1. Introduction
This interdisciplinary paper seeks to stimulate a discussion on the limitations of increasing energy efficiency ever higher as a path to reducing CO
2 emissions. It does this, however, outside the generally accepted concept of the rebound effect. Researchers have long known that rebound effects reduce the environmental gains from energy efficiency [
1,
2]. When an appliance such as a computer chip, car engine, or home heating system is made more energy efficient, this reduces the amount of energy required to achieve the energy services the appliance provides, thereby reducing the CO
2 emissions produced by the energy source. However, because this makes these energy services cheaper, people tend to make the appliances work harder. They add more chips to their computer memory [
3], drive further and faster [
4], and heat more rooms to a higher temperature [
5]. CO
2 emissions are still reduced, but not by as much as the engineers calculated. This is a well-known effect of increasing energy efficiency. However, a quite different effect of increasing energy efficiency will be discussed in this paper.
It is also well-known that in some sectors and situations, increasing energy efficiency leads to an
increase in CO
2 emissions. As long ago as the 1860s, William Stanley Jevons noted that as the energy efficiency of factories increased and less coal was therefore needed to power each factory, the number of factories increased, so that ever more coal was needed to run them [
6]. The increase in energy efficiency caused
more energy to be expended in the wider economy. This is often called “backfire” [
7,
8]. A modern version of backfire is seen in the computer industry. The energy efficiency of computer chips has doubled about every 18 months for the past five decades, but this has not reduced the amount of energy we use for computing but has multiplied it manyfold [
9].
A deeper insight into backfire and rebound effects has been systematically developed by Ruzzenenti and colleagues (e.g., [
10,
11]). These authors argue that in biological evolution, the function of increasing energy efficiency is not to save energy but to make a creature more powerful, formidable, and successful in a competitive environment and to enable it to use
more energy to obtain more of what it wants. Ruzzenenti and colleagues have applied this concept to modern-day sectors, particularly road transport (e.g., [
12]), but also on a macroeconomic level [
13]. It relates to the more general literature on macroeconomic rebound effects, in which increases in energy efficiency in certain sectors contribute to increasing CO
2 emissions, or at least to a dampening of CO
2 emission reduction [
14].
While this paper recognises these phenomena, its aim is to bring to light a quite different way in which energy efficiency compromises CO2 emission reduction, which has nothing to do with the rebound effect. While the rebound effect operates via human social responses to a physical stimulus (people react to getting the same level of energy services for less energy input), this phenomenon appears to operate via human social responses to a narrative. It is rooted in discourse, the way we talk. I will argue that there is a kind of default super-positiveness about the term “energy efficiency” (“Why would anyone not be positive about energy efficiency?”), which leads to actions that thwart CO2 emission reduction.
In brief, this works as follows: In some sectors, the higher the energy efficiency we achieve, the more it costs us per kWh of energy saved and, therefore, the more we pay for each tonne of CO2 abated. It would therefore be better to increase energy efficiency only to a certain level that is optimal for the cost of CO2 abated, and then improve energy performance further by using direct CO2-abating measures, such as renewable energy generation.
In this paper, I will examine only one example of this phenomenon, a case study in Germany. This is an example that constitutes a very large waste of money that substantially reduces the amount of CO2 emissions that Germany could abate. In its attempt to reduce CO2 emissions by steeply increasing energy efficiency, it prevents the reduction of many, many times more CO2 emissions.
The example concerns building envelope renovation of Germany’s millions of old, CO
2-emitting buildings. On the one hand, Germany has a Climate Protection Law [
15] that mandates reaching CO
2 neutrality in all sectors, including buildings, by 2045. On the other hand, it has a federal subsidy system for energy efficiency upgrades to building envelopes, the
KFW-Gebäudesanierungsprogram (Building Renovation Programme of the German Development Bank, KfW), which effectively prevents, dampens, frustrates, and even torpedoes economically efficient CO
2 emission reduction.
In brief, it does this by heavily subsidising renovations of the building envelope to very high energy efficiency standards—the higher the energy efficiency standard, the higher the subsidy. This study will show that this actually increases the costs of CO2 saved to levels 10–20 times higher than can be achieved through an alternative approach.
