2018; Ruan et al. 2018; Nurcahyanto et al. 2020; [[#Zheng--2021|Zheng et al. 2021]] ). Quality standards are a part of the EPC ( [[#Augustins--2018|Augustins et al. 2018]] ). Guarantees can facilitate the provision of affordable and sufficient financing for ESCOs ( [[#Bullier--2013|Bullier and Milin 2013]] ). The ESCO guarantees a certain level of energy savings and it shields the client from performance risk. The loan goes on the client’s balance sheet and the ESCO assumes full project performance risk ( [[#Deng--2015|Deng et al. 2015]] ). One of the limitations is on the depth of the energy renovation in existing buildings. According to ( [[#Giraudet--2018|Giraudet et al. 2018]] ), EPC is effective at reducing information problems between contractors and investors.

Energy efficient mortgages are mortgages that credits a home energy efficiency by offering preferential mortgage terms to extend existing mortgages to finance efficiency improvements. There are two types of energy mortgages: (i) the Energy Efficient Mortgages (EEMs), and (ii) the Energy Improvement Mortgages (EIMs), both can help in overcoming the main barriers to retrofit policies ( [[#Miu--2018|Miu et al. 2018]] ). The success depends on the improved energy efficiency with a positive impact on property value and on the reduction of energy bills and the income increase in the household. In the EU, the EeMAP Initiative aims to create a standardised energy efficient mortgage template ( [[#Bertoldi--2021|Bertoldi et al. 2021]] ).

On-bill financing is a mechanism that reduces first-cost barriers by linking repayment of energy efficiency investments to the utility bill and thereby allowing customers to pay back part or all costs of energy efficiency investments over time ( [[#Brown--2009|Brown 2009]] ). On-bill finance programmes can be categorised into: (i) on-bill loans (assignment of the obligation to the property) and (ii) on-bill tariffs (payment off in case of ownership transfer) ( [[#Eadson--2013|Eadson et al. 2013]] ). On-bill finance programmes can be more effective when set up as a service rather than a loan (Mundaca and Klocke 2018).

Property Assessed Clean Energy (PACE) is a means of financing energy renovations and renewable energy through the use of specific bonds offered by municipal governments to investors ( [[#Mills--2016|Mills 2016]] ). Municipalities use the funds raised to loan money towards energy renovations in buildings. The loans are repaid over the assigned long term (15–20 years) via an annual assessment on their property tax bill ( [[#Kirkpatrick--2014|Kirkpatrick and Bennear 2014]] ). This model has been subject to consumer protection concerns. Residential PACE programmes in California have been shown to increase PV deployment in jurisdictions that adopt these programs ( [[#Kirkpatrick--2014|Kirkpatrick and Bennear 2014]] ; [[#Ameli--2017|Ameli et al. 2017]] ). In US commercial buildings, PACE volumes and programs, however, continue to grow ( [[#Lee--2020|Lee 2020]] ).

Revolving funds allow reducing investment requirements and enhancing energy efficiency investment impacts by recovering and reinvesting the savings generated ( [[#Setyawan--2014|Setyawan 2014]] ). Revolving fund could make retrofit cost-neutral in the long term and could also dramatically increase low carbon investments, including in developing countries ( [[#Gouldson--2015|Gouldson et al. 2015]] ).

Carbon finance, started under the Kyoto Protocol with the flexible mechanisms and further enhanced under the Paris Agreement ( [[#Michaelowa--2019|Michaelowa et al. 2019]] ), is an activity based on ‘carbon emission rights’ and its derivatives ( [[#Liu--2015a|Liu et al. 2015a]] ). Carbon finance can promote low-cost emission reductions ( [[#Zhou--2019|Zhou and Li 2019]] ). Under Emission Trading Schemes or other carbon pricing mechanisms, auctioning carbon allowances creates a new revenue stream. Revenues from auctioning could be used to finance energy efficiency projects in buildings with grants, zero interest loans or guarantees ( [[#Wiese--2020|Wiese et al. 2020]] ).

