Groundbreaking report: many barriers exist to building energy efficiency and carbon pricing alone is not enough

The World Business Council for Sustainable Development has just released a huge report on building energy efficiency called Transforming the Market. The report is the result of four years of hard work and a first of its kind computer model that attempts to incorporate how regulations, price signals and behavior change can affect global energy use in buildings. The report focused on buildings in the six largest building markets: Brazil, China, Europe, India, Japan, and the US.

The report reconfirms that buildings represent a vast source of low-cost investment opportunities to reduce CO2 emissions. However, much to my surprise, these investments will generally cost more than previously thought. I will come back to this point at the end of my post.
The report drives home the message that in order to capitalize on these carbon reduction opportunities, the building industry must start transforming itself TODAY.

The need for transformation
As the report notes, building energy efficiency isn’t a problem of technology. It’s a problem of scale:

Some very low-energy new homes already exist in many countries, demonstrating that our energy targets are technically achievable. But these examples show little sign of being scaled up globally. Low-energy buildings must become the norm rather than the novelty project.

The report identifies several key structural barriers that are preventing broad take-up and snowballing of energy efficiency solutions

• A lack of transparency about energy use and cost, resulting in a limited focus on energy costs by all those in the building value chain, with viable investment opportunities overlooked and installed technology not operating at optimal levels
• Public policies that fail to encourage the most energy-efficient approaches and practices, or actively discourage them
• Delays and poor enforcement of policies and building codes, which concerns all countries
• Complexity and fragmentation in the building value chain, which inhibits a holistic approach to building design and use (described in their first report)
• A lack of adequate offers today (affordable and quality energy-efficient solutions for new constructions and retrofitted works, adapted to local contexts)
• Split incentives between building owners and users, which mean that the returns on energy efficiency investments do not go to those making the investment
• Insufficient awareness and understanding of energy efficiency among building professionals – identified in EEB research published in the first report – which limits their involvement in sustainable building activity and results in poor installation of energy-related equipment.
  

I’ve come across these same barriers time and again in my China green building research, so it’s not surprising to me that the barriers are global.

The report also does an interesting case study of a multifamily housing unit in Northern China on Page 36. The authors model both a base case, where energy use triples between now and 2050, and a Transformation case, where an aggressive mix of policies and technology restricts the growth in energy use to 63%. Although the Transformation case still results in high growth of energy use, it results in a 50% reduction in emissions over the baseline case. But most importantly, this 50% energy use reduction over baseline pays for itself. The authors estimate this scenario will require an additional investment of $12bn per year, but will pay for itself with about $12bn of energy savings annually. So to me, the choice seems like a no-brainer: either aggressively implement policies that pay for themselves and result in 50% less CO2 emissions or do nothing and watch climate change rip the planet apart.

But as the report notes, it’s not a simple question of economics. Achieving the aggressive energy efficiency goal won’t be easy and will require a lot of strong policies, including:

1. Audit energy performance of apartment buildings; introduce labeling systems to provide transparency, and enforce increasingly strict building energy codes
2. Strengthen building codes and ensure adequate audit and enforcement capacity
3. Introduce heavy subsidies to achieve high performance in existing and new buildings, including significant feed-in tariffs for on-site generation
4. Require sub-metering, apartment level controls and charging according to use
5. Revise legal frameworks to overcome barriers to collective refurbishment of apartment buildings
6. Impose regulations to phase out low-performing buildings, including a requirement for zero net energy, new, low-rise buildings from 2020
7. Government authorities and other owners of social housing must act on their property portfolios
8. Initiate a mobilization campaign to motivate behavior change by owners, project developers, tenants and reinforce the message to fully establish a change in behavior
9. Educate and train developers, architects, engineers and the building trades to improve understanding of code requirements, illustrate the advantages of integrated design and alleviate concerns for higher costs
10. Promote energy service companies (ESCOs) as effective energy managers for building owners, especially public housing authorities
11. Promote onsite renewable generation for all new low-rise buildings
    

It’s not clear that China can find the political will to implement all these policies and get to the Transformation level. But at least this case study provides yet more evidence that he Chinese government should undertake these policies knowing that both the economic case is pretty solid. Again, the overall economics are not the problem; rather it is the many structural barriers listed above.

