Applicability of cost-benefit analysis in the EU Energy Efficiency Directive : insights from wind power

Climate change presents urgent economic, social, and environmental challenges, making efficient allocation of resources central to climate and energy policy. This thesis examined the role of cost-benefit analysis (CBA) in the European Union’s climate framework, with a focus on the Energy Efficiency Directive (EU) 2023/1791 and its energy efficiency first (EE1st) principle. The thesis explored the theoretical foundations of CBA in welfare economics, evaluated the European Commission’s recommendations for implementing CBA in major investment decisions, and assessed their alignment with established economic theory. Using wind power investment as a case example, the externalities and methodological challenges associated with quantifying and monetising environmental, social, and system-level impacts of wind power were assessed. The findings suggest that while EE1st principle and CBA may provide valuable tools for policy and planning by enabling the comparison of demand- and supply-side solutions, their applicability at the investment project level remains limited. Given the significant uncertainties in valuation methods and wide temporal and spatial boundaries related to wind power externalities, CBAs are best suited for informing policymakers rather than guiding private investment choices. Overall, the thesis concludes that further discussion is needed to determine the application of the EE1st principle in the right context and at the right decision-making level.