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

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

<div id="h2-31-siblings" class="h2-siblings"></div>

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.

<div id="9.9.3.1" class="h3-container"></div>

<span id="sufficiency-and-efficiency-policies"></span>
==== 9.9.3.1 Sufficiency and Efficiency Policies ====

<div id="h3-33-siblings" class="h3-siblings"></div>

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.

<div id="1. Regulatory instruments " class="h4-container"></div>

<span id="regulatory-instruments"></span>
===== 1. Regulatory instruments =====

<div id="h4-1-siblings" class="h4-siblings"></div>

'''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.

<div id="2. Market-based instruments" class="h4-container"></div>

<span id="market-based-instruments"></span>
===== 2. Market-based instruments =====

<div id="h4-2-siblings" class="h4-siblings"></div>

'''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>