The buildings in which we live and work are among our greatest climate liabilities. And in contrast to the situation with electrical power and transportation, buildings are one of several economic sectors where momentum is still lagging. The following chart shows the recent history of emissions from the world’s buildings, as compiled by the International Energy Agency, while the future years on the right show the scope of declines needed if the goals of the Paris climate agreement are to be met. There is little reason to think we are on track for such rapid declines. 

At first buildings might seem to be one of our lesser problems: they are directly responsible for only 6 percent¹ of global emissions of carbon dioxide, mostly from burning gas for space and water heating. But the footprint of buildings more than triples when their indirect emissions are counted — that is, their use of electricity.² It is inside buildings that most of the world’s electricity is used, of course, so the efficiency with which they use it is a critical issue.

Many people will have some familiarity with one aspect of this problem: the bulk of the housing stock in developed countries is decades old, with some homes dating back centuries. Their draughty windows and poor insulation mean that heating and cooling them requires enormous amounts of energy. Bringing them up to modern standards can be difficult and expensive. Unfortunately, the problem runs deeper than just older buildings, however. All over the world, we are still putting up buildings that waste more energy than necessary. Buildings that use little energy for heating and cooling are technically achievable, but in very few parts of the world are building codes in place to require such stringent construction; even where the codes are adequate, enforcement of them often lags. 

A global push is under way to tighten both the building codes and the enforcement of them, but such measures are often resisted by the construction industry, because they cost money. It is typically the case that these improvements — tighter windows, thicker insulation, better air-handling systems — will pay for themselves over time by saving energy. But they do drive up the initial cost of buildings slightly. Like so many other industries that could make a contribution to solving the emissions problem, the construction industry keeps choosing short-term profits over the long-term welfare of the planet.

The problem of buildings is difficult enough in the developed world, but it is even more vexing in the developing world. Many poor and even middle-income countries make little attempt to enforce building standards of any kind. In parts of the world where urbanisation is proceeding at a breakneck pace, millions of slapdash buildings are going up with little attention to their long-term energy use. The governments of developing countries often simply lack the capacity to make and enforce building codes. Some serious thinking is needed about how to tackle this problem. One possibility would be to tie development aid and trade deals to the willingness of governments to make and enforce building standards, but that will only work if those governments also get help expanding their technical capacity to carry out the task. 

Repairing the world’s buildings is undoubtedly one of the hardest problems we have to tackle — it may, in the end, prove to be the hardest, given that hundreds of millions of building owners need to be moved to action. However, some governments are finally coming to grips with the need to act.

Modernising the building codes is a critical step. Reasonably strict codes are in place in Japan and across much of Europe, and they have been adopted piecemeal in parts of the United States. China has adopted a stricter building code that went into force in 2022 and, if adequately carried out at the local level, could yield major energy savings in that country. China has already achieved an enormous success in its building stock, one little heralded outside the country: hundreds of millions of solar water heaters have been deployed there, rooftop units that supply household hot water by passing the water through small tubes heated by the sun. China has more than 70 percent of the world’s solar hot-water capacity. With thousands of manufacturers and savage competition in the marketplace, the devices can be had for as little as USD 200, and in some parts of the country, every home has one, alleviating the need to burn fuel for hot water.

With new buildings, the issue is not just the lifetime energy required to run them. As much as 30 percent of a building’s emissions come from the materials required to build it in the first place: the cement, steel, wiring and so forth. These ​‘embedded emissions’ have been the focus of far too little attention, but that, too, is starting to change. Public policy needs to require that embedded emissions be calculated when a building goes up, and it needs to set targets for cutting those emissions. This is entirely achievable: experts have found that many buildings use more cement, steel and other materials than is truly necessary, meaning there is scope for cutting the emissions just by cutting the volume of materials used. Buildings could also use cleaner steel and cement made by methods that we will describe later in this report.

