Chapter 3
Existing Buildings
The Empire State Building in New York City is probably one of the most well-known buildings in the world. Built in the height of the Great Depression, it was the world’s tallest building for nearly forty years. Its iconic architecture and famous history have kept it a symbol of the success of New York City and the United States of America. It is also an inspiring example of how it is economically feasible to dramatically reduce greenhouse gas emissions through smart city policies and a committed owner, who undertook a massive energy retrofit completed in 2011 and made other energy improvements. In doing so, the owner not only created jobs and dramatically lowered emissions but also paid back the investment in three years through savings from reduced costs and higher rents.
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You can walk across the Brooklyn Bridge from Brooklyn to Manhattan. At sunset, the view is incredible. The world’s most recognizable buildings, silhouetted against the sky. More or less straight ahead are the skyscrapers of the new World Trade Center, built to replace those tragically destroyed on September 11, 2001. Slightly to your right, the Empire State Building, the Chrysler Tower, the United Nations, and many others. At night, the dark sky is outlined against the lights of those same buildings, and you can see the lights of boats slowly moving below the bridge. And in the daytime, you are joined with a flood of people surging toward Manhattan.
When you get off the bridge, you’re at city hall, a majestic marble building completed in 1812. City hall and the surrounding park are a small oasis of quiet and of green. Walk a few more blocks and you’re in the midst of the narrow streets and tall buildings that are the southern tip of Manhattan. Buildings finished in the 1800s, grand though sometimes faded; buildings that seem as if they were finished last week – and probably were – and others built somewhere in between. You’re surrounded by honking traffic, the ubiquitous yellow taxi cabs, buses, delivery vehicles, and you’re standing on top of one of the world’s great subway systems. You probably have a smile on your face because the energy of this busy city, the world’s financial capital, is infectious. But mostly it’s the buildings you notice, because you’re surrounded by the results of an incredible building boom that has lasted nearly two hundred years. Manhattan is dense. Very dense indeed. Like walking through man-made valleys made of brick and glass.
Unlike the Empire State Building, many of these buildings do not meet the highest standards of energy efficiency. Studies show that if they did, New York’s greenhouse gas emissions would plunge.
Why Buildings?
Manhattan is not alone. The buildings in that heavily built-up island matter very much in addressing climate change, although perhaps not in the public imagination. Many different responses to climate change have caught that imagination: using green energy, for example, often thought of as wind and solar; driving electric cars such as the Tesla; closing coal-fired electricity plants; planting trees; eating a meat-free diet; stopping the expansion of oil and gas projects; and more. But studies show that a significant part of our focus should be much more prosaic: the energy efficiency of buildings.
In large cities such as New York, the heating and cooling of buildings can often be the major source of greenhouse gas emissions. We are not accustomed to thinking of our homes, our schools, our office buildings, and our commercial centers as creating pollution, but they do. We burn oil, gas, wood, and other fuels to heat our buildings, heat our water, cook our food. We use electricity, often generated by fossil fuels, to run just about everything. Though they don’t have smokestacks, buildings are a major source of the emissions that cause climate change. In cities, they can be the dominant source. Looking at the case of New York City, for example, a dense city where significant numbers of people take transit or walk to work, buildings rather than transportation are the leading source of greenhouse gas emissions by far: they alone accounted for 73 per cent as of 2016 (Figure 3.1).
Figure 3.1: New York City’s Greenhouse Gas Emissions, 2016
New York City’s density translates into a higher proportion of emissions coming from buildings rather than transportation. Source: Based on data from City of New York, One City Built to Last: Transforming New York City Buildings for a Low-Carbon Future , 2016.
We now have the ability to construct new buildings that operate with little or no emissions – Chapter 4 describes the exciting advances in that arena. However, our homes, offices, and factories generally last for many decades, sometimes even centuries. While estimates vary, it is clear that in most cities as many as 80 per cent of the buildings that will exist in 2050 have already been built. We need to ensure that these existing buildings use far less energy and produce as few emissions as possible – ideally zero.
Energy Consumption Can Be Dramatically Reduced in Buildings
How do we cut the carbon emissions from buildings to nearly zero? In theory, the market should be undertaking this on its own, as over the lifetime of a building, the reduction of its energy consumption (and therefore the cost of operation) makes the building both more profitable and more valuable. But experience has shown that even though the economic case for dramatically improving the energy performance of buildings is strong, the work will not happen without leadership from government, most often from mayors and the city governments they run. Where they have legal authority, this leadership can be through regulations and mandates. Where they do not, leading cities have found highly effective ways to otherwise promote dramatic reductions in carbon emissions.
What must be done is conceptually clear. First, in the short term, the energy needed to operate buildings can be reduced through energy-efficiency retrofits, which is the focus of this chapter. Over time, as the electricity grid becomes clean, it will be possible to electrify all building operations, as Los Angeles is planning to do through its Green New Deal climate plan.
