Climate Change 2001:
Working Group III: Mitigation
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5.4.1 Buildings

The buildings (residential and commercial) sector accounted for about a third of carbon emissions from fossil fuel combustion in 1995. Its share of the total emissions has increased faster than in other sectors (Price et al., 1998). About half the emissions in this sector are from fuel use in the commercial sector, and the other half from the residential sector. Energy use in the sector is for cooking, space conditioning, water heating, and lighting and appliances. Aside from the use of modern energy, biomass use constitutes a significant portion of the energy supply, particularly in the developing world. The bulk of households in rural areas use biomass for cooking, and water and space heating. Much of the biomass (particularly for firewood, and charcoal combustion and charcoal production processes) in developing countries is used in an unsustainable fashion and results in additions to anthropogenic emissions (CEEEZ, 1998).

Barriers to the full realization of the opportunities for improving energy efficiency in this sector have been extensively studied. The key barriers are traditional customs, lack of skills, social barriers, misplaced incentives, lack of financing, market structure, administratively set prices, and imperfect information (Golove and Eto, 1996; Brown, 1997).

Traditional Customs
Lack of appreciation in the design and manufacture of energy-using devices can inhibit their penetration. In the case of improved biomass stoves it has been shown (ESD, 1995) that despite savings on household charcoal budgets, improved stove commercialization still remains a problem, because of inconsistent design and quality control in the manufacture of stoves. In some programmes (CEEEZ, 1998), field surveys showed that most users of improved cookstoves returned to traditional stoves, owing to a preference for speed in cooking with traditional stoves as compared to the former.

Lack of Skills
Insufficient skills in the manufacture of efficient appliances can slow or stop their diffusion. For example, dissemination of improved stoves could not be sustained (CEEEZ, 1998), because of various reasons, among them being increased production time arising from the complexity of the stove design. As a result, local producers switched to the production of familiar items, which were easy for them to manufacture.

Behaviour and Style
Despite the existence of demand-side management programmes, in most developed countries, and the availability of more technologically efficient household devices (such as air conditioners) in the market place, changes in behaviour and style (associated with a desire to increase dwelling size) tended to increase the demand for energy services (Wilhite et al., 1996). Energy use for space heating increased in Norwegian homes from 1960 to 1990 thanks to a doubling of dwelling area per capita (Hille, 1997) in spite of more stringent building codes and the doubling of thermal efficiency.

Another example is space cooling in Japan, where air conditioners are technically very efficient, but space cooling demand is still increasing dramatically, because of changes in dwelling size, changing tastes, and modern building design which does not support natural cooling (Wilhite et al., 1996). For most home owners, the lowest first cost is more important than a higher energy efficiency level when purchase decisions are made about an appliance or a home (Hassett and Metcalf, 1995).

Misplaced Incentives
These result between landlords and tenants with respect to acquisition of energy-efficient equipment for rental property. Where the tenant is responsible for the monthly cost of fuel and/or electricity, the landlord is prone to provide the least-first-cost equipment without regard to its monthly energy use. Fee structures for architects and designers are based on capital cost of the building. Designing an energy efficient heating, ventilation, and air-conditioning system costs more, and reduces the capital and operating costs of the building, both of which serve as a disincentive to architects for the design of energy-efficient structures (Lovins, 1992). Also, in the buildings sector compensation to architects and engineers based directly or indirectly on a percentage of the costs of the building provides perverse incentives.

Lack of Financing
This refers to the significant restrictions on capital availability for low-income households and small commercial businesses. Home mortgages for instance do not as a rule carry a lower interest rate for efficient homes, which have low annual energy costs. In case of switching to modern cooking stoves (electric, kerosene, or liquefied petroleum gas (LPG) for example) in rural areas of developing countries, the barriers result from household income, accessibility to modern fuels, the relative cost of traditional and modern fuels, and cooking habits (Soussan, 1987). For example, in view of both national and global benefits, use of low-cost electric stoves has been noted as a viable substitute for improved biomass cookstoves, as they can contribute effectively to preserve forests to enhance carbon sequestration (CEEEZ, 1998). Despite this realization, there has been a low level of switching from charcoal stoves to electric stoves. This is largely because of a lack of finance, resulting from low monthly income of which 35% to 45% is spent on fuel (CEEEZ, 1998).

Market Structure
This can imbue power to firms who may inhibit the introduction by competitors of energy-efficient equipment such as compact fluorescent lighting (Haddad, 1994). The design, construction and maintenance of buildings is largely fragmented. This is in part cause by the lack of integration and communication between sub-sectors, and in part a reflection of the diverse and large number of suppliers. This results in many instances of building design, insulation, and energy-using devices that do not exhibit high levels of energy efficiency (OTA, 1992). One response in Switzerland since 1978 has been to ensure that architects are fully integrated into the selection and construction of energy using devices in buildings (Jefferson, 2000).

Administratively Set Prices
These distort investment and the choice of energy forms and end-use equipment. Electricity has been historically subsidized to residential customers in India, and serves as a disincentive to faster penetration of efficient lighting and appliances (Alam et al., 1998). In contrast to subsidies in the electricity industries of India, non-availability of subsidies in the commercial dissemination of improved cookstoves in Kenya has lead to dramatic improvements in the marketing and distribution of improved stoves as shown in Box 5.4.

Box 5.4. Commercial Dissemination of Improved Cook- stoves in Kenya

One of the most successful improved cookstoves in Africa is the Kenya Ceramic Jiko (KCJ) (Karekezi, 1991). The KCJ was introduced in Kenya in 1982 and mainly targets urban populations who used charcoal.

The KCJ is produced and marketed through the informal sector. One of the key characteristics of this project was the ability to utilise existing production and distribution system for the traditional stove to produce and market the KCJ.

The most important factor to the successful commercialization of the KCJ is the conscious decision made by the project initiators not to provide subsidies. Although stove prices were initially high, the ensuing competition between producers reduced the price from as high as US$15.00 to a prices of US$2.50 in 1989 (Karekezi, 1991). Purchases made by high income groups in the earlier stove dissemination, however, effectively subsidized the stove development process thus making it available for lower income groups (Otiti, 1991).

Economic Pricing
Economic pricing in the electricity sector, particularly in developing countries and countries in transition, has been hampered by a lack of adherence to economic tariff setting (based on long-run marginal cost (LRMC)). Attempts to rigorously follow this concept, however, have resulted in social problems. For example, in Russia, a country in the process of transformation to a market economy, LRMC has led to pensioners not being able to afford their electricity bills, requiring subsidies amounting to 20%-35% of the budgets of local authorities (Gritsevich, 2000).

Imperfect Information
The lack of adequate and accurate information, and the limited ability of users to absorb it adds to the cost of its provision to consumers. Since energy costs are typically small on an individual basis, it is rational for consumers to ignore them in the face of information gathering and transaction costs. For instance, Sony was able to reduce the standby power loss in TVs from 7-8 watts to about 0.6 watt, a saving of US$5 per year per TV. One reason for consumers to not buy more efficient appliances, despite a label advertising this fact, is that consumers are wary or mistrustful because of past experience with advertised misinformation (Stern and Aronson, 1984). Kempton and Montgomery (1982) have shown that residential consumers systematically underestimate energy savings, because they lack the ability to use the information to calculate and compare savings with investment. Furthermore, Kempton and Layne (1994) liken today’s energy bills to receiving a single monthly bill for all groceries purchased with no identification of the cost of individual items.

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