IICEC ENERGY AND CLIMATE RESEARCH PAPER

Transcription

1 IICEC ENERGY AND CLIMATE RESEARCH PAPER An Assessment of Residential Energy Efficiency in Turkey Erdal Aydın Sabancı University May, 2018

2 I. Summary Energy efficiency is considered as the quickest and least costly way of addressing energy security, environmental and economic challenges. Accordingly, over the last two decades, Turkey introduced regulations targeting the energy efficiency in the residential sector. In this paper, we analyze the actual impact of residential energy efficiency policies on household energy consumption in Turkey. We focus on two distinct types of regulations - building energy efficiency standards and mandatory energy efficiency labels for household appliances. We document that the building energy efficiency standards introduced in 2000 and 2008 led to 7 and 8.5 percent energy savings, respectively, for the dwellings built after the regulations. However, these results are far below the engineering predictions. This can be partly explained by the weak enforcement mechanisms and the rebound effect resulting from the lower cost of heating. Analyzing the household level electricity expenditure data, we document that labeling regulations led to a significant reduction in residential electricity demand through the purchase of new appliances. For policy makers, this result may help in stimulating more extensive dissemination of energy labels. II. Introduction Energy efficiency is considered as the easiest and cheapest way of addressing energy security, environmental and economic challenges. Molina (2014) documents that levelized cost of reducing one kwh electricity use through energy efficiency investments is the lowest as compared to different electricity generation options (See Figure 1). Energy efficiency creates significant energy savings, generating financial benefits for consumers and holding back the growth in CO2 emissions. According to International Energy Agency, in 2016, the world would have used 12 percent more energy in the absence of efficiency improvements that took place since 2000 (IEA, 2017). This saving is equivalent to the total energy requirement of European Union. Among all end-use sectors, the effect of energy efficiency improvements was strongest in the residential sector. Efficiency gains lead to a 22 percent reduction in final energy use in the residential sector of developed economies between 2000 and In these countries, energy efficiency improvements completely offset the growth in energy demand, resulting in a seven percent net reduction in households final energy use. Developing countries have been slower to adopt residential energy efficiency improvements, leading to a reduction of 13 percent in residential energy demand, which is far below the growth in energy demand in these countries. 1

3 Figure 1: Levelized costs of electricity resource options Source: Molina (2014) Notes: Energy efficiency data represent the results of Molina (2014) for utility program costs (range of four-year averages for ); supply costs are from Lazard (2013). As a developing economy, Turkey s energy demand has been growing rapidly. Turkey s primary energy demand increased by 70 percent from 2000 to This growth trend is expected to continue as the economy continues to grow. However, energy growth is only needed to satisfy the growth in demand for energy services. For example, consumers only buy electricity to provide energy services in electrically powered equipment (such as an air conditioner). If their air conditioners are more energy-efficient, they will need less electricity for the same energy service (cooling their house). Improved energy efficiency also makes energy services like air conditioning less expensive, and this can cause an increase in energy service demand (using the air conditioner more often or setting it at a more comfortable temperature). This implicit price mechanism is called the rebound effect. The increase in energy service demand must be subtracted from the projected energy savings caused by improved energy efficiency. However, even taking account of the rebound effect, improved energy efficiency significantly reduces the demand for energy (Greening et al., 2000). Improving energy efficiency should be part of any strategy to meet growing energy service needs. The energy intensity of the Turkish economy, which is a rough indicator showing the energy efficiency of an economy (measured as the ratio of total primary energy requirement (toe) to produce USD 1,000 of real gross domestic product (GDP)), was 0.12 toe/usd 1,000 in This ratio is a rough indicator because it is also affected by the distribution of industrial and commercial activities in the economy. For example, if an economy moves away from heavy industry towards manufactured products, this ratio might imply that energy efficiency is improving even though it has not. 2

4 This ratio is higher than the EU average of 0.09 toe/usd 1,000, indicating a lower energy efficiency level. Although the energy intensity level of Turkish economy has been decreasing in recent years, the rate of the decrease has been slower as compared to other IEA countries (See Figure 2). Figure 2: Energy intensity in Turkey and in other selected IEA member countries Source: IEA (2016), Energy Balances of OECD Countries 2016 Notes: Energy intensity statistics in this figure are measured as the ratio of total primary energy supply (TPES) per unit of real gross domestic product adjusted for purchasing power parity (GDP PPP). The latest analysis from the World Bank indicates that Turkey s energy efficiency potential has not yet been comprehensively assessed (Akcollu et al., 2015). It documents saving potentials of 4.6 Mtoe in the manufacturing industry, 4.8 Mtoe in the transport sector, and 7.1 Mtoe in the household sector, leading to a total saving potential of 22 percent relative to These statistics also implies that energy saving potential is highest in the residential sector, with a saving potential of 33 percent. As energy efficiency improvements in Turkey s residential sector could make a large contribution to meet Turkey s growing energy service demand, this paper assesses the potential for residential energy savings in Turkey and ways to realize these savings. III. Residential Energy Demand in Turkey The residential sector in Turkey accounts for 21.5 percent of its final energy demand in This is roughly similar to the sector s share in EU countries, which is 25 percent. According to IEA statistics, in Turkey, residential energy demand grew by 15 percent from 2000 to This trend of growth is expected to continue as the per capita income is expected to grow at a healthy 3

