Editing IPCC:AR6/WGIII/Chapter-9 (section)

=== 9.8.5 Economic Implications of Mitigation Actions ===

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==== 9.8.5.1 Buildings-related Labour Productivity ====

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Low-carbon buildings, and particularly well-designed, operated and maintained high-performance buildings with adequate ventilation, may result in productivity gains and improve the competitiveness of the economy through three different pathways ( [[#MacNaughton--2015|MacNaughton et al. 2015]] ; [[#European%20Commission--2016|European Commission 2016]] ; [[#Niemelä--2017|Niemelä et al. 2017]] ; [[#Mofidi--2017|Mofidi and Akbari 2017]] ; [[#Thema--2017|Thema et al. 2017]] ; [[#Bleyl--2019|Bleyl et al. 2019]] ): (i) increasing the amount of active time available for productive work by reducing the absenteeism from work due to illness, the presenteeism (i.e., working with illness or working despite being ill), and the inability to work due to chronic diseases caused by the poor indoor environment; (ii) improving the indoor air quality and thermal comfort of non-residential buildings, which can result in better mental well-being of the employees and increased workforce performance; and (iii) reducing the school absenteeism due to better indoor environmental conditions, which may enhance the future earnings ability of the students and restrict the parents absenteeism due to care-taking of sick children.

Productivity gains due to increased amount of active time for work is directly related to acute and chronic health benefits attributed to climate mitigation actions in buildings ( [[#9.8.2.2|Section 9.8.2.2]] ). The bulk of studies quantifying the impact of energy efficiency on productivity focus on acute health effects. Proper ventilation in buildings is of particular importance and can reduce absenteeism due to sick days by 0.6–1.9 days per person per year ( [[#MacNaughton--2015|MacNaughton et al. 2015]] ; [[#Ben-David--2017|Ben-David et al. 2017]] ; [[#Thema--2017|Thema et al. 2017]] ). In a pan-European study, ( [[#Chatterjee--2018|Chatterjee and Ürge-Vorsatz 2018]] ) showed that deep energy retrofits in residential buildings may increase the number of active days by 1.78–5.27 (with an average of 3.09) per year and person who has actually shifted to a deep retrofitted building. Similarly, the interventions in the non-residential buildings result in increased active days between 0.79 and 2.43 (with an average of 1.4) per year and person shifted to deeply retrofitted non-residential buildings.

As regards improvements in workforce performance due to improved indoor conditions (i.e., air quality, thermal comfort, etc.), ( [[#Kozusznik--2019|Kozusznik et al. 2019]] ) conducted a systematic review on whether the implementation of energy efficient interventions in office buildings influence well-being and job performance of employees. Among the 34 studies included in this review, 31 found neutral to positive effects of green buildings on productivity and only 3 studies indicated detrimental outcomes for office occupants in terms of job performance. Particularly longitudinal studies, which observe and compare the office users’ reactions over time in conventional and green buildings, show that green buildings have neutral to positive effects on occupants well-being and work performance ( [[#Thatcher--2016|Thatcher and Milner 2016]] ; [[#Candido--2019|Candido et al. 2019]] ; [[#Kozusznik--2019|Kozusznik et al. 2019]] ). [[#Bleyl--2019|Bleyl et al. (2019)]] estimated that deep energy retrofits in office buildings in Belgium would generate a workforce performance increase of EUR10.4 to EUR20.8 m –2 renovated. In Europe every 1°C reduction in overheating during the summer period increases students learning performance by 2.3% and workers performance in office buildings by 3.6% ( [[#Kockat--2018|Kockat et al. 2018]] b). Considering the latter indicator, it was estimated that by reducing overheating across Europe, the overall performance of the workers in office buildings can increase by 7–12% ( [[#Kockat--2018|Kockat et al. 2018]] b).