Building energy efficiency isn’t free
One of the more surprising conclusions of the report was this idea that building energy efficiency investments will cost more than many (me included) assume.

The authors divide the investment into three batches: those with paybacks of 5 years or less, those with paybacks of 5-10 years, and those with paybacks of more than 10 years. The authors suspect that there are about $150 billion worth of annual investments with paybacks of less than 5 years that will result in 40% carbon reductions by 2050. There is also about $150 billion worth of annual investments with paybacks of 5-10 years that will result in an additional 12% carbon reduction, totaling 52% below business as usual. The authors do not calculate a figure for investments with paybacks over ten years. As I’ve mentioned before, I have a problem with payback period, but this is still interesting to see so many good investment opportunities with less than 10-year paybacks. When energy savings are added to the ~$300bn in investment
shown above, this results in a net annual cost of about $250bn.

The authors also note that despite this relatively large cost number (1.5% of global GDP), building energy efficiency investments have much better economics than carbon reduction opportunities in other sectors. Building energy efficiency can also be implemented immediately and creates jobs, further lowering the net overall cost.

A carbon price alone won’t be nearly enough
As the report notes:

EEB modeling shows that increasing the price of energy or carbon will only slightly increase the implementation of energy-efficient options. In fact, reductions would only marginally increase from 52% at today’s energy prices to 55% with an incremental carbon cost of US $40/ton.

This fits very well with my earlier analysis showing that at current carbon prices, the CDM or other carbon price only gives a 20% sweetener to energy efficiency investments, probably not enough to make a whole lot of difference.

This unfortunate fact means that mere passage of a cap and trade bill will not be enough to get us to where we need to be. It also reinforces a statement made by Michael Hoexter, author of the indispensable Green Thoughts blog:

The premise of carbon pricing as a complete climate solution, as opposed to “command and control” regulation, is that regulators and the designers of a carbon pricing do not know the technological solutions to reducing carbon emissions, in keeping with the monetarist/free market tendency to view scientific knowledge as limited in scope and not generalizable. The market becomes a “black box” that produces innovation or favorable and/or efficient social results. In practical terms this could mean that designers of the policy are thought not to be cognizant of industry inside knowledge or that no one can know what the future will bring in terms of technological development. Entering into a carbon pricing system then means embarking on a technological and economic “voyage of discovery”.

If one believes that one knows or we know at least a portion of the technological solutions to reducing carbon emissions, carbon pricing would be in many instances a roundabout solution for supporting those solutions.

We know most of the solutions needed to drastically reduce building energy use and carbon emissions. I’ve blogged about many of them, including improved insulation, combined heat and power, and integrated design. Most of them are fairly mature technologies or processes and most are fairly low-cost. The issue is the many barriers to implementation listed above. Therefore, a carbon price alone will not be enough to access all of the emission reduction opportunities the built environment has to offer.

As the WBCSD says, “building professionals, owners and users do not grasp the urgency and remain unmotivated to act.” Governments and citizens need to start motivating these actors to achieve energy savings and emission reductions in the built environment.

More on Ministry of Construction’s Three Star Rating System

One of the hardest parts about studying green buildings in China has been the difficulty of finding accurate, publicly available information on green building policies. Nowhere has that been more true than with the Ministry of Construction/ Ministry of Housing and Urban Rural Development Green Building Evaluation Standard, or “Three Star System”.

I was lucky to get the English translation of the Three Star System that I previously posted. This has been my most popular post to date, so I’m following that up today with a presentation that should shed more light on the Three Star Rating System.

Gunnar Hubbard, a LEED expert and Principal at Fore Solutions, recently gave a great presentation at a green building event at the Canadian Embassy in Beijing detailing the differences between Three Star and LEED. I’ve embedded that presentation below.

Gunnar Hubbard- LEED vs Three Star Green Building Rating Systems

View more presentations from geoff848.

On slide 22, Gunnar notes that the growth of LEED registered projects in China and Dubai far outpaces any other non-US country. China has nearly 150 LEED registered projects and about 20 LEED certified projects.

According to statistics from my advisor Borong Lin, associate professor in Tsinghua University’s Department of Building Sciences, China has only 10 buildings certified under the Three Star Rating System. But growth is strong: there are between 50-100 buildings going for certification this year.