If stricter building codes are the answer for new buildings, what about older buildings? In the West, governments have for decades cajoled building owners to make upgrades that would cut their energy bills, with only limited success. Governments are beginning to recognise that mandates are required. A policy moving through the European Union would demand that the worst-performing 15 percent of all buildings undergo mandatory energy upgrades.³ Similar mandates are under consideration in about two-dozen jurisdictions across the United States and have already been adopted in New York City, Washington, D.C., Seattle and a handful of other cities.⁴ In the early stages, these policies tend to apply to larger buildings. But it will eventually be necessary to impose rules on individual homes and apartments, with the requirement to bring them up to modern codes perhaps being triggered at the time of sale to a new owner. Some of the new laws are already proving controversial — building owners in New York are lobbying fiercely to get themselves exempted from the requirements there, for instance, so far without success. 

Recent events in the the United Kingdom illustrate how much public policy matters in the realm of buildings. For years, the British government imposed an obligation on energy suppliers to help lower-income customers tighten the shells of their homes. But, after a new government came to power, that policy was replaced by a poorly designed, underfunded programme. The following chart shows what happened to the uptake of building-efficiency measures as a result of the policy change. 

Without doubt, imposing mandatory energy requirements on building owners all over the world is going to be a stark political challenge. Fortunately, a technology has become available that can help us to decarbonise the world’s building stock. And the good news is that it is starting to take off. This technology can sound almost magical. Put one unit of electricity into a device called a heat pump, and you can get three or four units of heat out of it. That is to say, a heat pump can be 300 percent to 400 percent efficient, which sounds on first blush like it must defy the laws of physics. It does not.

The reason is that instead of creating heat, a heat pump moves heat around. Every person in the developed world is familiar with one variety of heat pump: the refrigerator. By compressing and then decompressing a gas called a refrigerant, the machine is able to transfer heat from one place (the inside of the refrigerator) to another (typically, the air space behind the refrigerator). A household air conditioner is also a heat pump, one set up to move heat from inside a home to the outdoors. Essentially the same equipment can be used for heating, not just cooling, by reversing the direction of flow and moving heat from the outdoors to the interior of a home in winter. It can do this even when the outdoor temperatures are frigid, just as a refrigerator can pump heat out of a chamber that is already cold to begin with.

For decades, heat pumps have been a technology of choice for heating homes in mild climates. They were perceived not to work as well in cold climates, but the technology has improved in recent years. Now heat pumps can work even in extreme cold, though their efficiency does suffer in frigid temperatures. If they are run on clean electricity, heat pumps can heat or cool buildings with no emissions, making them one of the essential technologies of the energy transition.

The good news is that this technology is finally on its way to wider adoption: the installation of heat pumps is booming across many regions of the world, with global sales up by double digits for two years running.⁵ Installations are up by as much as 50 percent across some countries of Europe, with certain governments pushing them hard as an answer to the Ukraine war and the need to cut Russian gas. For the first time, heat pumps are now outselling gas furnaces in the United States, and we believe subsidies embedded in the new climate law there should accelerate the market.

But heat pumps are also embroiled in a rising political controversy. Who would have imagined that the lowly heat pump could tank an entire government in one of the world’s most stable democracies? Yet that nearly happened this summer, in Germany, and it is one more example of the fights breaking out worldwide over seemingly mundane issues as climate policy starts to get serious.

The controversy revolved around an aggressive policy pushed by the Green Party, one element of the three-party coalition that governs Germany. The Greens wanted to ban the installation of new gas boilers in homes as of 1 January 2024, in favour of heat pumps, an aggressive timeline. A junior party in the coalition, the centre-right Free Democrats, raised strong objections. That party turned out to have its finger on the public pulse, for polls showed 75 percent of Germans thought the Greens were moving too fast. Heat pumps are still more expensive than gas boilers, and the subsidies on offer from the German government would not have fully offset the difference. Just as important, with heat pump sales already booming, installers were backlogged by many months, so that anyone who needed an emergency replacement for a failed boiler would likely have had a long wait for a heat pump.

With the stability of the coalition government threatened, the Greens were forced into a compromise that will likely delay their gas-boiler ban by years. Other European countries, after watching that experience, are likely to tread carefully as they push a switchover to heat pumps, although France has already managed to pull off a ban on new gas boilers without nearly as much drama as in Germany.

