What the new Federal Green Building Strategy could look like (part one)

Brendan Haley

Director of Policy Research, Efficiency Canada

May 12, 2022

Blogs | Buildings | News

  • The Green Building Strategy promises to deliver net-zero emissions by 2050.
  • To be effective, it must focus on achieving the net zero end state rather than incremental emission reductions.
  • This blog lists five policy themes that will help the strategy meet its net zero goal.
Canada is getting a new Green Building Strategy! Announced in the Emissions Reduction Plan, it aims to meet “net-zero by 2050” and “drive a massive retrofit of the existing building stock” and construction to “zero carbon” standards.

By establishing “net-zero emissions” as the goal of the Green Building Strategy the federal government will need to lead a process of structural change towards that end state. That means defining the building standards and policies that are needed to reach net-zero and forging coalitions of provinces, municipalities, utilities, businesses etc. taking actions consistent with that goal. A net-zero framework therefore contrasts with previous strategies that focused on incremental emission reductions and efficiency improvements, and relied upon achieving consensus amongst provinces and territories.

Details of the Green Building Strategy are pending — this blog aims to start the conversation by outlining five themes to frame it:

  1. Plan for the economy-wide net-zero end goal
  2. Transform markets
  3. Leave no one behind
  4. Use all federal policy tools
  5. Encourage policy change in provinces and municipalities

Plan for the economy-wide “net zero” end goal

The Green Buildings Strategy clearly establishes “net-zero emissions” as the objective. However, it is not clear if the strategy will limit itself to the buildings sector, or consider how the buildings sector must change to achieve the larger economy-wide net-zero goal.

The difference matters. Achieving net-zero emissions by 2050 in Canada means some sectors will need to achieve zero emissions and undertake further transitions to support GHG reductions elsewhere in the economy. Buildings are not part of a “hard to abate” sector that could require engineered carbon capture technology and offsets, and thus establishing a zero emission goal is appropriate. The strategy also needs to consider the role of building energy efficiency in freeing up clean energy resources for more productive uses, catalyzing upstream industrial emission transformations, and even contributing to negative emissions.

Consider the role that energy efficiency must play to complement the larger transition. Increasing energy efficiency in the building stock will free up Canada’s abundance of clean electricity to reduce emissions in transportation and industry. Decarbonizing buildings will require increased electricity demands for heating, but these demands can be reduced significantly through building envelope upgrades, peak demand reduction strategies, and district heating. There is also lots of inefficient electric heating in Canada, which is a readily available source of significant energy savings through building envelope upgrades and heat pumps. Retrofits of both electric and fossil fuel heated buildings in Canada that combine envelope upgrades with heat pumps could free up 50 TWh of electricity to be used for better purposes.

The strategy should also take an economy wide perspective on the strategic use of hydrogen and renewable natural gas, which could be most productively deployed outside of the building sector.

In addition, it is possible to build “beyond zero” by using materials that store carbon and to change upstream building material supply chains to be more energy efficient and zero-carbon. Policies that consider how to reduce embodied carbon and the upcoming “net-zero emission” building code can reshape building sector demands in a way that induces emission reductions and improved energy efficiency in upstream industrial sectors.

Given the potential for buildings to store carbon and free up existing clean electricity resources, it will be important for a “net-zero” strategy to not “get caught in the net”. This means prioritizing emission reductions in buildings without the use of offsets, recognizing the value of energy savings from fossil fuels as well as clean electricity resources, and considering the role of carbon storage within buildings.

Integrating the building strategy within the economy-wide net-zero emissions goal should be aided by the Net-Zero Emissions Accountability Act and the Net-Zero Advisory Body. This new governance infrastructure can be used to assess the plan’s adequacy, evaluate progress, and enable mid-course corrections and updates.

Transform markets

A strategy with a net-zero emissions goal should shift focus towards reshaping market and policy environments to enable a take-off in green building practices. A dramatic scale up is needed because the historic pace of retrofits shows it will take 140 years to retrofit all residential buildings and 70 years to retrofit all commercial floor area, and these retrofits are not achieving net-zero compatible energy and GHG savings.

