Financing Energy Efficiency in Buildings - Paris, 11 December 2017
It is almost 70 years since the Universal Declaration of Human Rights was adopted by the United Nations General Assembly in Paris. Towns and cities around the world have changed dramatically since then, but those fundamental rights have not, including the right to own property, the right to an adequate standard of living and the right to freedom of movement.
With the population expected to reach almost 10 billion by 2050, the challenge of preserving and enjoying those rights will also grow.
Already, the demand for buildings to providing affordable homes, jobs and services has never been greater. Yet a quarter of the population lives in slums and informal settlements. Latin America and the Caribbean could need up to 50 million homes. Asia is expecting 120,000 people to move to cities every day. And Africa’s urban housing is likely to triple.
Unfortunately, that means the need to reduce related pollution and energy use has also never been greater. Because the construction, operation and demolition of buildings are responsible for over a third of all carbon dioxide emissions, energy and material resources, and waste products.
It represents a significant proportion of the targets for the Paris Agreement, the Sustainable Development Goals and the New Urban Agenda. And, it is both a threat and an opportunity in equal measure, but technologically and economically viable solutions can tip it in our favor.
The fact that energy use per square meter continues to improve at a rate of about 1.5% is encouraging. But the surface area is increasing at 2.3% far outstrips those benefits. So, new buildings must address social, economic and environmental needs, as much as the needs of the people using them.
The benefits of retrofitting solutions are clear, which is why the European Commission wants to improve energy efficiency by nearly a third by 2030. For example, France aims to cut housing energy use by nearly 40% by 2020. This needs 500,000 renovations a year and creates a potential financing market of nearly €6 billion. Through the ELENA initiative, public-private partnerships used €110 million from the European Union to trigger €4 billion of investment. That means schemes like the Picardie Renovation Pass can cut energy use in half. Young families, like the Ilics, or retirees, like the Lamberts, can live in healthier homes with lower fuel bills. And nearly 3,000 local workers can be supported.
Such investments are worth making and worth scaling up rapidly. But we can achieve even better results without the extra cost of retrofitting, with the right planning, partnerships and policies. They can focus on the health and well-being of residents and workers, while considering the full lifecycle of materials, design, operations, and their surrounding ecosystems and infrastructure.
After all, more than 100 major cities have signed up to the BreatheLife campaign, which will improve air quality for more than 150 million people. So, it would make no sense to use insulation that reduces heat loss, but increases respiratory disease. Though it would make a lot of sense to integrate solutions that achieve everything we need and still deliver a profit for business. For example, today there are 900 million air conditioning units and by 2050 there will be 2.5 billion. If all units on the market offered the same price and performance as the most efficient products already available today it would be like switching off 2,500 power plants and saving around 100 billion tons of carbon dioxide.
With opportunities on that scale, profit doesn’t have to be a dirty word. It can be a sign that market forces are driving the production and consumption trends to support the transition to a more inclusive, green economy.
However, numerous barriers must be overcome to scale up and accelerate that transformation - not least changing the traditional views of what a return on investment looks like.
I read a Paris Match interview from with the architect, Vincent Callebaut, which sums up the problem. He said is often asked why he uses renewable energy so much in buildings abroad, but not in France. His answer was simple. The cost of construction here is based on the deliver price, which can be 20-30% more expensive with renewable energy. It doesn’t reflect energy savings of 50-100% over the next ten years, which would put a very different perspective on the budget.
The right policies and financial mechanisms can help break those barriers. They can encourage well-designed lending, investment and insurance strategies that decarbonize global building stock, move us towards the climate targets and, crucially, still turn a profit. But we still need to redefine the timescales by which we measure our returns to really drive that transformation.
Even so, around $1 trillion a year needs to be invested in climate-friendly infrastructure and energy efficiency. And a great deal of that is commercially attractive, even without subsidies.
Already, $300 billion a year is invested in renewable energy, which accounts for over half of new power generation capacity globally and more than 90% in Europe. But many of the economic and environmental gains are then wasted through inefficiency.
Stemming that loss will not only boost economic growth, it will accelerate the need to add new capacity in the first place. In fact, The International Energy Agency identifies energy efficiencies that could boost cumulative economic output by $18 trillion, which is more than the total outputs of the US, Canada and Mexico combined.
So, just as investment in renewable energy has increased six-fold in a decade, the same is must be done for energy efficiency. The biggest untapped opportunity to do that is in the buildings sector, which already accounts for 80% of Europe’s investment. In fact, the global energy efficiency investment market is worth $230 billion a year. As we plan to invest some $37 trillion in energy projects and over 60% of the urban infrastructure anticipated for the coming decades has yet to be built, it is common sense to invest where it will can best support our efforts on sustainable development and climate change.
Already, 132 nationally determined contributions that mention buildings, equipment or codes. But, while voluntary building certification is becoming more common, very few countries have specific policy measures or projects, mandatory energy codes or the institutional capacity to enforce them.
However, as Mr. Callebaut points out at the end of his interview: “We are arriving at a moment when all the players in the sector really want to take action. It is no longer a question of thinking about the city differently, but of building it differently. Starting now.”
So, we can do three things to support that.
First, we can to build on the Energy Efficiency Financial Institution Group’s work on de-risking energy efficiency investments. A lack of experience among financial institutions means the perceived risk of investing in energy efficiency is often higher than the actual risk. We need to spread the word that benchmarking 10,000 energy efficiency projects proved the investment pays off - often with short pay-back periods.
Second, we can make energy efficiency a standard element of all mortgages, financing for new generating capacity and industrial upgrades. EIbrahim Thiawveryone refurbishing or building a home should be able to access a mortgage that reflects the level of energy efficiency.
And third, we can better inform and coordinate the fragmented buildings and construction sector behind common objectives. The 100 partners of the Global Alliance for Buildings and Construction are helping with this. As the UN Environment is the Secretariat, I would like to thank all the partners - particularly the French Government - for their generous support.
The country that raises its national flag as a tribute to “Liberté, égalité, fraternité” is as perfect a setting to celebrate the Declaration of Human Rights as it was to adopt them. Especially given the role of the Paris Agreement at the heart of the 2030 Agenda for Sustainable Development: an agenda that reasserted a universal commitment to basic rights like safe housing and decent working condiIbrahim Thiawtions and that promised to leave on one behind.
And, ultimately, that’s what this is about. Not investment opportunities, energy efficiency or beautiful buildings, but the people of every age, faith, gender and culture, who count on us to provide a suitable and affordable home for their family.
When you realize that, you also realize that the real power of the Declaration of Human Rights is the power of ideas to change the world.
Right now, that power is in our hands. How we use it is up to us.