Between our residential, commercial and institutional structures, Canada has 2.85 billion square metres of largely inefficient buildings that currently contribute to 13% of our national greenhouse gas (GHG) emissions. There is no pathway to a low-carbon future for Canada that doesn’t include both transitioning our buildings off fossil fuels and undertaking energy retrofits on a scale that’s much wider and deeper than anything we have done before.
So how do we get there?
Greening our residences: Home is where the heart of GHG savings is
There are 15 million dwellings in Canada, including 10 million single-family homes and five million apartments with a combined floor area of 2.1 billion square metres.
Most of the housing that will exist 30 years from now is already standing, locking in 65 million tonnes of carbon emissions unless we intervene.
The age of a house is a much better indicator of how much it costs to heat than whether it’s located in balmy Vancouver or wintery Winnipeg. Canada’s existing housing stock leaks heat at several times the rate of the best new homes being built.
About two thirds of the residential-space heat is provided by fuel (mostly natural gas) and the rest by electricity (mostly electric resistance). The key to all low-carbon transitions is to combine efficiency and electrification with decarbonization of the electricity supply. A 10-year, phased-in program for thermally retrofitting and electrifying 60% of Canada’s dwellings would reduce GHG emissions by 45% and annual fuel and electricity costs by $12.7 billion per year, more if prices go up.
The retrofits would include:
- conversion to heat pumps for space heating and water heating;
- controlled ventilation with heat recovery;
- 40 to 70% reductions in thermal leakage (depending on the type and vintage of a building); and
- a 20% improvement in lighting efficiency.
No gains from appliance efficiency are included, and air conditioning is assumed to grow by more than 70%.
Once renovations are undertaken, Canada’s consumption of electricity by the residential sector would decline, even though electricity’s share of space heating would be close to triple today’s. In houses that are heated with electric resistance heating, the conversion to heat pumps results in a sharp drop in electricity demand, and this, combined with the building shell and lighting upgrades, allows the existing electricity supply to more than cover the demand from all the houses converted from fossil fuel furnaces.
The renovation industry’s Model T moment
Costing an investment strategy like this in 2020 is a bit like trying to estimate what it would cost for every household to own a car in 1910, when the two innovations that would make that possible – the moving assembly line and consumer credit – were still around the corner. The going rate for a Model T was $25,000 in today’s dollars, and Ford sold 19,000 of them. By 1920, the price had dropped by 80% to $5,000, and Ford sold 941,000 that year.
The housing renovation industry we have in place today could not deliver the retrofits we need for the low-carbon transition any more than Ford could have delivered 941,000 cars in 1910.
Canadians currently spend more than $60 billion per year renovating their homes (more than they spend on new homes), plus another $30 billion per year for heating fuel and electricity, resulting in 65 million tonnes of GHG emissions.
When costed at today’s prevailing prices, where every job is a custom job, a deep retrofit with heat pump conversion for a single-family house costs $40,000 or more. At that rate, the capital cost for the 9.5 million dwellings included in the transition scenario here would average $36.7 billion per year over the next decade. After allowing for the savings (at today’s prices), it works out to a carbon cost of $141 per tonne.
Is the equivalent of an assembly-line approach possible for the greening of Canada’s existing housing stock? In “mass retrofits” or “area retrofits,” many architecturally similar buildings in a common neighbourhood are systematically retrofitted. It’s an idea that’s gaining traction in many countries, and indications are that unit costs drop by more than 50%, sometimes much more. If the capital cost of the scenario described above were reduced by even 35%, the cost of carbon drops dramatically to $10 per tonne. The value of the retrofits also increases as the real price of fuel or electricity goes up.
The retrofit industry is ripe for disruption and ready for its “Model T moment.” Modern management methods, aggregation of projects and logistical genius are needed to achieve the efficiencies and economies of scale required to accelerate the pace of retrofits.
The sector also needs financing innovations and public investment in training. The homeowner should not have to bear the front-end costs and risks, let alone serve as their own general contractor. And the current practice of retrofitting in which a household routine can be disrupted for weeks or even months is unacceptable; a good target would be to limit the physical intervention in any dwelling to two days.
