Understanding transaction costs of energy efficiency renovations in the Swedish residential sector

Abstract

The residential sector has a large potential to reduce its energy use. Improving the energy performance of buildings is one way to realise this potential. For single-family buildings, improving the energy efficiency by energy renovations can produce a net financial gain. However, there are unaccounted barriers that act as impediments for house-owners to undertake energy efficiency measures. This study postulates that transaction costs are such a barrier. Transaction costs are defined as the cost of making an economic exchange on a market in addition to the market price. The purpose is to empirically estimate the magnitude of the transactions costs and its determinants for energy efficiency measures in the residential sector. Specifically, the transaction costs for heat insulation and energy-saving windows in Swedish single-family buildings are assessed. The analysis is based on a unique dataset, constructed from a web-based survey. The results indicate that transaction costs for energy efficiency measures are considerable. The average transaction cost to make additional heat insulation is SEK 18,046 (EUR 1,510) and SEK 21,106 (EUR 1,766) to install energy-saving windows. The determinants of the transaction costs are cognitive limitations, social connectedness, asset specificity and previous experiences. Therefore, to reduce the transaction costs, the complexity of energy efficiency measures must be addressed, potential opportunistic behaviour must be reduced, and financial options expanded.