Our current policy regime prioritizes short-term, cost-effective savings. Utility energy efficiency programs must pass through restrictive cost-benefit tests, and federal policy has largely emulated this approach by using low cost per tonne of greenhouse gas emissions reduced as a decision making framework

The problem with this policy paradigm is that it gets trapped into using today’s technologies and market structures, which locks us into current performance. Reaching a net-zero emissions world will require building practices and retrofits that look different from today, with the development of new business models, different systems of technology, altered manufacturing supply chains, and new regulatory regimes. These are structural changes and sector evolutions that can decrease costs and increase benefits — but they won’t be triggered unless policy focuses more on learning and encouraging change rather than evaluating present day costs and benefits.

A new strategy should define the performance standards buildings need to achieve and then focus on producing policy and market structural changes needed to meet this goal. If deep retrofits are currently too expensive and slow, the Green Building Strategy should focus on reducing costs and increasing speed through economies of scale, learning, and standardization. If markets do not currently recognize all of the benefits of more energy efficient buildings, the strategy should figure out how to integrate the multiple benefits of energy efficiency into policy structures and customer value propositions. If a technology is not available in a local market, the strategy should aim to make new technologies available. A strategy with a net-zero end goal needs to focus on learning and market transformation, and recognize that the cost-benefit calculations made ten years from now should look very different from today.

The last federal budget appears to heavily prioritize “crowding in” private sector capital. Everyone would like to see more private sector investment to achieve net-zero emissions, however choosing this as the policy goal threatens to lead to more incrementalism. Thus far, most federal policies offer incremental incentives to co-fund with private individuals (e.g. Greener Homes grants) or financial organizations (e.g. the Canada Infrastructure Bank). These policies entice private sector investment, but the goal of the Green Building Strategy should be to change markets so significantly that the private sector naturally sees green buildings as a productive area for investment and innovation. This often requires governments leading the transformation, and taking on most or all of the upfront costs and risks.

One aspect of the Canada Infrastructure Bank’s (CIB) building retrofit agenda presents a worthwhile example. While the Bank co-finances alongside the private sector, this is not the most transformative part of the CIB’s building retrofit program. The CIB has the potential to create new structures that change current risk perceptions and make financing easier. By launching initial projects, the CIB can provide clear data to investors so they understand the investment opportunity. The CIB also aims to facilitate use of common protocols for valuing energy and GHG savings, and aggregate several retrofit projects into larger investment portfolios that are attractive to large institutional investors. Private sector co-financing can be part of this strategy, but a “crowding in” objective should also not get in the way of federal institutions acting as a first mover and creating financial infrastructures that transform markets.

Government leadership in developing new business models and making net-zero retrofits and new builds lower cost, higher value, faster and easier would similarly do more to crowd in private sector investment than incremental incentives in today’s market structures.

A federal policy dependent on private sector direction, is likely to get caught in a low investment equilibrium. In contrast, the Green Building Strategy can lead the way by establishing a net-zero emission direction that invites willing private sector partners to join a market transforming mission.

Policy and program strategies to re-shape the functioning of markets should coincide with regulations that show where the market will be in the future. The new model building code with tiers that ratchet up to net-zero energy-ready is a good example (if used properly). By establishing a clear date for introduction of a net-zero standard, the building sector can prepare for this future and know it is real instead of a policy aspiration. The Green Building Strategy could present similar regulatory strategies for areas like existing building standards, appliance and equipment standards, and zero emission building codes.

Leave no one behind

The federal government has stated it wishes to leave “no one behind” in the net-zero transition. This is a worthy goal, but we must recognize there are already Canadians left behind who need help. Many of Canada’s low-to-moderate income households already face unsustainable energy cost burdens relative to their income, or are left without access to adequate energy services. These challenges will only grow with more extreme weather and rising fossil fuel costs.

Energy efficiency services can also be hard to access for people who are not comfortable speaking and writing English or who do not have the same experience managing household energy systems as those who grew up in Canada. Energy efficiency and emission reduction programs will not reach traditionally marginalized communities without a specific strategy.

A strategy to align the buildings sector with a net-zero emissions economy must find a way to include all Canadians and upgrade homes owned and occupied by lower income Canadians. This is both a practical necessity to reach climate goals, as well as a moral responsibility to improve affordability and access to energy services for those most in need.

Outside of the affordable housing sector, there are no federal policy supports to improve energy efficiency and eliminate fossil fuel use among low-to-moderate income Canadians. The Green Building Strategy should establish a goal to eliminate energy poverty and provide universal access to adequate energy services in a changing climate.