Most homes, offices, and institutional buildings today are heated and cooled with natural gas or oil. These fuels are the predominant source of emissions from buildings. Thus efficient energy use greatly impacts the overall consumption of fossil fuels and creation of greenhouse gases. Making these buildings more efficient involves significant technical work: improving the outside of the building (the “building envelope”), upgrading the electrical and mechanical systems – and rethinking how we behave.
Some context is needed here: buildings breathe. The climate generated inside escapes to the outside. Heat moves from warm areas to cool areas. It moves out of a warm building in winter and into a cool building in summer. The building envelope (a building’s walls, windows, doors, foundation, and roof) is that building’s main defense against heat loss or gain. Adding insulation, sealing air leaks, and replacing windows and doors are all important for making a building more energy efficient. These retrofits have an initial cost – but they are also the most effective way to reduce the total heating and cooling energy needs of a building and, over time, to save money from the reduced energy consumption.
A second critical area is a building’s mechanical system. The biggest direct users of fossil fuels in a building are the systems that we use to heat the air and the water. These will use less energy when we improve the building envelope, but they can also be made more energy efficient themselves. Older boilers and furnaces are far less efficient at generating useful heat than newer models, and as they age, their performance may decrease through a lack of timely maintenance.
Addressing that performance decline is called retro- commissioning: the process of ensuring that all mechanical equipment and systems are operating optimally together. It’s like cleaning and oiling your bicycle. With time, dirt and rust may accumulate in your gears, on your chain, on your bike cables. A tune-up once a year can ensure that your bike ride is smoother and takes less energy. A retro-commissioning of a building can resolve problems, improve its operation, and save energy.
Water use is often optimized alongside energy systems to save energy. When a building uses less hot water, it will also use less energy to heat that water. In large buildings, reducing water use can save energy by reducing the use of pumps to move water to the upper floors. Taps, showerheads, toilets, dishwashers, washing machines: all these devices can be upgraded to use less water and therefore less energy.
Even something as simple as changing a light bulb can save significant amounts of energy – when done at scale. An LED (light-emitting diode) light bulb can use 75 to 80 per cent less energy than an incandescent (traditional) bulb that produces the same amount of light. Those savings may be small for one light, but multiplied by the thousands of lights in a large office building, the savings become material. Replacing old lights with LED versions saves electricity and generates less waste heat: heat that must be removed with more air conditioning on hot days. And LED bulbs are far less costly to install and maintain. A large office building can save tens of thousands of dollars per year by modernizing its lighting systems, and with the falling cost of LED lights, the payback period is short.
Lights aren’t the only thing to have become more energy efficient in recent years. Newer computers, printers, fridges, stoves, washing machines, and other appliances are all more energy efficient. New plumbing devices use less water and can save energy in heating and circulating water in a tall building. How many computers are there in an office building, and how many showers and fridges in a high-rise apartment building? Once again, the energy savings multiply when these changes are done at scale.
Not all energy-reduction measures involve adding or upgrading systems; some involve just rethinking how we use our buildings and how we approach heating or cooling. Monitoring how a building is used can lead to better programming of heating, cooling, and lighting systems. Painting a roof white can substantially reduce summer solar-heat gain, as can planting trees around a building. Waste heat from server rooms can be redirected to work areas in the winter. As we saw in Chapter 2, water from deep lakes and oceans can be used to keep our buildings cool. With the right incentives, building owners can be very creative in finding solutions. As examples throughout this chapter will show, cities have found ways to capitalize on that creativity.
The benefits of energy-efficiency retrofits go far beyond saving energy. Retrofitted buildings last longer. They are more comfortable because they’re less drafty and have more even temperatures. They may even improve the indoor air quality. Energy-efficient buildings not only generate fewer climate-damaging emissions, they’re also better work and living environments. Furthermore, lowering energy consumption in buildings has a clear economic case. The investments required are paid back through energy savings, making the building more profitable for the rest of its life. As we shall see, these savings can be impressive.
Barriers to Action
In fact, the economic case is so compelling that we must ask why these energy-reduction measures do not happen without government intervention. The story, from the perspective of a climate-change advocate, is familiar. And depressing. There are a variety of reasons – but all are rooted in short-term thinking caused by our economic system and not in the underlying costs and benefits. For example, some types of buildings are bought and sold frequently, causing many owners to focus on short-term costs rather than longer-term savings; owners may want to use their limited capital for other projects that have a more immediate payback; and the upfront costs and disruptions associated with retrofits can be a barrier. There is also the significant fact that owners and managers of buildings often do not pay the heating and cooling costs: tenants do. Therefore, if the owner bears the expense of improvements, it is the tenant who benefits from lower operating costs. (This is known as the split-incentive problem.)
But perhaps the biggest barriers to implementing energy- efficiency upgrades are inertia and lack of awareness of their benefits and co-benefits. Experience has proven that government intervention is imperative to overcome the structural barriers to action.
How, then, does a city ensure that building owners make buildings perform efficiently? Cities have started with persuasion – and have come up with some very innovative and successful strategies. Strategies that work.