Crowdfunding is a new and rapidly growing form of financial intermediation that channels funds from investors to borrowers (individuals or companies) or users of equity capital (companies) without involving traditional financial organisations such as banks ( [[#Miller--2018|Miller and Carriveau 2018]] ). Typically, it involves internet-based platforms that link savers directly with borrowers ( [[#European%20Union--2015|European Union 2015]] ). It can play a significant role at the start of a renewable and sustainable energy projects ( [[#Dilger--2017|Dilger et al. 2017]] ).

The One-Stop Shop (OSS) service providers for buildings energy renovations are organisations, consortia, projects, independent experts or advisors that usually cover the whole or large part of the customer renovation journey from information, technical assistance, structuring and provision of financial support, to the monitoring of savings ( [[#Mahapatra--2019|Mahapatra et al. 2019]] ; Bertoldi 2021b). OSSs are transparent and accessible advisory tools from the client perspective and new, innovative business models from the supplier perspective (Boza-Kiss and [[#Bertoldi--2018|Bertoldi 2018]] ).

<div id="9.9.5" class="h2-container"></div>

<span id="policies-mechanisms-for-financing-for-on-site-renewable-energy-generation"></span>
=== 9.9.5 Policies Mechanisms for Financing for On-site Renewable Energy Generation ===

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On-site renewable energy generation is a key component for the building sector decarbonisation, complementing sufficiency and efficiency. Renewable energies (RES) technologies still face barriers due to the upfront investment costs, despite the declining price of some technologies, long pay-back period, unpredictable energy production, policy incertitude, architectural (in particular for built-in PV) and landscape considerations, technical regulations for access to the grid, and future electricity costs ( [[#Mah--2018|Mah et al. 2018]] ; [[#Agathokleous--2020|Agathokleous and Kalogirou 2020]] ).

Several policy instruments for RES have been identified by scholars ( [[#Fouquet--2013|Fouquet 2013]] ; [[#Azhgaliyeva--2018|Azhgaliyeva et al. 2018]] ; [[#Pitelis--2020|Pitelis et al. 2020]] ): direct investments; feed-in tariffs; grants and subsidies; loans and taxes; (tradable) green certificates or renewable/clean energy portfolio standards; information and education; strategic planning; codes and standards; building codes; priority grid access; research, development and deployment and voluntary approaches. There are specific policies for renewable heating and cooling ( [[#Connor--2013|Connor et al. 2013]] ). In 2011, the UK introduced the Renewable Heat Incentive (RHI) support scheme ( [[#Balta-Ozkan--2015|Balta-Ozkan et al. 2015]] ; [[#Connor--2015|Connor et al. 2015]] ). The RHI guarantee a fixed payment per unit of heat generated by a renewable heat technology for a specific contract duration ( [[#Yılmaz%20Balaman--2019|Yılmaz Balaman et al. 2019]] ).

The most common implemented policy instruments are the feed-in tariffs (FiTs) and the Renewable/Energy Portfolio Standards (RPSs) ( [[#Xin-gang--2017|Xin-gang et al. 2017]] a; [[#Alizada--2018|Alizada 2018]] ; Bergquist et al. 2020), with FiTs more suited for small scale generation. More than 60 countries and regions worldwide have implemented one of the two policies (Sun and Nie 2015). FiT is a price policy guaranteeing the purchase of energy generation at a specific fixed price for a fixed period ( [[#Barbosa--2018|Barbosa et al. 2018]] ; [[#Xin-gang--2020|Xin-gang et al. 2020]] ). RPS is a quantitative policy, which impose mandatory quota of RES generation to power generators ( [[#Xin-gang--2020|Xin-gang et al. 2020]] ).