Greening our workplaces: commercial and public buildings
There are 750 million square metres of commercial and institutional buildings in Canada, with offices, retail outlets, hospitals and educational buildings being the four largest energy users. Annual fuel and electricity costs are $21 billion, and GHG emissions are 43 megatonnes (Mt) of carbon dioxide equivalent (CO2e) per year. On a national basis, natural gas supplies more than 80% of the space heating needs of commercial and institutional buildings, but lights, fans, motors, pumps and a diversity of plug-in equipment keeps electricity’s share of total energy over 40%.
As with the residential buildings, the key to decarbonization in these buildings is the combination of thermal retrofits and conversions to heat pumps.
In the scenario developed here, we assumed:
- 60% of the sector would be retrofitted over a 10-year period;
- a 33% improvement in the thermal efficiency of the building shells; and
- a 50% reduction in electricity used by lighting and HVAC auxiliary equipment.
Under this scenario, total electricity consumption declines by 20%, even while electricity’s share of total heating grows from 10% to 60%, reflecting the same phenomenon observed in the residential buildings where the combined impact of heat pump conversions and building retrofits offset the increased share of energy provided by electricity.
The result: Energy costs will drop by a third ($7.3 billion), and GHG emissions will drop by 50%, or 22 Mt CO2e.
At a cost of $250 per square metre for the conversions and retrofits, the 10-year program has a total capital cost of $113 billion and generates GHG reductions for a cost of -$36 and +$74/tonne.
That assumes that gas and electricity prices and the carbon intensity of the grid stay at their current levels. The decarbonization of the grid will be the subject of another article in this series.
Building retrofits could power up national electric-vehicle fleet – and years of jobs
This investment in deep retrofits presents two important additional opportunities. The deep retrofit of our homes, hospitals, schools and offices would free up existing electricity capacity for the conversion of our private cars to electric vehicles (EVs). The absolute drop in electricity consumption from the combined residential and commercial building retrofit would be more than enough to power an EV fleet of 13 million, more than one EV for each of the 9.5 million households included in the retrofit scenario. Rapidly deploying EVs can help address the negative health impacts of air pollution on Canadians. And the displaced gasoline consumption would cut GHG emissions by another 48 million tonnes of CO2e annually, over and above the 58 million tonnes of direct emission reductions from the building retrofits.
Taken together, the investments in residential and commercial building retrofits and electrification described here would reduce annual fuel and electricity costs by $20 billion.
It’s time to move the building renovation industry to its Model-T moment. A near-term $20 billion investment in residential building retrofits and a $6 billion investment in public and commercial building retrofits would set the wheels in motion to do that.
Targeted stimulus investment at this scale at this scale would generate an enormous number of jobs – up to 220,000 for a wide variety of professions and skilled trades. Training and deploying the workforce needed—much of which already exists–will be critical to the implementation of these retrofits. That investment and employment would be evenly distributed throughout the country (wherever there are buildings!), an attribute that makes it an ideal candidate for stimulus financing in the post-COVID recovery period.
Canada 2020–2030 Build Back Better Homes and Workplaces Program
Canadians are faced with unprecedented challenges as they shelter in place during the COVID-19 pandemic. But in the coming weeks and months, we will be looking at how we can reawaken an economy that has been put to “sleep” to keep us out of harm’s way. Once building and construction is allowed to resume, a national program could enable Canada’s home and building sector to be part of Building Back Better – for instance, by scaling up Canada’s renovation industry so it can transition to a deep-retrofit industry that puts 220,000 Canadians to work over the next 12 months. This opportunity to deliver better, more climate-change-resilient homes and workplaces is also a chance to grow local manufacturing.
The estimated cost would be $20 billion for residential homes and $6 billion for workplaces. To put that in context, the residential portion represents just one-third of the $60 billion that Canadians already spend each year renovate their homes. The Build Back Better Homes and Workplaces Program will enable Canadians to save money, reduce air pollution and increase the value of their homes, all while making our dwellings and workplaces both more efficient and more resilient.
Build Back Better Homes: Invest $20 billion to deep retrofit over 300,000 homes in single- and multi-dwelling buildings and 8,000 apartment buildings to protect against floods and to reduce fuel and electricity costs by $19 billion over the next 20 years (in today’s dollars) while reducing greenhouse gas (GHG) emissions by 54 megatonnes (Mt) over the same period. This investment would also enable homes to power electric vehicles (EVs); this would go a long way toward reducing air pollution, which has been shown to contribute to the spread of the novel coronavirus and which already represents a considerable disease burden on Canadians in the best of times.