Mayor Michael Bloomberg: Invoking the Power of the Market
New York City’s inventory and analysis of its greenhouse gas emissions in 2005 revealed that buildings were responsible for close to 80 per cent of the city’s total greenhouse gas emissions at that time. (To give some sense of magnitude, in 2005 New York City alone had emissions close to the total of those of all of Ireland or Switzerland.) What’s more, the inventory showed that those emissions were rising, and the vast majority of the buildings responsible for that carbon pollution were expected to be still in use by the middle of the twenty-first century. Achieving the city’s targets required a long-term, multistage plan to bring about major changes to the city’s roughly one million buildings.
Benchmarking: Using Disclosure to Motivate Change
New York’s former mayor Michael Bloomberg is fond of saying, “You cannot manage what you do not measure.” This concept helped launch the city’s benchmarking requirements for its largest buildings. Starting in 2010, all buildings of fifty thousand square feet or more were required to measure their energy and water use annually. This involved publicly disclosing both their energy and water use in addition to their building’s Energy Star rating, a measure of building energy efficiency.
The advent of benchmarking meant that existing and prospective tenants could finally compare buildings for their energy performance and estimate the water and energy costs associated with renting a space. By making prospective tenants aware of utility costs, the New York benchmarking bylaw helped to address the split-incentive problem. For the first time, building owners started to become accountable to tenants for the efficiency of their buildings. Market forces meant that tenants started to choose more energy- efficient buildings – resulting in some significant and notable energy retrofits. As mentioned above, the owners of the Empire State Building, for example, spent more than US$100 million on energy retrofits and have publicly stated that the efforts were extremely profitable as the modernized and energy-efficient building became popular, driving up rents.
New York chose the largest buildings first because those are the biggest users of energy and therefore provided the best opportunity for significant emissions reduction. The buildings required to disclose represented only 2 per cent of the roughly one million buildings in the city but used 45 per cent of the city’s energy.
The benchmarking strategy was an important element in the city’s Greener, Greater Buildings Plan but it was not the only measure taken. Starting in 2009, any new major renovations or building alterations were required to meet tougher energy codes. In addition, every year 10 per cent of all benchmarked buildings were required to undergo comprehensive energy audits and retro-commissioning. Finally, lighting and submetering upgrades were required of many benchmarked buildings. To support these actions, New York City established outreach and training programs, and created a benchmarking help center. Step by step, buildings were encouraged to take action to reduce their energy and water usage.
These measures were effective. By 2015, New York City buildings were emitting 18 per cent less greenhouse gases than they were just ten years earlier. By 2017, buildings owned and operated directly by the city itself had a 22 per cent improvement in their Energy Star ratings over 2010 levels and they were using 30 per cent less energy than they were in 2005.
The benchmarking plan demonstrated that it was effective in reducing energy use and greenhouse gas emissions from large buildings. In 2018, the program was expanded to include more buildings: the minimum size was lowered to twenty-five thousand square feet.
The success of the benchmarking plan in New York has also helped other cities. Chicago, Los Angeles, Houston, Phoenix, and Philadelphia, among others, have all included benchmarking as a strategy to encourage lower energy use in commercial buildings. In fact, an entire industry sector has been mobilized to help building owners, cities, and other organizations measure and track the energy performance of buildings. It is an effective first step to building a culture of energy efficiency – and the market skills to deliver results.
In New York City, the data creation and the years of tracking the energy use of buildings before and after retrofits has been invaluable for planners. Computer models generated from this data show the energy-efficiency gains that can be achieved with different measures in various building types. New and future policies are being developed from these models to target the buildings and the retrofit measures that will have the most impact for the least cost.
Energy models have shown that the most cost-effective measures of low to medium difficulty can generate a one-third reduction in emissions from the buildings sector. More comprehensive retrofits can achieve an estimated 40 to 60 per cent reduction in greenhouse gas emissions. It is also possible for these buildings to achieve net zero emissions, but they will need to meet all their remaining heating, cooling, and operational needs with electricity generated from carbon-free sources.
The benchmarking data has given owners, tenants, and city officials a greater understanding of the energy and water use of their buildings and the best strategies to become more efficient. It has also revealed that government leadership is still needed if the sector is to move as quickly as science requires to lower greenhouse gas emissions.
Beyond Benchmarking: The New York City Building Mandate
Under the leadership of current mayor Bill de Blasio, New York City released its updated climate plan, the Green New Deal, in 2019. Under the plan’s rules, the city requires the worst performing of its benchmarked buildings to reduce annual emissions. Over time, benchmarking has been highly successful for the best buildings, where sophisticated tenants pay high rents and are in a position to choose between buildings. However, the approach has not had the same success in more modest buildings, for a variety of reasons: for example, owners may be anticipating profiting by short-term resale of the building and are not interested in investing for a future payback. The plan therefore takes a regulatory approach and mandates that by 2024, the highest-emitting buildings (the worst 20 per cent) must take measures to cut their energy use to bring their emissions below a mandated cap. By 2030, three-quarters of benchmarked buildings will be required to take action to meet their emissions caps.
