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The building sector can and should play a role in achieving the deep greenhouse gas (GHG) reductions that science tells us are necessary to combat the threat of global warming. CIE's study examines the potential for additional GHG abatement from the building sector, in particular the potential to invest in improved energy efficiency. It also reveals the difference that this would make to the economy-wide cost of achieving deep GHG emission cuts.

Buildings are responsible for lots of emissions

The building sector is responsible for a large proportion of Australia's GHG emissions and can make a major contribution to meeting a deep cuts target. Without change, Australia's GHG emissions will continue to grow at a rapid rate. They are currently projected to reach an estimated 915 million tonnes by 2050. However, the Australian Business Roundtable on Climate Change (BRCC) reported that it is possible to achieve a 60% reduction in GHG emissions by 2050 while maintaining strong economic growth and that with early action the economic impact by 2020 would be modest.

Almost a quarter (23%) of Australia's total GHG emissions are a result of energy demand in the building sector. The building sector, comprising residential and commercial buildings, houses a large proportion of Australia's economic activity. The CIE study extends the BRCC's analysis to include a more detailed analysis of the significant energy efficiency potential of the building sector.

The building sector's contribution to GHG emissions is mainly driven by its end use of, or demand for, electricity. This is a key difference from many other sectors where the main issue is emissions from the supply of energy.

The building sector as a whole could reduce its share of GHG emissions by 30-35% whilst accommodating growth in the overall number of buildings by 2050. This can be achieved by using today's technology to significantly reduce the energy needed by residential and commercial buildings to perform the same services. For example, by replacing equipment with more energy-efficient models, at the natural replacement rate, and upgrading the performance of the building shell.

Detailed 'bottom up' analysis of energy-efficiency opportunities suggests that net cost savings can be achievable in the medium to long term. Rather than a cost-per-tonne of GHG abatement, many energy-efficiency options have a positive financial payback in addition to providing abatement benefits. The payback period can vary from months to many years. This finding is consistent with a large collection of case studies within Australia and overseas.

The economy-wide analysis conducted in CIE's study takes a conservative approach by using a cost-neutral assumption rather than including any additional returns on energy-efficiency investment that may be available.

A balanced strategy

A balanced strategy that tackles demand side energy use, as well as supply side emissions, would provide significant benefits to the entire economy. When coupled with a broad-based GHG abatement target and a supporting policy environment, additional energy efficiency investments by the buildings sector would reduce the costs of change for the building sector and the economy at large.

Economy-wide modelling comparing the cost of deep cuts alone compared to a situation with specific attention to energy efficiency and demand management in the building sector provides the following insights:

• Energy-efficiency gains delivered by the building sector can reduce the costs of GHG abatement (cost-per-tonne of abatement) for all sectors by nearly 14% by 2050.
• Loss to the overall level of economic activity in the economy would be minimised. By 2050, GDP is nearly 2% higher (roughly equivalent to $38 billion per annum) with additional energy-efficiency investments in the building sector.
• Adverse impacts on employment are minimised through building sector energy-efficiency strategies. The reduction in job growth in the longer term is smaller, with a reduction in the period between 2030 and 2050 of around 0.1-0.4%, compared with 0.2-0.6% in the deep cuts scenario.
• Reducing the demand for electricity, coupled with an economy-wide carbon constraint, facilitates the growth of cleaner, more renewable sources of electricity (eg, wind) and reduces the demand for coal-fired electricity. Wind-powered electricity experiences sizable growth, representing 23% of electricity generation value added by 2050.

Investment and management required

Investment and an effective policy framework are required to secure the practical and cost-effective GHG abatement opportunities offered by the building sector. Despite being cost neutral in the medium to long term, achieving the additional GHG abatement action from the building sector faces challenges as well as opportunities:

• Adopting energy-efficiency strategies requires upfront investment by businesses and households to become more energy efficient.
• The benefits, or payback of these investments, are gradual, accruing over the medium to long term, as savings on energy bills.
• The building sector will need some additional incentives to overcome the impediments to change. These need to address a range of issues, such as the need to spur behavioural change, particularly to encourage adoption and to offset the required upfront, direct capital expenditures.
• There is a need to encourage the rebuilding of our current building stock to upgrade the energy efficiency of assets within buildings to deliver a more sustainable outcome.
• The pay-off from investing in the energy-efficiency potential of the building sector would flow through the entire economy by reducing the cost that others would face to achieve their reduction in GHG emissions.

The report 'Capitalising on the building sector's potential to lessen the costs of a broad based GHG emissions cut' was prepared by The Centre for International Economics (CIE), commissioned by a number of organisations including ASBEC Climate Change Task Group, the Australian Conservation Foundation and Property Council of Australia. The full report can be downloaded from www.propertyoz.com.au/Buildingsectorspotential.pdf.

This article was provided by The Centre for International Economics (CIE).

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