A flat rate feed-in tariff (FiT) is a well-tested incentive adopted in many jurisdictions to encourage end-users to generate electricity from RES using rooftop and on-site PV systems ( [[#Pacudan--2018|Pacudan 2018]] ). More recently, there has been an increasing interest for dynamic FiTs taking into account electricity costs, hosting capacity, ambient temperature, and time of day ( [[#Hayat--2019|Hayat et al. 2019]] ). Since 2014, EU Member States have been obligated to move from FiT to feed-in premium (FiTP) ( [[#Hortay--2019|Hortay and Rozner 2019]] ); where a FiTP consist in a premium of top of the electricity market price. [[#Lecuyer--2019|Lecuyer and Quirion (2019)]] argued that under uncertainty over electricity prices and renewable production costs a flat FiT results in higher welfare than a FiTP. One of the main concerns with FiT systems is the increasing cost of policies maintenance ( [[#Zhang--2018|Zhang et al. 2018]] ; [[#Pereira%20da%20Silva--2019|Pereira da Silva et al. 2019]] ; [[#Roberts--2019a|Roberts et al. 2019a]] ). In Germany, the financial costs, passed on to consumers in the form a levy on the electricity price have increased substantially in recent years ( [[#Winter--2019|Winter and Schlesewsky 2019]] ) resulting in opposition to the FiT in particular by non-solar customers. A particular set up of the FiT encourage self-consumption through net metering and net billing, which has a lower financial impact on electricity ratepayers compared with traditional FiTs ( [[#Pacudan--2018|Pacudan 2018]] ; [[#Roberts--2019b|Roberts et al. 2019b]] ; [[#Vence--2019|Vence and Pereira 2019]] ).

In some countries, for example, Australia ( [[#Duong--2019|Duong et al. 2019]] ), South Korea ( [[#Choi--2018a|Choi et al. 2018a]] ), China ( [[#Yi--2019|Yi et al. 2019]] ), there was a transition from subsidies under the FiT to market-based mechanisms, such as RPSs and tendering. Compared with FiT, RPS (or Renewable Obligations) reduce the subsidy costs ( [[#Zhang--2018|Zhang et al. 2018]] ). A number of scholars ( [[#Xin-gang--2017|Xin-gang et al. 2017]] ; [[#Liu--2018a|Liu et al. 2018a]] , 2019a) have highlighted the RPSs’ effectiveness in promoting the development of renewable energy. Other authors ( [[#Requate--2015|Requate 2015]] ; [[#An--2015|An et al. 2015]] ) have presented possible negative impacts of RPSs.

Both FiT and RPS can support the development of RES. Scholars compared the effectiveness of RPSs and FiTs with mix results and different opinions, with some scholars indicating the advantages of RPS ( [[#Ciarreta--2014|Ciarreta et al. 2014]] , 2017; [[#Xin-gang--2017|Xin-gang et al. 2017]] ), while [[#Nicolini--2017|Nicolini and Tavoni (2017)]] showed that in Italy FiTs are outperforming RPSs and Tradable Green Certificates (TGCs). [[#García-Álvarez--2018|García-Álvarez et al. (2018)]] carried out an empirical assessment of FiTs and RPSs for PV systems energy in EU over the period 2000–2014 concluding that that FiTs have a significant positive impact on installed PV capacity. This is due to the small size of many rooftop installations and the difficulties in participating in trading schemes for residential end users. Similar conclusions were reached by ( [[#Dijkgraaf--2018|Dijkgraaf et al. 2018]] ) assessing 30 OECD countries and concluding that there is a ‘positive effect of the presence of a FiT on the development of a country’s added yearly capacity of PV’. Other scholars ( [[#Lewis--2007|Lewis and Wiser 2007]] ; [[#Lipp--2007|Lipp 2007]] ; [[#Cory--2009|Cory et al. 2009]] ; [[#Couture--2010|Couture and Gagnon 2010]] ) concluded that FiT can create a stable investment framework and long-term policy certainty and it is better than RPS for industrial development and job creation. [[#Ouyang--2014|Ouyang and Lin (2014)]] highlighted that RPS has a better implementation effect than FiT in China, where FiT required very large subsidy. [[#Ford--2007|Ford et al. (2007)]] showed that TGC is a market-based mechanism without the need for government subsidies. [[#Marchenko--2008|Marchenko (2008)]] and [[#W¸edzik--2017|W¸edzik et al. (2017)]] indicate that the TGCs provide a source of income for investors. [[#Choi--2018a|Choi et al. (2018a)]] analysed the economic efficiency of FiT and RPS in the South Korean, where FiT was implemented from 2002 to 2011 followed by an RPS since 2012 ( [[#Park--2018|Park and Kim 2018]] ; [[#Choi--2018b|Choi et al. 2018b]] ). Choi concluded that RPS was more efficient for PV from the government’s perspective while from an energy producers’ perspective the FiT was more efficient. Some scholars proposed a policy combining FiT and RPS ( [[#Cory--2009|Cory et al. 2009]] ). [[#Kwon--2015|Kwon (2015)]] and [[#del%20Río--2017|del Río et al. (2017)]] concluded that both FiT and RPS are effective, but policy costs are higher in RPSs than FiTs. RPS, REC trading and FiT subsidy could also be implemented as complementary policies ( [[#Zhang--2018|Zhang et al. 2018]] ).

