How deep CO2 reductions can help the economy

An excerpt from the terrific new book, “Greening Our Built World: Costs, Benefits, and Strategies” because we spend the vast majority of our lives in buildings or traveling between them, we often overlook the scale of building energy use and the associated impact on climate change. For example, in a 2007 national survey of 1,000 homeowners, almost 75% said that they believed their homes had no adverse environmental impact. The reality is quite different.

According to the Energy Information Agency, residential and commercial buildings together consume 41% of the energy, including 74% of the electricity, used in the United States. And of course, it also takes energy to make the materials necessary to construct and operate buildings (e.g., bricks, concrete, mechanical systems); to transport the materials; and to actually construct buildings. Despite widespread misperception, at least 45% of all energy used in the United States and Europe is consumed directly in buildings. The level of energy use and the resulting CO2 emissions associated with buildings are almost as high as that from transportation and industry combined. Thus, the built environment provides a powerful and necessary lever for fundamentally changing our patterns of resource and energy use and responding to the grave threat of climate change.

That’s an excerpt from a fact- and chart-filled new book, Greening Our Built World: costs, benefits and strategies (Island Press) by my long-time friend and former DOE colleague Gregory Kats.  Greg is director of climate change at Good Energies, a multi-billion dollar global clean energy investor, where he leads the firm’s investments in energy efficiency and green buildings. Greg is a founder of the American Council on Renewable Energy (ACORE). He is founding chair of the Energy and Atmosphere Technical Advisory Group for LEED, and was the principal advisor in developing Green Communities, the national green affordable housing design standard. Previously, Greg served as the director of financing for energy efficiency and renewable energy at the U.S. Department of Energy.

Achieving the deep reductions in CO2 emissions that scientists tell us we must achieve to avoid the most severe consequences of climate change will require deep and relatively rapid reduction in energy use in buildings. This can only happen with a huge increase in building energy efficiency and a rapid increase in the use of renewable energy. Greening buildings provides a very cost effective way to achieve both objectives.

Green design is less expensive and more cost-effective than is generally realized. A shift to green design would increase investment in measures such as insulation and waste diversion, while cutting energy use and creating substantial additional employment. If green design were scaled up nationally, the employment, financial, and environmental benefits would be huge. A recent major study, published in Greening Our built World provides a detailed analysis of the financial and CO2 impact of a feasibly designed national transition to green design. Sponsored by the country’s largest real estate originations and groups such as the American institute of architects, the study provides a basis for calculating the potential for a transition to a green low carbon economy.

Such a transition would require a monumental shift in policy and an enormous financial, political, and technical challenge. The good news is that green buildings have the potential to cost-effectively drive deep reductions in the use of fossil fuels and in CO2 emissions. Such a strategy would also create large economic and social benefits.

The study built on a detailed analysis of cost effectiveness of green design to compare a business as usual scenario to a green design scenario. Developed with 100 architects over a 20 month period the study details the financial impact of greening 170 green buildings, including energy and water savings, health and productivity increases, and societal benefits such as lower energy prices from reductions in demand and CO2 emissions. The study then used this data to compare the net present value of a green design scenario compared with a business as usual scenario.  The findings demonstrate that the benefits of green building and green communities greatly outweigh the additional costs associated with high-performance design, materials, and technology.

Currently 12 to 15%% of all non residential construction is green. Based on growth in adoption and detailed cost benefits  analysis in a green scenario green could becomes standard practice for 95% of the new construction market by 2020, and for 75% of retrofits by 2030-reflecting the likelihood that some types of buildings will remain unlikely candidates for greening. The lag in greening retrofits reflects the fact that current green penetration of the retrofit market is far lower than the penetration of the new construction market. Buildings typically last 50 years or more. By contrast, an automobile fleet is replaced every 12 to 15 years. Not surprisingly, deep reductions in energy use in the building sector cannot be achieved quickly””and cannot be achieved by 2050 without a relatively rapid rate of comprehensive retrofits of existing buildings. Accordingly, the Green scenario assumes that comprehensive retrofits, whether as energy-efficiency retrofits or as part of greening, occur more frequently than in the BAU scenario.

The financial benefits of a shift to green design probably offer the single largest opportunity to both strengthen the economy and address the critical challenge of global warming.

