DP18471 Investments that Make our Homes Greener: The Role of Regulation
The operation of residential buildings is responsible for roughly 22% of the global energy consumption and 17% of the CO2 emissions. We study the effects of a regulatory intervention aiming to reduce carbon emissions by requiring rented properties to satisfy minimum energy efficiency standards. The analysis shows significant investments in low capital expenditure retrofits. We estimate a 1-1.5% rent increase for the average property around the regulatory approval, which is not sufficient to compensate most landlords for the capital expenditures required to comply with the regulations. Moreover, the environmental gains were smaller than the energy efficiency ones, limited by the use of more polluting energy sources. Regulations targeting carbon emissions directly may be more effective in tackling the climate challenge.