IPCC Fourth Assessment Report: Climate Change 2007
Climate Change 2007: Working Group III: Mitigation of Climate Change

6.8.5 Policy options for GHG abatement in buildings: summary and conclusion

Section 6.8 demonstrates that there is a variety of government policies, programmes, and market mechanisms in many countries for successfully reducing energy-related CO2 emissions in buildings (high agreement, medium evidence). Table 6.6 (below) reviews 20 of the most important policy tools used in buildings according to two criteria from the list of criteria suggested in Chapter 13 (of the ones for which literature was available in policy evaluations): emission reduction effectiveness and cost-effectiveness. Sixty-six ex post (with a few exceptions) policy evaluation studies were identified from over 30 countries and country groups that served as a basis for the assessment.

The first column in Table 6.6 identifies the key policy instruments grouped by four major categories using a typology synthesized from several sources including Grubb (1991); Crossley et al. (2000) and Verbruggen and Bongaerts (2003): (i) control and regulatory mechanisms, (ii) economic and market-based instruments, (iii) financial instruments and incentives, and (iv) support and information programmes and voluntary action. The second column identifies a selection of countries where the policy instrument is applied[20]. Then, the effectiveness in achieving CO2 reduction and cost-effectiveness were rated qualitatively based on available literature as well as quantitatively based on one or more selected case studies. Since any instrument can perform poorly if not designed carefully, or if its implementation and enforcement are compromised, the qualitative and quantitative comparisons are based on identified best practices, in order to demonstrate what impact an instrument can achieve if applied well. Finally, the table lists special conditions for success, major strengths and limitations, and co-benefits.

While the 66 studies represent the majority of such evaluations available in the public domain in 2006, this sample still leaves few studies in certain categories. Therefore, the comparative findings of this assessment should be viewed as indicative rather than conclusive. Although a general caveat of comparative policy assessments is that policies act as parts of portfolios and therefore the impact of an individual instrument is difficult to delineate from those of other tools, this concern affects the assessment to a limited extent since the literature used already completed this disaggregation before evaluating individual instruments.

All the instruments reviewed can achieve significant energy and CO2 savings; however the costs per tonne of CO2 saved diverge greatly. In our sample, appliance standard, building code, labelling and tax exemption policies achieved the highest CO2 emission reductions. Appliance standards, energy efficiency obligations, demand-side management programmes, public benefit charges and mandatory labelling were among the most cost-effective policy tools in the sample, all achieving significant energy savings at negative costs. Investment subsidies (as opposed to rebates for purchases of energy efficient appliances) were revealed as the least cost-effective instrument. Tax reductions for investments in energy efficiency appeared more effective than taxation. Labelling and voluntary programmes can lead to large savings at low-costs if they are combined with other policy instruments. Finally, information programmes can also achieve significant savings and effectively accompany most other policy measures.

The effectiveness of economic instruments, information programmes and regulation can be substantially enhanced if these are appropriately combined into policy packages that take advantage of synergistic effects (Ott et al., 2005). A typical example is the co-ordination of energy audit programmes with economic instruments, such as energy taxes and capital subsidy schemes. In addition, ESCOs can flourish when public procurement legislation accommodates EPCs and includes ambitious energy-efficiency or renewable energy provisions, or in the presence of an energy-saving obligation.

Section 6.8 demonstrates that, during the last decades, many new policies have been initiated. However, so far only incremental progress has been achieved by these policies. In most developed countries, the energy consumption in buildings is still increasing (IEA, 2004f). Although some of this growth is offset by increased efficiency of major energy-consuming appliances, overall consumption continues to increase due to the growing demand for amenities, such as new electric appliances and increased comfort. The limited overall impact of policies so far is due to several factors: (i) slow implementation processes (e.g., as of 2006, not all European countries are on time with the implementation of the EU Buildings Directive); (ii) the lack of regular updating of building codes (requirements of many policies are often close to common practices, despite the fact that CO2-neutral construction without major financial sacrifices is already possible) and appliance standards and labelling; and (iii) insufficient enforcement. In addition, Section 6.7 demonstrated that barriers in the building sector are numerous; diverse by region, sector and end-user group, and are especially strong.