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==== 9.8.5.2 Enhanced Asset Values of Energy Efficient Buildings ====

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A significant number of studies confirm that homes with high energy efficiency and/or green features are sold at higher prices than conventional, low energy efficient houses. A review of 15 studies from 12 different countries showed that energy efficient dwellings have a price premium ranging between 1.5% and 28%, with a median estimated at 7.8%, for the highest energy efficient category examined in each case study compared to reference houses with the same characteristics but lower energy efficiency (the detailed results of this review are presented in Supplementary Material Table 9.SM.5). In a given real estate market, the higher the energy efficiency of dwellings compared to conventional housing, the higher their selling prices. However, a number of studies show that this premium is largely realised during resale transactions and is smaller or even negative in some cases immediately after the completion of the construction ( [[#Deng--2014|Deng and Wu 2014]] ; [[#Yoshida--2015|Yoshida and Sugiura 2015]] ). A relatively lower number of studies (also included in Supplementary Material Table 9.SM.5) show that energy efficiency and green features have also a positive effect on rental prices of dwellings ( [[#Hyland--2013|Hyland et al. 2013]] ; [[#Cajias--2019|Cajias et al. 2019]] ), but this is weaker compared to sales prices, and in a developing country even negative as green buildings, which incorporate new technologies such as central air conditioning, are associated with higher electricity consumption ( [[#Zheng--2012|Zheng et al. 2012]] ).

Regarding non-residential buildings, ( [[#European%20Commission--2016|European Commission 2016]] ) reviewed a number of studies showing that buildings with high energy efficiency or certified with green certificates present higher sales prices by 5.2–35%, and higher rents by 2.5–11.8%. More recent studies in relation to those included in the review confirm these results ( [[#Mangialardo--2018|Mangialardo et al. 2018]] ; [[#Ott--2018|Ott and Hahn 2018]] ) or project even higher premiums. [[#Chegut--2014|Chegut et al. (2014)]] found that green certification in the London office market results in a premium of 19.7% for rents. On the other hand, in Australia, a review study showed mixed evidence regarding price differentials emerged as a function of energy performance of office buildings ( [[#Acil%20Allen%20Consulting--2015|Acil Allen Consulting 2015]] ). Other studies have shown that energy efficiency and green certifications have been associated with lower default rates for commercial mortgages ( [[#Wallace--2018|Wallace et al. 2018]] ; [[#An--2020|An and Pivo 2020]] ; [[#Mathew--2021|Mathew et al. 2021]] ).

More generally, ( [[#Giraudet--2020|Giraudet 2020]] ) based on a meta-analysis of several studies, showed that the capitalisation of energy efficiency is observed in building sales and rental (even in the absence of energy performance certificates), but the resulting market equilibrium can be considered inefficient as rented dwellings are less energy efficient than owner-occupied ones.

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==== 9.8.5.3 Macroeconomic Effects ====

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Investments required for the implementation of mitigation actions, create, mainly in the short-run, increase in the economic output and employment in sectors delivering energy efficiency services and products, which are partially counterbalanced by less investments and lower production in other parts of the economy ( [[#Yushchenko--2016|Yushchenko and Patel 2016]] ; [[#European%20Commission--2016|European Commission 2016]] ; [[#Thema--2017|Thema et al. 2017]] ; [[#US%20EPA--2018|US EPA 2018]] ) (see also Cross-Working Group Box 1 in Chapter 3). The magnitude of these impacts depends on the structure of the economy, the extent to which energy saving technologies are produced domestically or imported from abroad, but also from the growth cycle of the economy with the benefits being maximised when the related investments are realised in periods of economic recession ( [[#Mirasgedis--2014|Mirasgedis et al. 2014]] ; [[#Yushchenko--2016|Yushchenko and Patel 2016]] ; [[#Thema--2017|Thema et al. 2017]] ). Particularly in developing countries if the mitigation measures and other interventions to improve energy access (Figure 9.19) are carried out by locals, the impact on economy, employment and social well-being will be substantial ( [[#Mills--2016|Mills 2016]] ; [[#Lehr--2016|Lehr et al. 2016]] ). As many of these programs are carried out with foreign assistance funds, it is essential that the funds be spent in-country to the full extent possible, while some portion of these funds would need to be devoted to institution building and especially training. ( [[#Mills--2016|Mills 2016]] ) estimated that a market transformation from inefficient and polluting fuel-based lighting to solar-LED systems to fully serve the 112 million households that currently lack electricity access will create directly 2 million new jobs in these developing countries, while the indirect effects could be even greater. [[#IEA--2020a|IEA (2020a)]] estimated that 9–30 jobs would be generated for every million dollars invested in building retrofits or in construction of new energy efficient buildings (gross direct and indirect employment), with the highest employment intensity rates occurring in developing countries. Correspondingly, 7–16 jobs would be created for every million dollars spent in purchasing highly efficient and connected appliances, while expanding clean cooking through LPG could create 16–75 direct local jobs per million dollars invested. Increases in product and employment attributed to energy efficiency investments also affect public budgets by increasing income and business taxation, reducing unemployment benefits, and so on. [[#Thema--2017|Thema et al. (2017)]] , thus mitigating the impact on public deficit of subsidising energy saving measures ( [[#Mikulić--2016|Mikulić et al. 2016]] ).

