Buildings

The buildings sector has a very large carbon footprint when both direct and indirect emissions are accounted for. In 2021 about 8% of global energy-related and process-related CO₂ emissions resulted from the use of fossil fuels in buildings, with another 19% from the generation of electricity and heat used in buildings, and an additional 6% related to the manufacture of cement, steel and aluminium used for buildings construction. The buildings sector is therefore responsible directly and indirectly for around one-third of global energy- and process-related CO₂ emissions. Addressing the contribution of buildings and buildings construction to CO₂ emissions calls for emission restrictions across its whole value chain.

In 2021 direct and indirect emissions from buildings operation rebounded to about 10 Gt, or 2% higher than in 2019 and about 5% higher than 2020. The growth of direct emissions occurred in both advanced and emerging economies, although it was principally driven by growing natural gas demand in emerging economies.

To align with the Net Zero Scenario, carbon emissions from buildings operations need to more than halve by 2030, requiring significant efforts to reduce energy demand through clean and efficient technologies in all end uses, including leveraging the potential of behavioural change (such as changing thermostat set points).

Energy use in buildings increased from 115 EJ in 2010 to almost 135 EJ in 2021, representing 30% of global final energy consumption. Including final energy use associated with the production of cement, steel and aluminium, the share increases to 34%.

Following the easing of Covid-19 restrictions, in 2021 energy demand in buildings increased by nearly 4% compared with 2020 (or 3% compared with 2019), the largest annual increase in the last decade.

Electricity accounted for about 35% of building energy use in 2021, up from 30% in 2010. In particular, space cooling saw the largest increase in demand in 2021 across all buildings end uses, an increase of over 6.5% with respect to 2020.

Despite the progressive shift from fossil fuels to other options, fossil fuel use has still increased at an annual average growth rate of 0.7% since 2010. They continued to cover at least 35% of total buildings energy demand in 2021. 

In the Net Zero Scenario, energy consumption in buildings drops by 25% compared with today, and fossil fuel use decreases by more than 40%, together with a complete phase-out of the polluting traditional use of biomass by 2030 (while achieving universal energy access by 2030 – UN Sustainable Development Goal 7 – by shifting to the use of biogas, modern solid biomass, electricity and LPG).

The Net Zero Scenario milestones to 2030 are achieved thanks to: improved building envelopes that reduce thermal energy needs; the shift to best available appliances, lamps and air conditioners; more efficient and clean technologies, such as heat pumps and district energy; and increased flexibility. 

Floor area is expected to increase by around 20% to 2030 – more than the whole built floor area of North America. More than 80% of this floor area growth is expected to be in emerging and developing economies.

At the same time, buildings sector energy intensity needs to drop nearly five times more quickly over the next ten years than it has in the past ten in order to get on track with the Net Zero Scenario. This means the energy consumed per square metre in 2030 must be at least 35% less than in 2021. 

In 2021 venture capital (VC) investment increased across the energy sector, providing support to entrepreneurs and acting as an important complement to the R&D budgets allocated by governments and companies. In buildings, VC investment more than doubled overall. While a 30% drop relative to 2020 was seen in early-stage VC, which typically supports new companies developing less mature technologies and concepts, it was compensated by a tripling of late-stage investment, which enables more mature companies to scale up and improve market uptake.

Even more than in previous years, start-ups focusing on buildings energy management systems thrived in 2021, accounting for over 40% of VC investment. Companies designing or developing building envelopes raised large amounts of growth capital, accounting for 45% of late-stage VC investment. In contrast, much less activity was recorded in heating and cooling, a technology area that will require more innovation to deliver on net zero ambitions, particularly in emerging and developing economies.

Clean technology choice and deployment in buildings ideally happens in co‑ordination with several other components or elements of infrastructure such as: distribution systems within the buildings (air and water, radiators, etc.), district energy networks, electric and thermal storage devices, integrated control systems and electric vehicle chargers.

Getting on track with the Net Zero Scenario milestones calls for co‑ordination between buildings strategies and infrastructure development, including the electricity grid.

Building energy codes and standards are in place in only 80 countries, and without further expansion 40% of the expected growth in floor area by 2030 will not be covered by building codes for the whole sector.

To align with the Net Zero Scenario, the buildings sector requires all new buildings and retrofits to be zero-carbon-ready by 2030 at the latest.

Globally, final energy use covered by MEPS is now above 80% for residential refrigerators and air conditioners, up from two-thirds in 2010, and just over 75% for lamps, an improvement of more than 30 percentage points in the same period.

While it is important that countries without MEPS (mainly in developing regions) adopt them, it is also crucial that countries that already have them for some end uses set standards for other major energy-consuming products as well, as their energy needs are growing rapidly.

