Optimizing Incentive Policy of Energy-Efficiency Retrofit in Public Buildings: A Principal-Agent Model

Abstract

The building sector consumes most energy in the world, especially public buildings, which normally have high energy-use intensity. This phenomenon indicates that the energy-efficiency retrofit (EER) for public buildings is essential for energy saving. Incentive policies have been emphasized by governments in recent years, but their effectiveness has not been sufficient. A major reason is agency problems in EER and that the government and building owners have asymmetric information. Furthermore, most policies apply identical standard to existing buildings of different types, resulting in resistance from owners and tenants. To mitigate this issue, this study proposes a principal–agent model to optimize incentive policy in EER. The proposed model defines two pairs of principal–agent relations (i.e., the government-owner and owner-tenant) and models their behaviors under different scenarios as per principal–agent theory. The results indicate the optimal incentive policies for different scenarios. In addition, critical factors of policy making, such as cost, risk, uncertainty, and benefit distribution are discussed. This study has implications for policy that will benefit policy makers, particularly in promoting EER by mitigating the agency problem found for the different scenarios.

A Principal-Agent Approach for the Effective Design of a Renewable Energy Incentive for a Heavily Subsidized Residential Sector: The Case of Qatar

“…The optimization problem of the proposed incentive is defined in the last subsection. Our approach is partially motivated by the work in [74] and [73], where principal-agent theory was applied to the building sector energy efficiency retrofit. We extend their approach by proposing a framework for the residential sector comprising multi-storey households (villas) in Qatar, introducing new variables, i.e., carbon price and rebate incentive and solving the optimization problem using an extensive search (brute-force) algorithm.…”

“…The authors show that building owners will only invest in EER if there is a financial incentive for them to invest. Since all building owners have various characteristics, a customized policy for each building owner is presented [73], [74].…”

“…This manuscript overcomes the limitations of the studies in [31], [59], [74] and [73] by introducing both a carbon rebate and price incentive to the case of multi-storey households (i.e. villas).…”

Towards a Rigorous Consideration of Occupant Behaviours of Residential Households for Effective Electrical Energy Savings: An Overview

“…Energy savings have also been achieved in households through the use of rewards and incentives [35,80], which are often based on financial means, laws and regulations, as well as social incentives. Financial incentives typically have immediate effects, whereas social incentives work better in the long term.…”

Stakeholder Collaboration Mechanism in Elderly Community Retrofit Projects: Case Study in China

“…In terms of research methods, most ECRP related research uses literature analysis methods, and some researchers establish data models through quantitative and qualitative data analysis [4,[19][20][21]. In addition, the game theory method [22,23] and social network analysis (SNA) [24,25] are widely used methods of analysis in stakeholder management research.…”