Specific attention should also be placed on ensuring Indigenous People have a right to housing that is appropriate to community needs and compatible with net-zero emissions. Energy efficiency and green building strategies should encourage Indigenous led initiatives, service of overall housing needs and co-benefits such as improved health and indoor environmental quality, local employment and skills development opportunities, and incorporation of Indigenous knowledge.

Finally, bringing more women and traditionally marginalized people into the building energy efficiency workforce will offer perspectives that help address these inequities. Diversity is needed to reach net-zero emissions, and a reason to tackle inequality and discrimination within the building sector.

Use all federal policy tools

The timeline to reduce emissions is short, which means the federal government must use all the tools at its disposal. Experience with carbon pricing shows that the federal government needs to lead with common mandatory benchmarks, and then allow those provinces and territories to tailor policies to their own contexts.

An important federal policy tool is the Energy Efficiency Act, under which the government regulates appliances and equipment. This includes the ability to set standards for the performance of space and water heating equipment, responsible for direct GHG emissions in buildings.

The federal government has already used the Canadian Environmental Protection Act (CEPA) to regulate power plants, and might use this Act to implement a zero emission vehicle mandate.  The Strategy could explore the regulation of emissions from buildings under CEPA, as well as renewing consumer protection and mortgage rules for a net-zero emissions economy.

Where the federal government does not have powers within its jurisdiction, it must be willing to commit funds necessary to encourage net-zero standards across the country. Meaningful and dedicated federal funding to other levels of government has delivered common national standards for medicare, education, and now child care, and will also be required to implement net-zero building standards and policies.

Encourage policy change in provinces and municipalities

Even with strong federal leadership, the Green Building Strategy will have to consider that many of the regulatory tools and energy efficiency incentive programs that influence buildings are found at the provincial and municipal levels of government. Provinces traditionally regulate building codes, skilled trades certification, and public utilities. Municipalities control planning and bylaws, and have implemented some of the more advanced green building standards in the country.

The federal government has thus far provided funding to these levels of government through programs like the Low Carbon Economy Fund and the Green Municipal Fund, and attempted to induce policy changes in lower levels of government through joint strategies and agreements. Thus far, this has contributed to worthwhile projects and a scale up of existing programs, yet has not encouraged implementation of mandatory regulations and few policy changes.

To achieve net-zero emissions, the federal government needs to establish clear expectations for regulatory changes at different levels of government and then actively promote them through carrots and sticks.

Lessons could be taken from the European Union’s Energy Performance of Buildings Directive and Energy Efficiency Directive. These policies present clear expectations for regulatory and policy changes within member states. Member states must make regular reports on progress and the EU can levy fines, and attach conditionalities to funding. Each member state produces a “long-term renovation strategy”, and the directives include actions related to mandating minimum energy performance in existing buildings, new building codes, energy performance certificates, and energy efficiency obligations for energy utilities.

Of course, Canada’s Confederation of provinces and territories exists within a different context. The key lesson is to establish expectations and support for specific policy changes rather than simply funding lowest cost per tonne GHG reductions. 

In Canada, a strategy for policy change at provincial and municipal levels of government could include:

  • Net-zero energy-ready and eventual net-zero emission building code adoption and compliance
  • Mandatory building performance standards for existing buildings
  • Mandatory energy labels publicly displayed on commercial buildings and disclosure of energy performance and actual energy usage when buildings are sold or rented
  • Energy efficiency resource standards for electricity and natural gas utilities, and incorporation of net-zero GHG goals into public utility regulation.
  • Green workforce strategies incorporated into workforce development agreements and labour market development agreements
  • Provincial/Territorial Building Renovation Plans

The strategy must also not let action stall at the federal-provincial negotiating table. Municipalities are often the champions of green building policies, and can move faster than provinces. The federal government should support municipalities seeking to implement more advanced standards for both new and existing buildings than their respective provinces, with the understanding that all jurisdictions must eventually “harmonize” towards net-zero emissions.

Conclusion

These are five themes that correspond with the upcoming Green Building Strategy’s net zero goal. Hopefully, this blog helps spur a discussion, as the federal government consults on its new strategy.

In Part Two, I will present some more specific policies that we might see in a net-zero emission Green Building Strategy.

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