Geared for Change: Energy Efficiency in Canada’s Commercial Building Sector – Advise

For the first time, such a sectoral approach has been undertaken. The National Round Table on the Environment and the Economy (NRTEE) and Sustainable Development Technology Canada (SDTC) collaborated to develop a viable carbon emission and energy efficiency policy pathway for use in the commercial buildings sector by federal government decision makers. It addresses specific technology adoption barriers that prevent energy efficiency technologies from being instituted, tests the feasibility of applying specific emission reduction target sets to one sector of the Canadian economy and how they can be attained, and recommends focused policy instruments to achieve them. This report sets the stage for the collaborative research project undertaken by the two organizations, linking NRTEE’s policy advisory role and convening power with SDTC’s proven “clean tech” expertise and market knowledge.

In 2006, the NRTEE published a report on long-term energy use in Canada, stating that energy efficiency measures should be used to reduce carbon emissions from the commercial sector by 58% below the projected business-as-usual scenario in 2050, a target of 53 megatonnes of CO₂ emissions per year by 2050.^a In 2007, SDTC released a business case report on commercial buildings stating an industry vision for the sector of reducing emissions to 36 Mt CO₂e in 2030.^b These targets must be achieved in a context where the population is increasing and greater stress is being placed on buildings and energy infrastructures. Statistics Canada estimates that Canada’s population will increase by 10 million people between now and 2050, and it can be assumed that Canadians will continue to expect efficient, reliable, and affordable energy resources.

In order to achieve reduction targets for carbon emissions and energy use in commercial buildings as the population and the economy grow, future communities will have greater emphasis on achieving efficiency for systems as a whole, and on creating systems that are more adaptable and resilient. Energy efficiency will be maximized and smaller-scale urban energy systems located closer to and within buildings will be used. Clustered, higher density, self-reliant, mixed-use developments will help to achieve a more efficient, accessible, and affordable use of energy. Building performance will be high, and occupants will enjoy better quality air and work spaces.

WHAT DID WE FIND ?

We found a sector that is fragmented and diverse, growing and innovating, with energy efficiency technologies that can help in efforts to reduce emissions, but with technology adoption barriers embedded. Economic growth and population growth will continue to increase demand for energy in existing commercial buildings and for new buildings in Canada. As the economy becomes more service-oriented and knowledge-based, workers are moving from industrial facilities to office buildings, adding to the challenge of achieving deep absolute emissions reductions from the commercial sector.

Between 1990 and 2005, energy consumption increased by 25% and carbon emissions increased by 27% in the sector. Between 1990 and 2003, energy intensity increased from 1.69 gigajoules per square meter to 1.84 GJ/m², but by 2005 it decreased to 1.62 GJ/m², indicating improvement in recent years. Key drivers affecting energy use and related emissions included population and economic growth, extreme temperatures, and energy prices. Space heating is the primary use of energy for the sector; however, electricity consumption from auxiliary equipment is on the rise.

Canada’s commercial building sector is complex and includes a variety of building types, ranging from offices to hospitals and schools. Stakeholder groups are equally diverse, ranging from investors, builders, engineers and architects, to real estate agents, tenants, and building operators. All levels of government are involved in a complex partnership around urban design issues. The federal government is often part of policy design, whereas provincial, territorial and municipal governments tend to implement and enforce policy instruments. Further adding to the complexity of the sector is the fact that educators such as schools of architecture and engineering have an impact on how policy instruments are implemented by practitioners. The resulting fragmented supply chain and regulatory framework make it clear that a single carbon emission reduction policy is insufficient; that a policy package made up of a number of programs and instruments is required.

Energy efficiency in commercial buildings touches the responsibility of all levels of government in Canada. This multi-jurisdictional governing framework makes it difficult in turn for developers and owners to stay abreast of applicable policies and available resources regarding energy efficiency.

Other barriers to technology adoption identified in this report range from issues related to risk management, information gaps, complexities in the commercial building value chain, financial costs related to being the first mover in the market, energy pricing that does not account for environmental externalities, and institutional and regulatory barriers caused by existing policy frameworks.

WHAT DID WE CONCLUDE ?

Our national and international research, direct stakeholder consultation, and original economic modelling concluded that by incorporating a market-wide carbon price signal and mandating high efficiency performance standards for all new and existing commercial buildings in Canada, it will be possible to reach the target of 53 Mt CO₂ emissions per year by 2050 or 66% below business-as-usual levels set by the NRTEE in 2006. The industry vision of achieving 36 Mt CO₂e/year by 2030, or 50% below 2007 levels identified by SDTC in 2007 will require stringent regulations and significant commitment from the industry, but is not an impossible goal.

Based on the examination of four different policy scenarios we conducted, no one measure on its own is sufficient to wring the necessary emission reductions from the sector and achieve our targets. This includes a carbon price, regulations, subsidies, voluntary measures and information programs. The most effective is a combination of the first two—a carbon price coupled with increasingly stringent regulations—but with the application of focused technology subsidies or incentives.

