Competing Incentives for Renewable Heating and Cooling

Even when policies are in place to encourage the use of renewable heating and cooling in buildings, they often compete with similar incentives that simultaneously support fossil fuel use. Policy approaches can be contradictory or aim to tackle challenges in an isolated rather than integrated manner. For example, a government may encourage the replacement of old, inefficient and potentially harmful appliances with newer ones, but may do so by introducing a subsidy that also finances fossil fuel technologies.

In Italy, the 2021 Superbonus 110% scheme provided tax reductions for up to 110% of the cost to replace an existing heating system with an efficient renewable-based system in residential or commercial buildings. However, Italy also provided an equal incentive for fossil fuel boiler replacement. If the new condensing boiler is more efficient than the model it replaces (up to a certain point), the subsidy applies as well. Many European countries offer subsidies for fossil fuel-fired appliances, including Belgium, France, Germany, Greece, Poland and the United Kingdom.

These policies can be well intentioned, as low-income households tend to suffer the most from ageing appliances and require support to cover the high upfront costs of replacing them. These appliance owners also require the most assistance when fuel prices become unstable. Governments can end up paying both for the subsidies to install a more expensive, yet more efficient fossil fuel appliance, while also paying to support consumers when they are faced with higher prices.

Some countries have begun phasing out existing financial incentives for fossil fuel systems. In early 2022, France announced that it will end subsidies for new gas boilers and increase financial support for renewable heating.

Source: See endnote 184 in chapter 01.

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