• Business and the environment

Business and the environment

The Clean Development Mechanism (CDM) was created under the Kyoto Protocol to help developed nations meet domestic greenhouse gas (GHG) reduction commitments by investing in low-cost emission reduction projects in developing countries. It is now one of the most important internationally implemented market-based mechanisms to reduce carbon emissions.This report analyses the project development environment in the building sector and explores why building sector projects have been under-represented in the CDM’s project portfolio.

Buildings are responsible for more than one third of total energy use and associated greenhouse gas emissions in both developed and developing countries. Proven and commercially available technologies can cut energy consumption in both new and old buildings by an estimated 30-50% without significantly increasing investment costs. Energy savings can be achieved through a range of measures including smart design, improved insulation, low-energy appliances, high efficiency ventilation and heating/cooling systems, and incentives to building users to conserve energy.

The potential for reducing energy consumption in buildings remains largely untapped in most countries, and out of more than 3,000 CDM projects as of May 2008, only six focus on reducing energy demand in buildings. The report suggests CDM is having a limited impact because:

• as opposed to many other sectors, the buildings sector does not present a few big emission reduction options, but requires many small interventions in a very large number of buildings
• there is fragmentation of the building sector with limited interaction among stakeholders involved in different phases of a building’s lifetime; different aspects of the buildings, such as architecture, engineering, building management, building function, occupant profiles are either poorly or not coordinated therefore there is no natural incentive for, or convergence of interest in, a life-cycle approach to managing energy use in buildings
• split economic interests mean the parties making decisions about building design (designers and investors) are rarely the ones who would benefit from energy efficiency improvements and associated costs reductions (owners and users)
• there is lack of information and understanding of the importance of the building sector in relation to climate change
• there is a high perceived business risk and underestimation of the life-cycle cost benefits from energy efficiency investments in buildings

The report suggests that difficulties stem from the design of the CDM, as well as from issues inherent in the building sector environment that can hinder the promotion of energy efficiency projects. It proposes CDM rule changes that may stimulate more buildings sector projects, and it points the way toward increasing the use of CDM incentives to develop and scale up more energy efficient building projects.

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