Innovative financing models for low carbon transitions: exploring the case for revolving funds for domestic energy efficiency programmes
journal contributionposted on 06.11.2015 by Andy Gouldson, Niall Kerr, Joel Millward-Hopkins, Mark Freeman, Corrado Topi, Rory Sullivan
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The IEA has estimated that over the next four decades US$31 trillion will be required to promote energy efficiency in buildings. However, the opportunities to make such investments are often constrained, particularly in contexts of austerity. We consider the potential of revolving funds as an innovative financing mechanism that could reduce investment requirements and enhance investment impacts by recovering and reinvesting some of the savings generated by early investments. Such funds have been created in various contexts, but there has never been a formal academic evaluation of their potential to contribute to low carbon transitions. To address this, we propose a generic revolving fund model and apply it using data on the costs and benefits of domestic sector retrofit in the UK. We find that a revolving fund could reduce the costs of domestic sector retrofit in the UK by 26%, or £9 billion, whilst also making such a scheme cost-neutral, albeit with significant up-front investments that would only pay for themselves over an extended period of time. We conclude that revolving funds could enable countries with limited resources to invest more heavily and more effectively in low carbon development, even in contexts of austerity.
This paper was funded by the EU (Grant No.266800)through the FESSUD project and by the EPSRC and ESRC under the IBuildProgramme (GrantNo.EP/K012398/1). Support was also provided by the ESRC Climate Change Economics and Policy (Grant No.ES/K006576/1).
- Business and Economics