You are here

Green Investment Horizons

Effects of Policy on the Market for Building Energy Efficiency Technologies

As governments around the world devise policies to reduce energy consumption and GHGs, and minimize dependence on foreign sources of energy, they are increasingly focusing on technologies that can improve the energy efficiency of buildings. Insulation, lighting, and building controls are the three energy efficiency technology categories that have emerged as having the most impact on improving energy use.

Key Findings

Executive Summary

This Working Paper:

  • Informs the investment community by providing information and context on the potential market growth of energy-efficient technologies in buildings.

  • Explores how different policies on energy efficiency and climate change may impact demand for energy efficiency technologies in buildings, within certain markets.

  • Provides market growth forecasts based on two policy scenarios for the following technologies and markets:

    • Insulation in the European Union: to reduce energy use and loss;
    • Lighting worldwide: to develop new efficient lighting technology;
    • Building controls in the European Union and United States: to optimize the use of air-conditioning, and lighting appliances.

Energy used in commercial and residential buildings accounts for 40 percent of global energy consumption and approximately 24 percent of the world’s greenhouse gases (GHGs). Heating, cooling, and lighting make up a large proportion of this energy use.

As governments around the world devise policies to reduce energy consumption and GHGs, and minimize dependence on foreign sources of energy, they are increasingly focusing on technologies that can improve the energy efficiency of buildings. Insulation, lighting, and building controls are the three energy efficiency technology categories that have emerged as having the most impact on improving energy use.

Setting the Scene

This paper develops policy scenarios to forecast the market size of key energy efficient technologies for buildings over the next 20 years (2010-2030). The objective is to provide information and context for those planning to invest in business opportunities in these growing markets.

  • The paper identifies the most important energy and climate change policies in three large markets – the European Union, the United States, and China.

  • Within those markets, referred to as “focus markets,” the analysis concentrates on three key technologies – insulation, lighting, and building controls. (Refer to Annexes 2 to 4 to get quick facts on each of these technologies.)

  • The potential future markets for these technologies are forecast based on specified assumptions about current and planned policies and market conditions.

  • Forecasts are developed for two time frames: the short-term (2010-2020) and the long-term (2020-2030).

  • The paper focuses primarily on buildings within the commercial and residential sectors.

Public policy actions to counter climate change and reduce greenhouse gas (GHG) emissions are increasingly focused on improving energy efficiency in buildings. This strong trend presents an opportunity for investors.

  • Emerging policies are likely to increase the uptake rate for energy efficient technologies. Policies of varying stringency and scope have been introduced in the featured markets to save energy and reduce GHGs. For example, the European Union and China have mandated the phase-out of incandescent lamps within the next decade, while the United States has imposed lighting efficiency standards and will likely pursue phase-out as well. This creates a major market opportunity for more energy efficient compact fluorescent light bulbs (CFLs) and Light Emitting Diodes (LEDs) which consume 75 and 66 percent less energy than incandescent bulbs respectively.

  • The most common policy mechanisms use a combination of requirements and incentives. For example, in the European Union, the Energy Performance of Buildings Directive (EPBD, 2010) sets a mandate encouraging member states to take measures to make all new buildings low or net-zero energy by 2020. Also, under the EPBD, an energy performance certificate must be displayed in all public and commercial buildings. This measure is designed to improve transparency between tenant and building owner on the energy efficiency of every building. In addition, the EPBD encourages member states to set up rebates, tax credits, and information on energy efficient technologies to help ease the burden of initial capital investment in building energy improvements. At present, the EPBD is primarily being interpreted as a guidance tool by member states where it fits into their national priorities. Nevertheless, the Directive sends a clear signal endorsing active policies for improving energy efficiency of buildings.

Approach

Given the trends above, this paper constructs two plausible policy scenarios based on expectations of how specific focus markets may grow in the next 20 years as a result of newly introduced and planned legislation promoting energy efficiency in buildings. Data on CO2 emissions, rate of technology uptake, and projected market growth of technologies were acquired from market research and annual company reports. These were used to project future developments of market sales and demand. The following policy scenarios were chosen based on the assumption that their implementation will have different impacts on market growth of insulation, lighting, and building controls. (Explanations of the methodology can be found in Section II and Annex 1.)

  • An “incremental” scenario that focuses on the impact of current and planned policies.

  • An “aggressive” scenario that assumes more ambitious public policy is enacted, further spurring technological advancements.

The main difference between the incremental and aggressive scenarios is that growth is expected to accelerate under the latter if existing policies become more stringent and if new policies help to reduce financing barriers. The differential between the two scenarios is clearer in the lighting and building controls sectors, where growth is expected to be slower in the short-term but accelerate in the long-term as technological innovation improves and products become more affordable.

Stay Connected

Sign up for our newsletters

Get our latest commentary, upcoming events, publications, maps and data. Sign up for the weekly WRI Digest.