The Critical Role of Buildings

The pace and scale of the global clean energy transition is not in line with climate targets. Energy-related carbon dioxide (CO₂) emissions rose again in 2018 by 1.7%. The buildings sector represented 28% of those emissions, two-thirds from rapidly growing electricity use. In fact, since 2000, the rate of electricity demand in buildings increased five-times faster than improvements in the carbon intensity of the power sector. 

CO₂ emissions need to peak around 2020 and enter a steep decline thereafter. In the Faster Transition Scenario, energy-related emissions drop 75% by 2050. The carbon intensity of the power sector falls by more than 90% and the end-use sectors see a 65% drop, thanks to energy efficiency, renewable energy technologies and shifts to low-carbon electricity. The buildings sector sees the fastest CO2 reduction, falling by an average of 6% per year to one-eighth of current levels by 2050.

Technology can reduce CO₂ emissions from buildings while improving comfort and services. In the Faster Transition Scenario, near-zero energy construction and deep energy renovations reduce the sector’s energy needs by nearly 30% to 2050, despite a doubling of global floor area. Energy use is cut further by a doubling in air conditioner efficiency, even as 1.5 billion households gain access to cooling comfort. Heat pumps cut typical energy use for heating by a factor of four or more, while solar thermal delivers carbon-free heat to nearly 3 billion people.

A surge in clean energy investment will ultimately bring savings across the global economy and cut in half the proportion of household income spent on energy. Realising sustainable buildings requires annual capital flows to increase by an average of USD 27 billion (United Sates dollars) over the next decade – a relatively small addition to the USD 4.9 trillion dollars already invested each year in buildings globally. Yet, cumulative household energy spending to 2050 is around USD 5 trillion lower in the Faster Transition Scenario, leading to net savings for consumers, with the average share of household income spent on energy falling from 5% today to around 2.5% by 2050.

Government effort is critical to make sustainable buildings a reality. Immediate action is needed to expand and strengthen mandatory energy policies everywhere, and governments can work together to transfer knowledge and share best practices. Clear policy support for innovation will enable economies of scale and learning rates for industry to deliver solutions with little increase in cost. Policy intervention can also improve access to finance, de-risk clean energy investment and enable market-based instruments that lower the cost of the clean energy transition.

Delaying assertive policy action has major economic implications. Globally, the scale of new buildings likely to be built by 2050 under inadequate energy policies is equivalent to 2.5-times the current building stock in the People’s Republic of China (“China”). Waiting another ten years to act on high-performance buildings construction and renovations would result in more than 2 gigatonnes of additional CO₂ emissions from 3 500 million tonnes of oil equivalent of unnecessary energy demand to 2050, increasing global spending on heating and cooling by USD 2.5 trillion.

The world’s energy supply is almost as carbon intensive as it was two decades ago. Energy-related carbon dioxide (CO₂) emissions rose by 1.7% in 2018, following an increase of 1.6% in 2017. This comes after three years of emissions staying flat and is due to a variety of factors, including economic growth, extreme weather and a slowdown in efficiency improvements.

The buildings sector accounted for about 28% of total energy-related CO₂ emissions, two-thirds of which is attributable to emissions from electricity generation for use in buildings. The sector’s energy intensity per square metre improved, but its emissions increased more than 25% since 2000. This reflects a 65% increase in floor area since then, growing demand for energy services and rising electricity consumption. Electricity use in buildings grew five-times faster than improvements in the carbon intensity of power generation since 2000, and rising demand for equipment such as air conditioners is putting pressure on electricity systems.

In contrast to current trends, the Faster Transition Scenario sets out a vision for an extremely ambitious transformation of the energy sector. Energy-related emissions peak around 2020 and drop 75% to around 10 gigatonnes of CO2 (GtCO₂) per year by 2050. The carbon intensity of the power sector falls by more than 90% and the end-use sectors see a 65% drop, thanks to energy efficiency, uptake of renewable energy technologies and shifts to low-carbon electricity.