Buildings can achieve their emissions caps through various means, the simplest and preferred being energy-efficiency upgrades. If those measures are impractical or insufficient to meet the targets, building owners have the option of fuel switching (to reduce the carbon intensity of their energy needs) and buying green-power credits. Up to 10 per cent of their annual emissions limit can come from the purchase of carbon offsets. Plans are also in development to introduce a carbon-trading system for buildings.
Buildings that don’t reach their energy-efficiency targets by their deadlines will be fined – the level of sanction depending on the level of emissions. Large, inefficient buildings that do not comply could face millions of dollars in fines per year, a cost that is designed to be greater than the cost of compliance. The goal is a 40 per cent cut in emissions below 2005 levels by 2030 and net zero by 2050.
The challenges of paying the upfront costs of energy-efficiency retrofits were directly addressed by New York City in its climate plans under both Mayor Bloomberg and Mayor de Blasio. In 2011, New York City launched a nonprofit corporation to provide low-cost loans for energy and water efficiency retrofits in large commercial and residential buildings. In 2020, Property-Assessed Clean Energy (PACE) financing will be added as another option for commercial, industrial, nonprofit, and multiunit residential properties.
PACE loans are long-term, low-interest loans that cover energy- efficient equipment upgrades and installation of onsite renewable- energy systems. These loans are paid back through property taxes (from a building-owner’s perspective, utilizing the energy savings created by the upgrades). PACE programs have been implemented in numerous communities and regions since the first program was introduced in Berkeley, California, in 2008. Communities across Canada, Europe, and Africa have advanced their own similar financing schemes – a good example of a program developed in one community being adapted and applied elsewhere to generate impressive results.
In total, required retrofits in New York City are expected to require the investment of US$4 billion. Much of those costs will be recovered by the building owner through utility savings in the coming years. In addition, the retrofit mandate is projected to create more than twenty-six thousand new jobs while improving buildings, increasing the comfort of the occupants, and reducing emissions.
To see how this might work, it is worth looking at the Empire State Building in detail. It is the most famous building in New York City. Opened by President Hoover in 1931, the office building has seen significant work during its long history, but none as important to its long-term sustainability as the energy-efficiency upgrades that began in 2009.
These were no simple fixes. All 6,514 windows were refurbished, insulation was added to the walls behind radiators, the chiller plant was upgraded, new controls were added to building-management systems, meters were replaced, submetering was introduced, and a web-based tenant energy-management system was introduced. The building utilized almost every technique that exists: better insulation, air sealing, mechanical equipment, and rethinking how energy is used. In 2013, these retrofits were saving US$2.8 million in operating costs per year, an energy savings of more than 40 per cent!
This will not be the end of the story. The Empire State Building was constructed at a time when energy efficiency, insulation, and airtightness were not the design considerations they are today, so to meet the new standards of the building mandate, the owners will likely need to consider the fuel switching, green-power credits, and offset options. But we know from the work done already that making significant efficiency gains even in an iconic building like this is not only technically feasible, but there is a business case for it too.
Other cities are grappling with the challenge with creative and effective programs – in both mandatory and non-mandatory ways.
“We gave people a very fair amount of time in the private sector to come forward and really agree to voluntary goals that will be sufficient. But time was up ... It was time to move to mandates.”
– Mayor Bill de Blasio (New York), 2019
Urban Cap and Trade: Tokyo
Buildings are the biggest source of greenhouse gas emissions in Tokyo: 47 per cent of the city’s carbon pollution was attributed to commercial and industrial buildings in 2015.
Like New York City, Tokyo has used mandatory reporting of greenhouse gas emissions from buildings as the basis for its program to meet climate-mitigation goals. Similarly, Tokyo has also focused on its largest buildings first. But rather than mandating the worst performers to meet energy-efficiency targets, Tokyo uses a cap-and-trade program to reach emission targets. This system promotes long-term thinking, rewards the best performers, and encourages innovation.
Mandatory reporting of building emissions began in 2002. Since that year, large buildings have been required to publicly report on their energy use and calculate carbon dioxide emissions every year. These buildings have also been required to prepare an emission-reduction plan. Classification as a large building in this program is based on total energy use and includes approximately 1,300 buildings. These facilities account for 20 per cent of the city’s total emissions. In 2005, the posting of a building’s energy and emissions rating was added to the list of requirements. But implementing the submitted emission-reduction plan was voluntary, and by 2006, most building owners were taking only small measures to reduce their carbon footprint. Tokyo decided that it was necessary to develop a rules-based strategy that would drive much greater carbon reductions.
Cap and Trade
Tokyo’s cap-and-trade system for large commercial and industrial buildings was introduced in 2010. It was only the third emission-trading scheme in the world and the first in Asia and – unlike some examples that have been canceled with a change in government – it is still in place. Using emissions from 2009 as a baseline, targets were set with four-year compliance periods. The first target was a 6 to 8 per cent reduction by 2014. By 2019, the target was 15 to 17 per cent, and it is anticipated that the 2020 to 2024 target will be a 25 to 27 per cent reduction below 2009 levels. Unlike New York City’s plan, these targets apply to every building.