The current government strategy also incentivises a culture of super-high energy efficiency renovation while demonising the alternative, which makes much more economic sense for CO
2 emission reduction. The alternative is to increase the energy efficiency of a building envelope to only a modest standard that is sufficient to make it “heat pump ready” [
16] and then replace the fossil fuel boilers with heat pumps and add onsite renewable energy in the form of rooftop photovoltaics.
It is a fortuitous coincidence that the minimum legal standard of energy efficiency for renovating a building envelope in Germany is around 70 kWh/m2/y (the exact number varies a little with the geometry and size of the building), which is about the same standard that makes a building heat pump ready. The building envelope is then sufficiently heat-retentive to give the heat pump a year-round coefficient of performance of 3.0 or better, making it at least as economical as gas heating. When rooftop photovoltaics are added, the system becomes substantially more economical than renovating the building envelope to super-high energy efficiency standards. This addition can even result in 100% CO2 neutrality if it is conducted sensibly. However, there are no KfW subsidies for renovating the building envelope only as far as this “heat pump ready” standard, and this approach is actively discouraged.
The problem is encapsulated in a firmly enforced energy efficiency rule. For a renovation to qualify for KfW subsidies, the maximum permissible heat transmission coefficient of the wall insulation, i.e., its U-value, must be 0.26 W/m2/K or lower (the lower the U-value, the higher the energy efficiency). No KfW energy efficiency subsidies are allowed if the U-value is higher than this threshold. However, reaching this threshold is very expensive, while the heat pump-ready standard can be achieved with much less stringent U-values of between 0.33 and 0.40 W/m2/K, depending on the geometry of the building. Expressed another way, the insulation would need to be about 50% thicker to qualify for subsidies, substantially raising the cost of insulation while also increasing the occurrence of thermal bridges that need even more money to fix.
This may sound rather arcane and over-technical, but it has major repercussions for CO
2 emissions reduction. The KfW energy efficiency subsidies exclude renovations that save far more CO
2 far more cheaply than renovations to higher energy efficiency standards. It seems that energy efficiency is valued as a good in itself, and it takes priority over CO
2 emission reduction. Further, the KfW energy efficiency subsidy system substantially influences building renovation practice throughout Germany and the discourse that accompanies it, a discourse which, to follow the logic of social theorist Anthony Giddens [
17], puts social pressure on building owners to continually reproduce the social structure in which it is embedded. This should be a major concern. As
Section 4 indicates, millions of tonnes of potential CO
2 emission reduction are being lost.
The innovation of the article, therefore, is to stimulate a discussion on the limitations of increasing energy efficiency ever higher as a path to reducing CO2 emissions, in which a far more economical path is to combine modest energy efficiency increases with onsite and offsite renewable energy sources.
Section 2 of this paper explores the social and narrative features of the energy efficiency discourse that may be contributing to the phenomenon outlined above.
Section 3 and
Section 4 discuss the technical aspects of the case study, outlining the method in
Section 3 and presenting the results in
Section 4.
Section 5 attempts to bring the social and the technical together, suggesting how they interweave.
Section 6 concludes and offers policy recommendations and pointers for further research.
2. Literature Review: Relevant Narratives on Energy Efficiency and CO2 Emission Reduction
Much of the relevant academic literature appears to accept that energy efficiency is unquestionably good and that it benefits the world and pays for itself in the long run. This is usually accompanied by the observation that energy efficiency upgrading is adopted much less than it therefore should be. For example, Schomerus [
18] comments that “Energy efficiency and energy saving are the ‘first fuel’, offering enormous opportunities for tackling climate change. They also contain great economic potential because, in the long run, the return exceeds the costs”. Referring to the EU’s attempts to foster higher energy efficiency in buildings, Schomerus notes that “The Energy Performance of Buildings Directive still struggles with challenges due to the low renovation rate of existing buildings”. This relates to a stream of literature rooted in the work of Jaffe and Stavins [
19] that highlights what they call the “energy efficiency gap”, whereby much less energy efficiency upgrading is undertaken than appears to be economically beneficial. Therefore, these authors argue that people’s failure to invest in energy efficiency is an “energy efficiency paradox”. A very large number of studies adopt or deepen this narrative with respect to energy efficiency upgrades in buildings [
20,
21,
22,
23,
24,
25,
26]. The basic, underlying assumption is that energy efficiency is good and that the more it is increased, the more benefit it brings to individuals and the planet.
