U.S. energy policy is a consistently underrated element of U.S. economic planning. As a nation, we are more concerned with the short-term or first cost of energy than with understanding the economic implications of energy choices in view of other economic variables (such as environmental impacts and benefits), the employment implications deriving from the resource choice itself, or the implications of these choices on long-term issues of sustainability. And within this neglected area, buildings remain the most underrated aspect of energy economics, and the most unexploited opportunity for improving efficiency.

The Significant Energy Use and Environmental Impacts of Buildings

Table 1 shows primary energy use in the three main energy-using sectors of the U.S. economy from 1973 to 1997. It demonstrates that while energy use in the residential buildings sector increased from 24.1 quads in 1973 to 33.7 quads in 1997, the percentage share of total U.S. primary energy used by buildings also rose, from 32.4% to 36.0%, a figure that includes 66% of total U.S. electricity consumption.⁴ The consumption of electricity in the commercial buildings sector doubled in the last 16 years, and is expected to increase by another 150% by 2030.⁵ Figure 1 shows how residential, commercial and industrial buildings used energy in 1995.

To go even further, an analysis performed for the American Institute of Architects (AIA) determined that including the energy used to construct the infrastructure needed to operate, service, and maintain buildings brings the share of primary energy consumed directly or indirectly to serve all buildings in the United States to more than 50%.⁶

In addition to being significant users of the nation’s primary energy resources, buildings are responsible in a major way for the nation’s atmospheric emissions. Table 2 provides the car-bon emissions from buildings in 1990 and 1997, showing that buildings are responsible for a considerable share of U.S. carbon emissions. Carbon dioxide is the major greenhouse gas resulting from fossil fuel burning, and is implicated in human contributions to global climate change. In 1995, buildings accounted for 35% of U.S. carbon emissions (11.3% directly from on-site use of fossil fuels, and 23.7% indirectly from building use of electricity), for 47% of the nation’s emissions of sulfur dioxide, and for 22% of nitrogen oxides, along with contributing to emissions of carbon monoxide, volatile organic compounds, and other sources of pollution.⁷ In addition, on the global scale about 40% of the flow of raw materials into economies each year goes into the construction of buildings.⁸ In 1995, between 32 million and 42 million tons of those resources were converted in the United States to construction and demolition waste, an amount roughly equivalent to the total U.S. burden of municipal garbage.⁹ In 1995, 64% of the energy used in buildings was for space heating and cooling, water heating, and lighting — all of which can be reduced in major ways by whole buildings design that reduces each of these in part through the selection of advanced efficiency technologies and in part by optimizing their interactions through design and building material selection.¹⁰

The flow of resources from construction to demolition adds yet another dimension to the necessity for whole buildings design. This same flow of resources and production of waste consumes large quantities of energy and contributes to the degradation of resources and the environment. Therefore, an appropriate whole buildings policy must minimize these other impacts through careful selection of building materials and their interactions, more efficient and less wasteful construction methods, and complete “cradle to grave” (or the newer “cradle to cradle”) life-cycle analysis of the building.

Historically, the macro-economics of energy use in buildings has not stimulated much political interest. However, the larger economic arguments become more powerful when they are coupled with the individual financial interests of U.S. citizens. For example, the 1995 energy bill of $531.6 billion spread over 99.1 million households translates into more than $5,300 per household, or on the order of $2,100 for every citizen.¹¹ And it is the citizens who pay for this, both directly to the utility company and at the gas pump, and indirectly in the embodied energy costs of all goods and services consumed.

An additional reason for the federal government to stand up and take notice of the economic value of the building sector is that the 1995 value of new construction was $396.5 billion, representing 5.5% of U.S. gross domestic product (GDP).¹² Including the $250 billion spent on building reno-vation brings the total to $646 billion, more than 8% of 1995 GDP. And taking into account the value of material and equipment suppliers, the buildings sector probably accounts directly for 10% of GDP.¹³ This is a hugely important industry.