Compliance with building-emissions targets is the responsibility of the building owner, and the program encourages long-run thinking. Building owners must designate a general manager who helps to chart a path toward lower energy use. There are no mandatory measures, so individual building owners can take their own approach. In this way, energy-efficiency measures can be incorporated into existing plans for equipment renewal, renovations, and regular maintenance.
For example, when replacing aging heating equipment, a building owner must now consider both the upfront cost and how that equipment will help or hinder efforts to meet longer-term emissions targets. Replacing the current heating system with a similar one may lock in emissions for years to come, forcing a building owner to also undertake more costly retrofits to meet future reduction targets. A more expensive alternative heating system may therefore be the more cost-effective choice when all factors are considered. Emissions targets change the cost-benefit analysis and favor economically efficient solutions.
The system has a solution for buildings that are so difficult to improve that they cannot meet the targets: trading carbon credits. A building owner unable to meet the emission-reduction targets must buy carbon credits to make up the difference, and that is where the trade in “cap and trade” occurs.
There are five sources of building-emission credits in Tokyo’s cap-and-trade system. First, buildings that exceed their targets can save up their credits for future years or sell them to those less-efficient buildings that fall short. Second, small- and medium-sized buildings can sell carbon credits earned through major energy-efficiency upgrades. These smaller buildings have also been required to post yearly energy and emissions data but have not yet been subjected to emission-reduction targets. Third, buildings that generate renewable energy (from rooftop solar, for example) can also sell carbon offsets. Fourth, mechanisms are in place to allow large facilities outside Tokyo to sell carbon credits based on their energy-efficiency gains and reductions in greenhouse gas emissions. Finally, Tokyo’s cap-and-trade system is designed to work with the cap-and-trade system operating in the neighboring prefecture of Saitama, and carbon credits can move between the two.
The best-performing buildings are rewarded under this cap-and-trade system. Not only can they make money selling their excess carbon credits, but they can also qualify for reduced emission targets. In addition, recognizing that buildings that had already invested heavily in energy-efficiency measures would be at a disadvantage when reduction targets are a percentage of total energy used, Tokyo created “top-level” and “nearly top-level” designations. These facilities must demonstrate aggressive historical emission cuts and adoption of more than two hundred energy-saving measures. In return, these top-level buildings are issued lower emission-reduction targets, and their achievements are celebrated: a very important motivator in an honor-based society.
In 2019, the tallest building in Tokyo, Toranomon Hills, was designated a top-level facility for its energy-efficiency achievements. The building houses a hotel, residences, offices, conference space, and retail space, and has a main arterial road running underneath it. In addition to the mandatory energy-saving measures, the building installed LED light fixtures, added fifty kilowatts of solar panels, and uses a high-efficiency heat-source system. A large-scale thermal-storage tank supports the heating system.
At the same time, Tokyo takes a serious view of those building owners who do not comply. Facilities that miss their targets are ordered to take measures to reduce emissions by up to 1.3 times the target shortfall by a given deadline. If that deadline is missed, the building owner is charged the cost of carbon credits for all outstanding emissions shortfalls, fined up to several thousands of dollars, and their building is publicly labeled in violation of emissions targets.
Tokyo supports its benchmarking and its cap-and-trade programs through yearly feedback reports to building owners. These reports include energy and emission data for facilities of a similar size and use, diagnostics of the building’s energy use, and recommendations for future energy-efficiency measures based on identified best practices. Building engineers and consultants are also available to promote and support energy-efficiency upgrades. Indeed, effective engagement and communication with stakeholders in the program has been cited as a critical factor in the program’s success.
Of course, a building’s energy use is not just a matter of equipment and insulation. How the people in those buildings use the equipment matters too. Much of the space in those large commercial buildings is leased, and reducing energy use requires tenants’ cooperation. Tenants are therefore required to cooperate with building managers in monitoring and reducing energy use.
For example, tenants are required to take simple measures to reduce their energy use: turning off lights when not in use, choosing energy-efficient office equipment, and promoting energy-conservation measures. Tenants must also share energy-use data and meet regularly with building managers to set energy-saving targets and plan how to achieve them. Tenants who occupy large areas in a building must submit their yearly energy and emissions data as well as their reduction plans to Tokyo city administrators. In this way, energy efficiency is a goal not just for the owners and managers but also for all those who use a building.
Tokyo’s carbon-reporting program allows prospective tenants to compare buildings based not just on their obvious features but also on their energy performance and projected energy bills. Buildings can qualify for the low-emission-building label, which is a major selling point for rented spaces and can be an incentive for building owners to implement energy-efficiency measures that help them compete for tenants.
