Why discount rates?
Households account for 27% of the EU’s final energy use. The energy used by households largely depends on the decisions that the more than 500 Million Europeans make when purchasing energy-related technologies, from efficient light bulbs to building retrofits.
Implicit and generalised discount rates are used by policy makers when they evaluate which policies to choose and how ambitious they can be. Since there is scarce evidence-based knowledge of household investment behaviour, policy makers often tend to assume rather high discount rates. Another problem is that discount rates tend to be treated as static. Thus the impact of policies are often not taken into account to update the discount rates that are applied in scenario modelling.
Better understanding of investment behaviour will allow better and more realistc energy policy targets. Read more.
BRISKEE, a project which ran from 2015 to 2017, provides empirical evidence of applied discount rates, accounting for differences across EU households, technologies and countries. It explores the impact of time discounting and risk preferences on the diffusion of energy efficient technology and energy demand in the EU residential sector until 2030, and the macro-level impacts of changes in microeconomic decision-making and policy.