Tenders are a fast spreading and effective instrument to attract and procure new generation capacity from renewable energy sources ( [[#Bayer--2018|Bayer et al. 2018]] ; [[#Batz--2019|Batz and Musgens 2019]] ; [[#Bento--2020|Bento et al. 2020]] ; [[#Ghazali--2020|Ghazali et al. 2020]] ; [[#Haelg--2020|Haelg 2020]] ). A support scheme based on tenders allows a more precise steering of expansion and lower risk of excessive support ( [[#Gephart--2017|Gephart et al. 2017]] ). [[#Bento--2020|Bento et al. (2020)]] indicated that tendering is more effective in promoting additional renewable capacity comparing to other mechanisms such as FiTs. It is also important to take into account the rebound effect in energy consumption by on-site PV users, which might reduce up to one fifth of the carbon benefit of renewable energy ( [[#Deng--2017|Deng and Newton 2017]] ).

Financing mechanisms for RES are particularly needed in developing countries. Most of the common supporting mechanisms (FiT, RPSs, PPA, auctions, net metering, etc.) have been implemented in some developing countries ( [[#Donastorg--2017|Donastorg et al. 2017]] ). Stable policies and an investment-friendly environment are essential to overcome financing barriers and attract investors ( [[#Donastorg--2017|Donastorg et al. 2017]] ). [[#Kimura--2016|Kimura et al. (2016)]] identified the following elements as essential for fostering RES in developing countries: innovative business models and financial mechanisms/structures; market creation through the implementation of market-based mechanisms; stability of policies and renewable energy legislation; technical assistance to reduce the uncertainty of renewable energy production; electricity market design, which reflects the impact on the grid capacity and grid balancing; improved availability of financial resources, in particular public, and innovative financial instruments, such as carbon financing ( [[#Lim--2013|Lim et al. 2013]] ; [[#Park--2018|Park et al. 2018]] ; [[#Kim--2018|Kim and Park 2018]] ); green bonds; public foreign exchange hedging facility for renewable energy financing, credit lines; grants and guarantees.

The end-user will be at the centre as a key participant in the future electricity system ( [[#Zepter--2019|Zepter et al. 2019]] ; Lavrijssen and Carrillo Parra, 2017) providing flexibility, storage, energy productions, peer-to-peer trading, electric vehicle charging. Zepter indicates that ‘the current market designs and business models lack incentives and opportunities for electricity consumers to become prosumers and actively participate in the market’. [[#Klein--2019|Klein et al. (2019)]] explore the policy options for aligning prosumers with the electricity wholesale market, through price and scarcity signals. Policies should allow for active markets participation of small prosumers ( [[#Brown--2019|Brown et al. 2019]] ; [[#Zepter--2019|Zepter et al. 2019]] ), local energy communities and new energy market actors such as aggregators ( [[#Iria--2019|Iria and Soares 2019]] ; [[#Brown--2019|Brown et al. 2019]] ). Energy Communities are new important players in the energy transition ( [[#Sokołowski--2020|Sokołowski 2020]] ; [[#Gjorgievski--2021|Gjorgievski et al. 2021]] ). Citizens and local communities can establish local energy communities, providing local RES production to serve the community, alleviate energy poverty and export energy into the grid ( [[#DellaValle--2020|DellaValle and Sareen, 2020]] ; [[#Hahnel--2020|Hahnel et al. 2020]] ). Energy Communities have as primary purpose to provide environmental, economic, or social community benefits by engaging in generation, aggregation, energy storage, energy efficiency services and charging services for electric vehicles. Energy communities help in increasing public acceptance and mobilise private funding. Demand response aggregators ( [[#Mahmoudi--2017|Mahmoudi et al. 2017]] ; [[#Henriquez--2018|Henriquez et al. 2018]] ) can aggregate load reductions by a group of consumers, and sell the resulting flexibility to the electricity market ( [[#Zancanella--2017|Zancanella et al. 2017]] ). Regulatory frameworks for electricity markets should allow demand response to compete on equal footing in energy markets and encourage new business models for the provision of flexibility to the electricity grid (Shen et al. 2014). Renewable energy and sufficiency requirements could be included in building energy codes and implemented in coordination with each other and with climate policies, for example, carbon pricing ( [[#Oikonomou--2014|Oikonomou et al. 2014]] ).