Heat pumps are not just politically tricky: they are also a two-edged sword when it comes to the electric grid. A rapid, large-scale switch away from gas toward heat pumps has the potential to drive up electrical demand to an excessive degree in the winter. It may in some circumstances drive up summer demand, too, for certain types of heat pumps can be used as air conditioners in homes that might not previously have had air conditioning. In principle, even a wasteful building can eliminate its emissions if it uses a heat pump powered by renewable electricity, but failing to tighten the shells of buildings as heat pumps are installed would risk putting too much strain on the grid.

That same logic applies to other electricity-using devices inside buildings. These ​‘plug loads’ are a growing source of electricity demand the world over. Once upon a time, devices had switches that allowed them to be turned off, but nowadays, a television set that is ​‘off’ is almost always on, waiting for a command from a remote control. We have entered an era when most devices are on all the time, so how much power the equipment draws in standby mode has become a critical issue. 

New appliances like refrigerators, air conditioners and washing machines tend to be manufactured in just a handful of countries. Right now, rich countries like the United States and the western European nations are enforcing reasonably strict efficiency standards and keeping the lowest-quality products off their domestic markets. But those products are still being made and sold at low prices in the developing world. We need a global deal that sets minimum efficiency standards worldwide and raises them over time. This has effectively been achieved with certain select categories of products, like power bricks for electronic devices, but it needs to be achieved across the entire range of consumer goods.

One important global deal is already in place. Remember we mentioned that heat pumps require gases called refrigerants, and so do refrigerators and air conditioners. These gases are potentially problematic, for they often leak out of refrigeration equipment and, once in the atmosphere, act as potent greenhouse gases themselves. This leakage can somewhat undercut the benefit of mass adoption of heat pumps running on clean electricity.

Fortunately, under a new amendment to the Montréal Protocol on Substances that Deplete the Ozone Layer, certain refrigerant gases with a high potential to exacerbate global warming are to be phased out and replaced with climate-friendlier gases. This so-called Kigali Amendment has now been ratified by the large majority of the world’s countries — including, on 21 September last year, the United States. The 69 to 27 vote in the United States Senate to accept the deal was the first approval of a climate treaty by that body in decades. The treaty gives some countries long timelines to come into compliance, with the problematic gases not entirely banned worldwide until 2047. But with a ban now inevitable, there is a good chance the market will shift entirely to climate-friendly gases earlier than that. 

Over the past decade, despite the broader lack of progress, the world’s buildings have been the scene of one major triumph in energy policy. Bulbs based on LEDs, or light-emitting diodes, are rapidly replacing older types of light bulbs. Developing countries have played a major role in this achievement, with Chinese manufacturers helping to drive down the cost of the bulbs and India organising large-scale procurements that created one of the world’s largest markets for the bulbs. These bulbs cut electricity use by more than 90 percent compared to old-fashioned light bulbs, and their adoption in recent years has been credited with holding electricity demand flat in many countries.

While the electrification of buildings has the potential to put excessive new loads on the power grid, dawning technological possibilities offer us a way to avoid that outcome. In fact, our buildings could potentially become a major asset to the power grid, helping to balance out fluctuations in the supply of electricity as more and more renewables connect to the system.

How would this work? Historically, power engineers treated electrical demand as a given, and worked to vary the supply in order to meet that demand. But in the era of smart devices and ubiquitous internet connectivity, that paradigm is fast growing outdated. With the right arrangements, power companies can send signals to customer equipment to manage the demand. For instance, you might load a dishwasher late at night, but instead of running immediately, that dishwasher could wait for a signal from your power company. Perhaps it does not run until 4am, when strain on the grid is at low ebb and demand is easily met. Your dishes would still be clean in the morning, but the appliance would have used cheaper power, caused lower greenhouse emissions or both. Similarly, thermostats could be turned up or down slightly, water heaters could be turned off when not needed, and so on.

This is not some mystical vision of the future: it is already happening. In fact in some places, including California, people are being paid significant sums by power companies to allow this kind of demand management inside their homes. The rapid development of these systems has helped California avoid blackouts during recent summers with high power demand. In a grid with more fluctuations from renewable energy, and more erratic weather straining our power supplies, we think this is the kind of smart thinking that must spread worldwide.