EcDev Journal

Energy efficient buildings are critical infrastructure in a net-zero emission economy

Posted on Saturday October 24, 2020

By: Brendan Haley Ph.D., Policy Director of Efficiency Canada   

brendan.haley@efficiencycanada.org

Abstract: The 2020 federal speech from the throne lists “energy efficiency retrofits” as infrastructure investment, and a new Canada Infrastructure Bank “growth plan” includes large building retrofits. The re-framing of energy efficiency as infrastructure highlights aggregate, society-wide, impacts rather than individual benefits. This policy perspective could deliver energy efficiency at the scale required to transition to net-zero GHG emissions - if it leads to a mission-oriented agenda focused on creating new financial markets and exploring new retrofit business models, by using a wide mix of policy tools. 

Keywords: energy efficiency; Canada Infrastructure Bank; building retrofit; business models; policy mix. 

A nuance in the 2020 federal speech from the throne that might have gone unnoticed was that “energy efficiency retrofits” were listed as infrastructure investment. Below, I explain why re-conceptualizing energy efficiency as infrastructure could have transformative implications for policymaking and the role energy savings play in a green economy.[i] 

Energy retrofits involve improvements to insulation, air sealing, windows, heating and cooling systems, etc. to reduce energy use and carbon emissions while improving comfort and affordability. The benefits to building owners and occupants are clear. 

Re-framing energy efficiency as infrastructure highlights the aggregate impacts of energy efficiency. The economy-wide benefits of more efficient buildings include improvements in worker productivity from better-performing buildings,[ii] health benefits from better indoor air quality[iii], and reductions in energy poverty[iv]. There are also macroeconomic impacts on job creation and increased spending in the local economy.[v] Reducing fossil fuel consumption in buildings produces immediate greenhouse gas reduction - plus more efficient buildings in provinces currently dominated by renewable electricity means those resources can be freed up to reduce fossil fuel use in heating, transportation, and industrial sectors. These extensive and systemic benefits cannot be fully captured by a single private sector player. Thus energy efficiency buildings are similar to more traditional infrastructure areas such as transportation and communications. 

Governments can recognize the multiple benefits of energy efficiency, yet often prioritize “boutique” programs that are restricted to a particular market segment or use only one policy instrument. The most prominent has been the EcoEnergy retrofit program and its previous embodiment as Energuide for Homes, which offered cost-shared incentives for single-family dwellings. The incentives were effective, yet funding was short-term, leading to uncertainty and funding cuts.[vi] An infrastructure approach promises to make the stable, long-term, investments needed to engage the building trades in an energy savings agenda. 

The aggregate benefits of energy efficiency are recognized to a greater extent in public utility regulation institutions. Leading energy-saving jurisdictions establish “all cost-effective” mandates or load orders that require energy savings to be prioritized over more expensive energy supply options.[vii] Utilities and regulators quantify the costs saved by prioritizing energy efficiency, but their calculations rarely consider the multiple benefits outside of electricity or natural gas system boundaries.[viii] Utility programs, therefore, tend to support relatively shallow energy-saving measures such as lighting upgrades rather than the deep retrofits required to make a structural change towards a net-zero emissions economy.[ix] 

What then are the policy implications of re-framing energy efficiency as infrastructure? It could lead to a mission-oriented approach with a goal of creating new markets and business models, by using a broad mix of policies. 

Creating a Financial Market 

An infrastructure lens introduces the challenge of attracting large-scale public and private investment towards reducing building energy use. This perspective is distinct from one that understands becoming more energy efficient as an individual or behavioural choice, which can be influenced by tax changes or subsidies to fix “market failures”. Mariana Mazzucato argues that the market failure framing limits policy to small tweaks, rather than considering the fundamental role governments play in directing and creating entirely new markets.[x] 

A “market creation” agenda for energy efficiency is needed because there are opportunities to earn financial returns from energy savings and related benefits, yet the building blocks of a functioning market are largely absent. The private sector is not making significant investments in energy efficiency because projects are small scale, there is limited information on financial viability, and there are short-term investment biases. These barriers relate to a lack of market institutions or weak public direction of market processes, rather than “market failures”. 

