In the Grand Duchy of Luxembourg, the residential building sector is a major energy consumer and greenhouse gases emitter that is considered key in achieving the country's climate goals. The purpose of this paper is to assess the effectiveness of the most important policy instruments in achieving savings in the final energy consumption and direct CO2 emissions of Luxembourgish households. Our study is based on the LuxHEI model, which is an enhanced and upgraded version of the well-known French simulation model Res-IRF. This variant has been adjusted to the particular problems of a small country with growing economy and a quickly increasing population. The LuxHEI model goes beyond standard energy-economy models by incorporating global warming as a decision-making factor. The model outcomes reveal that total environmental and economic effectiveness increases if energy policy tools are applied concurrently. In 2060, and compared to the no-policy baseline scenario, the most aspirational policy mix enables energy savings of 42% and an emission mitigation of 60%. From our results we can draw the following policy implications: for a significant improvement of the sector's energy efficiency and sufficiency, (1) the implementation of a remediation duty for existing buildings and (2) the tightening of the performance standards for new constructions, (3) combined with a national carbon tax, are crucial.