Net Present Value of Benefits: Business and Usual Scenario versus Green Scenario

Net Present Value of Benefits

A sustained national commitment to green design would create tremendous financial, social, and environmental benefits. The costs of building green are far outweighed by the benefits, which include reduced energy and water costs, enhanced health and productivity, and broad societal benefits. Applying the cost-benefit findings from the study data set to our two scenarios shows that when compared with the BAU scenario, the Green scenario creates roughly one trillion dollars in net financial benefits. This reflects the fact that green buildings generate financial benefits that””as this book documents””are five to ten times as large as their green cost premium. Additional benefits that were not quantifiable include lowered dependence on energy imports, increased employment, and increased economic competitiveness.

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17 Responses to How deep CO2 reductions can help the economy

  1. ken levenson says:

    I look forward to reading this too. I’m wondering if he addresses the potential of Passive House (PH) standards? If you’ll indulge me a quick advert:

    PH is a clear and aggressive energy target that results in up to 90% reduction in cooling and heating energy demand, while providing superior indoor air quality, that is highly predictive at affordable costs – with huge payback.
    Passive House methodology is the type of deep energy action the climate crisis demands.
    Check it out at

    A national PH Alliance is being formed now and I encourage everyone remotely related to the construction and operation of buildings to get involved!!!

  2. Ivy Bear says:

    What about the rebound effect? There is a lot of new material out on this and it shows that lots of the savings are just consumed elsewhere.

    Herring, H., and Sorrell, S. (ed.) 2009 Energy Efficiency and Sustainable Consumption: The Rebound Effect palgrave MacMillan

    Brannlund, R., Ghalwash, T., and Nordstrom, J. (2007) Increased energy efficiency and the rebound effect; Effects on consumption and emissions. Energy Economics 29 (1-17)

    Even the IPCC acknowledges the rebound effect:
    “Rebound effects in the USA amount to about 20% of GHG emissions.” AR4, WG III, Section 3.4.6

    Here is a very interesting quote about why rebound effects are so important:

    It would imply that many of the policies used to promote energy efficiency may reduce neither energy consumption or carbon emissions. The conventional assumptions of energy analysts, policy-makers, business and lay people alike would be turned on their head. Alternativey, even if the postulate were incorrect, the various mechanisms described above could still make energy-efficiency policies less effective in reducing energy consumption tan is commonly assumed. (Herring and Sorrell, p. 9.

    You don’t get to cherry pick your science. The rebound effect is a serious intellectual issue, and ignoring it won’t make it go away.

  3. Alex Smith says:

    Here is another resource on both Passivhaus construction, and Net Zero buildings. Plus an interview with a fellow in New England testing out “solar mass windows” (where solar heat is gathered and stored in windows, to heat a home).

    It is a one hour Radio Ecoshock special called “Gimme Shelter,” load with ways we could drastically reduce our CO2 emissions, save money, and increase national security, by building smarter.

    Architect Guido Wimmers on “Passivhaus” (Canada’s first); Tom Pittsley on solar mass windows (sun heat in Massachusetts winter); Jamee DeSimone on Net Zero construction (recording from a workshop at the Lighthouse Sustainable Building Centre in Vancouver, Canada).

    Alex Smith

  4. Mark says:

    We need to get the word out that Zero Energy Homes, homes that generate more energy on an annual basis than they consume are both affordable as well as commercially and economically viable. Of course a home that uses no fossil fuels to operate, will also generate zero carbon emissions from the operation of the home.

    Solar Today published an article about a developer who is successfully building zero energy homes in Massachusetts. These homes have been verified by an independent, third party HERS rater (Home Energy Rating System) to generate more energy on an annual basis than they use. I recently attended a presentation by a zero energy home developer who stated that he could build zero energy homes for only $5,000 in incremental costs over a standard code home.

    The Governor of Massachusetts has set a goal for “universal adoption of zero net energy practices for new commercial and residential construction by 2030.”

  5. Ronald says:

    Reply #1, Ken Levenson.

    As I understand it, Passive House claims a reduction of 90 percent of total energy use, not just heating and cooling. Which means they put in very energy efficient appliances also and don’t make up any winter heating from inefficient appliances.

    A Passive House design came in second in the recent Solar Decathalon held at the mall in Washington DC that was from the University of Illinois. I don’t know the relationship between the U of I and Passive House except to say they are in the same city, Urbana, Illinois.

    I’m curious what level of insulation they would recommend for in my state of Minnesota. They want a level of R56 (16 inches, high quality insulation) for the Walls! (R70 in the ceiling) for Urbana, Illinois, which is a warmer climate than Minnesota.

  6. ken levenson says:

    #2 Ivy Bear – I don’t get the sense that the rebound effect is being ignored – but I do see a way to avoid a big wasteful trap….

