How can favourable financing improve energy efficiency investments? Evidence from new experimental data

Promoting investment in energy efficiency has become increasingly important over the past decade. It is heavily discussed in the context of the EU 2021-2027 Multiannual Financial Framework, and at the core of the EU 2030 Climate and Energy Framework. While the budget allocation and the energy efficiency target have been well defined, less is known about effective ways to promote investments in energy efficiency. This paper sheds light on this issue by showing how effective financial instruments and technical assistance are in increasing investments in energy efficiency. Using new experimental data from the European Investment Bank, we find that a lower and fixed interest rate, a lower collateral requirement and the provision of technical assistance in the implementation of the project can significantly boost investment in energy efficiency. When combining these favourable conditions, the probability that firms invest in energy efficiency increases by more than a third. These results provide important insights into measures to increase energy efficiency investments, and how to optimally design them, which is key for EU policy-makers and lending institutions.