European Climate Foundation: Modelling the socioeconomic impacts of zero carbon housing in Europe

A new report commissioned by the European Climate Foundation, ‘Modelling the socioeconomic impacts of zero carbon housing in Europe’ assesses the socio-economic costs and benefits of different potential pathways for decarbonising the residential building sector in Europe.

Cambridge Econometrics used a newly developed housing stock model to set out the required expenditure on both up-front technology (and energy efficiency measure) costs and ongoing fuel/electricity costs by households, in combination with our macroeconomic model (E3ME) to assess the socioeconomic impacts of the various pathways towards zero carbon heating. The assumptions and data used for the analysis were developed in collaboration with a group of stakeholders and experts, who shared their knowledge and views.

Key findings:

The study shows that there are social, economic and environmental benefits associated with decarbonising residential buildings in Europe. A key driver of these results is the deployment of greater energy efficiency measures in buildings, which reduces energy demand from the housing stock in the long term. In addition, changing heating technologies can further reduce demand for fossil fuels, and increase demand for electricity (which is generated almost entirely within Europe) or hydrogen (which can be sourced either from Europe or further afield).

The modelling results further suggests that:

• A renovation wave is expected to boost employment and GDP growth in the short-term due to the large investment stimulus and have a net beneficial impact for the economy. Electrifying the heat supply and lowering the need for heating through renovations shows the most favourable GDP impacts, leading to a 0.7% increase in annual GDP in 2030 and a 1% increase by 2050.
• Decarbonising the housing stock would cut Europe’s energy import dependence, mainly through reducing gas imports. Europe could cut its annual spending on gas imports by 15 billion in 2030 and 43 billion in 2050 by increasing the energy renovation rate and electrifying heat supply.
• Renovating Europe’s building stock and electrifying the heating supply with heat pumps will help create 1.2 million net additional jobs by 2050; a 0.5% increase from baseline. Most jobs are created in the construction sector and the power sector.
• For the consumer, heat pumps and solar thermal are cost competitive options due to reduced energy spending, while hydrogen boilers are a more expensive technology due to higher energy bills.

The modelling does not consider how such transitions could be brought about; a key challenge for policymakers is to identify which policy mechanisms could be utilised to drive transitions, and in particular to drive low or no-regret outcomes such as improved energy efficiency across the EU’s residential building stock.