A relatively recent critique of this narrative is that actual, empirical investigations of energy efficiency upgrades in buildings indicate that it tends not to hold true in practice. For example, Galvin [
27] investigated 44 case study scenarios in Germany of “deep” renovation, i.e., to 70 kWh/m
2/y or better, and found that the costs per tonne of CO
2 abated tended to rise substantially as the energy efficiency level increased. He emphasised, however, that this was not a criticism of energy efficiency as such, but of an over-optimistic narrative in academia that often assumes that renovating to ever higher energy efficiency standards is always more economically rational.
Probably the most persistent criticism of narratives praising energy efficiency concerns the rebound effect and backfire. Rebound effects that occur after energy efficiency upgrades in buildings were observed at least as long ago as the 1970s (e.g., [
28,
29]), and there is a long history of such findings (see review in [
30]). A rebound effect of around 30% is not necessarily problematic if it indicates that households are simply catching up with a previous under-consumption of energy services, such as the number of rooms heated, the length of the daily heating periods, and the temperature that makes the dwelling comfortable. Therefore, for example, if a household was under-heating prior to renovation but, after renovation, consumes at exactly the new theoretical consumption level, this is technically a rebound (because the level of energy services consumption has increased), but it is welfare-enhancing [
31]. It becomes problematic when post-renovation consumption is well above the theoretical level, and this is often the case (but not always) with very high-energy efficiency renovations.
A more serious issue with energy efficiency in buildings is a perverse kind of backfire. As Reuter et al. [
32] show, in Germany, the average floor area of new dwellings has been steadily increasing as energy efficiency has increased, as has the average floor area per person. It is argued that one of the motivations for building larger houses and living alone, or in in smaller households, is that it is increasingly cheaper to do so because higher energy efficiency makes energy bills lower. This could be seen as a macro-level rebound effect comparable to the Jevons paradox. On the one hand, it seems entirely positive and worthy to make dwellings as energy efficient as possible, yet on the other hand, there seem to be unintended negative consequences for CO
2 emission reduction.
To date, the most serious general critique of energy efficiency is Ruzzenenti and colleagues’ framing of it as a phenomenon like that in evolutionary biology. In evolution, natural selection increases energy efficiency. However, the purpose of this increase is not to reduce energy consumption but to enable creatures to use more energy more effectively and powerfully [
10,
12]. So far, this paradigm does not appear to have been applied to space heating in buildings, and this would be an interesting area for future research.
One of the harshest recent criticisms of positive energy efficiency discourse comes from Leonard Brookes, who was one of the first to identify rebound effects in the 1970s. He recently commented that “The view that widespread improvements in energy efficiency can by themselves do anything to halt the build-up of greenhouse gases around the globe is fundamentally unsound. It is based on the same fallacies that underlie the claim that energy savings from improving efficiency can substitute for new energy supply” [
29].
All these critiques of energy efficiency discourse have two important things in common. First, none of them objects to higher energy efficiency if it does not lead to an increase in energy service consumption. If the energy efficiency of my house is upgraded and I keep the temperature, etc., the same as it was previously, these approaches accept that I reduce CO2 emissions. Second, they maintain that if backfire occurs (i.e., if more energy is consumed after an energy efficiency upgrade than previously), this brings an increase in CO2 emissions as a result of the energy efficiency increase.
Shove’s [
33] strong critique of over-positive energy efficiency discourse has similarities with this but goes further. She argues that energy efficiency discourse shapes modern concepts of comfort in ways that may not be helpful. She sees the modern praise of energy efficiency—including the increasing use of renewables—as part of what Latour [
34] calls a form of “purification” in modern life, in which we aim to make technology ever more perfect, as if this necessarily improves the quality of life.
This paper recognises the value of all these particular insights into the dangers of aiming for ever higher energy efficiency as if this will automatically reduce CO2 emissions. However, it argues that there is a further, yet unexplored, route by which higher energy efficiency leads to an increase in CO2 emissions. In this route, the role of renewables is undervalued because of a societal fetish about the value of energy efficiency. Society tends to reward ever higher energy efficiency increases at the expense of massive potential reductions in CO2 emissions that could be won via renewable energy. More specifically, this paper will argue that society puts great amounts of money into increasing energy efficiency and thereby reduces only one-tenth or less of the amount of CO2 it could reduce for the same money. At the same time, it promulgates a discourse that glorifies the highest possible energy efficiency and condemns approaches that aim for lower energy efficiency coupled with direct CO2 emission reduction.
