The greater the investment, the greater the loss? – Resource traps in Building energy efficiency retrofit (BEER) market

Abstracts

Building Energy Efficiency Retrofitting (BEER) is an important measure to relieve energy pressure, conserve natural resources and promote urban low-carbon transformation . Governments of various countries have invested huge resources to promote the rapid development of BEER market. However, when the amount of resource input exceeds a certain threshold, the market will deviate from the desired state, falling into a resource trap and cutting consumer welfare. This is due to the fact that BEER service providers take advantage of their dominant position in the market and increase their own revenues by enhancing product heterogeneity. To make matters worse, the greater the government's effort, the earlier the resource trap appears and the more resource loss it causes. Incentives and penalties for service providers became necessary to guide the market to cross resource trap. The research in this paper is conducive to promoting the healthy development of the BEER market, conserving natural resources and promoting urban low-carbon transformation.

Introduction

Increased energy consumption is one of the main factors contributing to global warming due to the increase in carbon dioxide emissions. With the increase of the global population and the improvement of living standards, global energy consumption is expected to increase by 48% by 2040 compared to 2012 (Conti et al., 2016). In order to promote the reduction of global energy demand, more effective energy strategies and policies are very necessary. Despite some positive achievements having been obtained with existing measures (e.g. progress of building energy efficiency retrofit (BEER) and stringent building energy regulations), as highlighted in the International Energy Agency (IEA) 2016 report, improvements in global energy demand reduction are too slow to achieve the specified targets of the Paris agreement (Sadamori,2016).

The building sector is a key source of global energy reduction potential as it consumed 60% of the world's electricity ((Johansson et al., 2012) and 20% of total global energy in 2016 (Conti et al., 2016). Knowing this fact, the energy performance enhancement of buildings has become a primary policy in many countries. And technological innovation, policy regulation and marketization of BEER are the main measures to improve building energy efficiency (Kontokosta et al., 2020).

In the field of technological innovation, current scholars are focusing on the breakthrough of a certain equipment technology or the energy consumption control and optimization of a single building (Camponogara et al., 2020). However, due to differences in building types (Ko, 2013), building structures (Urquizo et al., 2017), local environments (Lee and Jeong, 2017), and energy-using groups (Barthelmes et al., 2017), etc., the extrapolation of individual energy technologies or individual building optimization solutions is poor, and it is difficult to meet the energy saving and emission reduction needs on a global scale in a timely manner.

In the field of policy regulation, Wu et al. (2018) have carefully sorted out the building energy policies of China, the United States, Germany, France, Japan and other countries, showing that the above-mentioned countries are all adopting strict building energy efficiency standards and quota management policies to reduce building energy consumption. Enke and Morrison (2020) also used the example of Australia to illustrate the importance of policy regulation to promote energy efficiency in existing buildings. In order to ensure that energy savings are judged fairly, governments also make it mandatory for owners to publish energy consumption data and conduct energy audits of their buildings. However, two studies on the United States (Papadopoulos and Kontokosta, 2019) and India (Iyer et al., 2018) show that due to the variety of building types and complex functions, the processing and evaluation of building energy consumption data lack robust standards, and it is impossible to make a reasonable evaluation of different building energy consumption levels. Kontokosta et al. (2020) has also made the point that mandatory audits do not generate enough incentive to invest in building energy efficiency to reduce energy consumption.

In the field of marketization of BEER, Carlson and Pressnail (2018) demonstrated the critical role of market mechanisms in promoting BEER through a business case study of BEER in Canada. Alam et al. (2019) proposed that the government should effectively use market mechanisms for project financing and procurement of materials through a study of BEER projects in existing public buildings in Australia. Li et al. (2019) analyzed the process of residential BEER in China through questionnaire surveys, and their research results indicate that market mechanisms will become the most critical influencing factor in the future. More and more researches show that the marketization of BEER is a key tool to improve building energy efficiency and release building energy saving potential.

Through the construction and improvement of the BEER market, the introduction of higher-quality service providers will help improve the efficiency of BEER and reduce building energy consumption. Yet, several substantial obstacles, known as the market failures in literature, obstruct the widespread adoption of BEER. Market obstacles will lead to a vicious circle between the low number of renovated energy-efficient buildings and the limited attempt to build new units (Yusuf et al., 2019).

In order to promote the healthy development of the BEER market, it is necessary to identify and overcome market obstacles.