    If buildings are being retrofitted to “just” achieve 15% or 25% or 30% energy savings in the near term (Energy Star/LEED) – they will need to be retrofitted yet again by 2050! That will be a huge waste of energy. A huge lost opportunity. Because with Passive House we can make a truly dramatic drop in efficiency NOW. No need for a second retrofit.

    Another plug: DOE should be funding this stuff.

    Finally, it is fine to be talking about “greening”, and the LEED system is admirable for its holistic approach to building, BUT THE CONVERSATION ABOUT “GREENING” HAS BEEN DETRIMENTAL TO THE CLIMATE THUS FAR.

    Why? Because the holistic conversation has made it easy to obscure the fact that the energy savings have actually been quite paltry. Passive House is very useful in many ways – but it’s most useful, perhaps, in its simple and clear energy usage goal. You must hit the number. That’s 15kwh/m2/year – that’s basically heating your house with a hair dryer.

    And that’s the way buildings will become part of the solution and stop being part of the problem.

  7. mike roddy says:

    Here’s something architects overlook: We can’t achieve energy efficiency or durability as long as we continue to build houses out of two by fours. Architects and building officials try to make them work by applying spray foam into voids, or filling the cavities altogether with a product like Icynene.

    The whole wall ends up jerry built- accompanying the two by fours are thermal breaks, shear panels, stucco or veneer finishes, lath, vapor barriers, flashing, etc. There are innumerable leakage opportunities as the wood shrinks and bows, and a ton of penetrations and bad workmanship traps, too. Multiple trades are involved with wall assemblies, adding time, steps, and labor, and increasing QC pressure on the super. I’m a former large project builder and project manager, and have seen these horrors up close. The point of all this is to take advantage of heavily subsidized $2 two by fours, usually from clearcuts.

    Our houses are an international laughingstock, since they’re leaky, too big, and destined to be torn down in about 60 years.

    We have to shift to monotonic modular wall and roof support technologies, using inert and durable materials. This can be done with SIPS panels (OSB on the outsides, steel framing for interior support), ICF (insulated concrete form construction), or light blocks made from slurry and waste products. “Earth” or straw are not good ideas, for reasons too detailed to go into here.

    Design of course is huge, too, and I’m not surprised you know about passivhaus, Ken. But we have to get all of it right, and skip the wood, vinyl, formaldeyde laden carpet and cabinets, toxic copper arsenate bottom plates, and all the rest of it.

  8. ken levenson says:

    #5 Ronald,
    Up to 90% is just for the heating and cooling. Overall building efficiency is better by 50% to 70% – range dependent on occupant habits.
    They do put in efficient appliances, lighting and may incorporate solar thermal to contribute to achieving primary energy demand goal.
    PHIUS is in Urbana and they do work with the univeristy – and the Solar Decathalon entry was to Passive House standards. But not only did UofI get second with PH but the German team that got first place was also Passive House. Not too shabby…

    The big debate about Passive House right now is that it is an inflexible energy standard – and so as you get north into harsh climates the insulation values must grow to almost absurd dimensions. In NYC where I am, it is pretty “easy” to hit the standard (theoretically), Boston becomes significantly harder, Burlington Vermont becomes damn near ridiculous. Not only because of the cold but because of the reduced solar heat gains – a double whammy! So many are arguing for an adjusted number for harsher climates….it will be interesting to see how the debate progresses.

    Given that though, it is interesting to note that two of the certified Passive Houses in North America (there is less than a dozen as of yet! – while in Europe there or tens of thousands…sigh…) are in Minnesota – one in Bemidji and I forget the other town. And one is also being built right now in Hudson WI.

    The ultimate level of insulation required is manipulated in the specific energy program – Passive House Planning Package (PHPP). So it can go up or down depending on other decisions – but its safe to assume you need a lot of it!

  9. Ivy Bear says:

    The point about energy efficiency is that studies have shown that when you add insulation, about 20-30% of the supposed savings go into turning up or down the thermostat to increase comfort – which you can now do with no increase in your overall energy bill. You spend the same, but get more comfort. So the actual savings in energy are less than projected. Also, there is indirect rebound – the money you save on your heating/cooling bill, you use to take a vacation, flying around the globe, thus increasing your footprint.

    There are ways to deal with this, either by rationing or carbon taxes. Energy efficiency is not a panacea, despite what Avery Lovin maintains.

    I’d love to see what Joe thinks about all this.

  10. ken levenson says:

    I don’t know enough about Amory Lovins BUT I think we can all agree that there is no one answer.

    To paraphrase Larry Summers’ recent talk: it’s not time for “either/or” but “both/and,”.

    We need dramatic efficiencies and dramatic changes in habit.
    My mantra (to my family’s annoyance): smaller home, less beef, less stuff, less travel.