There appears to be no existing literature giving case studies on building refurbishment that quantitatively explores the optimum proportionate contributions of (a) energy efficiency and (b) renewable energy for maximum CO2 emission reductions at a minimum cost.
The next two sections therefore present an empirical example. Note that this case study example does not aim to advance knowledge on particular technologies for energy performance improvement in buildings. Instead, it aims to stimulate a discussion on the limitations of increasing energy efficiency ever higher as a path to reducing CO2 emissions, in which a far more economical path is to combine modest energy efficiency increases with onsite and offsite renewable energy sources.
3. Method
3.1. The First Data Source
I use detailed cost and benefit data from analyses by the Institute for Housing and Environment (
Institut Wohnen und Umwelt (
https://www.iwu.de/aktuell/, (accessed on 9 March 2024))—hereafter “IWU”) of a set of energy efficiency upgrades of three common apartment building types in Germany called MFH57, GMFH68, and GMFH78. These are IWU’s code names for specific types of buildings, each of which is widely represented throughout Germany. The key characteristics of each of these building types are given in
Table 1. Photographs and more detailed technical information about the buildings can be found in IWU’s technical report [
35].
IWU used teams of engineers and architects to estimate the costs of renovating each apartment building to four different energy efficiency standards in 2020. The IWU studies were commissioned by the City of Augsburg to estimate the need for subsidies and evaluate the appropriateness of renovation support policies, among other purposes [
35].
The outputs of the IWU studies were the renovation costs, the reduction in primary energy consumption, the amount of money saved through energy consumption reductions, and the changes in CO
2 emission characteristics for each building renovated to each of four different energy performance standards. The main characteristics of the buildings and key outputs of this study are given in
Table 1, although I have modified the inputs in two ways. I use final rather than primary energy data, and I include the prebound effect in pre-renovation consumption estimates, for reasons explained below.
Note that the three buildings have widely different floor areas, as shown in
Table 1.
It should be noted that Germany has a code for indicating energy efficiency standards, as follows: a number preceded by the initials KfW or EH, which are interchangeable (KfW is the abbreviation for the German Development Bank (Kreditanstalt für Wiederaufbau), and EH is the abbreviation for “Energiefficienz Haus” (energy efficiency building)). The basis of these is “KfW100” (alternatively called EH100), which means a renovation that aims to achieve primary energy consumption equivalent to no more than 100% of that which would be consumed by a new building of the same dimensions that is constructed to conform with the minimum energy efficiency standard for new builds. Currently, this level of primary energy consumption is about 50 kWh/m2/y, although it varies depending on the geometry and size of the building. A useful rule of thumb is that a building’s primary energy consumption is about half the KfW number. Hence, KfW140 can be approximated as 70 kWh/m2/y, and KfW55 can be approximated as 27.5 kWh/m2/y.
The IWU studies consider four renovation scenarios for each type of building, making a total of twelve scenarios. Eight of these scenarios use gas heating, namely, the lowest two energy efficiency standards for building MFH57 and the lowest three standards for buildings GMF68 and GMFH78. The higher two standards for MFH57 use heat pumps with heat exchangers, while the highest standards for GMFH68 and GMFH78 use district heating. The reason for this is subtle but important. IWU notes that renovating the building envelopes to the higher energy efficiency standards would not be economically viable, even if the building owner received the federal subsidies on offer. IWU therefore considers a renovation of the building envelope to more modest energy efficiency standards and suggests that the excess CO
2 emissions be reduced by using these alternative heating sources. The IWU study assumes that district heating has only half the CO
2 emissions as gas. This is questionable, however, as the IWU study itself notes that district heating produces about 10 times as much CO
2 as gas heating. Another relevant, and ironic, point is that in all these non-gas cases, the U-values of the walls are higher than 0.26 W/m
2/K (see
Section 1 on U-values) and would therefore not qualify for the KfW energy efficiency subsidies.
Further, in the analyses, I update the outputs of the IWU studies in six ways. First, I update the renovation costs to 2024 levels using tracking data from Destatis [
36]. I thereby increase the 2020 construction and renovation costs by 43%.