Tokyo’s greenhouse gas reductions were challenged by the 2011 earthquake and tsunami that devastated the Fukushima nuclear power plant. Prior to those events, nuclear power was generating 30 per cent of Japan’s electricity; afterwards, all nuclear power plants were shut down due to public concerns about their safety. Thermal power plants that burned fossil fuels were used in their stead: a shift that caused Japan’s and Tokyo’s emissions to rise. Yet the earthquake also spurred innovations and collective action that helped the buildings sector address its emissions. When the nuclear power plants were shut down, backup systems were unable to make up the capacity deficit. In the year that followed, Tokyo experienced an energy crisis: there were scheduled rolling power cuts and mandated reductions in peak energy use. Seeking ways to minimize disruption to their businesses from the energy crisis, many building owners explored energy-efficiency measures. The energy crisis showed how measures taken to reduce emissions also created better buildings that are more resilient to power disruptions, a significant co-benefit with a lasting impact.
By 2017, buildings subject to the cap-and-trade program had reduced emissions by 27 per cent of 2009 levels – a near doubling of required reductions, with 78 per cent of buildings exceeding their targets. Interest in energy efficiency has risen among senior business managers, and the program has stimulated demand for many new technologies. The most commonly implemented measures were lighting upgrades and installation of efficient equipment for heating, air conditioning, and pumping. The cap-and-trade system spurred interest in and business for retrofit technologies, building energy-management systems, and energy-service companies.
The next challenge for Tokyo will be small- and medium-sized buildings, which since 2010 have been required to report their yearly energy and emissions data, their voluntary emissions targets, and their plans to achieve them. However, they are not yet part of the formal cap-and-trade system and have not shown the reductions of the larger buildings in energy use and greenhouse gases.
Effective Voluntary Partnerships: Toronto and Sydney
Located on the shore of Lake Ontario, Toronto experiences cold winters and hot, humid summers. It is not a surprise, therefore, that heating, cooling, and operating its many buildings account for so much of its energy use and greenhouse gas emissions (45 per cent in 2016). The use of natural gas for space and water heating is responsible for the vast majority of these emissions, since most of Toronto’s electricity is generated from emission-free sources. Toronto has recognized the need to improve the energy efficiency of the buildings located in the city (and to electrify their heating). And that it must do so for buildings of all types.
As described in Chapter 1, Toronto’s climate plan, “Change Is in the Air,” was adopted in 2007 after consultations with thousands of residents and stakeholders, and was updated in 2017.
The updated plan, “Transform TO,” has set goals to significantly lower energy consumption in existing buildings. It is hoped that energy-efficiency upgrades in existing buildings will reduce energy use by 40 per cent by 2050, and 30 per cent of the city’s total floor space will be connected to low-carbon heating and cooling. To fulfill these plans, nearly every building within the city will need to be transformed into a high-performing, energy-efficient space – but unlike New York City, Toronto does not have the legal power to compel building owners to take these steps. It has to rely on voluntary measures and on its own leadership.
The City of Toronto is demonstrating that leadership by maximizing energy efficiency in its municipal buildings. The city’s target date for near zero energy consumption in its new municipal buildings is 2026, and it plans to reduce energy consumption in existing city-owned buildings by 40 per cent by 2040 (ten years ahead of the goal for other buildings in the city). The city already has implemented energy-conservation and demand-management practices in its more than six hundred buildings through the automation of building systems. All major buildings have undergone energy-efficiency retrofits, financed by the savings in energy costs. And city-owned facilities are installing solar panels with a goal of reaching twenty-four megawatts by the end of this year. This city leadership makes the implementation of voluntary programs in the private sector far easier.
Better Buildings Partnership: Toronto
Toronto’s current climate plan builds on a program developed two decades earlier. In 1996, the Better Buildings Partnership (BBP) was launched to promote energy-efficiency retrofits in large private residential, commercial, industrial, and institutional buildings, and has been highly successful in reducing energy consumption, particularly of natural gas. As the name suggests, the BBP is a partnership – between energy-management firms, utilities, and the City of Toronto. The work of the partnership has evolved as best practices have evolved elsewhere; today, for example, the BBP makes use of an energy and water reporting and benchmarking program, which is an idea borrowed from New York City. To date, through this voluntary program, more than 2,600 buildings have undertaken energy retrofits and reduced greenhouse gases by more than 810,000 metric tons annually.
Toronto is also addressing residential properties such as single- family homes. Investing in residential energy- and water-efficiency retrofits or renewable-energy projects with payback periods longer than people expect to live in their homes might not make economic sense for a particular occupant, even though it does overall for the property. To address this challenge, Toronto has created the Home Energy Loan Program. These long-term, low-interest loans are tied to the property, not the property owner. This means that when a home is sold, the new beneficiary of the efficiency upgrades is also responsible for making the remaining payments for those retrofits. As part of the application process, all homes must undergo a home-energy assessment, and the owner is provided with recommendations for cost-effective improvements and information about available rebates and incentives. Another home-energy assessment is conducted after the retrofits to verify and quantify the efficiency gains. (These loans are another form of PACE financing.)