5 rate and, with population growth, residential sector energy demand is expected to grow by 12 percent from 2015 to Households use energy as an input mainly for space - water heating, cooking, lighting and the use of electrical appliances including air conditioners. Thus, households demand for these services and their efficiency determine the residential energy demand in a country. While electricity is mainly used for lighting and appliances, the other energy sources such as coal, wood, natural gas, LPG, and oil are used for heating and cooking purposes. 3 Residential Electricity Demand in Turkey Electricity represents 20 percent of households final energy demand in Turkey, while this share is 25 percent for EU countries in In Turkey, residential electricity demand almost doubled from 2000 to This is a result of increasing adoption of electrical appliances (such as air conditioners, freezers, computers, dishwashers and washing machines) by Turkish households. The significant increase in the adoption of air conditioning, computers, microwave ovens, dishwashers and freezer appliances is shown in Figure 3. Between 2002 and 2016, households ownership of air conditioners increased from 3 percent to 19 percent. During the same period, ownership of freezers increased from 5 to 24 percent. These appliances, in particular, are energy intensive and their adoption rate is expected to further increase in the future parallel to the economic growth and the increased affordability of these appliances. Figure 3: Ownership of household appliances in Turkey ( ) Microwave Computer Air conditioner Dryer Television Dish washer Washing machine Freezer Refrigerator 0 0,2 0,4 0,6 0,8 1 1,2 Owneship (2016) Ownership (2002) Source: Turkish Statistical Office Household Budget Surveys , author s own calculations 2 We applied a non-linear trend analysis approach to forecast Turkey s residential energy demand in According Turkish Household Budget Survey statistics, in 2016, only 2 percent of the Turkish households use electricity as a source for space heating. 4

6 In 2015, the annual electricity consumption of an average Turkish household was around 2,211 kwh, a number well below the EU average of 3,633 kwh. Turkish Electricity Distribution Company (TEİAŞ) published a report documenting the contributions of different end-use appliances in total electricity consumption of a representative household in Turkey. Based on this report, Figure 4 indicates that lighting and refrigerators have the highest shares, totaling 57 percent of a representative households electricity use in Third highest component of electricity use is televisions (15 percent). Other appliances such as the oven, washing machine, dishwasher, iron, computers and vacuum cleaners use remaining 28 percent of electricity. For this representative household, appliances such as the dryer, freezer, air conditioner are not taken into account as their ownership shares in Turkey are still far below the EU average. Figure 4: Shares of electricity use by appliances for a representative Turkish household 15% 8% 2% 3% 4% 28% Refrigerator Lighting Washing machine Dish washer Television 5% 6% 29% Ironing Vacuum cleaner Computer Oven Source: Turkish Electricity Distribution Company (TEİAŞ), 2011 As mentioned earlier, electricity use of appliances and lighting represents only 20 percent of households energy demand in Turkey. The remainder is mainly used for space heating which accounts for 17.5 percent of final energy demand of Turkey. Therefore, the energy efficiency of the building stock is a key target in order to improve Turkey s energy efficiency. Residential Heating Demand in Turkey In January 2016, the dwelling stock in Turkey reached 22 million residential units. Dwelling stock in Turkey is rather new -at least compared to developed countries- and is mostly constructed after the 1980s (See Figure 5). This is quite common for the residential sector in developing and emerging countries, where increasing incomes and rapid urbanization have created strong demand for better-quality housing in the last decades. According to statistics obtained from 2016 Turkish Household Budget Survey data set, 73 percent of the dwelling stock 5

7 in Turkey is constructed after 1980, and 31 percent of it is constructed after The share of new dwellings in total dwelling stock is expected to increase more rapidly in near future due to the recent urban transformation policy. It is anticipated that, within 15 years, around 7.5 million of dwellings will be renewed as part of the urban transformation projects, with the aim of making the building stock in Turkey more resistant to earthquakes. Figure 5: Distribution of dwellings in Turkey by construction period Source: Turkish Statistical Office Household Budget Survey 2016 The recent vintage of the dwelling would suggest relatively high energy-efficiency levels, but most of the space heating technology used at these homes is outdated. For example, in Turkey, the most common heating system is still solid-fuel stove heating with a share of 51 percent in 2016 (See Figure 6). Use of solid fuels in heating and cooking causes a number of adverse consequences, besides poor fuel efficiency, including contributing to local air pollution and higher atmospheric concentrations of greenhouse gases. Therefore, although newly built homes can lead to energy savings through stricter building standards, high use of carbon-intensive and air polluting heating technologies is still a problematic issue in Turkey, mainly because of the lack of proper infrastructure and less costly local energy sources. 4 Turkey has a higher share of new constructions as compared to most of the EU-28 member countries (only exception is Cyprus). For instance, the share of dwellings constructed after 1980 is 45% in Spain, 35% in France, 29% in Germany, and 24% in UK. 6

