Study On Economic Incentive For Improving Energy Efficiency Of Existing Residential Buildings

The practice of energy efficient buildings plays an important part in implementing the strategy of "energy conservation and greenhouse gas emission reduction" in China. Improving existing residential buildings in order to reduce energy consumptions of space heating in the northern region is a key program to carry out the work of buildings' energy reduction in China. However, due to high costs and low returns on investment of the program, improving existing residential buildings cannot be carried out in a large scale though it has significant positive externalities. Therefore, there is a need for economic incentive policies to encourage energy efficient buildings, particularly improve existing residential buildings to reduce energy consumption in buildings.This thesis studied economic (financial and non-financial) incentive policies for improving residential buildings in the northern region in order to provide the government with theoretic supports and suggestions on setting up a rational incentive policy. The study was conducted through a combination of various research methodologies such as theoretical analysis, case studies, archival analysis, literature review, and so on. Based on game theory, agent theory, supply and demand model, risk utility theory, public finance (fiscal incidence), taxation, etc., the thesis systematically investigated economic benefits and external benefits of retrofitting residential buildings to energy efficient buildings, and then studied key contents of the economic incentive policy for retrofitting residential buildings based on incentive mechanisms. The principal research activities and their results are as follows.(1) Systematically reviewing the present state of improving buildings' energy efficiency of existing residential buildings in Northern China. This thesis reviewed the present state of implementing the strategy of "energy conservation and greenhouse gas emission reduction" and relevant economic incentive policies in Northern China and evaluated the demonstrating program of improving buildings' energy efficiency of existing residential buildings. It analyzed fiscal policies, taxations and price policies relating to economic incentives for the reduction of buildings' energy consumption, particularly for the improvement of energy efficiency in existing residential buildings. It investigated the key problems of the current economic policies for retrofitting residential buildings. (2) Systematically analyzing economic benefits of improving existing residential buildings for energy reduction based the theories of lifecycle-costing, project evaluation, and buildings' energy consumption. The thesis developed a framework for economic analysis of buildings' energy efficiency improvement, and derived a set of formulas for computing economic benefits resulting from improvement of buildings' envelops, sub-networks of pipes for residential areas, district heating systems, boiler station, through comparative analysis of incremental costs and incremental benefits of improving existing residential buildings for energy conservation. The project of improving existing residential buildings for energy conservation in Kou'an residential area, Baotou city, was studied as an empirical case. The case study proved that improving heating sources can obtain quite good economic benefits; while improving existing residential buildings requires a large sum of investment, but low return on investment. It is concluded that improving existing residential buildings for energy conversation in Northern China demands economic incentives from governments. The framework and formulas would be useful for analyzing economic benefits of improving existing residential buildings for energy reduction.(3) Systematically evaluating the externalities of improving existing residential buildings for energy conversation. This thesis defined and classified the externality of improving existing residential buildings for energy conservation, and studied the relationship between improving existing residential buildings for energy conservation and heating pricing systems. It derived computation formulas for measuring the externalities, which were further developed for measuring externalities of improving building envelops, indoor heating system, and district heating pipe systems. These formulas can be applied to under the practice of flat rate and usage-based rate. The formulas were used to compute the externalities of improving existing residential buildings for energy conservation in Kou'an residential area, Baotou city, and concluded that improving existing residential buildings for energy conversation in Northern China have significant positive externalities.(4) In-depth studying incentive mechanisms of the economic incentive policy for improving residential buildings for energy conservation from the perspective of subjects of incentives, targets of incentives, types of incentives, patterns of incentives, intensity of incentives. The thesis analyzed the willingness of central and local governments and the willingness of enterprises to invest in energy efficient buildings using perfect-information game theory and Cobb-Douglas production functions. It concluded that the central government is the principal grantor of incentives in the initial phase. As the development of energy efficient buildings markets, local governments and enterprises will invest in energy efficient buildings gradually. The thesis analyzed the demand side and supply side of retrofitting residential buildings to energy efficient buildings based on supply and demand model, and concluded that it is better to give incentives to the demand side than the supply side. It studied fiscal subsidiary policies and favorable taxation. It is concluded that the fiscal subsidiary policies have better effect than the favorable taxation does based risk utility theory. It analyzed patterns of incentives for retrofitting residential buildings to energy efficient buildings using agent theory, and concluded that the optimal incentive model is a fixed incentive in the case of symmetric information; while the optimal incentive model is a "retained revenue plus risk cost" incentive in the case of asymmetric information. It suggested that the intensity of incentives for retrofitting residential buildings to energy efficient buildings should meet two principles: (i) incentives should external benefits resulting from energy conservation; (ii) incentives should result in a return above average rate of return.(5) Proposing economic incentive policies for improving residential buildings for energy conservation. The thesis reviewed incentive policies of foreign countries, particularly those of Germany and Poland. It is suggested that China should learn from foreign countries in making its incentive policies. Based on this lessens, the thesis formulated a framework and incentive policies from the perspective of subjects of incentives, targets of incentives, types of incentives, patterns of incentives, intensity of incentives. It further analyzed possible portion of investment from private flat owners. The thesis proposed incentive policies for improving building envelop and indoor heating pipe networks and improving boiler station pipe networks respectively.The above-mentioned conclusions would be helpful for the government to make its economic incentive policies. And the proposed formulas would be useful for analyzing economic benefits of improving existing residential buildings for energy reduction.