As mentioned in a previous blog, commercial (i.e.: office buildings, shopping centers) and residential buildings (i.e.: single family dwellings, apartment buildings) have significant environmental impacts. In the U.S., it is estimated that commercial and residential buildings consume approximately 65 percent of all electricity generated, 12 percent of fresh water supplies and 40 percent of all raw materials, as well as contributing about one-third of all greenhouse gas emissions.
In Canada, buildings generate approximately 30 percent of total greenhouse gas emissions. The Human Development Report notes that “with 0.5 percent of the world’s population, Canada accounts for 2.2% of global emissions - an average of 20.0 tonnes of CO2 per person. These emission levels are above those of High-income OECD countries. If all countries in the world were to emit CO2 at levels similar to Canada’s, we would exceed our sustainable carbon budget by approximately 799 percent”.
The potential for efficiency gains via Green Buildings is therefore huge as it reduces or eliminates the negative impact on both the environment and the occupants. Despite numerous environmental, economic and social benefits, green building represents only a small fraction of new construction.
Challenges of the current marketplace: what are the barriers?
The “2030 Challenge”, which sets targets adopted by the Royal Architecture Institute of Canada and American Institute of Architects, aim to have all new buildings be carbon neutral by 2030. Although this is technically feasible, important barriers exists which pose challenges to the targets.
Public policy at all levels of government is an important barrier but one where the most gains can me made through, for example, integrated use of building codes, zoning regulations, tax-based incentives, tax shifting, preferential treatment for green developers (such as fast-track permitting), demand-offset programs, preferred purchasing and government-supported research and development and educational programs.
The bulk of opportunities rests on the existing building stock.
Another significant policy opportunity in the United States (which can filter through to Canada) rests in the Kyoto mechanism of cap and trade. Already in the U.S. a number of public utilities are required to purchase certain amounts of renewable energy (which promotes the uptake of Renewable Energy Certificates - RECs).
Large corporations are taking notice. One of the leaders is Honeywell, which has developed a number of energy-saving technologies, helps building owners offset the purchasing price of these new technologies by the energy savings the owner will generate. This is an example of a successful flexible mechanism.
The Canada Green Building Council (CaGBC) also is aware of the huge opportunities. For example, the Leadership in Energy Efficiency and Design (LEED), and more specifically the third generation of LEED 2009, focuses on carbon markets. Although there are many critics of the LEED rating system and the U.S.GBC is working on improving the methodology, it remains a powerful tool. A more integrated strategy to get real estate developers/ owners, building/civil engineers, financial community, governments, etc., to switch-over would have to be developed. Once a strategy is developed, the next step would be to register the project(s), compile the various subsidies available, consolidate the information, and get an aggregator/player that will buy all of the small credits and sell them as one chunk to an institutional investor. The Building Owners and Managers Association (BOMA) also has a number of comprehensive programmes and the two competing but complimentary organizations should develop methods to broaden and enhance cooperation.
There would also be potential huge gains for the Montreal Stock Exchange to have “buildings” identified as one of the 17 sectors under the Clean Air Act.
The banking and financial community have a tremendous role to play as regards green mortgages, green retrofit requirements and the creation of a host of other incentives to drive the market for green buildings while pursing profitability goals.
The Bank of America has entered an agreement on carbon trading with the Chicago Climate Exchange (CCX). As an indirect emitter, the bank has entered into a voluntary but legally binding cap and trade program in order to offset its emissions from buildings (as a large building owner) and employee business travel. The objective for the bank is to buy allowances on the free market in order to be carbon neutral. A reduction schedule was established, using 2000 as a baseline, and 4 percent reduction was achieved in its first phase (2003-06). The incentive to embark on this initiative was the then-pending Lieberman-Warner bill (now dead), early action credit in a federal scheme (which was and continues to be accredited and audited), and a mindset of not if there will be a regulation but when. As a CCX manager commented during a telephone discussion: “making reductions today is cheaper than any future federal scheme”.
A carbon market minimizes the societal cost of cutting emissions by allowing entrepreneurs to find the cheapest way to curb greenhouse gas emissions.
The aggregation and quality of off-sets are important and these techniques can be more aptly deployed on the municipal level. Some key areas include direct emissions reductions, credits for transport benefits, fuel switching and proven renewable technologies usage, boiler efficiency and cooling upgrades, and finally, material substitution and improvement of building materials, including local regional materials. Private equity should be linked with construction equipment and engineering firms which will provide a better balance as regards risk management.
Many banks lack the understanding of overall benefits although some in Canada are ahead of the game, such as Vancity Bank in Vancouver and TD Bank.
The advantages for the greater uptake of green buildings can positively affect numerous industrial sectors, including cement, forestry, aluminum, and utilities (in the latter, many need to overcome their protectionist attitude).
A more hemispheric and holistic approach is required as opposed to regional standards and variations which can further erode an already fragmented carbon market. The essential elements for an effective policy and regulation as concerns the building sector would have to be determined. With the right vision, the potential rewards would be enormous.
Grace Barrasso
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