Private lenders are repelled by the high transaction costs of financing retrofit projects one building at a time. This barrier introduces a role for “green banks” and investment banks that warehouse efficiency projects until they aggregate into larger-scale portfolios.[xi] These portfolios can then be sold on secondary financial markets, enabling the initial capital to be recycled into more energy-saving initiatives. 

Another barrier is the lack of clear data that would enable private investors to confidently assess credit risk. Public investments can demonstrate the investment opportunity if they track the energy savings and related benefits using standardized protocols, as suggested by the Investor Confidence Project.[xii] 

Finally, there is a need for the public sector to provide the “patient capital” needed for deep retrofit projects with long repayment periods, while seeking to re-direct private investors towards these long-term, stable returns rather than speculative initiatives.[xiii] 

The Canada Infrastructure Bank (CIB) is an entity that could take on this “market creation” mission. Indeed its mandate is to invest directly, while also attracting private sector investors in “revenue-generating infrastructure projects that are in the public interest”.[xiv] In its initial years of operation, the CIB excluded buildings from its priorities - preferring to focus investments in large-scale projects. This position changes with the September 2020 announcement of a new “growth plan” that includes a $2 billion envelope for large building retrofits.[xv] The details of this plan are not yet revealed, but this action suggests the categorization of energy efficiency as infrastructure investment in the Throne Speech could signal a significant strategic shift. 

New Business Models 

Deploying energy efficiency to decarbonize our building infrastructure will require achieving energy savings at a much larger scale, and at a much faster rate. Undertaking energy efficiency at such a scale requires new business models, which is a term referring to the system of production and service provision incorporating supply chains, customer relations, financial models, value propositions, and interaction with governance systems.[xvi] Brown describes the current residential retrofit practice, as an “atomized market model”.[xvii] The customer is largely responsible for financing, project management, and negotiating terms with a complex network of contractors. In Canada, programs that work through this model are averaging retrofit rates of about 0.7% of the low-rise residential housing stock a year, and about 1.4% of commercial floor area a year.[xviii] This rate is not sufficient to make a significant contribution to climate goals before mid-century, and the retrofits will need to achieve deeper energy savings.[xix] 

In the Netherlands, the “energy leap” (or energiesprong) initiative has shown that retrofitting a large number of buildings at once produces economies of scale.[xx] This new model involves the manufacture of standardized components quickly installed on-site. It also guarantees energy costs and energy services to customers, while using third parties to finance the upgrades. The model has been successful in multi-unit residential building stocks with similar characteristics. Canada has more single-family construction, and different climate zones than Europe. Thus there is a need to explore innovations in manufacturing, logistics, and customer engagement that can be adopted to our nation’s regional contexts. 

The federal government is currently supporting laboratory research in manufacturing techniques and it funded at least one standardized retrofit project in Alberta.[xxi] Yet, government programs are still largely focused on a single technology or building-scale pilot projects, rather than large-scale initiatives capable of achieving economies of scale. An infrastructure perspective on energy efficiency could establish specific goals to find retrofit business models capable of achieving deeper energy savings, faster while improving the customer experience. 

A Policy Mix 

Framing efficiency as infrastructure rather than a “boutique” program also holds promise to support a continually evolving mix of policies[xxii] rather than relying on a single policy solution. Many energy efficiency initiatives have not achieved large-scale results because they were focused on a narrow political constituency or relied on a single policy instrument. Perhaps the most pertinent example is the United Kingdom’s “green deal”, which failed because it offered finance without considering other dimensions such as marketing that spoke to consumer needs, and developing the efficient supply chain.[xxiii] 

An infrastructure approach would seek to galvanize the public around a mission to create safe, comfortable, zero-carbon buildings – for everyone to enjoy, instead of micro-targeting energy efficiency to particular political constituencies. This would give policymakers the flexibility to deploy a variety of strategies, including workforce training, grants and loans, the development of large-scale retrofit delivery models, engagement of utilities and municipalities, and market-creating financing strategies. Solutions will also need to be tailored to specific building types, climate zones, and demographics with specific needs – especially low-income consumers and Indigenous communities. Thus, while the CIB “growth plan” noted above focuses on large buildings, similar infrastructure-scale strategies need to be developed for residential and smaller buildings. 