8 Figure 6: Distribution of space heating types used by Turkish households Source: Turkish Statistical Office Household Budget Survey 2016 In the last few years, a switch from stove heating to natural gas heating has been observed. According to statistics calculated using Turkish Household Budget Survey data sets, the share of stove heating decreased from 66 percent to 51 percent from 2010 to 2016, while the share of natural gas heating increased from 23 percent to 36 percent. However, the pace of this change is expected to decrease over time, as the natural gas network diffusion in urban areas is approaching a saturation point, while it is far more costly to invest in natural gas infrastructure in rural areas, due to Turkey s mountainous terrain and low population density outside the urban centers. It should also be noted that, although there is a decreasing trend, still around 36 percent of Turkish households are relying on wood as their main energy source (See Figure 7), which is not accurately represented in energy accounting statistics, as it is a non-commercial energy source. Thus, taking the high use of non-commercial wood used by Turkish households into account, it can be expected that the share of Turkish residential energy demand in total final energy demand is actually higher than the official statistics that are calculated based solely on commercial energy sources. 7

9 Figure 7: Distribution of main energy sources used by Turkish households Source: Turkish Statistical Office Household Budget Surveys Notes: This figure presents the shares of households that reported different fuel types as their main energy source. Given the high share of stove heating, an important decision for these households is how to obtain domestic hot water. According to Enerdata statistics (Enerdata, 2012a), water heating represents around 15 percent of households energy consumption in Europe. Therefore, energy efficiency of the hot water system can be considered as an important factor affecting household s final energy demand. In 2016, approximately 12 percent of Turkish households did not yet have a hot water system. For the households that do have a hot water system in their homes, the most common water heating systems are natural gas, electricity and solar heaters (See Figure 8). The type of water heating technology strongly depends on the type of space heating system used in the household. Parallel to the diffusion of natural gas networks, it is observed that the share of natural gas use for water heating has increased in the last few years. For the households that use solid-fuel stoves for space heating purposes, the options for water heating systems are electricity, solar and LPG-based heating systems. The share of solar water heaters has increased from 20 to 27 percent between 2010 and Especially households that use air conditioners or solid fuel stoves for space heating prefer to use solar energy for hot water. 8

10 Figure 8: Distribution of water heating system types used by Turkish households Source: Turkish Statistical Office Household Budget Surveys Notes: This figure presents the shares of households that reported different fuel types as their main water heating energy source. Finally, the cost of residential energy use for Turkish households is examined here, based on the statistics obtained from Turkish Household Budget Survey in By examining the households expenditures on different energy types, it is seen that households in Turkey have an annual energy bill of around 516 EUR. Given that the average household income level in Turkey is 12,700 EUR in 2016, it can be concluded that Turkish households, on average, spend around 4 percent of their disposable income on energy. Figure 9 below shows that energy expenditure is highest for households using a collective central space heating system. This is likely to be related to the payment structure of central heating expenses. Since all households in the same apartment building share the total cost of the building s heating bill, they hardly have an incentive to economize on energy use. Another reason might be the inefficiency of central heating systems compared to individual boilers. We also see that households who are using a stove (especially wood stoves) for space heating have the lowest energy expenditure. This can be partly explained by the fact that these households generally install the stove in their living rooms, and do not heat 9

11 the other rooms of the house. 5 Thus, thermal comfort levels for these homes are significantly lower than for homes using more advanced heating systems. This also implies that switching from stove heating to more efficient heating systems, households might change their behavior, leading to a high rebound effect. Figure 9: Households monthly energy expenditure (EUR) by space heating type in Turkey Source: Turkish Statistical Office Household Budget Survey 2016 IV. Residential Energy Efficiency Policy in Turkey Building Sector According to Enerdata (2012b), nearly 70 percent of the total residential energy consumption in EU is used for space heating purposes. Therefore, minimum thermal efficiency standards for new buildings are considered as one of the most important energy conservation measures. Especially after the oil crisis, many countries have introduced their first national building standards or strengthened the existing codes. The importance of these standards also extends beyond their role in new dwellings. They are also expected to have spillover effects on the existing dwelling stock as these standards also serve as a benchmark for the energy efficiency refurbishments. 5 Besides, we can expect that a large part of these households, especially the households living in rural areas, are not paying for the wood. 10

