Could energy efficiency alleviate energy poverty in residential sector?

Improving energy efficiency is one of the most cost-effective ways to reduce greenhouse gas emissions and thus achieve sustainable living, and is therefore one of the most important goals of the European Union. Households are one of the sectors considered to have a great potential for savings. Despite this potential, the literature points to the maintenance of the ""energy efficiency gap"", due to the low percentage of energy efficiency improvement measures implemented compared to the potential. Numerous studies conclude that economic factors play a critical role in households' decisions to increase energy efficiency by investing in more efficient appliances. Understanding the impact of economic incentives, particularly financial opportunities, is critical to the design of energy policies. The goal of the proposed project is to improve the understanding of energy efficiency gaps in households. The novelty of the proposed project is the study of the impact of energy efficiency on energy poverty. The main objectives of this project are three. First, to develop an empirical model to identify the determinants of energy efficiency measures. Particular attention will be paid to evaluating the effectiveness of the incentive system for energy efficient investments, the voluntary share, and the extent of energy poverty. Second, develop a model and evaluate the potential for household energy efficiency improvements, including technical and allocative efficiencies, that are responsive to households' actual, technical, and financial ability to improve energy efficiency. Third, taking into account the heterogeneity of user preferences in energy and other equipment ownership, evaluate the income elasticity of energy demand. The empirical analysis will combine multiple data sources. The main source will be the Household Energy Consumption Survey (APEGG), conducted in 2010, 2014, and 2019 by the Statistical Office of the Republic of Slovenia, which includes almost 14,000 observations. By linking the databases with other sources such as the Central Population Register and the Income Tax Control, a database on households will be created that will allow the use of state-of-the-art econometric methods to test untested theoretical hypotheses. The first part of the project assesses the impact of individual factors on the likelihood of energy efficiency investments using discrete decision models. Regarding economic incentives, the model would take into account both household income and financial incentives from the eco-fund. The share of free benefits, or the share of households that would make an investment even without a subsidy, is also estimated. The second part uses a relatively new econometric approach that combines production theory and stochastic boundary analysis. The model will include energy services in the stochastic boundary, which will include several energy sources used in households in addition to electricity. The third part will develop a household energy demand model that accounts for heterogeneous household preferences for energy equipment ownership and consumption. The model will assess the income elasticity of energy demand and consequently provide an answer to the question of how energy efficiency affects energy poverty. The results of the project will provide a better understanding of households' choices in pursuing the goal of greater energy efficiency. It would identify key factors that contribute to increase of energy efficiency, including a subsidy system. Based on the results, policymakers could develop policies to improve household energy efficiency. Promoting a change in household attitudes toward energy consumption would help reduce negative environmental impacts and promote sustainable growth.