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• In 2017, renewable heat used in residential buildings in AT and CH was 48% and 30% • Renewable heat must be increased by 131% in AT by 2040 and 210% in CH by 2050. • Public subsidies contributed to 51% and 36% of total heat savings in AT and CH. • AT relies more on public subsidies and has a lower cost-effectiveness of policies. • CH obtains similar heat savings with eight times lesser public subsidies. Reducing heat demand and decarbonising heat supply are essential if countries have to meet net zero emission targets. This paper presents a comparative assessment of the impact of energy efficiency polices for heat demand reduction and heat decarbonisation in the buildings sector (2000–2017) in Austria (AT) and Switzerland (CH). It assesses the heat demand, heat supply, effect of different factors on changes in total heat consumption, impact of energy policies that provide public subsidies for heating and compares the effectiveness of different policies and measures. The assessment shows that renewable heat supply in residential buildings has to be increased by about 150 PJ (130% increase from 2017) in AT by 2040 and by 120 PJ (210%) in CH by 2050, which is challenging. Energy savings from improvements in energy efficiency from 2000 to 2017 are 83 PJ in AT and 97 PJ in CH, but these are largely offset by increase in activity and wealth effects thereby resulting in small changes in final heat consumption. The average (2014–2017) annual public subsidies for heating were about 2500 million Euros and 310 million CHF and contributed to 51% and 36% share of energy saving in AT and CH respectively. Both countries achieved similar energy savings, albeit following different policy approaches. Public subsidies for heating are an important policy instrument in AT but have lower cost effectiveness. On the other hand, CH minimised the use of public spending by deploying other policies and funding measures that leveraged private investment to achieve similar energy savings. [ABSTRACT FROM AUTHOR]