Investing in energy efficiency is essential to address the climate crisis

Posted on July, 03 2020

Energy efficiency will substantially cut building emissions and costs - but it needs more financial support to reach its full potential, write Helena Wright and Jennifer Calder.
We are an increasingly urban species. By 2050, around 70% of the world’s population will live in cities. As pointed out in a recent webinar co-hosted with Climate Bonds Initiative, cities account for 2% of the earth’s surface but contribute to almost 70% of global CO2 emissions. Buildings alone account for around 40% of energy-related CO2 emissions.

The world needs to move to net-zero emissions if we are to prevent a climate and ecological crisis. The World Green Building Council has set out a bold vision of how buildings can reach net-zero emissions by 2050. And at the heart of that stands energy efficiency.

Benefits and barriers

Energy efficiency has multiple benefits: reducing energy costs; avoiding the need to build expensive and polluting power plants, increasing resilience to energy supply disruptions, and contributing to healthy living environments. Investing in energy efficiency must be considered by developers and governments as vital infrastructure.

There are also economic benefits to energy efficiency. Efficient lighting has a very fast payback time, often less than 2 years. Some technologies – such as this new hybrid technology for air conditioning – will pay for itself in about 2 years.

Despite the strong economic case, there are several barriers to financing energy efficiency. Tenants benefit from lower energy costs but are not always the ones with control over the building’s energy facilities. Building developers should be the ones to invest in energy efficiency, but they often do not reap the benefits of the energy savings.

Real estate investment trusts (REITS) have a role to play. REITs are companies that own, operate, or finance properties, often spanning multiple countries. Singapore and Japan have the largest REITs in Asia. Keeping operating costs low is critical to their success: in the U.S., REIT’s sustainability is positively related to financial performance.

Speaking at the webinar, Esther An, from the real estate organisation City Developments Limited (CDL) argued that the green bonds and loans it has issued since 2017 have tapped alternative financing to help CDL get to net-zero. It has achieved over $28 million in savings due to energy-efficient initiatives and retrofitting at 8 office buildings across Singapore.

Green recovery

Moreover, sustainable investments are showing great resilience during the COVID-19 crisis with ESG funds outperforming in global markets. In terms of green bond issuance, Cedric Rimaud from Climate Bonds Initiative argued that “issuers have more clarity on how to issue green bonds to finance their projects. We expect growth to continue”.

Globally, well-designed economic COVID-19 recovery programmes can invest in energy efficiency to support jobs and deliver long-term benefits (e.g. lower energy bills, and affordable energy).

However, another barrier to investing in efficiency is that it can require many small investments to be bundled together. Development banks and other financial institutions can play an important role in this.

As an example, Carbon Trust has noted that an auction facility, such as one studied by the World Bank, could help to unlock financing in the building sector. Companies can compete and achieve the highest number of climate benefits per dollar.

Certification is needed to ensure buildings are built in a ‘green’ way. In Singapore, there is an ambitious target to green 80% of the existing building stock by 2030. Singapore has also been adopting measures such as green walls which can reduce the temperature of buildings. That means residents do not need to rely as much on air conditioning.

Could these ‘nature-based solutions’ in urban areas be useful for other cities and buildings? For example, during the webinar, An explained how the installation of one of the tallest vertical gardens in the world by CDL brought down the indoor temperature by 3°C.

Finally, Soumya Chaturvedula from ICLEI pointed out that many cities are coming up with their own green building guidelines and cooling action plans. Such plans will become more important as cities feel the heat from the impacts of climate change.

Efficient buildings are not only important to reduce emissions, they are vital to help citizens adapt to rising temperatures and improve their health. As the world becomes increasingly urbanised and governments seek to build back better in the wake of COVID-19, investment in energy efficient cities offers a clear solution for people and our planet.

Helena Wright is Vice President Sustainable Infrastructure & Energy Finance at WWF Singapore and Jennifer Calder is Global Lead for Energy Efficiency at WWF International.
A green skyscraper building with plants growing on the facade
© Shutterstock / Olga Kashubin / WWF