Speeches & Transcripts

Looking into the Future: The House of the Future Now

June 18, 2010

Katherine Sierra

As Prepared for Delivery

Dear Mr. Fadeev, Distinguished Panelists, and Esteemed Participants!

It is a great pleasure to return to St. Petersburg and to arrive at Pulkovo airport – a gateway to the city not just for newcomers but for new ways of financing infrastructure in Russia.   After participating more than 5 years ago in the launch of St. Petersburg’s effort to create a model of public-private partnership in Russia, I am personally gratified to see the success of the leadership’s vision.

I am also pleased to be at this Economic Forum to share some thoughts with you about our vision of sustainable development, focusing on housing and the very important potential that this sector offers in terms of reducing greenhouse gas emissions.

Let me begin by reminding you that cities have become the frontline of sustainable development.  More than half of the world’s population now lives in urban areas which are the incubators of economic growth.  More than that, they are the incubators of innovation, employment, and cultural enhancement. 

That is all to the positive. This rapid urbanization, however, is also changing the morphology of cities.  They are increasingly growing in size, creating sprawl, and raising costs to the environment. Over the next 20 years, in developing countries alone, the built up area will expand to an estimated 400,000 square kilometers.  This is equal to the built up area that existed in the whole world in 2000. 

In other words, a whole new world is being built at about 10 times the speed … and in countries with real limits to their resources and capacities.  At the same time, dignified shelter as a basic human right remains a distant dream for a large proportion of the world’s population.  The number of people living in slums will rise from about one billion people today to two billion by 2030.  Any consideration of the house of the future must take into account the needs of this portion of humanity.

Let me turn, though, to the issue at hand – how housing, in particular urban housing, is impacting energy use, and what can be done.

We know that cities are the primary source of environmental pollution, in particular greenhouse gases.  Today, cities consume more than 60% of total global energy production and contribute to 70% of the world’s greenhouse gas emissions. As the impacts of climate change become more and more clear, we are called upon to act to stop, and then reverse, the dangerous growth in greenhouse gas levels. 

We need to create the smallest possible ecological footprint, using our resources more efficiently to reduce and minimize the city’s overall contribution to climate change.  We need to think differently, act differently, and build our cities differently to make them more sustainable.

Much of the battle against climate change begins in the world’s urban areas.  And much of that battle focuses on buildings.  Whether commercial, public, or residential (in other words, housing) – buildings today use about one third of total energy production.  By 2030, they will consume 40% of global energy supplies.  And because buildings can easily last for 40-50 years or more, the construction of inefficient units can lock in inefficient energy use for decades.

To give you an idea of the global scale of the issue, China alone is adding 2 billion square meters of building space each year, the equivalent of 1/3 of the existing buildings in Japan.  Much of that construction is for urban housing units.

Russia faces similar issues because it is already a highly urbanized country, with close to three-quarters of the population residing in cities.  And the urban economy here is inefficient in energy use.  In Russia, the existing building stock uses as much as twice the energy as buildings in OECD countries in similar climates – resulting in correspondingly higher rates of greenhouse gas emissions.

This is why energy efficiency in the building industry, including housing, is such an important issue for anyone looking at how to reduce GHGs and combat climate change.  Investing in energy efficiency has positive and multiple benefits for everyone: homeowners, businesses, or governments:

  • It conserves natural resources;
  • It reduces environmental pollution and greenhouse gases;
  • It reduces a country’s dependence on energy sources, thus increasing energy security;
  • It leads to higher system reliability, thus easing the impact of temporary energy shortfalls;
  • It creates jobs across the building sector; and
  • It improves industrial and commercial competitiveness through reduced operating costs.

It is often said that energy efficiency is the “low-hanging fruit” when it comes to reducing the cost of energy and reducing greenhouse gases.  The cheapest energy is the energy that we do not use – what we call “nega-watts”.  It is also faster and cheaper to reduce the demand for energy than it is to increase the supply.

Given all of the advantages of designing or retro-fitting buildings such as houses to be energy efficient, we must ask: why is more is not being done in this sector?

There are multiple answers to this question:

There are higher capital costs to building energy efficiency housing.  And while the potential for savings is large, the building sector in most parts of the world is fragmented.  Architects, designers, construction firms, building materials companies, developers, homeowners, and renters all want energy efficiency.  At the end of the day, however, there is little incentive for any of them to spend money on energy efficiency measures when the benefits will only accrue to the person living in the house.

There are many differences in the quality of housing being built, determined by location, climate, lifestyles, individual taste, and so on.  With so many different buildings being designed and constructed, or retro-fitted, the only sure way to ensure an efficient use of energy for everyone is through building codes.  Yet the enforcement of building codes has proven challenging in many markets.

Many investors are uninformed.  Banks and other financial institutions typically have little familiarity with energy efficiency investments.  They often see these investments as high-risk compared to traditional lending based on existing assets.  And because many individual energy efficiency investments are small, with high transaction costs, financiers need to bundle these small and dispersed projects.

It may be difficult to accurately measure and verify energy savings. Without sufficient systems and skills, homeowners, builders, bankers, and governments will not implement energy efficiency measures.

We know that there are answers to all these issues.  The answers center on financing – clearly, a lot of investment is needed.  But equally important is institutional development, capacity strengthening, regulatory and policy tools, and tax incentives or other fiscal signals … all elements that need to be fostered.  

We know from experience in many OECD countries, and in developing countries as well, that progress is possible.  China, for example, has reduced its energy intensity by about 70% since 1980.  Korea has become one of the most energy efficient economies over the last few decades by pursuing policies that encourage efficiency.  We can learn from these countries.

At the international level, the Secretary-General of the United Nations has established a high-level Advisory Group on Energy and Climate Change.  It has identified two major priorities for increased international cooperation in the near term: improving energy access, and strengthening energy efficiency. T he Advisory Group has called for concerted action on two ambitious and complementary goals: to ensure universal access to modern energy services by 2030, and to reduce global energy intensity by 40 per cent by 2030.

At the World Bank, we are working with developing countries and emerging economies to help them think through and seize the opportunities that energy efficiency presents.  Part of that work means engaging with the people and the organizations represented on this panel – people active in the housing and building industries.  For it is clear to us all that the house of the future, for residents everywhere, must play its part in contributing to a sustainable future for us all.  We are called upon to help finance, design, build, and maintain houses that make energy use more efficient, preserving as much of it as possible – not just for this generation, but for all those to come.

Thank you for your attention. I look forward to a stimulating discussion.

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