Energy Efficiency Potentials in CEE buildings: How can we harvest them?

1. Energy Efficiency Potentials in CEE buildings: How can we harvest them? Diana Ürge-Vorsatz Director 8th Inter-Parliamentary Meeting on Renewable Energy and Energy Efficiency

2. Outline • Buildings in CEE: EU’s goldmine • Energy efficiency potentials • Co-benefits • GHG mitigation policy opportunities in buildings: the other goldmine • Why it is difficult to harvest the gold: challenges in CEE • Selected solutions: recommendations

3. Buildings in CEE: EU’s goldmine

4. EU buildings – a goldmine for CO2 reductions, energy security, job creation and addressing low income population problems Source: Claude Turmes, MEP, presented at the Amsterdam Forum, 2006

5. Estimated potential for GHG mitigation at a sectoral level in 2030 in different cost categories , transition economies Source: CEU research for IPCC AR4, Ch6

6. Investment needs to unlock building efficiency potentials in Hungary, versus saved energy costs Source: Novikova 2008, Novikova and Urge-Vorsatz, KVVM report, 2007

7. Co-benefits of improved energy efficiency in CEE buildings (selection) • Co-benefits are often not quantified, monetized, or identified • Overall value of co-benefits may be higher than value of energy savings • A wide range of co-benefits, including: • Improved social welfare • Energy-efficient household equipment and low-energy building design helps households cope with increasing energy tariffs • Fuel poverty: In the UK, about 20% of all households live in fuel poverty. The number of annual excess winter deaths is estimated at around 40 thousand annually in the UK alone.

8. Fuel poverty in Hungary Share of energy spending in total household expenditures Calculated based on Eurostat (2008), LABORSTA (2007), Commission of the European Communities, (2008)

9. The key co-benefits for new EU MSs (continued) • Employment creation • “producing” energy through energy efficiency or renewables is more employment intensive than through traditional ways • a 20% reduction in EU energy consumption by 2020 can potentially create 1 mln new jobs in Europe • new business opportunities • for developed countries a market opportunity of € 5–10 billion in energy service markets in Europe • Increased comfort • E.g. Solanova project, Hu: noise reduction, sing. Reduction in indoor pollution –> reduced need for cleaning and improved health; property values increased • Reduced energy costs will make businesses more competitive • Others: • Improved energy security, reduced burden of constrained generation capacities, Increased value for real estate, Improved energy services (lighting, thermal comfort, etc) can improve productivity, Improved outdoor air quality

10. Policies to foster GHG mitigation in buildings

11. The impact and effectiveness of various policy instruments Part 1: Control and regulatory mechanisms- normative instruments

12. The impact and effectiveness of various policy instruments Part 2: Regulatory- informative instruments

13. The impact and effectiveness of various policy instruments Part 3: Economic and market-based instruments

14. The impact and effectiveness of various policy instruments Part 4: Fiscal instruments and incentives

15. The impact and effectiveness of various policy instruments Part 5: Support, information and voluntary action (cont.) Country name abbreviations: Alg - Algeria, Arg- Argentina, AUS - Australia, Aut - Austria, Be - Belgium, Br - Brazil, Cal - California, Can - Canada, CEE - Central and Eastern Europe, Cn - China, Cr - Costa Rica, Cz - Czech Republic, De - Germany, Ecu - Ecuador, Egy - Egypt, EU - European Union, Fin - Finland, GB-Great Britain, Hkg -Hong Kong, Hu - Hungary, Ind - India, Irl - Ireland, It - Italy, JP - Japan, Kor - Korea (South), Mar- Morocco, Mex - Mexiko, NL - Netherlands, Nor - Norway, Nzl – New Zealand, Phil - Philippines, Pol - Poland, Ro- Romania, SA- South Africa, SG - Singapore, Sk - Slovakia, Svn - Slovenia, Sw - Switzerland, Swe - Sweden, Tha - Thailand, US - United States.

