Energy efficiency measures can deliver financial benefits to public budgets through both increased income and decreased expenses. Local governments can directly reduce operational costs by implementing energy efficiency measures, which lead to energy savings, and therefore less spent on energy bills. Furthermore, Governments can achieve increased income through sales tax on more valuable energy efficient products and services, as well as increased real estate tax on more valuable energy efficient buildings. Governments also receive indirect financial savings through reduced social welfare expenses spent on energy subsidies.

Studies from countries including Germany, Mexico and United States demonstrate the benefits and costs to public budgets of energy efficiency policy.1 Whether by reducing government expenditures on energy or by generating increased tax revenues through greater economic activity and/or increased spending on energy efficiency-related goods and services, energy efficiency improvements can have important impacts on the budgetary position of national and sub-sovereign entities. An important impact on public budget is on reduced fuel costs for heating, cooling and lighting, a budget line that is expected to increase over time as energy prices rise.

Energy efficiency policy influence on public budgets

Public budget area Impact
Sales tax revenue from sales of energy efficient products and services Income
Sales tax revenue from other goods when crowded out by energy efficiency Income
Initial costs of public investment in energy efficiency products and services Expense
Expenditures on health, social welfare and unemployment benefits Expense
Revenues from real estate transactions if properties become more valuable Income
Expenditures on public sector energy consumption Expense
Energy subsidies to final consumers Expense
Energy excise duty, emissions trading and carbon tax revenues Income
Sales and income tax revenues from sales fo goods and services Income
Public investment in energy supply infrastructure and subsidies Expense

Accounting for financial benefits can achieve macroeconomic impacts

One of the greatest impacts overall is the reduced budget for unemployment payments when energy efficiency policies lead to job creation. Public budget impacts are thus closely linked to macroeconomic impacts. Although most governments have developed methodologies to estimate the costs and benefits of a policy to the public budget, the full range of public budget benefits are rarely estimated. This broader range of benefits can multiply the calculated value to the public budget by two or three times.

An initial evaluation of the value of energy efficiency in buildings to the European public budget, estimates USD 41 billion to USD 55 billion (EUR 30 billion to EUR 40 billion) in benefit excluding tax and unemployment savings. Adding tax revenues and reduced unemployment payments increased the benefit of energy efficiency in buildings to USD 91 billion to USD 175 billion (EUR 67 billion to EUR 128 billion) for European public budgets.

Reduced energy demand can create long-term savings for governments

Mexico, for example, is undergoing a market transformation from an analogue to a digital signal for television broadcast in approximately 12.6 million households. The existing, less efficient analogue cathode ray tube (CRT) televisions would need a new digital set top box (STB) to continue to work with the new digital signal. To address this situation, the Mexican government decided that instead of subsidising digital STBs and adding a new source of energy demand (18 kWh annually per STB), it will be giving away 14 million new LED televisions to low-income households. The LED televisions are on average 60% more efficient than standard CRT television models.

The Mexican government projects that the USD 102.4 million (MXN 1.76 billion) spent on new LED televisions is expected to be recovered through avoided electricity consumption worth USD 93.1 million (MXN 1.60 billion) and federal government saving in energy subsidies of USD 216.9 million (MXN 3.73 billion).2

Comparison of annual expenses by households and Mexican government with analogue television and decoder versus digital television


Governments can achieve their own benefits leading by example

In Massachusetts, the “Leading by Example” programme was developed to ensure that state-owned and operated facilities would provide leadership to the market by implementing energy efficiency, practicing energy conservation, reducing greenhouse gas emissions, using renewable energy, and practicing water conservation. The programme sets aggressive targets for facilities owned and operated by Massachusetts and provides technical assistance, guidance and grant funding to achieve the targets. The programme has been tracking progress in improvements with a state portfolio of over 3 000 vehicles and 8 million square metres of buildings, and has seen an annual reduction of public energy expenditures alone of USD 42 to 59 million compared to business as usual in 2014.

Reducing public sector energy costs

In 2006 the city of Lviv (Ukraine) launched a monitoring and targeting programme for energy, including natural gas, district heating, electricity and water consumption in 530 public buildings. Targets for monthly utility consumption are determined annually, based on historical consumption (with the possibility to negotiate an adjustment in cases of foreseeable change in consumption patterns).

Utility use is reported monthly and reviewed against the target; deviations spotted are acted upon immediately. An interesting feature is that the performance of buildings is communicated to the public through a display campaign.

The programme reduced annual energy consumption in Lviv public buildings by about 10% and tap water consumption by about 12%, translating to an estimated net savings of USD 1.2 million (UAH 9.5 million) as of 2010. These significant savings have been achieved with minimal investment and recurring programme costs. A crucial initial condition for the programme was that most of the city’s public buildings were already metered for energy and water consumption. Also, the city had been collaborating with international aid programmes for municipal energy since the late1990s.3

  1. Kuckshinrichs, Kronenbergand Hansen, 2013; Prognos, 2013

  2. IEA, Energy Efficiency Market Report, 2015. Available online:

  3. EECI and ESMAP (Energy Sector Management Assistance Program) (2014), Good Practices in City Energy Efficiency: Vienna, Austria (European Union) – Municipal Eco-Purchasing, published online at