According with the milestones in the Net Zero Scenario for the buildings sector requires a rapid shift to best available technologies in all markets by 2030, which is dependent on rapidly stepping up the stringency of MEPS for all end uses – as well as expanding their coverage.

After years of stagnation, overall investment in energy efficiency measures in the buildings sector increased by more than 15% in 2021, a level of growth that, if sustained, would be compatible with the levels in the Net Zero Scenario (11% per year). However, the growth in investment has already been slowing in the first half of 2022, as construction and material costs have reached all-time highs and the direct stimuli that incentivised energy efficiency investment are winding down in several countries in Europe.

This increase in efficiency investment in 2021 reflects the recovery of construction investment in western European countries, and continued growth in other large markets (e.g. the United States and China). The federal government weatherisation programmes in the United States and the Green Homes Grant programme in Canada offered modest increases in investment in 2021. Investment growth in Asia is driven by Japan’s Zero Energy Housing programme and China’s commitment that 50% of new urban development meets a green standard as part of the country’s previous 13th Five-Year Plan.

As the global economy moves on from focusing on recovery from the pandemic, stimulus programmes are likely to be tapered during 2022 as governments focus on addressing inflation.

While construction remains a relatively localised industry, value chains for building materials, appliances and equipment are increasingly globalised. International co‑operation plays a critical role in the establishment and alignment of MEPS for energy-consuming equipment used in buildings, and even for buildings themselves, especially in countries with limited institutional capacity to design and enforce buildings-related policies. International collaboration and alignment also facilitate private-sector actors to improve the alignment of their products with net zero objectives, by creating larger markets for a given standard and sending strong signals to investors.

Government and private-sector international collaboration in this space is increasing, with international efforts to improve energy efficiency, share best practices and build momentum behind decarbonising the buildings sector. Recent examples are the Product Efficiency Call to Action launched by the SEAD Initiative, the Clean Cooling Collaborative, the Clean Heat Forum, the Global Alliance for Buildings and Construction, the World Green Building Council, the Global Buildings Performance Network and C40 Cities. Other examples of governments and wider stakeholder groups sharing knowledge, best practices and solutions include initiatives such as the IEA Technology Collaboration Programmes and the IEA Energy Efficiency Hub.

The buildings sector can contribute to achieving net zero emissions at the system level by tackling embodied emissions associated with building construction, equipment and materials. Several construction companies and equipment manufacturers are developing robust decarbonisation plans, pledging to use 100% net zero concrete, implementing material efficiency strategies, and reusing and recycling materials.

For example, in 2022 Alfa Laval and SAAB partnered to develop the first fossil-free steel heat exchanger, the first unit made from hydrogen-reduced steel which should be on the market by 2023. 

Building energy codes are an essential policy tool for improving buildings performance. Adapting their metrics to include lifecycle CO2 and flexibility requirements are fundamental to reflect the evolving demands of decarbonising the buildings sector, improving building performance, comfort and resilience. Building codes can be complemented by certificates to inform citizens of building performance. 

The development and increased stringency of product standards are also a key measure to phase out from the market the least efficient products and send signals to manufacturers to produce more efficient products. Standards can be complemented by requiring integrated controls, to enable improved operation of equipment, and by the development of communication protocols to enable equipment interoperability. 

Enforcement, monitoring, and compliance practices should be reviewed to reduce the burden on building stakeholders. Guidance for the accounting and reporting of buildings performance indicators is essential to the review of such practices, as well as easy access to information and preferential data access to support research. 

Financing and market mechanisms are required to accelerate the clean energy transition. Governments can stimulate action through policy interventions that shape market rules to improve access to financing, de-risk clean energy investment and broaden the availability of market-based instruments that reduce barriers to the transition and enhance the attractiveness of buildings sector investment.

Instruments to unlock additional finance for zero-carbon-ready buildings and products will guide building owners and occupants towards clean investment. Under green mortgages, for example, a bank can offer preferential access to finance (such as discounted interest rates) for building construction or products targeted at meeting efficiency and sustainability criteria, with recent examples for instance in the United Kingdom and Australia.

New business models, in particular to reduce the upfront capital cost associated with the most energy-efficient and clean technologies, are critical to reach all market segments. Solutions such as heating as a service, cooling as a service, and on-bill and on-wage financing have been proved successful in several markets.

Developing long-term company targets and plans for net zero emissions will allow decision makers to define and plan the necessary short-term actions to achieve the longer-term goals, accounting and tracking progress over time. Such a strategy will help companies meet the growing demand for whole life cycle low-carbon products.