There is no single policy instrument that can capture the entire potential for GHG mitigation. Due to the especially strong and diverse barriers in the residential and commercial sectors, overcoming these is only possible through a diverse portfolio of policy instruments for effective and far-reaching GHG abatement and for taking advantage of synergistic effects. Since climate change literacy, awareness of technological, cultural and behavioural choices and their impacts on emissions are important preconditions to fully operating policies, these policy approaches need to go hand in hand with programmes that increase consumer access to information, awareness and knowledge (high agreement, medium evidence).

In summary, significant CO2 and other GHG savings can be achieved in buildings, often at net benefit to society (in addition to avoided climate change) and also meeting many other sustainable development and economic objectives, but this requires a stronger political commitment and more ambitious policy-making than today, including careful design of policies as well as enforcement and regular monitoring.

Table 6.6: The impact and effectiveness of various policy instruments aimed to mitigate GHG emission in the buildings sector

Policy instrumenta Examples of countries Effectivenessb Energy or emission reductions for selected best practices Cost-effectiveness Cost of GHG emission reduction for selected best practicesc Special conditions for success, major strengths and limitations, co-benefits References 
Control and regulatory mechanisms 
Appliance standards EU, US, JP, AU, BR, CN High JP: 31 M tCO2 in 2010; CN: 240 MtCO2 in 10 yrs; US: 2.5% of electricity use in 2000 = 65 MtCO2, 6.5% = 223.87 MtCO2 in 2010. High AU: –15 $/tCO2 in 2012; US: –65 $/tCO2 in 2020; EU: –194 $/tCO2 in 2020. Factors for success: periodical update of standards, independent control, information, communication and education. IEA, 2005; Schlomann et al. 2001; Gillingham et al., 2004; ECS, 2002; World Energy Council, 2004; Australian Greenhouse Office, 2005; IEA 2003a; Fridley and Lin, 2004. 
Building codes SG, PH, DZ, EG, US, GB, CN, EU High HK: 1% of total electricity saved; US: 79.6 MtCO2 in 2000; EU: 35–45 MtCO2, max 60% energy savings in new buildings. Medium NL: from –189 $/tCO2 to –5 $/tCO2 for end-users, 46–109 $/tCO2 for society. No incentive to improve beyond target. Only effective if enforced. World Energy Council, 2001; Lee & Yik, 2004; Schaefer et al., 2000; Joosen et al., 2004; Geller et al., 2006; ECCP, 2001. 
Procurement regulations US, EU, CN, MX, KR, JP High MX: 4 cities saved 3.3 ktCO2-eq in one year; CN: 3.6 MtCO2 expected; EU: 20–44 MtCO2 potential. Medium MX: $1Million in purchases saves $726,000/yr; EU: <21 $/tCO2Success factors: enabling legislation, energy efficiency labelling & testing, ambitious energy efficiency specifications. Borg et al., 2003; Harris et al., 2005; Van Wie McGrory et al., 2006.  
Mandatory labelling and certification programmes US, CA, AU, JP, MX, CN, CR, EU High AU: 5 M tCO2 savings 1992–2000; DK: 3.568 MtCO2High AU: –30 $/tCO2 abated. Effectiveness can be boosted by combination with other instrument and regular updates.  World Energy Council, 2001; OPET network, 2004; Holt & Harrington, 2003. 
Energy efficiency obligations and quotas GB, BE, FR, IT, DK, IE High GB: 1.4 MtCO2/yr.  High Flanders: –216 $/tCO2 for households, –60 $/tCO2 for other sector in 2003; GB: –139 $/tCO2Continuous improvements necessary: new energy efficiency measures, short-term incentives to transform markets etc. UK government, 2006; Sorell, 2003; Lees, 2006; Collys, 2005; Bertoldi & Rezessy, 2006; Defra, 2006.  
Utility demand-side management programmes US, CH, DK, NL, DE, AT High  US: 36.7 MtCO2 in 2000.  High US: Average costs approx. –35 $/tCO2DSM programmes for commercial sector tend to be more cost-effective than those for residences. IEA, 2005; Kushler et al., 2004. 
Economic and market-based instruments 
Energy performance contracting DE, AT, FR, SE, FI, US, JP, HU High FR, SE, US, FI: 20–40% of buildings energy saved; EU:40–55MtCO2 by 2010; US: 3.2 MtCO2/yr.  Medium EU: mostly at no cost, rest at <22 $/tCO2; US: Public sector: B/C ratio 1.6, Priv. sector: 2.1  Strength: no need for public spending or market intervention, co-benefit of improved competitiveness. ECCP, 2003; OPET network, 2004; Singer, 2002; IEA, 2003a; World Energy Council, 2004; Goldman et al., 2005. 

