G-20 Stimulus 101 - Focusing on Buildings to Build Back Better
By Rishikesh Bhandary
When leaders of the G20 met this weekend, they appeared to focus heavily on the major challenge to the global economy: a second wave of the global pandemic and the possibility of breakthrough vaccine. But always in the wings of any global economic discussion is the longer-term challenge of tackling the climate crisis. As G-20 countries consider additional economic stimulus to tackle both crises, our research shows that energy efficiency of buildings (BEE) is a comprehensive solution that can both create new, green jobs while providing a major step towards decarbonizing economies. Both the United States and China have targeted BEE in past stimulus spending. With the G-20 countries pledging to enhance their commitments under the Paris Agreement, including BEE would offer countries multiple benefits.
Estimates suggest that buildings consume almost of a third of total global final energy consumption and are responsible for a third of direct and indirect carbon emissions (IEA 2019). The benefits of energy efficiency are clear and tangible. Consumers see lower energy bills, more comfortable home and work environments, and lower greenhouse gas emissions. Despite such clear benefits, there is a persistent investment gap in building energy efficiency. This gap primarily stems from the need for significant upfront investment to implement the energy efficiency upgrades. This deters many households from implementing these changes even if it would save them money throughout.
In our T20 policy brief, co-authored with colleagues from KAPSARC, Economic Research Institute for ASEAN and East Asia, and the Crawford School of Public Policy at Australian National University, we outline the steps that the G20 can take to mobilize and direct the resources to promote energy efficient buildings. More specifically, we highlight the importance of creating a global taxonomy that includes building energy efficiency to mobilize climate finance from domestic and international sources. While the G20 has already undertaken work on energy efficiency through the International Partnership for Energy Efficiency Cooperation (IPEEC), thus far, it has stopped short of striving for global standards. The creation of a taxonomy is important because it would allow governments to utilize a broader range of financial instruments to support building energy efficiency. A systematic evaluation of green financing mechanisms for promoting energy efficiency buildings (BEE) with an eye to coordinating international financial standards for green financial instruments for BEE could potentially lower costs by reducing risk and increasing access to a broader range of financial investors.
As building energy efficiency standards vary substantially across the G20, an initial step would be for G20 countries to learn from the successes of other countries. The experiences of Germany and Japan offer some useful insights. Japan successfully launched a Energy Conservation Law to provide standards and targets that contributed a framework for standardized labeling and building rating programs. In Germany, state-owned development bank KfW played an important financial role, offering low-interest loans that were coordinated to fit into a broader federal legal and regulatory rulemaking.
There are multiple steps the G20 can take in order to help close the investment gap in energy efficiency. The goal of such policies could be to enhance the recognition of energy efficient buildings as an investment asset class in the growing green finance marketplace.
We offer three recommendations to the G-20 to accelerate the mobilization of finance towards building energy efficiency. First, establish a global taxonomy that includes standards on building energy efficiency. A first step to this process is that all G-20 member countries should establish national standards where they do not exist and coordinate within the new Energy Efficiency Hub (EEH) that is an outgrowth of the IPEEC and the newly formed Energy Efficiency Finance Task Group (EEFTG) of the G-20. The EEFTG should take a pro-active role to promote BEE definitions and standards where appropriate and coordinate the development of green financing taxonomy. As markets expand and develop during the next round of stimulus spending, G-20 governments should use its platform to provide policy guidance and incentives for green bond issuance related to BEE, thereby contributing to increasing liquidity in local markets for energy efficiency in buildings.
Rishikesh Bhandary is a postdoctoral scholar at The Fletcher School, Tufts University.
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