Energy Performance Certificates and Investments in Building Energy Efficiency: A Theoretical Analysis
IEB Working Paper N. 2018/11
28 Pages Posted: 14 Oct 2018
Date Written: September 21, 2018
In the European Union, Energy Performance Certificates (EPCs) provide potential buyers or tenants with information on a property's energy performance. By mitigating informational asymmetries on real estate markets, the conventional wisdom is that they will reduce energy use, increase energy-efficiency investments, and improve social welfare. We develop a dynamic model that partly contradicts these predictions. Although EPCs always improve social welfare, their impact on energy use and investments is ambiguous. This implies that, in a second-best world where energy externalities are under-priced and/or homeowners have behavioral biases hindering investments (myopia), EPCs can damage social welfare. This calls for using mandatory energy labeling in contexts where additional instruments efficiently mitigate the other imperfections.
Keywords: Energy labeling, energy efficiency, buildings
JEL Classification: Q48, R31
Suggested Citation: Suggested Citation