Following the commitments of governments, corporations, and institutions, billions in funding have been allocated to build a net-zero carbon economy by 2050. In the U.S., the Inflation Reduction Act (IRA) alone includes an estimated $369 billion in energy and climate provisions. These commitments represent an enormous challenge and opportunity to target critical barriers to meaningful greenhouse gas emissions reductions, which means we must not overlook our existing buildings.
While many sectors of the U.S. economy are reducing emissions, the buildings sector is a major exception, largely due to aging existing buildings. Homes and buildings account for 40% of U.S. energy consumption and at least 30% of U.S. greenhouse gas emissions–more than any other sector of the economy.
Of the country’s roughly 6 million commercial buildings, 75% are more than 20 years old. Given that these buildings will be in use for decades to come, they must be retrofitted to achieve the world’s climate commitments. The International Energy Agency estimates that we need to retrofit 20% of global building space by 2030 to meet emissions targets, or 2.5% of building space annually.
Smart policy and program design can offer a path to realizing both commercial and residential retrofits at a rapid pace.
Earlier this year, the U.S. Environmental Protection Agency (EPA) announced the initial program design of its $27 billion Greenhouse Gas Reduction Fund, a key climate financing initiative in the IRA. Over $19 billion of the fund will flow to nonprofit grantees, which will then allocate the funds to community financing institutions, such as green banks, community development finance institutions, and credit unions to invest in projects that lower pollution and energy costs.
The EPA rightly identified building efficiency improvements as one of three priority areas for funding. And as the agency moves closer to putting money on the street, it would be smart to look closely at a program implemented by our neighbors to the North that has successfully streamlined and accelerated similar investments in retrofit projects.
In 2020, Canadian Prime Minister Justin Trudeau announced a $2 billion investment in large-scale building retrofits as part of a national growth plan that would be funded by the Canada Infrastructure Bank. Since the announcement, the bank quickly ramped up a Building Retrofits Initiative to execute these investments. As of March 2023, the initiative has made $900 million in building efficiency investment commitments.
The bank’s unique approach provides a model for how public funds in the U.S. can be deployed into retrofit projects at the pace and scale required to move the needle on climate targets. By tying interest rates directly to carbon emissions reductions, the bank’s program incentivizes investment in projects with the greatest potential for climate impact, pushing funding to projects that deliver strong results.
The model used by the bank also brings standardization to predicting and documenting the potential energy savings associated with retrofit investments, overcoming complexity and bureaucracy that have historically been major barriers to investing in building efficiency at scale.
Today, it is typical for investors to utilize their own idiosyncratic approaches to predict and document project energy savings. This market fragmentation makes assessing project returns costly and evaluating project risks difficult. These challenges are compounded when operating an initiative responsible for deploying $2 billion.
To overcome these challenges, the Canadian retrofits initiative turned to Investor Ready Energy Efficiency (IREE) certification. Originally developed by the Environmental Defense Fund and now administered by Green Business Certification Inc. (GBCI), IREE provides third-party verification that the estimated savings associated with a proposed retrofit project have been determined and documented following industry best practices.
IREE certification enables the Canada Infrastructure Bank to partner with firms across the country that can develop and bundle retrofit projects at scale. It also makes underwriting the performance of these otherwise unique investment opportunities easier. The result is more potential projects sourced and evaluated at a lower cost. By uniting all its partners under a common framework, the Canada Infrastructure Bank is moving the retrofit market a step closer to the standardization that is common in other more efficient markets, such as those for mortgages, car loans, and solar power purchase agreements.
As the EPA and its grantees determine how to allocate the Greenhouse Gas Reduction Fund, the Canada Infrastructure Bank offers a path forward for developing a more efficient retrofit market. By following the Canadian model, we can help ensure that each public dollar spent results not only in direct emissions reductions but also helps overcome a key barrier to increased private sector investment in building efficiency, putting us on a path to realizing our climate goals, lowering our energy bills, and improving our indoor environments.
Ben Evans is the federal legislative director of the U.S. Green Building Council.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
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