Second, I update the energy costs. For both gas and electricity prices, I use the average of over 100 energy utilities’ prices as of the beginning of 2024, using data provided by the consumer organisation
Verbraucherzentral [
37]. This gives a gas price of EUR 0.115/kWh and an electricity price of EUR 0.358/kWh.
Third, I update the loan interest rate for financing the renovations to 4%, compared to IWU’s figure of 3.75%. I assume this is a table mortgage repaid over the technical lifetime of the renovation measures.
Fourth, I assume that energy prices and CO2 taxes will increase annually by 2%. The tax is a charge that has to be paid if heating is based on fossil fuels, but not electricity because there are already CO2 taxes embedded in electricity prices. Further, I assume a discount rate of 2%, i.e., that costs and benefits that occur in one year’s time are worth approximately 2% less, from today’s perspective, than their face value, and so on into future years (I say “approximately” because the effect of the discount rate is not calculated as (1.0 − d) but as 1/(1.0 + d), where d is the percentage discount rate). Nevertheless, I leave out the factor of opportunity costs, which is being considered in a forthcoming paper (opportunity costs are the costs of not investing one’s money (whether borrowed or up-front cash) in some other more profitable venture that has a similar level of risk).
Fifth, unlike the IWU studies, I do not ignore the prebound effect, the fact that households in older, energy-inefficient buildings in Germany (and other European countries) consume 30–40% less heating energy, on average, than their buildings’ official energy ratings. The prebound effect has long been known but was first named as such by Sunikka-Blank and Galvin [
38]. Consequently, there is now a very large amount of literature on the prebound effect (e.g., [
39,
40,
41,
42,
43,
44]). This examines its possible economic drivers, including whether the official energy ratings are correct [
45], and the roles played by technical and behavioural factors in forming it [
46,
47]. For this paper, the important point is that whatever the causes of the prebound effect, its occurrence means that when we renovate an old building for energy efficiency, we save much less energy than the official energy rating would lead us to expect. For example, if a building with an official energy rating of 200 kWh/m
2/y and a prebound effect of 35% is renovated to 70 kWh/m
2/y, we do not save 130 kWh/m
2/y but only 60 kWh/m
2/y—less than half the expected amount. This makes economic viability much harder to achieve.
For this reason, I modify the pre-renovation energy consumption in all the IWU scenarios, reducing it by 30%. This does not change the results of this study qualitatively; in fact, it makes them less severe because it increases the proportionate energy savings when renovating to a high energy efficiency standard compared to a more modest standard. The reason for including the prebound effect is simply to make the science more accurate.
Sixth, unlike IWU, I use figures for final energy consumption (i.e., energy going into the dwelling) rather than primary energy consumption (which includes the energy implicated in the production and delivery of the energy carrier). This is because households pay for gas, electricity, etc., based on their final energy consumption (the energy going through their meter), regardless of the amount of extra energy it took to produce that usable energy at source. This study would exaggerate the monetary value of a household’s post-renovation energy savings if it used figures for primary energy together with the costs of final energy.
However, when calculating CO2 emissions, I use figures for the CO2 intensity of gas and electricity based on primary energy consumption. For gas, I therefore use the figure of 0.201 kgCO2/kWh rather than 0.182 kgCO2/kWh. For electricity delivered from the grid, I use the average CO2 intensity of gird electricity for the year 2023, namely, 0.381 kgCO2/kWh. For electricity produced by onsite photovoltaics, I use 0.0 kg CO2/kWh.
Like IWU, I do not include “anyway” costs in the estimation of the costs of renovation. These are the theoretical costs incurred if the building were renovated to a structurally sound condition without any energy efficiency measures. These costs usually account for between one-third and one-half of the total costs of an energy performance upgrade. The German government does not allow them to be included in the costs of energy efficiency performance for such things as estimating the economic viability of mandated energy efficiency standards or setting rent increases after an energy efficiency upgrade. It assumes these costs would have to be paid “anyway” just to keep the building serviceable. Although this is controversial, I accept this approach in this study because it keeps the discussion on the terms set by the government in structuring its subsidies.