Professor Lin says that the government is currently drafting a regulation that will require all new government buildings to achieve at least a 1-star rating. The government will also be drafting a list of incentives for developers who pursue certification. These incentives will include tax breaks, lower interest rates and preferential financing, and increased Floor-to-Area Ratio incentives. All of these incentives will bring down the upfront cost premium for Three Star buildings, currently about 2% for 1-Star all the way up to 10% for 3-Star. Both of these policies are expected to be unveiled next year. This is great news, and these steps are exactly what I advocated for in my Bottom Up Approach.

Pegging incentives and regulations to Three Star will be a huge driver for growth in the number of buildings seeking certification. One of the big reasons so many buildings in the US have pursued LEED is because municipalities and states have pegged their policies to LEED. As China increasingly pegs their policies to Three Star, expect to see more buildings pursuing this system. I would also expect that any Chinese building seeking LEED will also seek Three Star. This dual certification ensures the best of all worlds: an international, third-party certification that appeals to multinational tenants as well as a local certification that allows for accessing of green building incentives and helps drive market transformation.

Professor Lin captured the interplay between LEED and Three Star with a great metaphor: LEED and Three Star are like two climbers taking different paths to the top of a mountain. LEED already has already started trekking up the mountain, and Three Star has been able to learn what worked and what didn’t work by watching LEED's path. Both hope to get to the top, but it isn’t a race. There is room for everybody at the top, and hopefully they can help each other out on the way. The important thing is that they reach the top of the mountain. As Gunnar notes on Slide 5, the goal of ALL rating systems is market transformation. Hopefully the Three Star Rating System will reach the top of the mountain soon and achieve the goal of transforming the real estate market in China into a greener, healthier place.

Green jobs in China’s built environment

Green jobs are hot. The idea of green jobs - family-supporting jobs that contribute significantly to preserving or enhancing environmental quality - has gained significant traction in America over the last two years, culminating in President Obama’s appointment of green jobs guru Van Jones to Special Advisor for Green Jobs, Enterprise and Innovation.

While the concept hasn’t been as hot in China, the opportunity for green jobs is massive. This post will explore the opportunities for green jobs in China, particularly those in building energy efficiency.

Unemployment in China
Despite China’s strong growth over the last quarter century, many Chinese across the age and skill spectrum still have trouble finding good jobs. In this blog post, I will focus on two particular types of people having trouble securing good jobs, migrant workers and recent college graduates.

Migrant worker unemployment
The global economic crisis has hurt Chinese migrant workers particularly hard. 20 million migrant workers have lost their jobs since the start of the downturn, nearly 15% of the total migrant labor pool. Many of these migrant workers were employed in factories in the Pearl River Delta region or in the construction trades throughout the country. These migrant workers are generally untrained and have limited skills, with one study (PDF) indicating that less than 20% of migrant workers have received any type of training. The government is worried about the potential for these large numbers of unemployed migrant workers to cause social unrest.

Youth unemployment
But it’s not just low skilled migrant workers. youth in China also face severe employment pressure. In fact, youth account for a majority of the unemployed: over 70% of the unemployed are under 35, according to an academic study (PDF).

And while a college degree certainly improves the chance of finding a job, only 70% of college graduates find jobs upon graduating. This means that nearly 1.5 million college graduates failed to find jobs in 2008.

Greening the Built Environment
Greening the built environment is a huge opportunity to find employment for both of these groups and many others. As I’ve mentioned time and again in my blog, the Chinese built environment is extremely inefficient, but many low-cost solutions exist to make it much greener. Implementing these solutions will require significant manpower, particularly from migrant workers and college graduates. In this post I will profile two possible solutions, but many, many more opportunities exist for the creation of good green jobs that simultaneously lift Chinese people out of unemployment and poverty and result in a greener, healthier built environment.

Retrofitting poor insulation
As I noted in my post on China’s inefficient heating systems, Chinese buildings have extremely poor insulation:

As the results of the Asia Business Council expert interviews above show, the primary factor affecting a building’s heating load is the building envelope and the insulation it provides between the interior of a space and the outdoor environment. The worse the insulation, the more energy transfer between the indoor and outdoor environment. When it’s cold outside, this means the cold air comes in, and the hot air goes out, resulting in a lot of wasted energy as well as occupant discomfort. As the graph below shows, insulation in Beijing (and the rest of China) is significantly worse than the developed world’s, and allows much more heat (in the form of energy) to escape to the outside.