  11. Not a basketball guy says:

    RE #2, I had no idea what the ‘rebound effect’ was but found this link which seems to explain it well:
    Ivy Bear, does this link provide a reasonable explanation? I wonder if consumers could be trained to not rebound through clever ‘nudges’ and application of behavioral economics.

  12. GFW says:

    All sorts of little things work against adoption of Passivhaus standards right now. For example, the official square footage of a house for tax purposes is calculated from the outside dimensions. That puts big thick walls at a disadvantage.

    I wish I could do more to my house, but it was built to very typical standards. I can’t even reach most of the attic to put in more insulation (although I’m adding more where I can). What I really need is to be able to borrow a thermal camera sometime in the winter and discover where the problem areas are.

  13. ken levenson says:

    GFW, If those big thick walls are cutting your heating and AC bills by 70% to 90% – I don’t think the tax structure factors in much, no? We’re talking BIG savings – and with ever escalating fuel costs going forward the savings will only grow.

    Right now, without government incentives, on a typical project, you can expect the upcharge for PH standard to be between 5% and 10% of construction cost with a payback of under 10 years. If we had government incentives for PH standards it should be pretty darn simple to get it toward zero upcharge with immediate, full financial benefit to owner. While we are in the “first adopter” stage right now – this screams for application to moderate and low income housing – real thermal comfort and real financial security for all…

    The only thing holding up PH right now, is the same thing that inhibits all change – inertia. Right now in Austria, entire town building codes are being rewritten to PH, Frankfurt Germany is building all new public housing to PH – the PH approach is soon expected to dominate the building market in Germany and Austria.

    The remarkable thing too is that there are no new technological breakthroughs necessary – everything exists and has been tested. We just need American manufacturers, builders and regulators to breakthrough the inertia and move on this. An ancient problem – but one that has been overcome before.

  14. A Siegel says:

    It is critical to pound home that that the value of investing in ‘green’ leads to positive gain, rather than being a cost to bear. This was probably the greatest weakness in Krugman’s article Sunday (

    As for “Ivy Bear”, I don’t think that the “rebound effect” (Jevons’ Paradox by another name …) is ignored — it is part of the equation, but part not the dominant. And, as with those focused on Jevons’, is your answer to promote greater wastefulness in energy to avoid a rebound effect?

  15. Ivy Bear says:

    To A Siegel and Not a basketball guy:
    Of course wasting energy and having excessive emissions is not what I am advocating. My point is that simply deploying energy efficient technologies is not a solution to climate change by itself. We need additional measures beyond this, such as a carbon tax or carbon caps to actually realize the gains. The rebound effect can be very significant, and in some cases, actually increase energy use beyond what was originally used. For example, if an individual fixes up a very leaky and poorly insulated house, and makes it very tight, their heating bill will go way down. What do they do with the savings? If they spend it all on airplane travel, the net change in energy use could actually be more than previously occurred. This is not trivial, and cannot just be waved away. We would need to also cap air travel and carbon emissions across the board if we want to realize the real gains that energy efficient technologies promise. But I haven’t seen any form of this approach being included in analyses of energy efficiency claims. So I find them suspect. Dealing with climate change isn’t simple. We need to do better.

  16. Tom says:

    Last year I installed a 12KW Solar PV system myself for about $3 per Watt after the CSI rebate and federal tax credit. CSI and PG&E check your historic bills to try and be sure the system doesn’t produce more than you use. I designed it at about 80% and installed it. I then proceeded to review all my appliances and the times they run. Since most Solar installations in California under PG&E use the E-6 Time of Use tariff, I worked to switch as much as I could to off peak hours. For example, my swimming pool filter now runs both the minimum time and during off-peak hours. It looks as though I’m going to be able to be a net producer of Electric ( for which the legislature just passed a law requiring PG&E to pay you) by cutting my bill the other 20+%. I’m now going to buy a Nissan Leaf and switch to the E-9 rates which will result in essentially free fuel for my EV. So between Solar, conservation and time shifting plus an EV, I’ll be a net energy producer and have a near negative carbon footprint. The really good news is that at my past electric bills and cost to operate my gas car, I’ll break even in about 3-4 years and from then on, I’ll also make a profit.

  17. Good to see some statistics on buildings, and why the retrofits are so important. Makes sense that even if all of the new buildings being put up used green design principles, it would still take decades to see cost savings because there are so many of the older building out there. Not sure why the employment and reduced oil imports aren’t quantifiable, seems like it would be possible to count how many workers are needed to install the retrofits and how many less gallons of imported oil we need to purchase.