green home grants

What if government spent big on greening homes

If home retrofit grants aren’t sufficient to transform a trickle of early-adopter retrofitters into a mass movement, what is?

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My wife and I live in a 110-year-old semi-detached house in midtown Toronto. Like many homes across the country, the walls are brick and thus uninsulated. We’ve chipped away at draft-causing gaps over the years, but given, well, climate change, we needed to go a big step further and significantly cut our natural gas consumption.

When the federal Liberals announced the Greener Homes deep retrofit program, back in the 2021 budget, we decided to take the plunge and enroll, hoping to tap some of the $5,000 in grants available to homeowners.

About a year and a half later, we crossed the retrofit finish line, with a range of moves, from stopping up some of the leaks in the walls to the purchase of a pair of big-ticket items: a high-efficiency electric water heater and a hybrid air-source heat pump, including the electrical upgrades required to handle them. From a climate perspective, the investments are worth every penny as our home’s carbon emissions will be about 80% lower than they were previously. From a money-saving perspective, we’re already seeing lower gas bills, and a $2,200 rebate cheque (16% of our capital cost) should arrive, well, eventually.

The Canada Greener Homes Grant, and the accompanying low-interest loan, belong to the smorgasbord of incentives that aim to nudge Canadians’ dwellings in the direction of our Paris Agreement targets. Some provinces – B.C. and Quebec, for instance – offer generous inducements alongside Greener Homes, while others – notably Ontario – do very little. By contrast, Italian homeowners can get 110% of their retrofit costs covered, meaning they’re not out of pocket when they decide to cut their residential carbon.

Italy’s program (more about which in a moment) raises a critical philosophical question: if society agrees that it needs to slash building-related carbon, which accounts for up to 40% of global emissions, should individuals shoulder the financial burden?

“The retrofit industry that we have, with its emphasis on do-it-yourself, finance-it-yourself, manage-it-yourself, is not the retrofit industry we need,” says Corporate Knights director of research Ralph Torrie. “The homeowner should not have to finance retrofits any more than they are asked to finance the next power plant.”

Climate retrofit mission

Consider the statistics: there are almost eight million detached homes in Canada, and the Greener Homes inducements won’t touch the vast majority. The program has attracted about 170,000 applications (as of June 2022), with almost $40 million in grants distributed so far to approximately 10,300 households, for an average of $3,750.

The five-year program has a $2.6-billion budget, with a target of 700,000 homes. That figure is less than 10% of Canada’s housing stock and doesn’t include condos or rental apartments. “The retrofit imperative is so huge,” says Monte Paulsen, a Passive House specialist at RDH Building Science in Vancouver. “We can’t decarbonize without a massive scale-up. We’re going nowhere near fast enough.”

Canada is not the only country to grapple with the question of how to accelerate its pace of housing retrofits sufficiently to significantly bend the building emissions curve.

The United States has about 65 million homes that were built prior to the advent of more energy-efficient construction standards in the 1980s, according to federal data. A study released last year by the American Council for an Energy-Efficient Economy (ACEEE) pointed out that “deep retrofits that include a robust package of such upgrades can cut a home’s energy use by 58% to 79% and its emissions by 32% to 56%, depending on the home’s age and regional climate.”

“I don’t think any jurisdiction has found the magic formula for retrofitting at the scale required by climate change,” says Brendan Haley, director of research and policy at Efficiency Canada, a Carleton University think tank which has estimated that, at the current pace, it will take about 142 years to retrofit all the low-rise residential buildings in the country.

The group last year called for a national effort on turnkey project delivery and the aggregating of similar building retrofit projects into portfolios of contracts to drive economies of scale. The animating idea, argue Haley and co-author Ralph Torrie, is to put in place market structures that make retrofits simple to carry out, which, at present, they are most assuredly not.

The Italian job

Some jurisdictions have sought to crack this riddle with extremely generous incentives. Italy, in 2020, launched a residential retrofit program, dubbed “Superbonus,” that offers owners 110% of the cost of the retrofit, to be recouped via reduced future utility bills – an inducement that takes all the homeowner concerns about the upfront costs off the table in one gesture. For my own home, such a program would have allowed me to add a layer of insulation on the exterior walls, a very costly fix that would have gotten us pretty close to net-zero.

Italy’s green Five Star Movement, which was in power in 2020, set up the plan in part to revive an economy flattened by the pandemic and also to encourage homeowners to fix up dwellings that were shattered by a 2010 earthquake in the Abruzzo region. The take-up has been enormous: as of July, 220,000 applications had been approved, totalling €44 billion. While the program is meant to run until 2025, with a sliding-scale incentive structure, it is already vastly oversubscribed.