3.2. The Second Data Source
The second data source is the output of a computer simulation of a full year’s photovoltaic electricity production, heat pump energy consumption, and general electricity consumption for each 15 min interval for the multi-apartment building MFH57. For this, I use the method and output from Galvin [
47,
48,
49]. This uses three modelled data sources. The first is the annual 15 min by 15 min profile of photovoltaic electricity production for Germany for 2021, the latest year for which such detailed data are freely available, provided by the Fraunhofer Institute [
50]. I normalise this to the total annual expected electricity production for a 9.5 kWp rooftop system, and I assume a typical annual yield of 950 kWh/y for each kWp, giving a total annual output of 9025 kWh. A 9.5 kWp capacity photovoltaic system could easily be fitted on one side of the roof of building MFH57.
Second, the simulation uses a typical annual 15 min by 15 min profile of heat pump electricity consumption for Germany, provided by the firm E-Control [
51]. Third, to this is added a typical annual 15 min by 15 min profile of household ordinary electricity consumption, provided by the energy provider Stadtwerk Böhmetal [
52]. Together, these give a typical composite electricity consumption profile for a household with a heat pump. Since the MFH57 building has about the same living area as the building in the simulation (353 m
2 compared to 350 m
2), I assume the composite annual electricity consumption and profile will be about the same as that of the simulation.
I do not include a battery for electricity storage. This is because the photovoltaic output is relatively small for a total of six households, a battery would increase the costs markedly, and the variations in consumption patterns among different households make gross peaks and troughs less likely.
For the heat pumps, I assume a coefficient of performance of 3.0, which is in line with the findings of Terry and Galvin [
16]. Also in line with these findings, I assume a technical rebound of 20% due to the slower warmup time of heat pumps. This means that the final energy consumption with a heat pump is estimated to be 40% of the amount for gas heating (=1.2/3.0) in this building.
The two key output parameters from the simulation are the total annual electricity produced by the photovoltaics, namely, 9025 kWh, and the total annual income from the photovoltaics. To calculate the income, the simulation apportions the photovoltaic electricity among the households according to their composite consumption profile over a full year (programme code available on request). The output, for each 15 min timeslot, can be either or both of the following:
The first of these saves the households the cost of grid electricity, currently EUR 0.358/kWh. The second earns the households the feed-in tariff, currently EUR 0.1/kWh. Adding up all 35,040 of these 15-min results gives the total money earned from the photovoltaic system in a year, which comes to EUR 2775/y.
It is assumed that the photovoltaic system lasts for 25 years and, for simplicity, that the output and consumption patterns are the same year after year.
3.3. The Cost–Benefit Calculations
I first ran a full set of calculations of the net present value of costs and benefits of all the IWU energy efficiency upgrade scenarios. For this, I used a cost–benefit analysis tool offered by RWTH Aachen University, which is described in Galvin [
27] and freely available for download (available from
www.justsolutions.eu/TenantCBA/OwnerOccCBA_PV_option_Vs11_Beta_Package17Feb2024.zip, (accessed on 17 April 2024)). The tool calculates the net present value (NPV) of the costs of energy efficiency renovation (not including “anyway” costs), the NPV of the money saved through reductions in energy consumption and CO
2 tax, and the reduction in CO
2 emissions, along with other less important parameters. The main formulas used in the tool are given in
Appendix A. From the results, I compare and display the following:
The NPV of monetary gain (loss if negative) after 25 years, i.e., the NPV of the benefits less the NPV of the costs;
The percentage NPV monetary gain (or loss if negative) after 25 years;
The cost of CO2 saved after 25 years (EUR/tCO2);
The wasted potential CO2 savings (tCO2) after 25 years, i.e., the additional CO2 that could have been saved if the same amount of money were invested in offsite renewables, assuming a typical cost for these of EUR 100/tCO2 saved;
The percentage of potential CO2 savings achieved after 25 years for the money paid.
I then re-ran the calculations for the two least energy efficient scenarios with building MFH57 (building envelope energy efficiency standards KfW140 and KfW100), this time including the additional costs and benefits of heat pumps and photovoltaics. I chose these scenarios because the U-values for KfW140 are too high to qualify for KfW subsidies, and those for KfW100 are borderline. The aim is to compare the amounts and costs of the CO2 emission reduction achieved by including heat pumps and photovoltaics for these two cases, first with each other, then with the amounts and costs of CO2 emission reduction achieved in higher energy efficiency standards that definitely qualify for KfW subsidies. The results give the following three key outputs for each of the two energy efficiency standards, with gas heating and with heat pumps and photovoltaics:
Tonnes of CO2 saved after 25 years compared to no renovation;
Percentage of CO2 abated after 25 years compared to no renovation;
Cost of CO2 saved, assuming a 25-year technical lifetime.