12 In Turkey, the first standard on the thermal efficiency of new buildings was introduced in Since 2000, new buildings in Turkey were required to perform thermal efficiency standards similar to EU countries. TS 825 Thermal Insulation Requirements in Buildings, which is currently a standard under BEP-TR, became mandatory and used for calculating heating energy needs of buildings. According to this standard, Turkey has been divided into four different degree-day regions. The TS 825 was revised in 2008, requiring a higher energy efficiency level as compared to the 2000 standards. Turkey s current building codes are based on the 2008 Regulation regarding the energy performance of buildings (BEP-TR) as amended in BEP- TR introduced a common methodology for calculating the energy performance in buildings and set the minimum energy performance standards for new buildings and buildings subject to major renovation. In accordance with these regulations, building licenses are not given to the building projects, which do not meet the minimum performance standards on thermal insulation and heating and cooling systems. The maximum allowable U-value requirement can be considered as a proxy for the stringency of building energy efficiency requirements. This U-value is consistently defined as the amount of heat loss through one square meter of the material for one-degree difference in temperature at the either side of the material. 7 The first U-value requirements were implemented in Northern European countries during the 1960s, and were motivated by the demand for thermal comfort. After the oil crisis in the early 1970s, many European countries set or raised U-value requirements in order to reduce the residential energy consumption and decrease their dependency to oil. Figure 10 plots the over-time variation of the U-value requirements for the external walls of new constructions in Turkey and selected EU countries, and clearly shows that the colder Northern European countries have the strictest U-value requirements. 8 Figure 10 (on the next page) indicates that the stringency of building standards in Turkey is still low as compared to many EU countries. The only exceptions are Spain and Portugal where the heating requirements, as measured by heating degree-days, are lower as compared to Turkey. Additionally, the historical trends in the stringency of building codes show that Turkey did not update her building standards for a long time, leading to lower energy efficiency for the buildings that were constructed between Given that the share of these dwellings in the current dwelling stock is around 45 percent, the lack of improvement in building standards during this time period led to a significant loss in the potential energy savings in the residential sector. On the other side, 30 percent of the dwelling stock in Turkey has been constructed under the updated 6 Although there were earlier standards introduced before 2000, their implementation was not mandatory. 7 As an example: One square meter of a standard single glazed window transmits about 5.6 watts of energy for each degree difference either side of the window and so has a U-Value of 5.6 W/m2. On the other hand, a double glazed window has a U-value of 2.8 W/m2. 8 The Directive on the Energy Performance of Buildings (EPBD, 2002/91/EC, recast as 2010/31/EU) sets requirements for energy efficiency in building codes, including minimum energy performance requirements and energy certificates. The 2010 recast require all new public buildings to be at least near-zero energy by the end of 2020, and all new buildings to reach this target by the end of

13 building standards since 2000, with the aim of reducing the energy needs of these dwellings more than half as compared to earlier constructions. Thus, although Turkey benefited from the high construction rates after 2000 under a building energy efficiency regulation, a great opportunity was missed between period that could make almost half of its current dwelling stock more efficient today. Figure 10: Maximum allowable U-value requirements in Turkey and selected EU countries Source: MURE database, TS 825 Notes: This figure presents the maximum allowable U-values for external walls in Turkey and in selected EU countries. For countries, where U-value requirements vary based on heating degree-day regions, the weighted average of the U-value requirements are calculated by the author based on the regions population numbers. Other important policies brought by the BEP regulations after 2008 are; mandatory application of the renewable energy and cogeneration system investments to a specific share of building cost and the minimum standards to be applied to new installations. Additionally, since 2010, central heating has been made compulsory for new buildings having an area of more than 2,000 m 2, and the installation of individual metering and control systems for central heating and hot water has been made compulsory since An energy performance certificate (EPC) was also introduced as of January 2011 in order to give information on primary energy demand and CO2 emissions of 12

