The energy efficiency of buildings received unprecedented attention at the recently concluded COP 21 Paris Climate Conference.  With a dedicated Buildings Day as part of the 2-week agenda, the conference emphasized that reducing the carbon footprint of the world’s building stock should be a major component of effective climate action.

A Political Push for Energy Efficiency

COP21′s Buildings Day brought together representatives from countries, cities and public and private organizations involved with the building and construction sector to launch the Global Alliance of Buildings and Construction. The targeted initiative serves to scale up the adoption of building energy efficiency regulations, design and technologies to help achieve the conference’s goal of limiting global warming to below 2 °C by 2100.  Specifically, it aims to promote the “planning, design, implementation and refurbishment of buildings and construction (…) to achieve rapid energy efficiency gains as well as climate-resilient solutions”

The Paris climate talks provided important political recognition for the idea that improving building operational efficiency can play a key role in addressing climate change on a global scale.  Around the world, energy usage in residential and commercial buildings currently accounts for more than 30% of greenhouse gas emissions.  New development is thriving – in the US, construction starts for the first 10 months of 2015 were at $551.9 billion, which is a 10% increase from the same period in 2014 – which means emissions will continue to rise at a detrimental rate unless significant changes are made to how we build and operate assets.  Regulatory changes like California’s Title 24 building code, and the active adoption of smart designs and technologies to optimize the energy efficiency of existing and new buildings will be critical to lowering the impact of the real estate sector.

Small Changes, Big Impacts

Improving the operational efficiency of buildings is one of the most cost-effective ways of reducing energy demand and emissions, while making our buildings more climate change resilient.  For existing buildings, a benchmarking and energy assessment process quantifies key metrics to provide insight into its performance.  This allows property owners and/or managers to prioritize poorly operating buildings, identify specific deficiencies, and determine what energy reduction can be achieved.  Based on the assessment, inefficient building systems can be either fine-tuned or “retrofitted” to improve operations and enhance overall building performance.  For new construction, energy modeling and a commissioning study at the design stage will ensure the most appropriate high-efficiency building systems are installed and function as intended.

Of course, the benefits are multi-fold.  In addition to reduced emissions, lower energy usage means lower operating cost for building owners.  Market forces are increasingly rewarding investments in energy efficiency measures:  Both institutional investors in real estate and tenants are demanding sustainable and efficient buildings.   As a result, real estate portfolio managers are incorporating sustainability best practices not only in their managed real estate assets but also in the way their companies are run.  This allows them to attract real estate investment capital, while yielding better operated buildings, better tenant attraction/retention, higher rental rates and asset values.

The growing number of State and local regulations requiring the benchmarking and disclosure of energy usage, “energy audits”, and “retro-commissioning provides further incentive to improve building performance.

The Financial Argument

There is strong financial support for the building sector to make meaningful reductions to its energy footprint. USGBC and GRESB both reported this was evident throughout the conference (for more, see here).  A multitude of tax credit and funding programs from public and private entities exist to offset the cost of implementing energy efficiency measures, and improve the return on these investments.  For example, the Global Environment Facility announced $23 million in funding at the COP21 conference, while established incentives like Energy Upgrade California, Property Assessed Clean Energy program (PACE) and LEED play a big role in promoting investments in energy upgrades across the building and construction industry.

Unsurprisingly, this realization that incentivized efficiency upgrades can yield great returns through higher asset values, lowered risk exposure and reduced operating costs is leading more and more building owners, investors and developers to prioritize building sustainability performance. COP21 has put international attention on building energy efficiency, which I expect will give further impetus to improving the performance and competitiveness of our building stock.