Table 6.6b.

Policy instrumenta Examples of countries Effectivenessb Energy or emission reductions for selected best practices Cost-effectiveness Cost of GHG emission reduction for selected best practicesc Special conditions for success, major strengths and limitations, co-benefits References 
Co-operative procurement DE, IT, GB, SE, AT, IE, JP, PO, SK, CH High Varies, German telecom company: up to 60% energy savings for specific units.  High 0: Energy-efficient purchasing relies on funds that would have been spent anyway. Success condition: energy efficiency needs to be prioritized in purchasing decisions. Oak Ridge National Laboratory, 2001; Le Fur 2002; Borg et al., 2003. 
Energy efficiency certificate schemes IT, FR Medium  IT: 3.64 Mt CO2 eq by 2009 expected. Medium n.a. No long-term experience yet. Transaction costs can be high. Monitoring and verification crucial. Benefits for employment. OPET network, 2004; Bertoldi & Rezessy, 2006; Lees, 2006; Defra, 2006. 
Kyoto Protocol flexible mechanismsd CN, TH, CEE (JI & AIJ) Low CEE: 220 K tCO2 in 2000.  Low 63 $/tCO2So far limited number of CDM & JI projects in buildings.  ECS, 2005; Novikova. et al., 2006. 
Financial instruments and incentives 
Taxation (on CO2 or household fuels) NO, DE, GB, NL, DK, CH Low DE: household consumption reduced by 0.9%.  Low   Effect depends on price elasticity. Revenues can be earmarked for further efficiency. More effective when combined with other tools.  World Energy Council, 2001; Kohlhaas, 2005. 
Tax exemptions / reductions US, FR, NL, KO High US: 88 MtCO2 in 2006.  High Overall B/C ratio – Commercial buildings: 5.4 – New homes: 1.6.  If properly structured, stimulate introduction of highly efficient equipment and new buildings. Quinlan et al., 2001; Geller & Attali, 2005. 
Public benefit charges BE, DK, FR, NL, US states Medium/ low US: 0.1–0.8% of total electricity sales saved /yr, average of 0.4%. high in reported cases From –53 US$/tCO2 to –17 $/tCO2  Western Regional Air Partnership, 2000; Kushler et al., 2004.  
Capital subsidies, grants, subsidized loans JP, SI, NL, DE, CH, US, HK, GB High SI: up to 24% energy savings for buildings, GB: 3.3 MtCO2; US:29.1 Mio BTU/yr gas savings. Low NL: 41–105 US$/tCO2 for soc; GB:29 US$/tCO2 for soc, –66 $/tCO2 for end-user. Positive for low-income households, risk of free-riders, may induce pioneering investments. ECS, 2001; Martin et al., 1998; Schaefer et al., 2000; Geller et al., 2006; Berry & Schweitzer, 2003; Joosen et al., 2004; Shorrock, 2001.  
Support, information and voluntary action 
Voluntary certification and labelling DE, CH, US, TH, BR, FR Medium/ high BR: 169.6 ktCO2 in 1998, US: 13.2 MtCO2 in 2004, 2.1 bio tCO2-eq in total by 2010; TH: 192 tCO2High BR: US$ 20 million saved. Effective with financial incentives, voluntary agreements and regulations. OPET network, 2004; Word Energy Council, 2001; Geller et al., 2006; Egan et al., 2000; Webber et al., 2003. 

  1. ^  Since we made a strong effort to highlight best practices from developing countries where possible, major front-running developed countries where the instrument is applied may not be listed in each applicable row of the table.