Cost‐benefit assessment of energy efficiency investments: Accounting for future resources, savings and risks in the Australian residential sector

This article focuses on the impact of the discount rate on cost‐benefit assessment of investment options for residential building efficiency. An integrated thermal modeling, life cycle costing approach is applied to an extensive sample of dominant house designs for Australian conditions. The relative significance of predicted thermal performance and the applied discount rate on the Present Value of energy savings from alternative investment scenarios is investigated. Costs and benefits are also evaluated at the economy‐wide scale, including carbon pricing considerations, and for a test‐case household faced with alternative investment options at the point of construction. The influence of the applied discount rate on produced cost‐benefit calculations is investigated, as is the interaction between critical cost‐benefit input parameters. Findings support that the discounting framework is the primary driver of difference in estimates about costs and benefits of higher standards of efficiency in the residential sector. Results demonstrate that agreement on a low discount rate based on sustainability principals would prioritise those projects with significant environmental benefits.