According to Michele Russo, a financial consultant based in Rome, the Superbonus program will reduce carbon from dwellings with the highest emissions by about 50%.

One of the most innovative aspects of the Superbonus program has to do with the fact that the incentives are provided not in the form of cash (rebates), but rather as credits against future energy bills for the homeowners.

This mechanism is designed to prevent huge outlays from government coffers, and also acknowledges, in its structure, that the work is paid off through long-term reductions in energy costs. “No exotic finance is part of this story,” Russo said in an Efficiency Canada online panel earlier this year. He likens the form of the financing to government bonds – low cost, low risk and liquid. “Most likely, there will be no financial bubble.”

It was a welcome shot in the arm for Italy’s construction sector. By the end of 2021, the program was credited with creating 153,000 jobs and generating more than €12 billion in GDP, according to a study by the Consiglio Nazionale degli Ingegneri, Italy’s national engineering association.

However, the Superbonus has generated controversy, with reports of corruption and inflated construction prices. “We do not agree on the validity of this measure,” outgoing prime minister Mario Draghi said in a speech to the European Parliament this past May. “The cost of improving efficiency has more than tripled due to the 110% scheme. The prices of the investments needed to perform the renovations have more than tripled because the 110% eliminates the incentive to negotiate on price.” The government has continued to tweak the popular program to plug loopholes in order to prevent fraud.

Going Dutch – and New York – style

Haley cites more modestly scaled retrofit programs in countries like Germany, France and the Netherlands, which pioneered the concept of the “energiesprong,” a means of grouping similar dwellings or apartments all requiring retrofits into a bundle that can achieve economies of scale for equipment and labour. These projects, he says, are carried out by market development teams instead of individual owners.

The ACEEE rates and ranks national energy-efficiency programs and this year awarded France’s overall approach to energy efficiency with top honours, although the Netherlands received the highest ranking for its “robust” approach to building-related policies. “The Dutch government has also implemented mandatory building rating systems, as well as appliance performance standards and labeling programs,” the report noted, adding that all buildings must be rated on an A to G energy-efficiency scale, meaning that owners and contractors have baseline data when doing retrofits.

In the U.S., meanwhile, New York City’s Local Law 97 uses sticks instead of carrots, driving retrofits in large buildings using the threat of substantial fines for those that fail to cut their emissions. Haley says the U.S. also has a highly effective federal energy-efficiency program targeting low-income homeowners, which has no real parallel in Canada.

But retrofit experts point out that incentives and penalties on their own go only so far; what’s missing, in many cases, are market mechanisms – in effect, a kind of concierge service – that streamlines and demystifies a process that can be technically daunting, as well as front-end loaded, in terms of cost.

Paulsen adds that Canada’s retrofit sector is problematically under-developed; there’s a lack of skilled trades contractors specializing in retrofits, as well as chronic competition with the new-home construction industry. He muses that one potential solution would be the creation of a specialized contractor designation – a skilled tradesperson who is trained to deal with all the various elements of retrofits, from HVAC installation to insulation to the various electrical work required to knit it all together. The industry, Paulsen says, “would benefit from a contractor who could do all those things” – a kind of one-stop shop that delivers a turnkey fix.

Certainly, as I reflect on the retrofit journey my wife and I took, it strikes me that there’s a lot of insight about this last point, which speaks to the difficulty of such undertakings. Meaningful financial incentives for homeowners as well as landlords are necessary, as are efforts by policy-makers to clear away the underbrush of regulatory obstacles, such as zoning laws that penalize building owners who want to add exterior insulation panels and end up running afoul of municipal density regulations. And we have to acknowledge that any system that depends on homeowners to front five-figure upfront costs or take out similarly scaled loans seems destined not to get out of first gear.

What’s more, grants and loans on their own aren’t sufficient to transform a trickle of early-adopter retrofitters into a mass movement. The lessons of my own retrofit experience seem relevant, and not atypical: that 16-month journey involved an online application, two visits from an energy auditor, a search for firms that could seal leaks and add insulation, a complicated dance with three separate electricians, a search for contractors who could install the big-ticket items at a cost that didn’t make my eyes water, and various financial obstacles imposed by my gas services company for attempting to switch to electric heat.

By contrast, if something goes sideways with my gas furnace, the fix is a one-call/one-visit operation. There’s something wrong with this picture.

As Canadian policy-makers search for a retrofit strategy that will meaningfully reduce the massive amount of carbon emitted by our existing buildings, they’d be wise to remember that financial inducements, which are crucial for priming the retrofit pump, are only half the story. Making it as easy as possible is the other.

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