Toronto is also addressing the energy efficiency of high-rise residential buildings, particularly those built between 1960 and 1980, when building codes had significantly lower standards of energy efficiency. It takes serious planning and upfront investment to retrofit a high-rise apartment building. Two programs have been developed to support these buildings in undertaking retrofits: High-Rise Retrofit Improvement Support (Hi-RIS) and Energy Savings Performance Agreements (ESPAs).
Hi-RIS is another PACE-type program specifically designed for residential apartments of three or more stories. Energy-efficiency, water-efficiency, and renewable-energy projects can be financed at low cost for up to twenty years through this program. Utility savings offset the retrofit costs, and energy and greenhouse gas emissions reductions are verified through comprehensive energy audits. As in similar programs, the loans are tied to the property, not the property owners.
An ESPA is a service-performance agreement in which a third party pays for the energy-efficiency retrofit and recoups its costs plus a small return through the resultant energy cost savings over the term of the agreement. Once the investment is repaid, all energy cost savings are enjoyed by the building owner. In Toronto, ESPAs can be arranged for large residential, commercial, and institutional buildings through a private corporation that partners with the Toronto Atmospheric Fund (TAF). TAF is a nonprofit created with an endowment from the City of Toronto to support and finance climate-action and clean-air initiatives in the city. ESPAs are marketed to building owners as budget neutral, as shown by the chart in Figure 3.2.
Figure 3.2: Energy Savings Performance Contracting
This figure shows how an Energy Savings Performance Agreement (ESPA) works. Source: Based on AMERESCO, Performance Contracting: A Budget-Neutral Solution , www.ameresco.com.
The Robert Cooke Co-op is an excellent example of the potential of ESPA financing. This affordable housing complex includes 28 townhomes and a 123-unit tower built in 1992. Being a co-op with subsidized units, there was little money available to invest in efficiency retrofits. The ESPA paid for high-efficiency space and water heaters, a better ventilation system, weather stripping, upgrades to lighting, new appliances, and water-efficiency upgrades. The retrofits were completed in 2013 and achieved a 30 per cent reduction in annual greenhouse gas emissions. The simple payback period for the retrofits was a mere five years, and the annual energy and cost savings exceeded expectations. What’s more, the residents reported greater comfort in their homes after the retrofit, and the measures taken were expected to extend the lifespan of the buildings by twenty years.
Nearly all buildings in Toronto can apply for an energy-retrofit loan. These loans were first available only to city divisions, agencies, and community-based entities. By 2019, having proven its value in promoting retrofits, and to integrate the program goals with those of Transform TO, the loan program was expanded to include buildings of nearly all types. The loans provided by the program can cover up to the full upfront cost of an energy-efficiency retrofit or renewable-energy project. During the application process, city staff also help building owners access any incentives and rebates available from utilities and other governments. The loans can extend for up to twenty years and they have fixed, low-interest terms: interest rates are set at the city’s cost of borrowing. For most of the funded retrofits, the energy savings over the loan period will be greater than the total cost of the loan.
By 2016, greenhouse gas emissions from the city were 33 per cent below 1990 levels: 3 per cent better than and four years ahead of the 2020 target. Emission reductions in buildings that have undergone retrofits have been significant, even though the new programs are still at an early stage. These projects have demonstrated that major cuts to energy costs and greenhouse gas emissions are possible from all types of buildings.
All the retrofit financing programs described above have win-win-win outcomes. Building owners get energy-efficiency upgrades to their buildings that improve their performance, increase their value, extend their life, and save the owners money over the long term. Tenants and building occupants get more comfortable living and working spaces plus lower utility costs. The City of Toronto wins as emissions from buildings come down with programs that do not draw from the municipal budget: the loan and associated administration costs are generally covered in full by the loan repayments. What’s more, retrofit programs create jobs – often good union jobs with decent wages and benefits – and economic opportunity.
“I think it is [a] dual focus: employing [the] energy consultants from low-income families, and through them we can make many humble homes energy-efficient. So it’s like catching two birds with one stone.”
– Mayor Park Won-soon (Seoul), 2016
All these programs are made possible because of strong partnerships between the city, building owners, and other stakeholders. These partnerships are essential for developing effective programs that meet the needs of all groups in a way that considers the unique challenges and opportunities of each city. Other cities have shown that the concept is easy to follow and can succeed.
Better Buildings Partnership: Sydney
Sydney launched its own Better Buildings Partnership in 2011. It is an important part of Sydney’s plan to achieve net zero emissions by 2050. In a city where more than 80 per cent of greenhouse gas emissions come from the electricity used in buildings, improving the energy efficiency of buildings is essential to reducing emissions (see Figure 3.3).
Figure 3.3: Sydney’s Emissions Inventory
Buildings are by far the most significant source of greenhouse gas emissions in Sydney, Australia. Source: Based on data from Global Covenant of Mayors, Sydney, Australia, www.globalcovenantofmayors.org/cities/sydney/.
Sydney’s BBP is a partnership between the city and a group of major commercial property owners and managers who together own or manage more than half the office floor space in the city center. They have developed collaborative approaches to improving the performance of their buildings, with an emphasis on energy, water, and waste. Many of their programs focus on information sharing, education, and toolkits.
