Energy savings hampered worldwide by regulatory laissez-faire: Economist study

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Failure to enforce existing regulation is the main obstacle preventing the energy-efficiency services market from picking up across the globe – including in the European Union, India, China and the United States – says a recent study by the Economist Intelligence Unit.

The property and construction sectors account for 40% of the world's carbon emissions, according to the study, commissioned by the non-profit Global Buildings Performance Network.

And as economies in the EU, United States, India and China are trying to decouple their growth from energy consumption, companies are bound to pay more and more attention to the renovation of the existing building stock.

Whilst there are plenty of incentives in terms of legislation meant to trigger a growth in the energy-efficient revamp of buildings, there is not enough will to properly execute the laws, says the the study – Energy efficiency and energy savings: a view from the building sector.

Lack of enforcement

Real estate companies and businesses selling energy-efficiency services broadly welcome legislation as a means of helping investments.

Businesses prefer globally synchronised energy-efficiency laws, which they say will create a level playing field. And most (68%) see carbon taxes as helpful so far, the survey says. 

But almost 40% of all construction and real estate executives interviewed complained that a lack of regulatory enforcement is a major obstacle to investments in energy efficiency.

“To get things moving at a faster pace and for everyone to buy into this, governments must press for it as mandatory or impose penalties for not complying with certain energy levels,” Kenneth Fong, Asia-Paci?c director of engineering operations for Hilton Worldwide, told the researchers.

The survey also revealed that mandatory building energy efficiency ratings are only cost-effective if sub-metering is also introduced, the study found. And whilst legislation is needed to create incentives for investment, it is also as important to continue to improve the existing regulations as well. Legislators could start by re-defining what a green building is to create shared standards, executives said.

Energy efficiency profitable

More than 7-in-10 of the surveyed real estate and construction executives in the EU, India, China and the US told the study's researchers that energy-efficiency laws benefit the building sector.

With the right policy signals to enforce rules, energy efficiency can take off not only as an environmental measure, but also as a means of improving companies' balance sheets, the study said.

In general, energy expenditure constitutes a relatively small percentage of overall operating costs and companies are not so willing to put capital into long-term investments.

Also, corporate executives have traditionally been more concerned with the immediate gains they could bring to the company, while investments in energy efficiency have long return periods. Predictably, there is a strong economic rationale for measures with a short payback periods, the study found.

Efficiency seen as risk management tool

Companies are becoming more strategic in their approach to energy-efficiency investments, the study found. With highly volatile prices, energy can represent a large proportion of controllable expenditure.

“Property managers can’t control things such as the taxes a company has to pay, the insurance premiums a property has to pay or the cost of land leases,” said George Caraghiaur, senior vice president of energy and procurement Simon Property Group, one of the world’s largest real estate companies. 

"If you strip those costs away and look strictly at the controllable costs, energy expenditure represents a much bigger part of those costs".

Energy efficiency can also be used to mitigate risk. A majority of companies (69%) are treating their investments in this way, the survey shows.

For example, many managers think that it is a matter of time until the market realises the benefits of green building and those who start considering taking measures now will have an edge over others, especially as energy prices continue to escalate as expected.

"While the range of risks being addressed is broad – from energy price risks and changing market demand to prospects for future climate change legislation – the fact that companies view energy efficiency as a risk management tool suggests that the sector is considering these investments in a broader strategic context," the study says.

Buildings account for over 40% of the EU's final energy demand and are a major source of greenhouse-gas emissions, making energy savings there a key element of European climate change objectives.

The Energy Performance of Buildings Directive (EPBD), adopted in 2002, was meant to reduce the EU's energy consumption by up to 6%. The directive was reviewed in 2010 (read full text) to cover residential and non-residential constructions.

>> Read our LinksDossier on energy efficiency in buildings.

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