Electrification plays a major role in the transition, combined with clean power generation. Electricity’s share in final energy reaches about 35% by 2050, compared to less than 20% today. That growth is mainly due to adoption of heat pumps in buildings and industry, as well as a swift evolution in transport. Efficiency improvements keep electricity demand for other end uses, such as lighting and cooling, relatively stable, while access to electricity improves worldwide.

Among the sectors, buildings undergo the most abrupt CO₂ emissions reductions in the Faster Transition Scenario. Emissions from fuel combusted directly in buildings fall nearly 75% by 2050. This dramatic drop is achieved by almost total elimination of coal from use in buildings, 85% reduction in oil consumption and 50% drop in overall natural gas demand relative to today.

The significance of buildings is further highlighted when direct emissions are combined with indirect CO₂ emissions from electricity use. The share of electricity in energy use in buildings jumps from 33% in 2017 to nearly 55% in 2050. Yet, major efficiency improvements mean electricity demand is around 300 million tonnes of oil equivalent (Mtoe) lower in 2050 than it would have been otherwise. Paired with clean electricity, this means buildings-related emissions fall by around 6% per year to reach 1.2 GtCO₂ by 2050 – one-eighth of current levels.

Multiple cost-effective technologies unleash average energy savings of 500 Mtoe per year in the buildings sector worldwide between 2020 and 2050. High-performance buildings construction and energy renovations reduce the sector’s energy use by nearly 30% to 2050, even as floor area doubles globally. A doubling in air conditioner performance reduces energy demand further, as 1.5 billion households gain access to cooling comfort. Heat pumps cut typical energy use for heating by four, and solar thermal delivers carbon-free heat to nearly 3 billion people by 2050.

Efficiency gains in lighting and appliances deliver around 110 Mtoe of energy savings over the period to 2050, while allowing access to and improved quality of energy services everywhere. Digitalisation and smart demand-side management further reduce energy use in buildings by as much as 10%. Demand-side response for 1 billion households and 11 billion smart appliances allows shifts of peak electricity demand to off-peak hours, supporting clean power generation in a synergistic combination with increasing electricity consumption in the buildings sector.

Reaching the goals of the Faster Transition Scenario requires a rapid reallocation of capital. Fossil fuel supply investments decline sharply, but that is almost entirely offset by a doubling of investment in low-carbon power generation. Overall energy investment, driven by the end-use sectors, increases by about 65% from today's level, but this leads to considerable energy reductions that translate into major cost savings for households and businesses.

Realising sustainable buildings requires capital flow to increase by an average of USD 270 billion (United States dollars) a year over the next decade. This is a small addition to the USD 4.9 trillion already invested each year in the sector, and ultimately leads to USD 4.8 trillion in global savings to 2050. As a result, the share of household income spent on energy in the Faster Transition Scenario is cut in half by 2050. Delaying action ten years on high-performance construction and renovation would result in 3 500 Mtoe of unnecessary energy use to 2050, increasing cumulative spending on energy in buildings by USD 2.5 trillion.

Immediate action is needed to put in place mandatory energy policy that addresses rapid buildings growth in emerging economies with limited or no policy coverage. As much as
2.5-times the current floor area of the People’s Republic of China (“China”) will be built in those countries over the next 30 years. Governments can co-operate to expand and strengthen building energy codes as well as performance standards for end-use equipment, building upon decades of successful experience.

Buildings are not homogenous and require solutions tailored to their specific conditions. Clear policy signals on energy and CO₂ emissions performance levels are necessary to push and pull markets to identify appropriate solutions. Government support for technology innovation and new business models will enable economies of scale as well as improved learning rates to deliver solutions with little increase in manufacturing cost or consumer prices.

The buildings energy transition will deliver long-term returns on investment, but upfront financing remains a challenge. Governments can affect this through policy intervention to improve access to finance, de-risk clean energy investment and broaden availability of market-based instruments that lower the barriers for a clean energy transition.

Governments can reap benefits of international co-operation. Countries can share knowledge, enable best practices and deliver better solutions through multiple initiatives such as the IEA Technology Collaboration Programmes (TCPs), the IEA Global Exchange for Energy Efficiency and the Global Alliance for Buildings and Construction.

