The impact of energy externalities on the cost effectiveness of energy efficiency measures applied to dwellings

European Union and UK energy policy recognise the potential contribution the domestic housing sector can make in reducing energy consumption. In the UK, improvements to existing dwellings are likely to play a critical role in realising such potential. The need to consider both the value and uncertainty of external environmental and social costs in developing effective policy is also made explicit. This analysis investigates the impact of such values and uncertainties on the relative performance of a range of insulation measures applied retrospectively to an existing residential dwelling. Results from a case study suggest that large variations in capital cost, energy saving potential and the value of externalities have a significant impact on the relative cost effectiveness of these measures. However, in general, current investment decision-making based on normal market energy prices and today's climate is likely to deliver solutions that remain effective under significant levels of uncertainty. (C) 2005 Published by Elsevier B.V.