For example, the BBP publishes information about “Green Leases.” Using a scorecard, an owner’s or a manager’s willingness to work with tenants and take concrete steps toward sustainability is evaluated, based on identified best practices. Lease clauses that support these green practices are also published by the BBP. In this way, tenants and owners can work together to create a work environment that saves energy, reduces absenteeism, encourages greater employee retention, increases productivity, and saves significant costs.
A simple and cost-effective sustainability measure promoted by this program is changing the building temperature controls so that office temperatures are a few degrees warmer in summer than in winter, and expanding the temperature range over which the heating or cooling systems turn on or off. A building might set the temperature in winter to 21°C (70°F) with the heating coming on at 20°C (68°F), and shutting off at 22°C (72°F). In summer, the temperature may be set to swing between 24°C (75°F) and 26°C (79°F). This simple measure can save up to 30 per cent on heating and cooling costs.
Sydney’s Smart Green Apartments program addresses residential high-rises. Energy and waste assessments are provided at no charge by the city and form the factual basis for the creation of action plans, training, and implementation support to make apartment buildings more water and energy efficient.
Sydney also supports building recommissioning, which it calls building tune-ups. These help improve the performance of the mechanical and electrical systems in a building and can save an owner thousands of dollars per year with a low-cost investment. Along the way, the city helps to connect building owners with incentive programs and will subsidize the installation of automated systems for monitoring and controlling usage.
One example of what has been done in Sydney is at the Regis Towers Complex, which consists of three residential high-rise towers built in 1998. Each tower has its own sports facility and pool, and together they comprise more than 650 apartments. By installing more energy-efficient fans and motors, and by adjusting the settings of timers and sensors, building owners were able to reduce their energy bills by 37 per cent. Adding smart water-monitoring technology saved more than AUD$35,000 per year by allowing managers to address leaks and other problems early – an important example of simple, relatively inexpensive measures having significant results.
Building retrofits in Sydney are supported through a variety of financing programs. Funding for energy-efficiency projects that reduce greenhouse gas emissions is available from federal and state programs. There are grants available from the city for innovation, operations, and energy assessments.
The City of Sydney has a PACE-type financing program with some notable differences from the one operated by Toronto. The program is called Environmental Upgrade Finance (EUF). Like Toronto’s Hi-RIS program, it offers long-term, low-interest loans for up to the full cost of energy-efficiency upgrades and solar projects. As in Toronto, the loans are tied to the property, and repayments are collected through city billing. Unlike the Toronto program, a third-party lender provides the capital, and the program addresses the split-incentives problem: a major barrier to retrofits in commercial buildings.
As noted above, building owners have little incentive to pay for retrofits when it is their tenants who realize the economic savings. Provisions were therefore made in Sydney’s EUF to make it possible for tenants to be partially responsible for loan repayments. Tenant contributions cannot exceed their energy-bill savings, but they still benefit from the improved indoor environmental conditions that the retrofits provide. Tenants are therefore also incentivized to support the energy-efficiency upgrades that enhance their work environment at no additional net cost.
St James’ Hall in Sydney is an interesting case study. Built in 1963 on the site of a former concert hall of the same name, St James’ Hall is a thirteen-story office and retail building owned by the Anglican Church. In 2014, the building underwent major retrofits, including replacing chillers, installing energy-efficient fans and motors for the ventilation system, adding a building operation management system, and upgrading lighting. Approximately 40 per cent of the total project financing costs is being paid through tenant contributions, without increasing the total cost to lease the space. Churchwarden James Balfour has commented, “The project provides benefits for our tenants as well as for us and for the environment. It’s a win-win-win.”
The Better Buildings Partnership has generated some impressive results to date. While Sydney’s overall emissions had seen a 17 per cent drop by 2015, emissions from the building spaces that participated in the BBP realized a 45 per cent drop over that same period.
The Final Word
One of the most effective ways to lower greenhouse gas emissions in any urban area is to address greenhouse gas emissions from existing buildings. The amount depends on the city type – a large, built-up city such as New York or Tokyo will have proportionately better results than a spread-out city – but in all cities the energy efficiency of buildings matters greatly. It has been proven that by starting with the buildings with the highest emissions and using a regulatory approach where that power exists, and a voluntary one where it doesn’t, a city can dramatically lower emissions from the heating and cooling of buildings. The McKinsey Focused Acceleration report tells us that energy retrofits can reduce greenhouse gas emissions in an urban area by 20 to 55 per cent – an incredible contribution, and one that often creates significant employment at the same time. The main challenge in ensuring that these actions happen rapidly and at scale is not financial and technical; it is that in many places city governments do not have the legal authority to require change and therefore depend on the use of voluntary programs such as those in Toronto and Sydney – which, while extremely effective, require a high rate of participation to reach the same levels of overall emissions reduction as mandatory rules such as those in New York’s buildings mandate or Tokyo’s cap and trade.