• Energy policies need to be expanded and strengthened across all countries to address continued growth of energy demand in buildings. This includes implementing and enforcing mandatory building energy codes in emerging economies, where as much as 2.5-times the current floor area of the People’s Republic of China (“China”) will be built over the next 30 years with limited or no policy coverage. 
• Assertive policies are needed push markets towards high-performance and low-carbon building solutions in line with the clean energy transition. This includes traditional, yet effective policies such as mandatory energy performance standards as well as more innovative policy frameworks to encourage market-based instruments that lower barriers to the sector’s transformation. 
• To tap into energy savings and emissions reduction, governments can facilitate deployment of clean energy technologies for buildings by de-risking those investments and increasing access to finance. This requires comprehensive policy packages that send clear, long-term signals to market to bring forward cost-effective solutions through economies of scale.
• Governments can collaborate to make sustainable buildings a reality and ramp-up institutional capacity everywhere. They can also reap the benefits of international co-operation and help deliver innovative products and technology solutions by participating in initiatives such as the International Energy Agency (IEA) Technology Collaboration Programmes (TCPs).
• There is no better time than now to address the buildings sector. Delaying action ten years on high-performance construction and renovation would result in as much as 3 500 million tonnes of oil equivalent (Mtoe) of unnecessary energy use to 2050, increasing spending by households and businesses on energy in buildings by USD 2.5 trillion (United States dollars). Conversely, assertive action by governments to enable a sustainable buildings sector would save as much as USD 4.8 trillion globally over the next 30 years.

Buildings account for about 30% of final energy use and more than 55% of global electricity consumption. Energy use in the buildings sector has increased steadily since 2000, at an annual average growth rate of around 1.1%. This is driven principally by increasing floor area, which has grown by around 65% since 2000, and rapidly growing demand for energy-consuming equipment and services in buildings in emerging economies.

Global energy-related carbon dioxide (CO₂) emissions rose in 2018, increasing by increasing by 1.7%”, following a 1.6% increase in 2017 from the previous year. The buildings sector accounts for 28% of total energy-related emissions including emissions from electricity use. When energy from materials use for buildings construction and renovation is included, the share of energy-related CO₂ emissions from buildings jumps to just under 40%.

Figure 1. Global buildings sector energy use, intensity and CO₂ emissions by sub-sector, 2000-17

Buildings are putting greater pressure on the energy system. Direct emissions from coal, oil and natural gas combustion in buildings have increased only slightly since 2000, but indirect emissions from electricity use rose more than 35% between 2000 and 2017. Surging demand for equipment like air conditioners and connected devices in buildings is placing increasing onus on the power sector and its resultant CO₂ emissions.

Policy coverage is improving, but not quickly enough. Almost all mandatory building energy codes in place in 2000 have been revised to include requirements that are more ambitious. Overall, the stringency of building energy policies has improved by around 20% at the global level since 2000. Yet, mandatory policies covered globally still less than 40% of energy use and less than half of CO₂ emissions from buildings in 2017. Progress on building energy codes in particular is not keeping up with floor area growth, and more than two-thirds of additions to 2050 are expected in countries without any mandatory policies in place.

Figure 2. Global floor area growth by current building energy code status, 2017-50

Total incremental spending on energy efficiency investment for buildings increased by 3% in 2017 compared to 2016, reaching about USD 140 billion. Yet, the growth rate of energy efficiency investment as a share of total buildings investment has slowed from the 6-11% annual growth rates observed from 2014 to 2016. This means energy efficiency investment represented less than 10% of total spending in the global buildings sector in 2017, which is estimated to have amounted to nearly USD 5 trillion.

A clean energy sector will look fundamentally different than it does today. CO₂ emissions need to peak around 2020 and enter a steep decline thereafter to meet the goals of the Paris Agreement. Global energy-related emissions in the Faster Transition Scenario drop by 75% to around 10 gigatonnes of CO₂ (GtCO₂) per year by 2050. The carbon intensity of the power sector falls by more than 90%, and the end-use sectors see on average a 65% drop, thanks to energy efficiency, renewables and shifts to clean electricity.