14 new buildings and buildings that have been purchased or rented. The EPC calculations cover energy needs for space- and water-heating, cooling and lighting. The EPC is mandatory for all new buildings and valid for ten years. Existing buildings were exempted from the EPC obligation. As of May 2018, the number of buildings with an EPC totaled 723,184. Building licenses were not granted to new buildings rated less than class C. Appliances, Equipment and Lighting Energy efficiency in the appliance market is also an essential element in EU s portfolio of energy conservation policies. In order to facilitate the adoption of energy-efficient technologies, the EU Commission issued the Directive 92/75/EC requiring the member states to implement mandatory disclosure of energy labels in Following this directive, national governments have gradually introduced labeling schemes for different appliance groups. 9 As Turkey has been a candidate for EU membership since 1999, labelling program was introduced in 2002 in line with EU directives. Since 2002, mandatory labeling policy has been implemented for some of the energy-related products step by step in Turkey. These labeling regulations aim to remove the information barriers to the diffusion of energy efficient products in the market. The lack of sufficient information is generally accepted as one of the main reasons why households underinvest in energy efficient technologies (Gillingham et al., 2009). In the absence of information, consumers are not able to incorporate the operating costs into their purchasing decisions, which in return leads to lower investments in energy efficient products. The provision of energy labels may create market incentives for appliance manufacturers to design more energy-efficient products (Mills and Schleich, 2010). Newell et al. (1999) document that the mean energy efficiency of water heaters and air conditioners sold in the US increased significantly after the introduction of the labeling scheme in Therefore, greater transparency may enable both consumers and producers to incorporate energy efficiency in their decision-making process. In order to compare the progress of labeling requirements in selected EU countries and Turkey, benefiting from the over-time variation of the coverage of the labeling regulation, we derived an index indicating the average electricity consumption share (in total residential electricity use) of appliances that are subject to a mandatory labeling regulation. 10 This variable takes a maximum 9 The implementing EU directives were introduced for refrigerators, frozen food storage cabinets, food freezers and their combinations in 1994, for washing machines and dryers in 1995, for dishwashers in 1997, for lamps in 1998, for air-conditioners and ovens in 2002 and for televisions in Each country implemented the labeling regulations by extending the appliance coverage over time. We predicted the average electricity usage share of these appliances for each year based on the appliance-specific energy 13

15 value of one if all household appliances in the market have to be sold with a label according to regulation, and takes a minimum value zero if there is no regulation for the disclosure of energy labels. In Figure 11, we present the over-time variation of the label index for Turkey and for a sample of EU countries. Although the general trends look similar for EU countries, there exist cross-country differences in the evolution of the label index. Turkey has the lowest coverage in appliance labeling policy as compared to other selected EU countries in Appliances requiring an energy label were responsible for 43 percent of household electricity use in Turkey, while this share was around 75 percent for EU countries. In 2012, Turkey extended the coverage of the mandatory labeling policy by including the refrigerators, freezers, dishwasher, washing machines and televisions into the regulation. Figure 11: Coverage of appliance labeling policy in Turkey and selected EU countries Source: MURE database, Harrington et al. (2013), author s calculations Notes: This figure presents the over-time variation of the label index for Turkey and for a sample of EU countries. Label index indicates the average electricity consumption share (in total residential electricity use) of appliances that are subject to a mandatory labeling regulation. This variable takes a maximum value of one if all household appliances in the market have to be sold with a label according to legislations, and takes a minimum value zero if there is no regulation for the disclosure of energy labels. consumption statistics provided by Dubin and McFadden (1984), and Larsen and Nesbakken (2004) and the ownership statistics provided by Odyssee database. 14

16 The progress of energy performance standards for appliances in EU was slower as compared to progress in labeling policy. The first energy performance standard in the EU took effect in 1999, which was specific to fluorescent lighting, refrigerators, and freezers. In 2006, the European Commission issued the directive (2005/32/EC), with further amendments in 2008 and 2009, introducing energy efficiency requirements for energy using products, known as the Eco-design Directive. The Eco-design Directive provides EU wide rules for improving the energy efficiency of energy-related products. These requirements have been introduced as EU wide regulations, without the need for national laws or regulations. 11 Turkey has largely harmonized its product efficiency standards with the EU Eco-design Directive after Before that date, there was no regulation about the energy efficiency of the appliances and lighting products. However, due to the strong trade relationship with Europe, many of the practices about appliance market in EU have been largely adopted voluntarily by Turkish market participants before the regulations were introduced. V. Impact Assessment of Residential Energy Efficiency Policies in Turkey In this paper, we examine the impacts of two of the most important residential energy efficiency policies that have been implemented in Turkey: The introduction of energy efficiency standards for buildings, and the energy performance certification requirements for household appliances introduced. We analyze the actual impact of these policies by using the household level information obtained from Turkish Statistical Office s Household Budget Surveys. Introduction of Energy Efficiency Standards for New Buildings Whether the energy efficiency standards for new buildings have been effective in reducing the Turkish residential consumption of energy is still unclear. Thus far, the impact of building standards has been mostly studied by use of the so-called bottom-up modeling approach, in which consumers are assumed to readily adopt new technologies without adjusting their energy behavior. While these studies provide useful ex-ante information on the potential impact of policies, they are not able to accurately assess the actual outcome. The uptake of building standards may be less than expected if they are poorly enforced or not stringent enough to be binding (Pan and Garmston, 2012; Vine, 1996). For instance, based on engineering models, it is predicted that the introduction of energy efficiency standards in 2000 would lead to around 50 percent energy saving for the new-build dwellings. However, Keskin (2010) notes that only percent of the newly constructed homes fully adopted the energy efficiency standards 11 The EU energy efficiency standards were introduced for different appliances step by step between 1999 and The years of these standards are: Freezers (1999 and 2009), Refrigerators (1999 and 2009), Ballast for fluorescent lamps (2000 and 2010), Televisions (2009), Air conditioners (2009 and 2012), Clothes washers (2010), Dishwashers (2010), Clothes dryers (2012), Computers and computer servers (2013), Space heaters (2013), Vacuum cleaners (2013), Water heaters (2013) 15

