Why Energy Efficiency May Not Be Enough to Cut Housing Pollution

Research from Professor Nuno Clara examined the effects of a UK policy that mandated rental property retrofits to improve energy efficiency

February 14, 2024
Energy & Environment

Houses contribute to about 17% of global CO2 emissions through heating, cooling, and the off-site production of the electricity needed to power homes.

While policymakers around the world are considering measures to improve the energy efficiency of residential buildings, a sole focus on energy performance may not be enough to achieve environmental goals, said Professor Nuno Clara of Duke University’s Fuqua School of Business.

Live on Fuqua’s LinkedIn page, Clara discussed the findings of his paper, “Investments that Make our Homes Greener: The Role of Regulation,” in which he and his coauthors examined the consequences of a United Kingdom policy aimed at improving the energy performance of privately rented properties.

The Minimum Energy Efficiency Standard (MEES) was launched in 2015 and became effective in 2018. The law required residential properties in England and Wales to get an energy performance certification, which rated buildings on a scale A to G—A for the most energy-efficient properties, G for the least efficient.

Properties receiving F or G ratings would be precluded from rentals until energy-friendly investments were made to retrofit fixtures, appliances, or other house characteristics.

“If you are a landlord, and you want to rent your home, from April 2018, you need to be above a certain level of energy efficiency,” Clara said.

The effects of the UK's energy efficiency regulation

The researchers collected data for 14 million properties in England and Wales before and after the regulation was enforced. Some of the buildings had received one or more certificates over time, which allowed the authors to track the additional investments made and their impact on energy performance.

The MEES policy boosted the energy efficiency of UK homes, the researchers found, especially for the least efficient buildings, which showed improvements on their energy efficiency score of 33% on average, Clara said.

Particularly, as the researchers expected, rentals’ energy efficiency ratings improved soon after the regulation began getting enforced in 2018, Clara said.

The research found that the landlords primarily invested in low-cost, high-return retrofits, like switching light bulbs or buying a newer thermostat, while they mostly avoided more expensive upgrades such as better wall insulation.

Why energy efficiency may not be enough to lower carbon emissions

When the researchers switched their focus to carbon emissions, the results were quite different, Clara said.

“Carbon emissions got relatively worse in private rentals compared to owner-occupied homes,” Clara said.

Energy efficiency can reduce emissions, the researchers point out, but when you switch from one energy source to another, it also depends on how polluting the energy source is, Clara said. If the fuel is cheap but more polluting, the house may save on energy bills and still be environmentally worse.

The researchers found that UK rentals incrementally shifted from electricity to gas. Reductions in electricity usage tend to have relatively larger cost benefits than emission benefits when compared to other energy sources, which explains why carbon emissions got relatively worse, Clara said.

As power utilities shift more and more towards renewables, the environmental footprint of electricity will improve accordingly, the researchers wrote.

Public policy and environmental goals

Regulatory interventions that incentivize energy-efficient technologies are important to ensure the green transition, the researchers said.

“In the UK rental market, the housing stock was very old and not very energy efficient, so the government stepped in with regulation,” Clara said.

While the MEES policy was successful in triggering positive investments, the research shows how environmental regulations that only focus on energy efficiency may not be enough, he said.

“Investments to improve house energy efficiency can make a very, very significant contribution to climate change,” Clara said. “But the focus of the regulatory framework should also be on carbon emissions.”

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