A two-step decision model on energy retrofitting buildings

In standard modelling of energy and climate policies, the speed and extent of energy efficiency improvements (EEIs) are usually assumed to be unaffected, even by policies designed to foster innovation. We model endogenous EEI in a model of the Swiss housing stock. Retrofitting results from a two-step decision model for building owners. First, they decide to conduct an energy audit, then they decide for or against retrofitting based on NPV. We use the model to simulate a rising retrofit subsidy, a rising CO2 tax, an information campaign and combinations of these measures. Our results show that the CO2 tax obtains its reduction of emissions at the smallest investment cost because it also encourages fuel switching. However, deep decarbonisation requires a greater step-up of the retrofit rate, which is obtained by using the revenues of the CO2 tax to subsidize retrofitting and by adding an information campaign.