Key organizations worldwide are recognizing the potential for buildings to contribute to lowering energy consumption and carbon emissions.

• The Intergovernmental Panel on Climate Change (IPCC) dedicated a chapter to residential and commercial buildings in its 2007 report, noting that energy efficiency “encompasses the most diverse, largest and most cost-effective mitigation opportunities in buildings.”[1]
• The Commission for Environmental Cooperation (CEC) released a North American report in spring 2008 revealing that buildings (including both commercial and residential) are responsible for 33% of all energy used and 35% of greenhouse (GHG) emissions in Canada.[2]
• The World Business Council for Sustainable Development (WBCSD) has initiated a project dedicated to Energy Efficiency in Buildings: Business realities and opportunities.[3] It recognizes that commercial buildings represent 13% of the world’s energy demand and despite the availability of new technologies and practices to increase energy efficiency, few are being implemented to scale.

Within Canada, the need for an enhanced climate change policy agenda including energy efficiency was recognized by the Government of Canada in April 2007 in its Turning the Corner Plan[4] and its Regulatory Framework for Air Emissions[5]. The actions contained within these plans commit Canada to GHG emission reduction targets of 60%-70% below 2006 levels by 2050, and to increased stringency of minimum energy performance standards for select energy-using products and indoor air quality standards. The Council of Energy Ministers recognizes that economic growth will continue to put upward pressure on the demand for energy in commercial buildings. In 2007, ministers agreed that energy efficiency and conservation have the potential to reduce energy demand in Canada by an amount equal to almost 25% of today’s energy use by 2030.[6] The Council states that: “Governments can play a vital role in advancing energy efficiency, as investors in programs that stimulate actions, and as policymakers and regulators who help shape the marketplace and reduce barriers to action.”[7] Despite widespread recognition that energy efficiency has the potential to greatly reduce energy use and related emissions, a comprehensive policy roadmap has yet to be developed for the Government of Canada. There is a need for a comprehensive set of long-term, action-oriented recommendations for achieving the emission reduction target of the commercial building sector. This report identifies a policy package for advancing energy efficiency in the commercial building sector by identifying and addressing technology adoption barriers, and provides long-term analysis for policy makers of the sector’s potential impacts on carbon emissions. The policy recommendations focus on end use emissions, rather than those generated from energy production. This report provides a high-level analysis of the effectiveness of policy instruments in promoting energy efficiency in commercial buildings, and offers direction for establishing a long-term strategic plan for emissions reductions from the sector. It does not contain a full cost-benefit analysis of all policy recommendations and does not outline the details of program design for their implementation. If adopted, the recommendations contained in this report will result in long-term policy certainty for industry, which is crucial for making investment decisions. The following information is included in this report in order to develop a realistic and achievable policy pathway:

• The current energy performance of the sector;
• The main drivers for and barriers against investment in energy efficiency;
• Best practices for monitoring and evaluating energy efficiency policies;
• International trends in energy efficiency policy development; and,
• Recommendations for the Government of Canada to increase the energy performance of commercial buildings.

1.2 THE SDTC-NRTEE PARTNERSHIP

Sustainable Development Technology Canada (SDTC) and the National Round Table on the Environment and the Economy (NRTEE) have collaborated to recommend a long-term policy framework with specific, sequenced steps for advancing energy efficiency in Canada’s commercial buildings. This is the first collaboration between the two organizations and is indicative of a growing need to break down government silos in order to successfully meet the climate policy challenge. The work contained in this report builds on past research by the two organizations and provides joint recommendations for federal policies to increase the uptake of energy efficiency technology in the commercial building sector. The NRTEE was established in 1988 by the federal government “to play the role of catalyst in identifying, explaining and promoting, in all sectors of Canadian society and in all regions of Canada, principles and practices of sustainable development.”[8] It has evolved as a credible organization for government policy recommendations related to climate change due to its ability to balance and integrate diverse stakeholder perspectives based on objective research. The SDTC Technology Fund was established in 2001 to act as the primary catalyst in building a sustainable development technology infrastructure in Canada. To date, SDTC and its partners have invested over $1 billion in the Canadian clean-tech market, giving it the financial presence to drive real and significant gains in the market. In 2006, the NRTEE released a report titled Advice on a Long-term Strategy on Energy and Climate Change. The report’s objective was to analyze the feasibility of the government’s commitment to reduce GHG emissions by 60% below 2006 levels by 2050. It identified energy efficiency as a key “wedge” for achieving reduction targets, as shown in Figure 1. FIGURE 1 [9] NRTEE GHG Reduction Wedge Diagram The top-line, business-as-usual (BAU) scenario for the commercial building sector was 127 MtCO2/year in 2050 and the emissions reduction target set for the commercial sector was 58% below BAU, i.e. 53 MtCO2/year in 2050. [10] The breakdown of emissions reductions was outlined as follows:

• 22% from existing building retrofits and energy management;
• 20% from integrated building systems for energy efficiency in new buildings; and,
• 16% from electrical efficiency in lighting and equipment.