<div id="9.9.6" class="h2-container"></div>

<span id="investment-in-building-decarbonisation"></span>
=== 9.9.6 Investment in Building Decarbonisation ===

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As [[#9.6.3|Section 9.6.3]] points out, the incremental investment cost to decarbonise buildings at national level is up to 3.5% GDP per annum during the next thirty years (the global GDP in 2019 was USD88 trillion). As the following figures illustrate, only a very small share of it is currently being invested, leaving a very large investment gap still to address. The incremental capital expenditure on energy efficiency in buildings has grown since AR5 to reach the estimated USD193 billion in 2021; Europe was the largest investing region, followed by the USA and China (Figure 9.21). The incremental capital expenditure on renewable energy heat vice versa declined to reach USD24 billion in this year; the leading investor was China, followed by Europe (ibid). The total capital expenditure on distributed small-scale (less than 1MW) solar systems in 2019 was USD52.1 billion, down from the peak of USD71 billion in 2011; most of this capacity is installed in buildings ( [[#Frankfurt%20School-UNEP%20Centre/BNEF--2020|Frankfurt School-UNEP Centre/BNEF 2020]] ). The US was the largest country market with USD9.6 billion investment; notably USD5 billion was deployed in the Middle East and Africa (ibid). [[#IEA--2021b|IEA (2021b)]] provided an estimate of annual average incremental investment needs in building sector decarbonation between 2026 and 2030 of USD711 billion, including USD509 billion in building energy efficiency and USD202 billion in renewable heat for end-use and electrification in buildings. Such investment would allow being on track towards meeting the goals of the WEO Net Zero Emissions Scenario, as presented in Box 9.2. To reach these levels, the respective investment must grow from their average volumes in 2016–2020 factor 3.6 and 4.5 respectively. As the investment needs estimated by ( [[#IEA--2021b|IEA 2021b]] ) are significantly lower the investment intervals reported by bottom-up literature ( [[#9.6.3|Section 9.6.3]] ), the actual investment gap is likely to be higher.

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[[File:1444b54f83c712387380d0671782600a IPCC_AR6_WGIII_Figure_9_21.png]]

Figure 9.21 | Incremental capital expenditure on energy efficiency investment (left) and renewable heat in buildings, 2015–2021. Notes: (i) An energy efficiency investment is defined as the incremental spending on new energy-efficient equipment or the full cost of refurbishments that reduce energy use. (ii) Renewable heat for end-use include solar thermal applications (for district, space, and water heating), bioenergy and geothermal energy, as well as heat pumps. (iii) The investment in 2021 is an estimate. Source: [[#IEA--2021b|IEA 2021b]] .