Direct emissions from fossil fuel use in buildings drop by 75% by 2050 in the Faster Transition Scenario, a steeper percentage reduction than most other sectors. Energy efficiency and demand-side flexibility are equally essential to relieve pressure on the power sector, given the significant share of electricity demand in buildings.

Figure 3. Buildings-related CO₂ emissions in the Faster Transition Scenario, 2017-50

Technology can reduce buildings emissions while improving comfort and energy services. Multiple cost-effective technologies unleash average energy savings of 500 Mtoe per year in the buildings sector worldwide between 2020 and 2050. Near-zero energy construction and deep energy renovations can reduce the sector’s energy use by nearly 30% to 2050, even with doubling of global floor area. Energy use is further cut by a doubling in the efficiency of air conditioning equipment, even as 1.5 billion households gain access to cooling comfort. Heat pumps cut typical energy use for heating by four or more, while solar thermal delivers carbon-free heat to nearly 3 billion people.

The share of fossil fuels in global buildings sector energy use drops to 10% by 2050. Coal- and oil-fired boilers, which represent around 30% of global heating equipment today, are almost phased out by 2030. By 2050, natural gas use for those end uses is less than half of the 2017 level, reflecting a number of factors including building envelope improvements and the replacement of gas boilers with more efficient gas heat pumps and other low-carbon technologies, such as electric heat pumps (e.g. air-to-water units) or solar thermal technology.

Figure 4. Evolution of fossil fuel use in buildings in the Faster Transition Scenario, 2017-50

Electrification needs to be considered within the broader energy picture. Growth in electricity demand in the buildings sector in the Faster Transition Scenario adds the equivalent of more than one-fourth of global electricity demand in 2017 by 2050. Even with energy efficiency measures, the increased demand would place pressure on the power system. For example, global electricity demand for space cooling increases by 35% by 2050 in the energy-efficient Faster Transition Scenario. In many countries, this will stress peak electricity loads if uncontrolled, even if using efficient air conditioners.

Efficient and flexible buildings will reduce the impact of electrification on power. By 2050, electricity accounts for nearly 55% of energy use in buildings in the Faster Transition Scenario, with some end uses such as space heating electrifying considerably. That growth could increase the magnitude of peak electricity demand substantially if equipment is not efficient and goes unmanaged. By contrast, high-perfomance equipment coupled with demand-side measures can reduce the impact of electrification, while supporting power system flexibility and higher penetration of variable renewables in the electricity mix.

Figure 5. Example weekday electricity load profile for an apartment in continental Europe in 2050

Realising sustainable buildings could save as much as USD 1 trillion, but requires upfront investment. Annual capital expenditure needs to increase on average by USD 270 billion over the coming decade, with 70% of that for high-performance construction and renovations. Yet, over the period to 2050, spending on energy in buildings is nearly USD 5 trillion lower in the Faster Transition Scenario, more than offsetting investment to achieve a sustainable buildings sector.

Delaying action another decade will have major economic implications. Delaying high-performance construction and renovations by ten years would result in as much as 3 500 Mtoe of additional energy use in buildings and more than 2 gigatonnes of additional CO₂ emissions, increasing global spending in buildings by more than USD 2.5 trillion to 2050. Effective policies need to address energy performance, access to finance and innovative market solutions to unlock the energy savings potential of the global buildings sector and its many economic co-benefits.

Figure 6. Increased expenditure with a ten-year delay in achieving building envelope measures

There are multiple reasons why acting sooner is more economic, including:

• Economies of scale that narrow the cost differential between code-compliant and near-zero energy construction in the coming decade.
• Advanced renovation practices that make energy retrofits easier, cheaper, scalable and more attractive through innovative models (e.g. pairing with non-energy retrofits).
• Lower heating and cooling operational expenditures in the future, as a ten-year delay affects the thermal performance of the building stock well into the future.
• Reduced capital expenditures for new construction in the long-term, as high-energy performance buildings are more efficient and typically have longer lifetimes.