Graph based on data from Chinese Academy of Building Research

My anecdotal evidence backs this up: I can feel the cold when I put my finger against the glass of almost any window in Beijing, even in high-end apartment buildings. One major exception thus far was the Linked Hybrid, which as I mentioned here, focused on high-quality insulation. Investing in improved insulation is a win-win-win, resulting in higher thermal comfort for occupants, and less energy use and GHG emissions at low cost. Insulation works “year round”, in the sense that improved insulation reduces heating energy use in the winter, but also reduces cooling energy use in the summer. This is really important, since as we can infer from the LBL graph above, in addition to the southward creep of space heating units, there is also a northward creep of air conditioning units. Maybe the best part about investments in insulation is that they are also a win financially. As the McKinsey global GHG abatement cost curve below shows, investments in insulation are one of the lowest cost sources of carbon emission reductions available.



In that post, I also noted that improved insulation is a win-win-win: more thermal comfort; less energy use and CO2 emissions; and a low cost that quickly pays for itself. And because upgrading all that insulation requires significant hands-on labor, we can add yet another win: green jobs.

Improving insulation is straight out of Van Jones’s playback. He is well known for saying inner city youth should “put down those handguns and pick up those caulking guns” and start saving energy by improving insulation in buildings.

Putting some of the 20 million migrant workers (many of who were in construction trades before) into retrofitting building insulation would be a great way to simultaneously increase employment and reduce energy use and CO2 emissions.

Poor code compliance
As I described in my post on the Top Down Approach, compliance with Chinese building energy codes is dismal:

As the data shows (PDF), compliance with energy codes in China is poor throughout the country. The disparity between design and construction compliance also shows the willingness of developers to “cheat” when faced with the perception of increased costs. Given that many Chinese building dont even currently comply with mandatory building energy codes, it seems unlikely that these developers and owners will be willing to voluntarily take the jump to green buildings.

Therefore, the Chinese government must step in and force these laggard developers to improve their energy efficiency. The current mandatory building energy code, which mandates 50% savings over 1980 levels for new buildings, is a good start. But now the hard work of actually enforcing this code must begin. Several US groups, including NRDC and the US DOE Pacific Northwest National Laboratory,are working with Chinese government to help them develop the capacity needed to enforce the codes.

One of the big reasons buildings don’t often comply with building codes is that MOHURD (formerly MoC) doesn’t have enough employees to check every building. Certifying and establishing energy use levels for the millions and millions of Chinese buildings will require significant skilled manpower. As the NRDC notes in their recent strategy paper on US-China cooperation on climate change,

In China in particular, this new paradigm [stopping climate change] will also require heavy investment in effective environmental enforcement, including accurate environmental monitoring and reporting, well-trained environmental regulators and enforcement officials.

As part of this program, Kevin Mo, the director of NRDC’s China Sustainable Building program, will be lobbying the Chinese government to expand their hiring and training of building energy code certifiers. And who are the likely candidates to fill these jobs? Ideally, the many unemployed Chinese college graduates. Most will lack the specific skills needed for these jobs, but have the necessary capacity to learn these skills. The government will then provide the specific skills training and the jobs. In this way, young Chinese will be able to find good jobs and help reduce energy use in the built environment at the same time.

Efficiency is WIN-WIN
In addition to being the largest source of cheap carbon emission reductions, building energy efficiency is also the largest source of good green jobs. The UN’s International Labor Organization notes that:

The great majority of efficiency measures, especially in the building sector, show positive employment and economic effects. A study undertaken in 2000 by the British Government concluded that, for every $1.4 million (€1 million) invested in residential energy efficiency, 11.3–13.5 full-time equivalent (FTE) jobs were created. Half the economic potential for efficiency gains in buildings is located in developing countries, but no data on existing or potential jobs are available for that part of the world.

Given how inefficient Chinese buildings are, it will take a lot of manpower to fix them up. China should embrace the built environment as the best place to simultaneously reduce carbon emissions and create green jobs.