Economic impacts of the Energy Efficiency Directive - regional CGE approach

This study assesses the economic effects of the EU Energy Efficiency Directive (EED) in Finland at national and regional levels. Indicative target is to reduce the final energy consumption to 310 TWh by 2020. Our study concentrates on real estate sector that is the main target of the policy and comprises notable part of national economy. We base our analysis in two models: a real estate sector model (REMA) and a single country regional CGE model (VERM). We found that even without considering productivity improvements, the EED implementation is cost-effective. Measures that improve energy efficiency impose constraints on technology that decrease economic efficiency. However, the increased investment activity more than compensates the loss. The real estate sector carbon emissions decrease consistently over the time period. The total emissions decrease less than targeted because of the rebound effect. The EED also contributes to the other pillars of the EU climate policy. As the emission reduction yields modest economic growth with EED, it is a cost-efficient alternative for other climate policies. The regional effects are mixed. The regional value added change is positive at each region. The employment increases more than proportionally in regions that produce materials for construction industry. Thus, the EED slightly decreases regional disparities. Repayment of renovation debt is problematic because it allocates the renovation investments up front that generates unbalanced growth path. The period of repayment requires massive amount of investment that partially consumes the need for subsequent investments. Consequently during the repayment phase lots of additional capacity is generated. Subsequently that capacity becomes hard to employ and slows down the economic growth.