In a net-zero emissions economy, we should recognize energy-efficient buildings as critical infrastructure. Thus the throne speech’s subtle nod to this way of thinking, followed by a new agenda for the Canada Infrastructure Bank is a hopeful sign. If we fully embrace this perspective, it should lead to the creation of new energy efficiency markets and business models, supported by a robust mix of public policies. 

Brendan Haley is Policy Director of Efficiency Canada. A national energy efficiency research and advocacy organization based at Carleton University. He holds a 
PhD in Public Policy from Carleton University, a Masters of Environmental Studies from York University, and a BSc in economics from Dalhousie University, and was a Banting postdoctoral fellow from 2016-2018.



[i] This is an expanded version of an argument originally discussed in Brendan Haley, “The Transformative Potential of Energy Efficient Buildings as Infrastructure,” The Hill Times, October 19, 2020, sec. Opinion, https://www.hilltimes.com/2020/10/19/267820/267820. Similar insights on the benefits of framing energy efficiency as infrastructure can also be found in Noam Bergman and Timothy J. Foxon, “Reframing Policy for the Energy Efficiency Challenge: Insights from Housing Retrofits in the United Kingdom,” Energy Research & Social Science 63 (2020): 101386.

[ii] William J. Fisk, “Health and Productivity Gains from Better Indoor Environments and Their Relationship with Building Energy Efficiency,” Annual Review of Energy and the Environment 25, no. 1 (2000): 537–66, https://doi.org/10.1146/annurev.energy.25.1.537.

[iii] Nicola Willand, Ian Ridley, and Cecily Maller, “Towards Explaining the Health Impacts of Residential Energy Efficiency Interventions – A Realist Review. Part 1: Pathways,” Social Science & Medicine 133 (May 1, 2015): 191–201, https://doi.org/10.1016/j.socscimed.2015.02.005.

[iv] Brenda Boardman, Fuel Poverty: From Cold Homes to Affordable Warmth (London: Belhaven Press, 1991).

[v] Dunsky Energy Consulting, “The Economic Impact of Improved Energy Efficiency in Canada: Employment and Other Economic Outcomes from the Pan-Canadian Framework’s Energy Efficiency Measures” (Vancouver, BC: Clean Energy Canada and Efficiency Canada, April 3, 2018); Heidi Garrett-Peltier, “Green versus Brown: Comparing the Employment Impacts of Energy Efficiency, Renewable Energy, and Fossil Fuels Using an Input-Output Model,” Economic Modelling 61 (2017): 439–447.

[vi] Paul Parker and Ian H. Rowlands, “City Partners Maintain Climate Change Action Despite National Cuts: Residential Energy Efficiency Programme Valued at Local Level,” Local Environment 12, no. 5 (October 1, 2007): 505–17, https://doi.org/10.1080/13549830701656853.

[vii] Karen L. Palmer et al., “Putting a Floor on Energy Savings: Comparing State Energy Efficiency Resource Standards,” Utilities Policy 25 (June 1, 2013): 43–57, https://doi.org/10.1016/j.jup.2013.02.002; Maggie Molina and Marty Kushler, “Policies Matter: Creating a Foundation for an Energy-Efficient Utility of the Future” (American Council for an Energy Efficiency Economy, 2015).

[viii] Niall Kerr, Andy Gouldson, and John Barrett, “The Rationale for Energy Efficiency Policy: Assessing the Recognition of the Multiple Benefits of Energy Efficiency Retrofit Policy,” Energy Policy 106 (July 1, 2017): 212–21, https://doi.org/10.1016/j.enpol.2017.03.053; IEA, “Capturing the Multiple Benefits of Energy Efficiency” (International Energy Agency, 2014).

[ix] Brendan Haley et al., “From Utility Demand Side Management to Low-Carbon Transitions: Opportunities and Challenges for Energy Efficiency Governance in a New Era,” Energy Research & Social Science 59 (January 2020).

[x] Mariana Mazzucato and Caetano C. R. Penna, “Beyond Market Failures: The Market Creating and Shaping Roles of State Investment Banks,” Journal of Economic Policy Reform 19, no. 4 (October 1, 2016): 305–26, https://doi.org/10.1080/17487870.2016.1216416. Mariana Mazzucato, The Entrepreneurial State?: Debunking Public vs. Private Sector Myths (London: Anthem Press, 2013).

