Incorporation of rebound effect into energy efficient measures cost-benefit analysis model

To reduce carbon emission in domestic buildings, UK Government launched the Green Deal (GD) programme to incentivise the people to install energy efficient building system in their buildings by "ensuring" them the new installation's saving would cover the investment. However, only 1,787 measures were installed in the first year and some argue that the programme would cause financial risk to the households as the "golden rule" of the policy not always true even cost-benefit analysis was conducted before the launch of GD and assessments were conducted when joining the programme. It is observed that due to "rebound effect" and other uncertainties in the modelling, the traditional cost-benefit analysis may not be accurate. Therefore, this paper tries to review official the investment performance model provided by taking rebound effect into account. It is found that before rebound effect was applied, 14% of the sample measures were not able to repay the investment, while the rebound effect would further extend the repayment period for the energy saving measures, 13%, 70% and 23.3% for "lighting", "building fabric" and "heating and cooling" cannot be repaid in 20 years after installation. The prospect theory is also applied to explain why the households were reluctant to invest while the possibility of earning money is still high.