16. Why it is difficult to harvest the gold: CEE challenges to harvesting the potentials • While cost-effective, long payback times • Substantial capital investment needs • But very limited liquidity of population and institutions • Perverse govt incentives (eg procurement, support schemes) • Millions of stakeholders to be mobilised • Huge transaction costs • Markets, businesses, experts and and public awareness not ready • others

17. Recommendations:selected policy options to be considered • What not: direct price subsidies; caution with investment subsidies • Exemplary role of the public sector: leadership programs • E.g. German and Austrian govt commitments • PPP solutions to be preferred • E.g. ESCO arrangements in Germany • Establishing the financial markets that are motivated in lending for efficiency (if no crisis…) • Mandatory low-E (~passive bldg) standards for social housing (perhaps all publicly financed bldgs?) • Preferential mortgage schemes for low-E housing&offices • “feebate” schemes in mortgages • Green Investment Schemes – huge opportunity; Hungary front-runner

18. Diana Ürge-Vorsatz Center for Climate Change and Sustainable Energy Policy (3CSEP) CEU 3csep.ceu.hu vorsatzd@ceu.hu Thank you for your attention With permission from HVG They keep promising this global warming, they keep promising – but trust me, they won’t keep this promise either!

19. Acknowledgements: authors of Chapter 6 • Coordinating Lead Authors: • Mark Levine (USA), Diana Ürge-Vorsatz (Hungary) • Lead Authors: • Kornelis Blok (The Netherlands), Luis Geng (Peru), Danny Harvey (Canada), Siwei Lang (China), Geoffrey Levermore (UK), Anthony Mongameli Mehlwana (South Africa), Sevastian Mirasgedis (Greece), Aleksandra Novikova (Russia), Jacques Rilling (France), Hiroshi Yoshino (Japan) • Contributing Authors: • Paolo Bertoldi (Italy), Brenda Boardman (UK), Marilyn Brown (USA), Suzanne Joosen (The Netherlands), Phillipe Haves (USA), Jeff Harris (USA), Mithra Moezzi (USA) • Review Editors: • Eberhard Jochem (Germany), Huaqing Xu (PR China)

20. Supplementary slides

21. Sectoral CO2 emissions projected in the reference case, 2008 - 2025

22. If so attractive, why is it not happening? • The market barriers to energy-efficiency are perhaps the most numerous and strongest in the buildings sector • These include: • imperfect information • Limitations of the traditional building design process • Energy subsidies, non-payment and energy theft • Misplaced incentives (agent/principal barrier) • Small project size, high transaction costs • others

23. Conclusion • Climate change is unequivocal • Stabilisation is possible, but requires major reductions in emissions, as much 50 – 85% of 2000 emissions by 2050 • Improved energy-efficiency could contribute the largest share in our mitigation task in the short- and mid-term • Capturing the economic potential in buildings alone can contribute app. 38% of reduction needs in 2030 for a 3˚C-capped emission trajectory • While HPs can play an important role, many factors determine the net climate impact of heat-pumps vs. the alternatives, the LCCP potential of the refrigerants also needs to be considered. • In addition to climate change benefits, improved energy-efficiency can advance several development goals as well as strategic economic targets • However, each new building (HVAC system) constructed in an energy-wasting manner will lock us into high climate-footprint future buildings for decades (centuries?) to come – action now is important

24. Early investment are important Table 11.17:Observed and estimated lifetimes of major GHG-related capital stock

25. Mitigation in the buildings sector: global significance • Capturing only the cost-effective potential in buildings can supply app. 38% of total reduction needed in 2030 to keep us on a trajectory capping warming at 3˚C • New buildings can achieve the largest savings • As much as 80% of the operational costs of standard new buildings can be saved through integrated design principles • Often at no or little extra cost • Hi-efficiency renovation is more costly, but possible • The majority of technologies and know-how are widely available • A large share of these options have “negative costs” – i.e. represent profitable investment opportunities

