Introduction
 

The Energy Efficiency First (EE1st) principle is a guiding policy concept that prioritises implementing energy efficiency measures before investing in new supply infrastructure or capacity. By emphasising energy efficiency, the principle reduces overall energy demand, decreases the need for new infrastructure, lowers greenhouse gas (GHG) emissions, improves energy security, and saves consumers money. The principle should be applied at all governance levels, not only at the national level but also at the regional level, as regions are responsible for energy infrastructure decisions. To support regional authorities in applying EE1st in practice, a clear, science-based decision-support framework has been developed. It compares supply- and demand-side technology investment options for each region.

Based on the EE1st principle, policymakers must identify opportunities for energy efficiency improvements and conservation in key sectors, including buildings, transportation, and industry. They should take into account cost-effectiveness, technical feasibility, and potential energy savings and GHG reductions. This step is essential to incorporate the EE1st principle into energy planning, ensuring the widest possible uptake of these solutions.

Cost–benefit analysis (CBA) is a practical way to evaluate the desirability of such investments. CBA applies in two key cases: (a) taking a long-term perspective to consider consequences in both the near and distant future; and (b) adopting a broad view to capture impacts on different groups, including citizens and private actors. In a nutshell, CBA is a decision-support tool that is applied to enumerate and evaluate all relevant costs and benefits of investment plans, policies, or other actions planned by public or private entities. To evaluate energy investments, including external costs and benefits, social CBA (SCBA) is more appropriate.  SCBA includes all the factors of CBA but also considers environmental and societal impacts. Hence, the evaluation is performed taking into consideration the impacts on the whole society. The analysis covers both market prices and the external costs and benefits of assessed energy supply and energy efficiency investments. 

SCBA assesses the social profitability of energy efficiency projects to justify the possible use of financial schemes, such as subsidies, in relation to the results of the financial analysis. Conducting CBA and SCBA leads to the calculation of two different indicators: the financial Net Present Value (NPV) or Internal Rate of Return (IRR), and the social NPV or social IRR.
 

SCBA considers different negative externalities from fuel consumption as well as positive ones from the multiple benefits of energy efficiency. Four types of externalities are included: environmental and health impacts, Gross Domestic Product (GDP) impacts, multiple benefits, and the increase in building value. Quantifying these aspects through SCBA allows a CBA that is not purely focused on economic impacts. The higher the externality value (for example, in oil or biomass), the lower the societal benefits. These values were taken from two main sources: a report produced by Ecofys in 2014 and another by Trinomics in 2020. Given upcoming policy changes under the Emissions Trading System for buildings and transport (ETS2) and the additional costs of heating with gas, oil, and liquefied petroleum gas (LPG), the model incorporates new prices in the calculations, ranging from 35 € to 60 € per tonne of carbon dioxide (tCO2), based on the emission factor of each fuel.
 

Applying the tool: results in six European regions
 

As part of the EU-funded Regio1st project, which supports the implementation of the EE1st principle in European regions, the tool was applied to six regions with distinct sociocultural characteristics and energy mixes: Asturias (ES), Liguria (IT), Medjimurje (HR), Ormož and Slovenska Bistrica (SI), Southeastern Ireland (IE), and Western Macedonia (EL). The six regions were grouped into three subgroups based on household heating energy mixes, with natural gas, heating oil, or biomass as the main fuel. In Asturias, the household fuel mix is: natural gas 48%, petroleum derivatives 20%, electricity 19%, and other fuels 12%. In Liguria, the household fuel mix is: natural gas 75% (33% of these households are already equipped with new efficient gas boilers), heating oil 12%, heat pumps 8%, and biomass 5%. In both regions, natural gas is the predominant fuel. In Southeastern Ireland, all households are assumed to rely exclusively on heating oil. In Western Macedonia, the fuel mix is: district heating 47%, heating oil 36%, electric heating appliances 8%, pellets 2%, wood boilers 2%, and wood stoves 5%. In the last subgroup, all households in Ormož and Slovenska Bistrica are assumed to rely exclusively on biomass, while in Medjimurje, 50% use biomass and 50% natural gas.