It is important to note that all the renovation scenarios bring the same thermal comfort level and therefore the same advantages for occupant health. There is no comfort or health advantage in renovating to the highest possible energy efficiency standard compared to the legal minimum standard for comprehensive renovations (about 70 kWh/m2/y) since all scenarios achieve full thermal comfort. The advantages and disadvantages are in terms of monetary gains or losses and tonnes of CO2 saved.
5. Discussion
I now bring these findings together in light of the discussion of energy efficiency in the literature review. To begin with, most academic critique of society’s excessive praise of energy efficiency is related to the issues of behavioural and macroeconomic rebound effects. The literature argues that rebound effects not only compromise the reductions in energy consumption achieved through energy efficiency but often lead to more energy being consumed overall. This is because the economy takes advantage of lower running costs to produce and use more of the same energy services. This is the classic “backfire” scenario originally identified by William Stanley Jevons and investigated in today’s economies by Ruzzenenti and others.
Nevertheless, the analysis in this paper has not taken these behavioural rebound effects into account, but only the 20% technical rebound with heat pumps noted above. The results would be worse with behavioural rebounds, as these are generally higher in dwellings with higher efficiency performance [
46,
53]. Rebound effects are often related to energy expenditure. As Sorrell and Dimitropoulos [
54] argued, the behavioural rebound effect can be expressed as an energy price elasticity of energy service consumption. Behavioural rebound effects would therefore occur in both of the following cases: (a) with high energy efficiency only and (b) with modest energy efficiency plus heat pumps and onsite renewable electricity. Each of these makes space heating cheaper, so we would expect a similar behavioural rebound effect dynamic with each.
Further, it is possible that macroeconomic rebounds might be greater if the strategy advocated in this study is widely used. CO2 emission reduction from the building sector would become substantially cheaper, which could reduce the market price of CO2 emissions, making it less profitable for industries to invest in CO2 emission reduction. This would be an interesting topic for further research.
However, this study investigated and brought to light a completely different dynamic, a direct clash between increasing energy efficiency and reducing CO2 emissions, even if no rebounds are involved. Increasing the energy efficiency of old building envelopes is expensive and gets more expensive in absolute terms as the standard of energy efficiency increases. The cost of each tonne of CO2 thereby saved is around 20 times as much as the cost of generating renewable energy offsite. Assuming that the purpose of increasing energy efficiency is to reduce CO2 emissions, the enterprise is a spectacular economic failure.
An alternative is to increase energy efficiency only high enough to make heat pumps technically feasible and then replace fossil fuel boilers with heat pumps and add onsite photovoltaics. This reduces CO2 emissions much more effectively and can even result in net zero emissions or even negative emissions. However, Germany’s federal subsidy system does not reward this approach. Instead, it excessively rewards ever higher energy efficiency.
The key policy irony is that on the one hand, the Climate Law [
15] mandates unequivocally that Germany’s aim is net zero CO
2 emissions, while on the other hand, the federal KfW subsidy structure for energy efficiency rewards energy efficiency as a good in its own right and ignores CO
2 emission reductions. Indeed, the subsidy structure penalises scenarios that achieve net zero CO
2 emissions in the most economical way, simply because these scenarios avoid the unnecessary expense of achieving U-values of 0.26 W/(m
2K) for their wall insulation.
This raises an interesting puzzle for social science. Why does a government persistently act and promote action that torpedoes its own climate goals?
A likely reason is that there is an overwhelmingly positive, entrenched, persistent discourse about energy efficiency among policymakers, think tanks, and NGOs in Germany that simply gets in the way of clear, rational thinking about climate protection. Shove [
33] has identified the power and entrenchment of this discourse and its connection with notions of “purification” in modern technological society, the quest for perfect technology. She argues that it supports a way of life that aims for ever increasing energy services. This study, however, indicates that it actually torpedoes its own aim to achieve more and better energy services.
This suggests that the notion of technological perfection would be useful in interrogating this discourse. The quest to become closer and closer to technical perfection (or “purification”) by increasing energy efficiency to ever higher levels seems to have become a value in its own right. It has come adrift from wider considerations of stopping climate change. It inadvertently thwarts climate goals while masquerading as a means to achieve these same goals.