17 introduced in 2000, as the enforcement of the regulation was not effective enough. In that case, the actual impact of the regulation will be significantly lower as compared to engineering expectations. The empirical evidence on the actual impact of building regulations around the world is relatively scarce. There are only a couple of studies investigating the actual effects of building standards on residential energy consumption. Using a panel of 48 US states from 1970 to 2006, Aroonruengsawat et al. (2012) analyze the impact of the introduction of state-level building codes. They report that the states, which adopted building codes, have experienced a reduction in electricity use by around 3-5 percent in In a recent study, Jacobsen and Kotchen (2013) document that the introduction of stricter building codes in Florida in 2002 has generated a 4 percent reduction in electricity use and 6 percent reduction in gas use for the dwellings that are constructed after the implementation of these regulations. In order to identify the impact of building energy efficiency standards on residential sector s energy consumption in Turkey, we employ a large household-level dataset provided by the Turkish Statistical Office. Turkish Statistical Office has been conducting Household Expenditure Surveys covering samples of around 10,000 households each year. The survey s household sample is selected to be representative for Turkey as a whole. In the survey, households are asked to report their average monthly energy expenditures on each energy item classified as electricity, solid fuel, liquid fuel and natural gas. Besides, households are also asked to report information on their demographic characteristics and the characteristics of their residence. We use the surveys that have been carried out in 2010 and 2011, since the construction year information is available for these survey years. We limited the sample to the homes that were constructed between 1990 and Using this dataset, we investigate the variation in household s actual energy consumption based on the construction period of their dwellings. We propose the following empirical model: Ln(E i ) = γ 0 + γ 1 ConstPeriod i + γ 2 D i + γ 3 H i + γ 4 T i + ε i (1) where Ln(E i ) represents the logarithm of household s monthly energy consumption. ConstPeriod i is a vector of dummy variables indicating the construction period of the household s dwelling. The construction period categories are specified as follows: period represents the time period when there was no building energy efficiency standards, period represents the time period when 2000 regulation was in force, and period represents the time period when the revised standard was in force. As the first energy efficiency regulation was introduced in 2000, we expect that energy consumption will be lower for the dwellings that were constructed after this year, keeping the other characteristics of the dwellings and households fixed. We expect a further reduction in energy use for the dwellings constructed after 2008, when the energy efficiency standards were strengthened. As there might 16

18 be systematic differences in other characteristics of the homes based on construction time, which could also affect their energy use, we also control for dwelling type, size, space heating type, main energy source (denoted by the vector of D i ). Similarly, as systematic differences in household characteristics might also affect energy usage, we also control for income and household size (denoted by vector of H i ). In order to control for the over-time variation in climate conditions and energy prices, we include a vector of dummy variables (T i ) indicating each survey year and month. ε i is the idiosyncratic error term. We estimate the empirical model in equation (1) using Ordinary Least Squares (OLS) estimator. As the energy use information in the data set is reported in terms of household s expenditure on different energy items, we first estimate the impact of these regulations on total residential energy expenditure. The results in Table 1 - Column 1 indicate that the energy efficiency standards introduced in 2000 and 2008 led to 4% and 7.7% monetary saving for the households accommodating in the homes built after 2000 and 2008, respectively, as compared to the homes constructed before 2000 (time period without regulation). Next, we converted the expenditure figures to actual consumption based on the price of each energy source in different years and the energy content of those resources, and calculated household s monthly energy consumption (kwh). According to the results provided in Column 2 of Table 1, the building regulation introduced in 2000 led to an energy saving of 7 percent in new dwellings. The revision in 2008 led to an 8.5 percent energy saving as compared to the dwellings constructed without regulation. Examining the effect of building standards on CO2 emissions (Table 1 - Column 3), we document that the regulations in 2000 and 2008 led to 4.2 and 9.8 percent reduction, respectively, in carbon emissions of households accommodating in the dwellings constructed after these years. Table 1 Impact of Building Energy Efficiency Regulations on Households Energy Use (1) (2) (3) VARIABLES Energy expenditure Energy consumption CO2 emission Construction Period (First mandatory regulation) ** *** (0.016) (0.025) (0.028) (Revised regulation) ** (0.038) (0.059) (0.065) Observations 8,046 8,046 8,046 R-squared Notes: In column (1) the dependent variable is the logarithm of monthly energy expenditure and in column (2) it is the logarithm of energy consumption, and in column (3) it is the logarithm of CO2 emissions that corresponds to the consumption of households use of different energy sources. The expenditure figures are then converted to actual consumption based on prices of each energy source in different years. Since wood 17