In all the regions, the investment outcomes of various alternatives for residential heating were examined. More specifically, starting from current policies and investments in supply-side heating improvements (mainly fossil fuels), the baseline scenario assumes the installation of efficient gas boilers, or other fossil fuel boilers, without any building upgrades in all regions. In essence, the baseline scenario compares the installation of more energy-efficient gas boilers with the existing ones used by households. For every region, the budget currently devoted to fossil fuel investments, such as the installation of efficient gas boilers, was considered. This same budget was then applied to alternative policy measures, following the EE1st principle, to compare the results. The budgets considered were: Asturias, 608 million€; Liguria, 47.6 million€; Medjimurje, 4 995 614€; Ormož and Slovenska Bistrica, 882 508€; Southeastern Ireland, 36.5 million€; and Western Macedonia, 80.1 million€.

Five alternatives to the baseline scenario were considered, focusing on demand-side investments such as renovation and fuel switching for heating. Scenario 1 involves upgrading the building envelope, making it more energy efficient, differentiating between a deep renovation (replacing window frames, doors, walls, roofs, and floors with more efficient materials) and a medium one (limited to window frames, doors and walls). Scenario 2 involves installing heat pumps. Scenario 3 involves creating nearly zero-energy buildings (NZEBs), combining building envelope refurbishment with heat pumps and photovoltaics. A distinction was again made between deep and medium renovation within Scenario 3. The outcomes of applying the SCBA tool to the different regions are presented below, grouped by subgroup.

Regions where natural gas predominates

In this case, Scenario 3 with medium renovations yielded the best results, with the highest social NPV. This shows that long-term policies with higher upfront costs deliver greater benefits over time, through lower energy consumption, greater use of renewables, and lower energy costs. Installing heat pumps alone is not beneficial because natural gas is cheaper than electricity. Fossil fuel investments are also not beneficial, particularly in Liguria, where one-third of households using natural gas already have highly efficient gas boilers. The baseline scenario is the least costly intervention and therefore achieves the widest household coverage, making it politically attractive. However, this assumes that no subsidies are taken into account. Subsidies promoting energy efficiency and renewables can significantly affect intervention costs and thus household coverage.

_{Figure 1. Results in Asturias and Liguria.} 

Regions where heating oil predominates

In this case, Scenario 3 again yielded the best results, with the highest social NPV. This aligns with the view that more costly interventions aimed at long-term improvements deliver the greatest societal benefits. As with regions dependent on natural gas, this leads to lower energy consumption, greater use of renewables, lower energy costs, and additional health benefits, since heating oil has higher externalities and is more polluting. Again, installing heat pumps alone does not yield significant benefits because heating oil is relatively cheap. Fossil fuel investments are also not beneficial in this case, mainly because of the lower price of heating oil and its limited health improvements compared to other fuels. Even so, such short-term, low-cost policies can reach a large number of households. In fact, since few households have gas boilers, introducing them would achieve wide coverage at low implementation cost.

_{Figure 2. Results in Southeastern Ireland and Western Macedonia.}
 

Regions where biomass predominates

In this case, the baseline scenario yielded the best results. This is due to the high externalities associated with biomass. Biomass was assumed to cause greater societal harm, based on previously cited studies. Gas boilers are considered more efficient and less harmful than biomass. These two regions are mountainous, not well connected to a gas grid, and still rely on burning wood as biomass. Burning this fuel is highly inefficient and releases harmful substances. In addition, these regions are not connected to a renewable electricity grid, which entails very high upfront costs and long implementation timelines. Thus, in this case, rolling out efficient gas boilers results in lower energy expenditures, wider household coverage, reduced energy consumption, and greater household connectivity and independence. This illustrates how idealistic proposals, such as renewables requiring high connectivity and large upfront costs, can clash with the sociotechnical realities of these regions. Lastly, these two regions had relatively low budgets, which severely limit the long-term effects of more costly policy measures, as household coverage becomes minimal.

_{Figure 3. Results in Ormož, Slovenska Bistrica, and Medjimurje.}
 

Conclusions
 

The SCBA tool aims to provide policymakers at all governance levels with an easy-to-use method for quantifying and comparing different measures and policies, considering not only financial but also societal impacts. The tool was applied in this case to six EU regions, each with distinct characteristics and yielding different results. The analysis demonstrated the societal benefits of long-term renovation measures. These involve fully refurbishing the building envelope together with energy efficiency and renewable appliances. However, the tool also showed that long-term, costly interventions require significant budgets to achieve positive impacts and broad household coverage.