Furthermore, energy savings due to the implementation of mitigation actions will result, mainly in the long-run, in increased disposable income for households, which in turn may be spent to buy other goods and services, resulting in economic development, creation of new permanent employment and positive public budget implications ( [[#IEA--2014|IEA 2014]] ; [[#Thema--2017|Thema et al. 2017]] ; [[#US%20EPA--2018|US EPA 2018]] ). According to [[#Anderson--2014|Anderson et al. (2014)]] , the production of these other goods and services is usually more labour-intensive compared to energy production, resulting in net employment benefits of about 8 jobs per million dollars of consumer bill savings in the US. These effects may again have a positive impact on public budgets. Furthermore, reduced energy consumption on a large scale is likely to have an impact on lower energy prices and hence on reducing the cost of production of various products, improving the productivity of the economy and enhancing security of energy supply ( [[#IEA--2014|IEA 2014]] ; [[#Thema--2017|Thema et al. 2017]] ).

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==== 9.8.5.4 Energy Security ====

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GHG emission reduction actions in the sector of buildings affect energy systems by: (i) reducing the overall consumption of energy resources, especially fossil fuels; (ii) promoting the electrification of thermal energy uses; and (iii) enhancing distributed generation through the incorporation of RES and other clean and smart technologies in buildings. Increasing sufficiency, energy efficiency and penetration of RES result in improving the primary energy intensity of the economy and reducing dependence on fossil fuels, which for many countries are imported energy resources ( [[#Boermans--2015|Boermans et al. 2015]] ; [[#Markovska--2016|Markovska et al. 2016]] ; [[#Thema--2017|Thema et al. 2017]] ). The electrification of thermal energy uses is expected to increase the demand for electricity in buildings, which in most cases can be reversed (at national or regional level) by promoting nearly zero energy new buildings and a deep renovation of the existing building stock ( [[#Boermans--2015|Boermans et al. 2015]] ; [[#Couder--2017|Couder and Verbruggen 2017]] ). In addition, highly efficient buildings can keep the desired room temperature stable over a longer period and consequently they have the capability to shift heating and cooling operation in time ( [[#Boermans--2015|Boermans et al. 2015]] ). These result in reduced peak demand, lower system losses and avoided generation and grid infrastructure investments. As a significant proportion of the global population, particularly in rural and remote locations, still lack access to modern energy sources, renewables can be used to power distributed generation or micro-grid systems that enable peer-to-peer energy exchange, constituting a crucial component to improve energy security for rural populations ( [[#Leibrand--2019|Leibrand et al. 2019]] ; [[#Kirchhoff--2019|Kirchhoff and Strunz 2019]] ). For successful development of peer-to-peer micro-grids, financial incentives to asset owners are critical for ensuring their willingness to share their energy resources, while support measures should be adopted to ensure that also non-asset holders can contribute to investments in energy generation and storage equipment and have the ability to sell electricity to others ( [[#Kirchhoff--2019|Kirchhoff and Strunz 2019]] ).

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