Traditionally the viability of renovation has been assessed through a Discounted Cash-Flow (DCF) analysis of saved energy, which is highly contingent on the discount rate (Copiello & Donati, 2021). These authors propose instead to use the capitalisation of energy savings into housing value which circumvents discounted predicted energy savings as these are already priced in the property value. These two authors employ an asset approach to analyse renovation viability by assessing costs and benefits in the form of value increases. The value increase of energy-efficient improvements in real estate markets usually takes the form of a green premium identified through different econometric techniques, see for example(Aydin et al., 2020) for a recent study of property premiums in the Netherlands.

To increase the financial viability of renovation, the EU proposes two approaches that have been incorporated differently by MSs (Bertoldi, 2022). On the one hand, grants and loans rely on the reduction or complete elimination of up-front costs –a carrot approach– to encourage renovation (see Eryzhenskiy et al., (2022) for example. On the other hand –the stick side of housing renovation incentives– draws, first, on mandatory Minimum Performance Standards (MEPSs) which preclude the renting or selling of properties under a certain EPC level (Economidou et al., 2020)). Second, the EC also plans to expand the Emissions Trading Systems (ETS) to encompass buildings before the end of the decade (2003/87/EC). This wil likely impact energy costs and increase the viability of energy-efficient renovations (Backe et al., 2023).

Fernández, A., Haffner, M. & Elsinga, M. Subsidies or green taxes? Evaluating the distributional effects of housing renovation policies among Dutch households. J Hous and the Built Environ (2024). https://doi.org/10.1007/s10901-024-10118-5