Energy efficiency has an important role to play in reducing energy consumption, thus reducing both strains on existing utility infrastructures and carbon emissions. Policies that target an increased use of renewable energy, cogeneration, and on-site energy generation will also be important for achieving maximum emissions reductions from commercial buildings. Strong government leadership, multi-jurisdictional engagement, and a performance-based accountability framework linked to monitoring and evaluation will be factors for successful implementation. The Government of Canada will have to take an assertive position on energy efficiency in commercial buildings; work with provinces, territories, and municipalities; and dedicate resources to develop a more integrated strategy aimed at achieving absolute emissions reductions from this sector. But it is doable.

WHAT DID WE LEARN ?

There is no one “silver bullet” policy for achieving deep absolute emissions reductions from energy efficiency in the commercial sector. Energy efficiency policy success in other global regions has been achieved by maximizing the synergistic impacts of groups of policies rather than one policy instrument on its own. Command and control regulatory policies are effective in the commercial sector, but need supporting information programs and price signals. Whenever subsidies are implemented, issues related to free ridership and the rebound effect need to be taken into account in program design.

A silo-based approach to energy policy that considers buildings separate from urban form, transportation infrastructure, and the communities they operate within will not        maximize energy solutions in the long term. Similarly, energy pricing policies that only address the environmental costs of carbon-intensive energy forms will not capture broader costs to society in the long term. In order to achieve absolute emissions reductions, the scope of policy measures included in this report needs to be expanded to include renewable energy, cogeneration of energy, and on-site energy generation equipment where possible. New        practices in policy development related to community-level design practices and energy        pricing will be required to achieve deep absolute reductions with minimal social costs        from commercial buildings.

Policy instruments may have differing levels of priority across regions and commercial building sub-sectors. Due to the fact that sources of electricity generation vary across the country, some provinces/ territories may be more or less motivated to improve the efficiency of their electricity use for the purpose of reducing GHG emissions. Also, because public institutions often have different investment motivators from those for privately-owned buildings, some policies may be more effective in certain sub-sectors. A more detailed analysis on program design will help to identify where these differences lie and how to address them.

Energy efficiency policy monitoring and evaluation needs to be improved in Canada. It can ensure that policies remain dynamic and up-to-date for maximum performance and relevant to current market characteristics. Post-implementation evaluations of energy policy have been inconsistent in Canada. More transparent and higher quality data collection is required to provide a baseline for comparison and to elaborate the monitoring and evaluation procedures for policy impacts. Increased stringency in policy monitoring and evaluation is required to show the non-energy benefits of policy such as reductions in GHG emissions and indoor air quality.

Policy certainty is required in order for industry to increase investment in energy efficiency. Especially in the retrofitting of existing buildings, significant investment is required in order to update inefficient technologies and improve the energy intensity of the building. Policy certainty regarding impending regulations or the application of a carbon price signal is required to allow the industry time to make the investments and to reduce the risk of non-compliance. Without this certainty, incentive to invest is clearly diminished.

Greater integration between government departments and levels in Canada needs to take place to leverage resources and increase symmetry across provincial/territorial borders. Streamlined processes would facilitate domestic trade and manufacturing for industry. Information sharing across borders would alleviate some of the burden from governments related to researching best practices and developing new curricula for practitioners. The federal government has a role to play in providing integrated information resources for industry that simplify standards and processes for energy efficiency. The NRTEE-SDTC collaboration for this project was an effective example of leveraging resources and sharing information and could be used as a model for other government departments and agencies.

WHAT DO WE RECOMMEND ?

Research conducted to examine the effectiveness of policy instruments in terms of decreasing energy use and carbon emissions while minimizing economic costs leads to our recommendation of a comprehensive policy package to increase energy efficiency in Canada’s commercial building sector. This package consists of a range of instruments from each of the following policy types:

Applying a market-wide price signal for effective and cost-efficient emission reductions from the sector, especially when complemented by other policy instruments.

Adopting specific command and control regulations including codes, minimum performance standards, and mandatory energy labelling, which we found to be the most effective policy instruments for increasing energy efficiency in commercial buildings due to their cost-effectiveness and their high impact on emissions reductions.

Targeting subsidies where appropriate, such as capital and fiscal incentives, technology funds, and funding for educational programs and skills development. All can be effective to a certain degree depending upon design. Subsidies should be non-technology specific so they do not act as barriers to innovation, they should account for issues related to free ridership and the rebound effect, and should be closely monitored and evaluated so they can be updated or removed when appropriate.

Utilizing information programs to drive voluntary actions can be cost-efficient and have lasting impacts on energy use and emissions reductions; however, their direct impacts are often very difficult to quantify. They should be used to complement other policy instruments set out above, rather than act on their own.

The NRTEE and SDTC jointly recommend our research and report to the federal government as advice for considering the adoption and implementation of a policy pathway for energy efficiency in Canada’s commercial building sector.