Is investing in energy efficiency worth it? Evidence for substantial price premiums but limited profitability in the housing sector

The profitability of investing in building energy efficiency is investigated using distinct approaches. Firstly, a spatial autoregressive model is applied to housing price data in Padua, North-eastern Italy, and compared to a traditional hedonic price model in order to estimate the price premium if anycommanded by the energy performance. The spatial dynamic model outperforms the hedonic one. In comparison to the energy rating band G, substantial price premiums are found to characterize the A-B bands and, to a lesser extent, the C-D bands. Secondly, the marginal benefit of building energy efficiency is derived from the price premium and compared to the marginal cost as estimated in previous studies. Investing in building energy efficiency turns out to be economically viable up to a certain extent. Outdated housing in the worst energy rating bands can be profitably refurbished up to an energy performance index of about 50 kWh/m(2) y namely, the B energy rating band on average. The same outdated housing can be profitably refurbished up to an energy performance index of about 40 kWh/m(2) y provided the government does not withdraw current tax incentives in the near future. (C) 2021 Elsevier B.V. All rights reserved.