The Significance of “External” Building Energy Economics

Energy economics generally involves comparing costs of British thermal units at the wellhead or by the barrel, or the costs of kilowatt-hours at the electric utility busbar. It completely ignores the efficiency of the dollars spent to deliver the desired energy services. Analysis has shown repeatedly that U.S. GDP receives a considerably greater boost through expenditures on energy efficiency and domestic supplies, for example, than on imported supplies. Investments in energy efficiency and for renewable energy resources also yield a greater return to the U.S. economy from enhanced employment opportunities than investments in domestic fossil fuel resources or nuclear generation do.¹⁴

Furthermore, expenditures on energy efficiency and renewable energy resources also provide the greatest reduction in costs to mitigate energy-related environmental destruction and to reduce medical costs accruing from human health problems related to energy production and use. But these are all externalities, and hence not figured into the normal equation of energy economics. And yet U.S. citizens and businesses actually pay for these costs, so they are certainly not “external” to U.S. economics.

Equally significant is the failure to recognize the relative inequity of building energy economics in comparison with the economic value of those who work, buy, or learn in buildings. For example, an employer or building owner spends anywhere from 72 to 100 times as much per square foot of conditioned space on an employee as on the energy to condition and light the space for that individual.¹⁵ Any action that improves the quality of that space, such as natural daylight illumination or natural ventilation, and that yields even a 1% improvement in employee productivity or reduction in absenteeism provides benefits equal to saving 70–100% of the cost of energy. That, in turn, can often yield a payback of well under one year for expenditures to reduce building energy use, but with the payback resulting from factors other than energy savings. We are now learning that low energy and daylit building designs reduce employee absenteeism, increase retail sales, and improve the performance of students in schools, and that these improvements tend to be more on the order of 5–15% rather than just 1%. (See Box 2.) Over the 10-year life of a building, a 10% improvement in employee productivity can be equal in value to the building owner as the entire first cost of the building.¹⁶ These kinds of paybacks are of great importance to employers and store owners, and must be taken into account in the evaluation of whole buildings benefits to society.

The Nature of the Buildings Industry

The buildings industry is both structurally incapable and economically unmotivated to take responsibility for the required level of research and strategic coordination that can yield the major societal economic and environmental benefits just described.

In 1995, 163,000 architects in the United States contributed to the work of almost 4 million construction workers in 130,600 commercial building companies, with perhaps close to 300,000 additional individual contractors (without payrolls).¹⁸ And about 90% of the homes constructed were not custom-designed but rather designed in-house by development companies.

Decisions were made by hundreds of thousands of architects, hundreds of thousands of builders, and an even greater number of engineers, plumbers, electricians, and purchasers. They were largely individual decisions, made in an entirely decentralized framework. There is no natural coordination of this kind of activity. The fragmentation is intrinsic to the business, resulting in part from the mostly local nature of the building activity. So how can the buildings industry be expected to pull itself together within a coordinated whole buildings policy framework that produces low energy use and healthy buildings? And why would it even want to, unless it can be shown that there is something in it for the individual players?

The amount that the U.S. construction industry is able to spend on its own R&D also provides evidence of the need for federally supported R&D in the buildings industry. It has been estimated that the U.S. construction industry spends between 0.2% and 0.39% of its sales on R&D, while U.S. homebuilding spends 0.25% of sales on research.¹⁹ U.S. contractors spend 0.00125% of sales on research, while Japanese contractors spend more than 300 times as much (although still only 0.4% of sales).²⁰ This is to be contrasted with a U.S. industry average R&D investment of 3.5% of sales, and international industry average expenditure on R&D at a rate of 4.3% of sales. So U.S. buildings research is seriously underfunded by the buildings industry.

For these reasons, the federal government will have to play the dominant role in defining whole buildings policy and in supporting whole buildings research. There is simply no other entity that could support the multi-faceted requirements.

The type of support suggested here is being called for by numerous parties. The report from the President’s Committee of Advisors on Science and Technology (PCAST) on “Federal Energy Research and Development for the Challenges of the 21^st Century” noted that “Public sector R&D funding has the responsibility for addressing needs and opportunities where the potential benefits to society warrant a greater investment than the prospective returns to the private sector can elicit.”²¹ And a strong case can be made for the constitutional obligation of the federal government to support research that affects the health, welfare, and safety of citizens, which buildings most certainly do.

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