Build Back Better Workplaces: Invest $6 billion to retrofit 23 million square metres of Canadian public and private workplaces with place flood-protection measures and to reduce fuel and electricity costs by $11 billion over the next 30 years, while reducing GHG emissions by 33 Mt over the same period. It would also help ensure that workplaces such as hotels, restaurants, hospitals and schools are better places for Canadians.
Steps for Build Back Better Homes and Workplaces
- Federal government commits to funding for grants to Build Back Better, including:
- $20 billion for homes;
- $6 billion for workplaces;
- 1%–2% of the capital for energy-audit and local capacity building;
- 1%–2% of the capital for “just transition” skills training in collaboration with colleges, universities and polytechnics; and
- 1%–2% of the capital for loans to local manufacturing and logistics companies wanting to grow and support this market.
- Canada Mortgage and Housing Corporation (CMHC) publishes criteria for Build Back Better Credit Insurance for Home and Property Owners. The eligibility criteria for these lines of credit and mortgage-insurance policies would include:
- conversion to heat pumps for space and water heating;
- significant improvement on the EnerGuide rating for homes or ENERGY STAR score for buildings;
- controlled ventilation with heat recovery;
- 40%–70% reduction in thermal leakage from building envelope;
- 20% improvement in lighting efficiency;
- safeguards against basement flooding; and
- installation of EV charging stations.
- CMHC establishes a public platform on which municipalities, retrofit contractors, equipment manufacturers, utilities, energy audit firms and home and property owners can register their interest in the Build Back Better Homes and Workplaces Program.
- CMHC establishes a public platform that shows the average cost of Build Back Better Homes and Workplaces equipment and labour, based on postal codes. This platform, which is continuously updated, publishes regional reports on equipment costs and labour shortages.
- Homeowners apply to banks for Build Back Better loans. Loans qualifying for rebates and discounts will be covered through the CMHC Build Back Better Credit Insurance for Homes and Property Owners.
- Phase 1 loans of $40,000 (2020–21) are 100% forgivable upon providing proof of a Build Back Better Audit, including information specifying costs and installed equipment.
- Phase 2 loans of $40,000 (2022–30) benefit from lower financing rates upon providing proof of a Build Back Better Audit, including information specifying costs and installed equipment.
- Residential property owners apply to banks for Build Back Better mortgages. Loans qualifying for rebates and interest discounts will be covered through the CMHC Build Back Better Credit Insurance for Homes and Property Owners.
- Phase 1 loans of $45,000–$2,000,000 (2020–21) are forgivable upon providing proof of a Build Back Better Audit.
- Phase 2 loans of $45,000–$2,000,000 (2022–30) will benefit from lower financing rates upon proof of a Build Back Better Audit.
- Workplace property owners apply to banks for Build Back Better mortgages. Loans qualifying for rebates and discounts will be covered through the CMHC Build Back Better Credit Insurance for Homes and Property Owners.
- Phase 1 loans of $250 per square metre with an expected range of $6,000,000 to $60,000,000 (2020–21) are forgivable upon proof of a Build Back Better Audit.
- Phase 2 loans of $6 to $60 million (2022–30) will benefit from lower financing rates upon proof of a Build Back Better Audit.
- Banks underwrite Build Back Better loans and mortgages and sell the insurance, which requires registration with CMHC. When retrofits are complete and a Build Back Better Audit is presented, banks apply to CMHC for the Build Back Better for the loan benefit.
- Phase 1 loans are repaid by the Build Back Better Homes and Workplaces federal fund administered by CMHC. Banks receive reimbursement and use it to repay the loan or mortgage.
- Phase 2 loans could receive a discount on the basis of market operations undertaken by the Bank of Canada, which assigns a preferred cost of funds (-0.25 to lower than the Bank of Canada rate) to market operations associated with these loans.
- Banks can then use green bond issuance and securitizations to continue incentivizing participation beyond the original forgiveness envelop.
To learn more, explore our retrofit calculators:
Ralph Torrie is senior associate with Sustainability Solutions Group and partner at Torrie Smith Associates.
Céline Bak is the founder and president of Analytica Advisors.
With files from Toby Heaps, Aleena Naseem and Laura Väyrynen
Notice to reader: Please be aware some of the figures and other details in this white paper have been updated in the Final Report to reflect feedback.