The current debate about creating a sustainable, low carbon economy in the UK is dominated by how we should generate energy in the future. But if we truly care about affordability, security and the environment we should first think about cost effective demand reduction and consider how we can use less energy – which means focusing on buildings, not just power plants and turbines.

Buildings represent a significant opportunity for carbon abatement in the UK – the energy we use in them is responsible for almost half of the country’s CO₂ emissions. Domestic buildings are important but so are our offices, factories, schools and hospitals – they make up 18% of the UK’s CO₂ emissions and use 300TWh of energy per year, which is equivalent to the primary energy supply of Switzerland. And, because they are usually bigger than domestic properties, energy efficiency measures are more cost effective.

Carbon Trust research has found that around a 35% reduction in CO₂ emissions by 2020 can be achieved using cost-effective measures. These would yield a net benefit to the UK of at least £4bn, while reductions of 70-75% by 2050 can be achieved at no net cost. And yet, emissions from non-domestic buildings have remained roughly constant over the past two decades. What is preventing the implementation of even the cost-effective carbon reduction measures? And what role can Government play in catalysing the sector to move the emissions onto a downward trajectory?

First we need to understand what makes up the total emissions from a building, and from there what might be done to reduce these. At its simplest, the total emissions from any building are determined by the quality of the building as designed and built, combined with how well the building is operated and occupied. So, what we need in the transition to a low carbon building stock are “better buildings... used better”. There are lots of barriers to achieving better buildings... used better.

These range from financial barriers, ‘hidden’ costs and the landlord-tenant divide through to a lack of motivation to act, knowledge on what measures to implement and how to operate a low carbon building and capability issues within the supply chain. These create a ‘circle of inertia’ where no one party feels they can make a difference and little happens.

Potential cost savings are huge in aggregate but unlikely to drive change alone. The £4bn benefit mentioned earlier is small relative to the amount spent annually on the construction of new non-domestic buildings and the refurbishment of existing non-domestic buildings. And, for building owners and occupiers, energy savings can appear small relative to their overall cost base – energy accounting for as little as 1-2% compared to staff, rent, business rates and other costs.

Given the lack of emissions reduction in the past, the size of the carbon reduction opportunity and the associated social and economic benefits, Government has the opportunity to take a leadership role in shaping and delivering the scale and speed of change required by setting out a clearly defined strategy focused specifically on delivering low carbon non-domestic building stock. By bringing a focus on to this often forgotten sector, the Government could create a policy framework designed to address critical market failures, turning the ‘circle of inertia’ into a ‘circle of momentum’. The strategy should have two main elements: direction setting and policy packages.

Government should provide direction through a clearly laid-out ambition for the level of carbon emissions reduction sought from the sector. This ‘budget’ needs to be translated into a language that is relevant to the sector and both Display Energy Certificates (DECs) and Energy Performance Certificates (EPCs) should be the central elements of this. These certificates need to be used in combination: EPCs measure the quality of buildings while DECs measure how they are used. The Government should therefore roll out DECs to all non-domestic buildings to complement the existing use of EPCs. This would make building performance transparent, catalysing action.

Direction setting is a critical first step but needs to be complemented with a policy package that will deliver the target emissions trajectory. The ‘package’ aspect is critical – individual policies will need to be effective in their own right and each will have specific objectives being targeted, but they will also need to integrate effectively and clearly with the other policies to achieve the overall outcome. It is important that the package targets both “better buildings” and “used better”, as each has its distinct barriers which need to be overcome.

Barriers to:

Starting with policies aimed at delivering better buildings, the key mechanism here are Building Regulations which set the standards for ‘major interventions’ – new buildings and major refurbishments. These regulations need to be tightened over time and extended to include all sources of building emissions.

However, what about the two-thirds of non-domestic buildings that will not undergo a major intervention by 2020? This has been partly addressed by the Energy Act 2011 taking up a policy we recommended in 2010, minimum building standards. However additional policies are needed to ensure buildings are ‘used better’. We suggest the following options for Government to consider:

• Public sector leadership: As permanent bodies that plan for the long term, they are uniquely placed to play a significant part in achieving the national goal of developing a low-carbon economy. They could pledge to implement cost-effective options from DEC advisory reports within the seven-year lifetime of the report. They can also drive district heating rollout and provide momentum to take up ESCO models that have been successful in the USA.
• Focused building advice: a pro-active advice and support programme targeting cost-effective improvements in the poorest buildings – those with F and G-rated DEC/EPC certificates.
• Finance: The finance barrier, although in part addressed by the Green Deal, could benefit from cheaper access to loan finance – a particular issue with SMEs. This could be a role for the Green Investment Bank.

Beyond 2020 there is a whole new challenge for the sector, quite different to the implementation of proven, cost-effective measures. Government policies are required now which will lead to large scale innovation and a transformation in the industry’s capabilities. Innovation support is required across a range of technologies and approaches to develop a greater range of carbon reduction options, at a lower cost than today. This includes building fabric measures, more efficient building services and equipment, low/zero carbon energy generation alongside ‘softer’, non-technology based innovations in the specification, design, construction and use of buildings. The Carbon Trust has estimated that these could save up to £13bn by 2050[1].

A transformation in the capabilities of the non-domestic buildings industry is also required, through defining best practice at every stage of the building journey, assessing the gaps to best practice which currently exist and the rolling out of education and training programmes to fill these gaps.

These actions are needed now, in parallel to the policy packages described to stimulate energy efficiency out to 2020, in order to ensure the emissions trajectory continues on a downward path even once all the low-cost energy efficiency measures have been implemented.

In summary, policies more targeted towards the specific market barriers in this sector, with an emphasis on the most efficient use of buildings, as well as the design of these, will be instrumental in the much needed acceleration of the move towards low carbon buildings. It is a material challenge but a huge opportunity.

[1] Technology Innovation Needs Assessment (TINA) – Non-Domestic Buildings, LCICG, BRE, Carbon Trust analysis (2013)

This article first appeared in ‘the hot book’ published by the Labour Party.