[xi] Richard L. Kauffman, “Bringing down Green Financing Costs: How a State-Sponsored Bank Might Be the Key,” Community Development Investment Review, no. 01 (2014): 103–7.

[xii] European Commission, “Making Energy Retrofits a Standardised Product for the Finance Industry,” Investor Confidence Project Europe, 2016, https://ec.europa.eu/easme/en/news/making-energy-retrofits-standardised-product-finance-industry.

[xiii] See James Crotty, Capitalism, Macroeconomics and Reality: Understanding Globalization, Financialization, Competition and Crisis (Edward Elgar Publishing, 2017); Richard Davies et al., “Measuring the Costs of Short-Termism,” Journal of Financial Stability 12 (2014): 16–25.

[xiv] Canada Infrastructure Bank, “Mission and Mandate,” Canada Infrastructure Bank - Banque de l’infrastructure Du Canada (blog), accessed October 20, 2020, https://cib-bic.ca/en/about-us/mission-and-mandate/.

[xv] Efficiency Canada, “Everything You Need to Know about Energy Efficiency in Today’s Canada Infrastructure Bank (CIB) Announcement,” October 1, 2020, https://www.efficiencycanada.org/everything-you-need-to-know-about-energy-efficiency-in-todays-canada-infrastructure-bank-cib-announcement/.

[xvi] Ronan Bolton and Matthew Hannon, “Governing Sustainability Transitions through Business Model Innovation: Towards a Systems Understanding,” Research Policy 45, no. 9 (2016): 1731–1742; Frank Boons and Florian Lüdeke-Freund, “Business Models for Sustainable Innovation: State-of-the-Art and Steps Towards a Research Agenda,” Journal of Cleaner Production, Sustainable Innovation, and Business Models, 45 (April 1, 2013): 9–19, https://doi.org/10.1016/j.jclepro.2012.07.007.

[xvii] Donal Brown, “Business Models for Residential Retrofit in the UK: A Critical Assessment of Five Key Archetypes,” Energy Efficiency 11, no. 6 (2018): 1497–1517.

[xviii] Residential retrofit estimate from 2017-2019 figures from Natural Resources Canada, Energuide data update, commercial estimate counting a 5-year average of the percentage of floor space installing 5 or more energy efficiency measures, from Natural Resources Canada, Survey of Commercial and Institutional Energy Use 2014.

[xix] See Christina E. Hoicka and Runa Das, “Ambitious Deep Energy Retrofits of Buildings to Accelerate the 1.5° C Energy Transition in Canada,” The Canadian Geographer/Le Géographe Canadien, 2020.

[xx] Donal Brown, Paula Kivimaa, and Steven Sorrell, “An Energy Leap? Business Model Innovation and Intermediation in the ‘Energiesprong’Retrofit Initiative,” Energy Research & Social Science 58 (2019): 101253.

[xxi] Natural Resources Canada, “PEER – Prefabricated Exterior Energy Retrofit” (Natural Resources Canada, March 2, 2017), https://www.nrcan.gc.ca/energy/efficiency/data-research-and-insights-energy-efficiency/housing-innovation/peer-prefabricated-exterior-energy-retrofit/19406; Natural Resources Canada, “Sundance Housing Rehabilitation Project” (Natural Resources Canada, May 15, 2019), https://www.nrcan.gc.ca/science-and-data/funding-partnerships/funding-opportunities/current-investments/sundance-housing-rehabilitation-project/21926.

[xxii] F. Kern, P. Kivimaa, and M. Martiskainen, “Policy Packaging or Policy Patching? The Development of Complex Energy Efficiency Policy Mixes,” Energy Research & Social Science 23 (January 2017): 11–25, https://doi.org/10.1016/j.erss.2016.11.002; Jan Rosenow, Florian Kern, and Karoline Rogge, “The Need for Comprehensive and Well Targeted Instrument Mixes to Stimulate Energy Transitions: The Case of Energy Efficiency Policy,” Energy Research & Social Science 33 (November 2017): 95–104, https://doi.org/10.1016/j.erss.2017.09.013.

[xxiii] Jan Rosenow and Nick Eyre, “A Post Mortem of the Green Deal: Austerity, Energy Efficiency, and Failure in British Energy Policy,” Energy Research & Social Science 21 (2016): 141–144.