19 might be freely available for some households, we exclude the households that are using wood as main heating energy source. We also exclude the homes with central heating system since the energy expenditure is shared with other households and this creates different incentives. Dwelling type, size, space heating type, main energy source, income, household size, survey year and month variables are included as control variables in all regressions. Standard errors are given in parentheses. The base category for construction period is , time period without regulation. *** p<0.01, ** p<0.05, * p<0.1. These results imply that the actual impact of building energy efficiency regulations is far below the engineering expectations (7 versus 50 percent). This can be partly explained by the weak enforcement of the regulation. Keskin (2010) argues that the enforcement of the energy efficiency standards has not been effective due to the lack of proper building inspection mechanisms and the lack of consumer awareness. Assuming that only 15 percent of the new buildings were constructed in line with the energy efficiency standards (Keskin, 2010), the energy savings would be about 7.5 percent (engineering prediction*compliance rate), which is very close to our estimate of actual energy savings. Keskin (2010) also notes that the enforcement of the regulation has been improving over time through the introduction of complementary regulations regarding building inspection mechanisms. The large gap between expected and actual energy savings can also be partly explained by the rebound effect, as the households in new dwellings might be changing their energy consumption behavior due to the lower cost of heating in more energy-efficient dwellings. Examining the Dutch households, Aydın et al. (2017) documents that the rebound effect for residential heating is around percent, and is even higher for the low-income households due to higher price sensitivity. They find that the rebound effect for residential heating is around 50 percent for the households with an income level below 16,000 EUR. Given that the current average household income level in Turkey is below 16,000 EUR, we can assume that the rebound effect for residential heating in Turkey would be around 50 percent, meaning that half of the expected energy savings is taken back due to the increased demand for the energy service. Taking the rebound effect into account, and assuming that the regulation is implemented strictly, we can expect that the maximum energy saving for the homes constructed after 2000 would be around 25 percent (engineering prediction*(1-rebound effect)). Thus, if the government ensures the enforcement of the regulation, the impact of the energy efficiency standards on residential energy savings in new dwellings can increase up to 25 percent. A simple calculation implies that the building energy efficiency regulations led to a 2.5 percent reduction in Turkey s current residential final energy demand. This effect could increase up to 8 percent if the regulations were implemented strictly (assuming a rebound effect of 50 percent). If the same standards have been implemented (strictly) since 1990, as has been the case for many EU countries, the current residential energy demand would be reduced by about 13 percent. Introduction of Energy Performance Labeling Requirements for Appliances So far, many ex-post evaluations of appliance labeling programs have focused on consumer awareness of the label and have not explicitly examined the impact of these programs on actual 18

20 energy demand (Vine et al., 2001). This is because identification of the impact of energy labeling schemes on residential electricity demand is not straightforward. In order to identify the impact of labeling regulations on residential electricity consumption, the electricity consumption of households has to be known in a situation where labeling policy is not in force (ceteris paribus - keeping all other factors constant). The ideal method would be an experimental design (or a natural experiment), in which two groups of households are compared in terms of their energy use after the introduction of labeling policy for one of the groups. However, this kind of experimental analysis is not feasible in reality as the labeling regulations are generally introduced at the national level. Another option would be the comparison of residential energy consumption before and after the policy change. However, this could lead to a biased result, as there are several unobserved factors changing over-time that might also affect household s electricity demand (such as technological progress). In this paper, we propose a methodological approach, which enables us at least to test whether the labeling policy has a positive impact on residential electricity savings. This is of importance because even if the energy efficiency information is provided, price-driven temptation can lead to the purchase of an energy-inefficient appliance with a low purchase price, in spite of its relatively high operating costs that will be incurred in the future (Tsvetanov and Segerson, 2013). As a consequence of this, the actual impact of energy efficiency regulations may well be insignificant. Foulds et al. (2016) report that a high proportion of households replace their appliances with the new ones when they move into a new home. The authors document that, for an average household in the UK, the average appliance replacement rate when moving to a new house is around 32 percent. 12 Thus, it can be expected that Turkish households who move to a new home also purchase new appliances to replace the old ones. Since the labeling regulation can affect the electricity consumption only through the purchase of new appliances, we benefit from the variation in households move-in year in our dataset. We compare the electricity demand of two group of households who moved into a new home in different time periods - before and after the legislation - keeping the observed household and dwelling characteristics fixed. The estimated difference can provide the evidence of the impact of the labeling policy on residential electricity demand. In order to test this question, we employ the following empirical model: Ln(E i ) = γ 0 + γ 1 MovePeriod i + γ 2 D i + γ 3 H i + γ 4 T i + ε i (2) where Ln(E i ) represents the logarithm of households monthly electricity consumption. MovePeriod i is a vector of dummy variables indicating the time period when the household moved into their dwelling. We also control for other dwelling characteristics (denoted by the 12 The authors document that for washing machines and refrigerators this share is 43 percent, and for freezers it is 36 percent. 19