26. Supply curves of conserved CO2 for buildings in 2020 for different world regions Source: Figure 6/4. Notes: a) Except for the UK, Thailand and Greece, for which the supply curves are for the residential sector only. b) Except for EU-15 and Greece, for which the target year is 2010 and Hungary, for which the target year is 2030. Each step on the curve represents a type of measure, such as improved lighting or added insulation. The length of a step on the ‘X’ axis shows the abatement potential represented by the measure, while the cost of the measure is indicated by the value of the step on the ‘Y’ axis.

27. Although EE is often profitable, investments are hindered by barriers • Although there are large cost-effective investments to be made, market barriers often hinder that they are captured by market forces • Including misplaced incentives, distorted energy price/tax regimes, fragmented industry and building design process, limited access to financing, lack of information and awareness (of the benefits), regulatory failures, etc. • These barriers are perhaps the most numerous and strongest in the buildings sector • Therefore, strong policies are needed to overcome them to kick-start and catalise markets in capturing the potentially cost-effective investments

28. Background: case studies reviewed • Over 80 ex-ante policy evaluation studies were reviewed from over 52 countries

29. Conclusion • Improved energy-efficiency could contribute the largest share in our mitigation task in the short- and mid-term • Capturing the economic potential in buildings alone can contribute app. 38% of reduction needs in 2030 for a 3˚C-capped emission trajectory • In addition to climate change benefits, improved energy-efficiency can advance several development goals as well as strategic economic targets • E.g. improving social welfare, employment, energy security • However, due to the numerous barriers public policies are needed to unlock the potentials and to kick-start or catalise markets • Several instruments have already been achieving large emission reductions at large net societal benefits, often at double or triple negative digit cost figures all over the world • However, each new building constructed in an energy-wasting manner will lock us into high climate-footprint future buildings – action now is important

30. Why is immediate action important?

31. Sectoral economic potential for global mitigation for different regions as a function of carbon price, 2030 IPCC AR4 WGIII Figure SPM.6.

32. Supply curve of CO2 mitigation in the Hungarian residential sector, 2025 Source: Novikova 2008, Novikova and Urge-Vorsatz, KVVM report, 2007

33. Policies to foster GHG mitigation in buildings

34. The impact and effectiveness of various policy instruments Part 1: Control and regulatory mechanisms- normative instruments

35. The impact and effectiveness of various policy instruments Part 2: Regulatory- informative instruments

36. The impact and effectiveness of various policy instruments Part 3: Economic and market-based instruments

37. The impact and effectiveness of various policy instruments Part 4: Fiscal instruments and incentives

38. The impact and effectiveness of various policy instruments Part 5: Support, information and voluntary action (cont.) Country name abbreviations: Alg - Algeria, Arg- Argentina, AUS - Australia, Aut - Austria, Be - Belgium, Br - Brazil, Cal - California, Can - Canada, CEE - Central and Eastern Europe, Cn - China, Cr - Costa Rica, Cz - Czech Republic, De - Germany, Ecu - Ecuador, Egy - Egypt, EU - European Union, Fin - Finland, GB-Great Britain, Hkg -Hong Kong, Hu - Hungary, Ind - India, Irl - Ireland, It - Italy, JP - Japan, Kor - Korea (South), Mar- Morocco, Mex - Mexiko, NL - Netherlands, Nor - Norway, Nzl – New Zealand, Phil - Philippines, Pol - Poland, Ro- Romania, SA- South Africa, SG - Singapore, Sk - Slovakia, Svn - Slovenia, Sw - Switzerland, Swe - Sweden, Tha - Thailand, US - United States.

39. Cumulative potential CO2 emission reductions in Hungarian residences, 2008 - 2025 Source: Novikova 2008, Novikova and Urge-Vorsatz, KVVM report, 2007