<div id="9.9.7" class="h2-container"></div>

<span id="governance-and-institutional-capacity"></span>
=== 9.9.7 Governance and Institutional Capacity ===

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<div id="9.9.7.1" class="h3-container"></div>

<span id="governance"></span>
==== 9.9.7.1 Governance ====

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Multi-level and polycentric governance is essential for implementing sufficiency, energy efficiency and renewable energies policies ( [[#IPCC--2018|IPCC 2018]] ). Policies can be implemented at different levels of government and decision making, international, national, regional, and local. Policies for building have be adopted at national level ( [[#Enker--2017|Enker and Morrison 2017]] ), at state or regional level ( [[#Fournier--2019|Fournier et al. 2019]] ), or at city level ( [[#Trencher--2019|Trencher and van der Heijden 2019]] ). [[#Zhao--2019|Zhao et al. (2019)]] find that national policies are instrumental in driving low carbon developments in buildings.

International agreements (Kyoto, Montreal/Kigali, Paris, etc.) play an important role in establishing national energy-efficiency and renewable energy policies in several countries ( [[#Dhar--2018|Dhar et al. 2018]] ; [[#Bertoldi--2018|Bertoldi 2018]] ). Under the Paris Agreement, some NDCs contain emission reduction targets for subsectors, for example, buildings, policies for subsectors and energy efficiency and/or renewable targets (see also Cross-Chapter Box 5 in Chapter 4). In the EU since 2007 climate and energy policies are part of a co-ordinated policy package. EU Member States have prepared energy efficiency plans every three years and long-term renovation strategies for buildings ( [[#Economidou--2020|Economidou et al. 2020]] ). Under the new Energy and Climate Governance Regulation EU Member States have submitted at the end of 2020 integrated National Energy and Climate Plans, including energy efficiency and renewable plans. (Oberthur 2019; [[#Schlacke--2019|Schlacke and Knodt 2019]] ). The integration of energy and climate change policies and their governance has been analysed ( [[#von%20Lüpke--2020|von Lüpke and Well 2020]] ), highlighting the need of reinforcing the institutions, anticipatory governance, the inconsistency of energy policies and the emerging multi-level governance.

Some policies are best implemented at international level. Efficiency requirements for traded goods and the associated test methods could be set at global level in order to enlarge the market, avoid technical barriers to trade; reduce the manufacturers design and compliance costs. International standards could be applied to developing countries when specific enabling conditions exist, particularly in regard to technology transfer, assistance for capacity buildings and financial support. This would also reduce the dumping of inefficient equipment in countries with no or lower efficiency requirements. An example is the dumping of new or used inefficient cooling equipment in developing countries, undermining national and local efforts to manage energy, environment, health, and climate goals. Specific regulations can be put in place to avoid such environmental dumping, beginning with the ‘prior informed consent’ as in the Rotterdam Convention and a later stage with the adoption of minimum efficiency requirements for appliances ( [[#Andersen--2018|Andersen et al. 2018]] ; [[#UNEP--2017|UNEP 2017]] ). [[#Dreyfus--2020a|Dreyfus et al. (2020a)]] indicates that global policies to promote best technologies currently available have the potential to reduce climate emissions from air conditionings and refrigeration equipment by 210–460 GtCO 2 -eq by 2060, resulting from the phasing down of HFC and from improved energy efficiency. Another example is the commitment by governments in promoting improvements in energy efficiency of cooling equipment in parallel with the phasedown of HFC refrigerants enshrined in the Biarritz Pledge for Fast Action on Efficient Cooling signed in 2019. The policy development and implementation costs will be reduced as the technical analysis leading to the standard could be shared among governments. However, it is important that local small manufacturing companies in developing countries have the capacity to invest in updating production lines for meeting new stringent international efficiency requirements.

Building energy consumption is dependent on local climate and building construction traditions, regional and local government share an important role in promoting energy efficiency in buildings and on-site RES, through local building energy codes, constructions permits and urban planning. In South Korea, there is a green building certification system operated by the government, based on this, Seoul has enacted Seoul’s building standard, which includes more stringent requirements. Where it is difficult to retrofit existing buildings, for example, historical buildings, cities may impose target at district level, where RES could be shared among buildings with energy positive buildings compensating for energy consuming buildings. Local climate and urban plans could also contribute to the integration of the building sector with the local transport, water, and energy sectors, requiring, for example, new constructions in areas served by public transport, close to offices or buildings to be ready for e-mobility. Buildings GHG emission reduction shall also be considered in greenfield and brownfield developments and urban expansion ( [[#Loo--2017|Loo et al. 2017]] ; Salviati and Ricciardo Lamonica 2020), including co-benefits ( [[#Zapata-Diomedi--2019|Zapata-Diomedi et al. 2019]] ).