The NRTEE recommended that further research be done to examine the feasibility of developing and implementing new policies for each sector to achieve reduction targets. This report represents the first sector-level study conducted to test the findings of the 2006 publication. In 2007 the NRTEE released its report Getting to 2050: Canada’s Transition to a Low-emission Future, which recommends that a carbon price signal be applied in Canada to achieve the government’s emissions reductions targets. Findings from the report indicate that other market failures and barriers reduce responsiveness to price signals in the building sector, and therefore complementary policies and regulatory measures are required in order to reach its emission reduction potential. This conclusion instigated the development of this report. SDTC released the fifth in a series of SD Business Case™ reports in fall 2007 on investment priorities for sustainable technologies in commercial buildings. The Eco-Efficiency in Commercial Buildings report highlights where investments should be made in emerging sustainable technologies in the commercial sector. An industry vision was developed based on stakeholder consultation, including a target of 35.7 MtCO2e/year in 2030. The model projection for the BAU referenced by SDTC was 109.7 MtCO2e/year in 2030; therefore, the industry vision indicated a possible reduction of 74 MtCO2e/year (68%) below the BAU scenario by 2030. The SDTC report also identifies a number of critical non-technology issues and market barriers that need to be addressed. These relate to the need for supportive policies, codes and standards, and methods of practice that will help the financial community make more informed investment decisions, and help Canada achieve its economic and environmental objectives. The needs identified by the 2007 SD Business Case™ are listed in Table 1 and they serve as a starting point for the research and analysis in this report. TABLE 1: Non-technical Needs for Increasing Eco-efficiency in Commercial Buildings Based on the fact that this report stems from the intention to gauge the feasibility of the 2050 Government of Canada targets and the sectoral projections identified by the NRTEE in 2006, the target referenced in the proceeding sections is 53 MtCO2e per year by 2050. However, the aggressive industry vision identified by SDTC is not overlooked, and this report also assesses the impact of public policy on achieving it. Figure 2 illustrates how this report reinforces past research by the two organizations and will fill a gap in sector level policy recommendations to increase technology uptake and reduce carbon emissions from commercial buildings. FIGURE 2: Positioning the SDTC-NRTEE Collaboration

1.3 Purpose

The purpose of this report is to provide federal level policymakers with a time-sequenced policy pathway and implementation framework for increasing energy efficiency in Canada’s commercial building sector. More specifically, the key project objectives are threefold:

• Identify technology adoption barriers that have led to a gap in energy efficiency technology deployment in the commercial building sector.
• Recommend policy options that will increase investment in, and adoption of, energy efficient technologies in the commercial buildings sector.
• Create a time-sequenced pathway for federal policies to address identified barriers in the commercial building sector in an economic and environmentally efficient manner.

1.4 Project Scope

For this report, commercial buildings are defined as structures that are used, in all or in part, for activities focusing on the exchange of goods and/or services for a profit. Examples of commercial buildings are stores, office buildings, restaurants, hotels, stadiums and warehouses. Buildings in which 50% or more of floor space is devoted to commercial activities are considered commercial buildings.[11] Institutional buildings are defined as structures that are used, in all or in part, for activities focusing on not-for-profit services in the public’s interest. Examples of institutional buildings are schools, hospitals, group foster homes, buildings used for religious worship and courthouses. Buildings in which 50% or more of floor space is devoted to institutional activities are considered institutional buildings.[12] For the purposes of this report the term commercial buildings is used to refer to both commercial and institutional buildings. Buildings of all sizes are considered in the research, from both rural and urban environments. Industrial buildings and multi-unit residential buildings are excluded to remain consistent with the definition used by Natural Resources Canada (NRCan). The research and analysis contained in the report focuses on the energy consumption and carbon emissions generated during the operational life of the building since more than 80 percent of energy is consumed during this phase;[13] construction and demolition phases of the life cycle are excluded. The primary focus for mitigation measures in this report is on energy efficiency, rather than on cogeneration, on-site energy generation, and renewable energy. The public policy instruments referred to in this report are deliberate acts to use regulatory, non-regulatory, and financial instruments to influence consumer and industry behaviours in order to achieve greater energy efficiency. The scope of the research contained in this report is limited to exploring policies that will influence the wider use of existing technologies in the commercial sector. It does not attempt to provide a full cost-benefit analysis of each policy instrument, but uses secondary research, stakeholder consultation, and original modelling to support recommendations. Specific program design based on such analysis falls outside the scope of this report. Figure 3 illustrates how the report focuses on the federal government’s role within a broader context. Environmental and market conditions drive the need for energy efficiency policies at all levels of government, each with different governing roles. Industry drivers are highlighted as different from the government ones, meaning that in order for policies to effectively change industry behaviour they must appeal to the primary motives of the individual companies and firms that are affected. FIGURE 3: Context for the Project Scope

1.5 Research Process

The research and analysis feeding this report is based on four major components: 1. Stakeholder Consultation: An Expert Advisory Committee met three times during the course of the project to review research, test findings, and provide advice on the project objectives and recommendations. Individual stakeholder consultations were also used to inform the process. Among those, the Real Property Association of Canada (REALpac) convened a group of commercial real estate investors to provide recommendations and comments to the NRTEE and SDTC in July 2008. 2. Data Collection: Data was compiled from a number of sources including NRCan, Statistics Canada, SDTC, and a range of Canadian and international publications. They were used to develop assumptions about the anticipated policy impacts on energy efficiency in commercial buildings for the economic modelling component of the report. 3. Literature Reviews: Research was commissioned to examine best practices in energy efficiency policy evaluation, along with international trends in energy efficiency policy for buildings. The findings were derived from a review of government reports and statistics, reports from industry associations, academic papers, and recent media articles. 4. Economic Modelling: Stakeholder consultations and literature reviews were used to develop a list of policy options for original economic modelling. The purpose of the modelling was to forecast expected impacts of the policies on energy efficiency technology deployment in Canada’s commercial buildings under four scenarios:

• The effects of a carbon price on the sector;
• The effects of the recommended policy measures on the sector;
• The combined effects of the carbon price and the policy measures; and,
• The combined effects of the carbon price and sector-wide performance regulations .

The following sections provide detailed information about the emissions generated by energy-using activities in the commercial building sector, as well as the barriers preventing adoption of energy efficient technologies, best practices for evaluating policies, and recommendations for federal policies in Canada.