Investments that Make our Homes Greener: The Role of Regulation

Department: Finance

Speaker: Lakshimi Naaraayanan

Room: T017

Abstract

The operation of residential buildings is responsible for roughly 22% of the global en-
ergy 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 envi-
ronmental 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.