Energy efficiency, sufficiency, and renewable policies and measures will have a large impact on different stakeholders (citizens, construction companies; equipment manufacturers; utilities, etc.), several studies highlighted the importance of stakeholder consultation and active participation in policy making and policy implementation ( [[#Vasileiadou--2013|Vasileiadou and Tuinstra 2013]] ; [[#Ingold--2020|Ingold et al. 2020]] ), including voluntary commitments and citizen assemblies. In particular, energy user’s role will be transformed from passive role to an active role, as outlined in the concept of energy citizenship ( [[#Campos--2020|Campos and Marín-González 2020]] ). The energy citizens need and voice should therefore be included in policy processes among traditional business players, such as incumbent centralised power generation companies and utilities ( [[#Van%20Veelen--2018|Van Veelen 2018]] ). Architects and engineers play an important role in the decarbonisation of buildings. The professional bodies can mandate their members support energy efficiency and sufficiency. For example, the US AIA states in their code of ethics that architects must inform clients of climate risks and opportunities for sustainability. The capacity and quality of workforce and building construction, retrofit, and service firms are essential to execute the fast transition in building systems (Cross-Chapter Box 12 in Chapter 16).

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==== 9.9.7.2 Institutional Capacity ====

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The concept of institutional capacity is increasingly connected with the issue of public governance, emphasising the broad institutional context within which individual policies are adopted. Institutions are durable and are sources of authority (formal or informal) structuring repeated interactions of individuals, companies, civil society groups, governments, and other entities. Thus, institutional capacity also represents a broader ‘enabling environment’ which forms the basis upon which individuals and organisations interact. In general terms, capacity is ‘the ability to perform functions, solve problems and set and achieve objectives’ ( [[#Fukuda-Parr--2002|Fukuda-Parr et al. 2002]] ). Institutional capacity is an important element for regional sustainable development ( [[#Farajirad--2015|Farajirad et al. 2015]] ). The role and importance of institutional capacity is fundamental in implementing the building decarbonisation. Central and local governments, regulatory organisations, financial institutions, standardisation bodies, test laboratories, building construction and design companies, qualified workforce and stakeholders are key players in supporting the implementation of building decarbonisation.

Governments (from national to local) planning to introduce efficiency, RES, and sufficiency policies needs technical capacity to set sectoral targets and design policies and introduce effective and enforcement with adequate structure and resources for their implementation. Policies discussed and agreed with stakeholders and based on impartial data and impact assessments, have a higher possibility of success. Public authorities need technical and economics competences to understand complex technical issues and eliminate the knowledge gap in comparison to private sector experts, human and financial resources to design, implement, revise, and evaluate policies. The role of energy efficiency policy evaluation needs to be expanded, including the assessment of the rebound effect ( [[#Vine--2013|Vine et al. 2013]] ). For developing countries international support for institutional capacity for policy development, implementation and evaluation is of key importance for testing laboratory, standards institute, enforcement and compliances technicians and evaluation experts. Thus, in development support, addition to technology transfer, also capacity buildings for national and local authorities should be provides. The Paris Agreement Article 11 aims at enhancing the capacity of decision-making institutions in developing countries to support effective implementation.

Enforcement of policies is of key importance. Policies on appliance energy standards need to establish criteria for random checks and tests of compliance, establish penalties and sanctions for non-compliance. For building code compliance there is the need to verify compliance after construction to verify the consistence with building design ( [[#Vine--2017|Vine et al. 2017]] ). Often local authorities lack resources and technical capacity to carry out inspections to check code compliance. This issue is even more pressing in countries and cities with large informal settlements, where buildings may not be respecting building energy codes for safety and health.

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