21 vector of D i ) such as dwelling type, size, main energy source, and space heating type. H i is a vector of household characteristics such as income, household size, and ownership of different appliances. In order to control for the over-time variation in climate conditions and energy prices, we include a vector of dummy variables (T i ) indicating each survey year and month. ε i is the idiosyncratic error term. The results in Table 2 indicate that households who move into a new home after the introduction of mandatory labeling policy for a group of appliances in 2002 consume 5 percent less electricity as compared to the households who moved into their dwellings before the regulation. This estimated effect is realized through the purchase of new appliances with labeling requirement, as we expect that households mostly replace their appliances when they move into a new home. We also observe that the variation in move-in time does not have any significant effect on household s electricity demand for the households who moved into their home before the regulation, proving that move-in time does not influence the electricity demand through other channels. This implies that the labeling regulation led to a statistically significant reduction in residential electricity demand through the purchase of new appliances. 13 Table 2 Mandatory Labeling Regulation and Residential Electricity Consumption VARIABLES Electricity consumption Move-in Time Period (0.022) (0.026) ** (0.021) Observations 7,205 R-squared Notes: The dependent variable is the logarithm of household s monthly electricity consumption. Ownership of different appliances, dwelling type, size, space heating type, main energy source, income, household size, survey year and month variables are included as control variables. Standard errors are in parentheses. The base category for moving period is *** p<0.01, ** p<0.05, * p<0.1. VI. Conclusions and Policy Implications 13 We should note that the size of the estimated effect cannot be generalized to all households in Turkey. The appliance replacement rate in general is expected be below the replacement (and new adoption) rate of the new residents. 20

22 Energy efficiency is considered as the quickest and least costly way of addressing energy security, environmental and economic challenges. Accordingly, over the last decades, many countries have introduced regulations targeting the energy efficiency in the residential sector. Among these, stricter building codes and mandatory disclosure of energy efficiency information for household appliances have been the most common policy instruments. Minimum thermal efficiency standards for new buildings are considered as one of the most important energy conservation measures. Turkey introduced its first mandatory building energy efficiency standards for new buildings in 2000, while most of the EU countries have been implementing similar standards since 1980s. Given that almost half of the current dwelling stock in Turkey was constructed between 1980 and 2000, the lack of standards during this time period led to a loss of a great opportunity that could make almost half of its current dwelling stock more energy efficient today. Besides being a late adopter, the stringency of the current standards in Turkey is still lower as compared to many EU countries. As the share of new dwellings in total dwelling stock is expected to increase more rapidly in the near future due to the recent urban transformation policy, an update of these standards can create a considerable amount of saving in Turkey s future energy demand. In this paper, we specifically analyze the actual impact of the Turkish building energy efficiency regulations by using household level energy expenditure information obtained from Turkish Statistical Office s Household Budget Surveys. We document that the energy efficiency standards introduced in 2000 and 2008 led to 7 and 8.5 percent energy savings, respectively, for the dwellings built after these years as compared to the dwellings constructed before the regulation. These results are far below the engineering predictions. This can be partly explained by the weak enforcement of the regulation due to the lack of proper building inspection mechanisms and the lack of consumer awareness (Keskin, 2010). Although, Turkish government introduced complementary regulations over time in order to improve the effectiveness of enforcement mechanism, there are still concerns about the quality of the building inspections. Another explanation for the gap between expected and actual energy savings might be the rebound effect, as the households might be changing their energy consumption behavior due to the lower cost of heating in more energy-efficient dwellings. Taking the rebound effect into account, if the government had ensured the enforcement of the regulations, the energy efficiency standards would have led to around 25 percent energy saving in new dwellings, implying an 8 percent saving in today s residential energy demand. As another important energy efficiency indicator, we see that the most common residential heating system in Turkey is still solid-fuel stove heating. Use of solid fuels in heating causes a number of adverse outcomes, besides poor fuel efficiency, including contributing to local air pollution and higher atmospheric concentrations of greenhouse gases. Therefore, although newly built homes can lead to energy savings through the implementation of stricter building standards, the high use of carbon intensive and air polluting heating technologies will still be an issue in 21