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View from Davos January 2 2014

The opportunities presented by Asia's energy conundrum

Supplying Asia's growing middle classes and industries with energy is a headache for governments throughout the region. However, given that 55% of the world's new residential construction from now until 2025 will occur in China and south Asia, designing smart, energy-efficient buildings will go a long way to solving this problem.
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The opportunities presented by Asia's energy conundrum

In the two decades starting from 1992, the gross domestic products of the developing economies of east Asia and the Pacific have quintupled in size. Forecasts are that developing east Asia – together with south Asia – will continue to drive global growth, as well as the expansion of global consumer markets, in the next two decades as well.

This should be good news for the 700 million Asians who still live beneath the poverty line, as well as several hundred million more Asians who are within reach of the middle classes. The bad news is that Asia’s growth momentum is likely to run up against a burgeoning energy crisis very soon.

Energy crisis?

On the one hand, the region faces steep rises in energy demand as it completes the task of bringing the grid to the 1.8 billion Asians who currently lack modern access, while supplying the energy to meet rising demand from the expanding middle class, industrial sector and cities. 

On the other hand, the region has a very narrow set of energy resources that are dominated by dirty fossil fuels, with their associated side-effects of pollution, water scarcity and greenhouse gas emissions. Most of these impacts are already regionally significant, and without drastic action will soon have global consequences as well.

Dealing with this conundrum – the pressure to raise living standards but on a limited set of energy inputs – is a challenge that must be met with forward-looking policies, vast technical upgrades, and investments that look far into the future. Needless to say, these will all take time, and political will, to garner any results. Clearly the region needs solutions that it can apply today. 

Seeking a solution

Our starting point is the belief that the demand side of the equation may hold much more potential than is currently recognised. Much of this lies in the building sector, which accounts for roughly one-quarter of Asia’s final energy demand.

First, the technical know-how and technologies that can significantly increase energy efficiency in buildings are already available today, at prices which make them feasible and with pay-back horizons as short as two years. Measures can be as simple as improving window and wall insulation; increasing natural ventilation and day-lighting; instilling better maintenance habits; and upgrading heating and cooling units. The financial case becomes even more pronounced if one subtracts subsidies currently given to fossil fuels.

The second reason is that much of Asia’s urban infrastructure is still to be built. By marrying smart design and construction with current energy know-how, planners can lock-in higher efficiencies in energy usage right at the start of a building’s lifespan. Given that 55% of the world's new residential construction from now until 2025 will occur in Chinese and south Asian cities alone, the impact over time should not be underestimated. 

In other words, we should look upon each new building as an opportunity to design for and lock in energy savings that will support a more energy-secure future for the region. In turn, each building that is constructed without a joined-up approach to energy efficiency is a lost opportunity, not just environmentally but also financially. Of course, this applies not just to homes and offices, but also schools, retail stores, warehouses, manufacturing sites and data centres.

A low-cost opportunity

The Intergovernmental Panel on Climate Change (IPCC), a global body that is the world’s scientific authority on climate change, agrees. Among all solutions considered in its reports, building energy efficiency is cited as the largest low-cost opportunity available – about 30% of buildings' carbon emissions can be avoided at zero or below-zero cost by 2020, when netted against energy saved.

It is the only option with manageable up-front costs, low-risk and a clear track record. And, because savings are embedded in the physical structure upgrades, in most cases it does not demand drastic behaviour changes from consumers or businesses. 

All of the other options – from increasing energy imports and investment in renewables, to drastically curtailing consumer's energy consumption and mining more coal – have significant financial, pollution or energy security implications. Thus, on a macro-level the opportunity cost of not acting on buildings is immense.

Waiting for take-off

So, if the case for building energy efficiency is so clear, why has the practice not taken off in earnest? At least in part, we can blame the curse of legacy policy and private sector frameworks. 

In this case, businesses, investors, building owners, architects, regulators, policy-makers and users each have a role to play to oil the ‘supply chain’ of building energy efficiency, but their actions are guided by their own respective interests and needs, which have been developed with a low regard for energy efficiency. Much has already been codified and conditioned by the current legal and business environment.  

Thus, the process of change – justified as it may be due to new societal and environmental priorities – means disrupting current habits, re-directing financing, and overcoming institutional inertia – with all the difficulties these entail.  

We should realise, however, that many of the seeds of change are already there. In many cases, it is in the private sector’s own financial interests to be more proactive on energy efficiency, and that such actions will produce large amounts of public benefit. In other words, policy need not fight uphill. 

Forward looking

What may help at this point are a few forward-looking measures to connect private and public interests that are already fairly closely aligned. A few measures come to mind. 

First, policy-makers should pay heed to energy efficiency when they update building codes and certification standards, and take advantage of the growing body of global and regional knowledge on these. We should encourage policy-makers to consider adopting or harmonising to global standards, where they exist, rather than reinventing the wheel for the home market. In other words, we should view piggybacking on global knowledge and standards as a fast-track market creation mechanism. 

To further develop the market, government buildings should be among the lead adopters and demonstrators of best practices. In some Asian economies, this may already be the case; the problem is that no one knows about it. In other words, action must be paired with awareness-building and mainstreaming of the concept, both publicly and in the business community. 

What should be clear is that none of the above moves are very costly financially or in terms of political will – and yet they would all help kick-start a market and create a virtuous cycle of action, with pay-offs for both private and public sectors. 

Of course, eventually economies will need to confront the thorny issues of fossil fuel subsidies, short-sighted finance and the dearth of support for green technologies, and rethink established patterns of resource usage and efficiency. While we wait for the political will to appear to do this, we should recognise the significant gains to be made by simply capitalising on the opportunities in our midst.

In short, Asia’s coming urbanisation, building and construction boom – for which we are currently in the design stages – is an ideal platform for a serious scaling up of energy efficiency towards a more energy-secure future for the region.

Pamela C M Mar is a fellow and project director at the Fung Global Institute.

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