6. Conclusions and Policy Implications
This article explored a puzzle in Germany’s CO2 abatement policy on building renovation. This puzzle brings into focus an overly positive discourse on energy efficiency which, ironically, severely compromises its own inherent CO2 emission reduction goals. The German Development Bank (KfW) offers large monetary incentives for increasing the energy efficiency of building envelopes. Generally, the higher the energy efficiency standard, the greater the subsidy. However, the cost of CO2 saved sharply increases as the energy efficiency standard increases. It leads to costs as much as 20 times higher per tonne of CO2 abated than could be achieved for the same money invested in offsite renewable energy.
However, the puzzle gets more complex; cases in which the building envelope is renovated to only a modest “heat pump ready” standard receive no subsidies at all in this programme, even if they have a heat pump and onsite photovoltaics and thereby achieve carbon neutrality or close to it.
The sociotechnical effect of the subsidy programme seems to be to push building owners and the building industry to renovate building envelopes to ever higher energy efficiency standards, thereby entrenching the loss of potential CO2 emission abatement ever deeper.
A literature review did not find that this kind of problem is well-known. Most of the reviewed literature saw the downside of energy efficiency in terms of rebound effects, backfire, and perverse macroeconomic effects that can lead to large increases in energy consumption. The review also suggested that the current over-positive discourse on energy efficiency is a form of technological perfectionism or “purification”. This is part of a modernist tendency to extol the very best technology and simply assume that this will automatically nurture the good of society.
The phenomenon investigated in this paper has a very different form. An over-extolling of energy efficiency can actually thwart technological perfectionism. It serves to prevent us from getting high-level energy services together with affordable deep CO2 emissions reductions. Instead, we receive high-level energy services but miss out on most of the potential CO2 reductions because we pay up to 20 times more per tonne of CO2 saved than we need to.
Although higher energy efficiency results in higher CO2 emission abatement, the important point is that it also results in a much higher cost per tonne of CO2 saved. This study showed that we can address this problem by renovating only to a modest energy efficiency standard and then using heat pumps and onsite photovoltaics. This substantially reduces the cost of the CO2 abated.
This has important implications for policy. First, the German government and policy community should radically change the focus of its KfW building renovation subsidy scheme. Instead of gearing subsidies to the energy efficiency of the building envelope, the KfW should gear them entirely toward CO2 emission reduction. There should be no specified maximum U-value, and subsidies should be aligned according to CO2 emissions per m2 of floor area per year or expected CO2 emission reduction over the technical lifetime of the renovation measures.
Second, the policy community needs to begin actively critiquing its discourse on energy efficiency. Since the self-defeating aspect of the policy appears to be driven by an uncritical discourse on the superlative value of ever-increasing energy efficiency, this discourse needs to be openly reflected on, discussed, and seen for what it is, not a scientifically grounded truth about the world but a kind of fetish, bordering on religion.
More widely, the same kind of critique needs to begin in state and regional governments and policy communities that also reward energy efficiency for its own sake without rigorously considering its CO2 implications. More widely still, other countries may need to take note. In Latvia, for example, the government recently tightened the minimum standard for building envelope renovations to 45 kWh/m2/y, which is even more wasteful of CO2-abating funds than the German minimum standard for subsidies (personal correspondence with a Latvian government adviser).
A limitation of this study is that it does not account for embedded CO
2 emissions. Studies such as Kunič [
55] and Füchsl et al. [
56] point out that the climate benefits of energy efficiency upgrades are reduced somewhat due to embedded CO
2 emissions in insulating materials, multi-glazed window manufacture, wall renders, and photovoltaics and heat pump manufacture and the disposal of these at the end of their technical lifetime, plus the energy used in completing the renovation. Ignoring these has probably softened the findings of this study because embedded emissions will be higher for higher levels of energy efficiency (e.g., thicker walls in insulation, extra layers of glass and vacuum in windows). Also, this study does not consider whether gas boilers or a combination of heat pumps and photovoltaics have higher embedded emissions. Nevertheless, since all the cases considered in the analysis use insulation, etc., and all use some kind of manufactured heating technology, including embedded emissions would be highly unlikely to change the main thrust of the findings.
A further limitation is that it does not consider the effects of a warming climate on future heating energy consumption over the next 25 years. This would require further modelling based on assumptions about weather patterns. It could be interesting for future research to investigate this study area.