Innovative Green Building Policy Achieves 23% Reductions in Second Year
In January 2013, the Metropolitan Government of Tokyo announced the results of the second year of reporting for its cap-and-trade program for commercial and industrial buildings. The innovative policy, which drives emissions reductions through energy efficiency retrofits, realized a staggering 13% reduction in building sector emissions in the first year of operation, a figure which nearly doubled in 2012.
By definition, a cap-and-trade scheme sets a limit for emissions that is lower than current outputs and allows for complying parties to either make the reductions through their own efforts, in this case through energy efficiency improvements, or through trading. The ability to bank reductions allows for buildings to meet their compliance for the first and second commitment periods of the scheme through deep retrofits early in the program.
Cities and countries around the world are looking to Tokyo for inspiration and guidance on how to implement a similar scheme in their own jurisdictions. The Tokyo model can be successfully replicated; however, several provisions need to be in place in order for it to function properly. First, the Metropolitan Tokyo of Government required buildings to report their carbon dioxide emissions under the policy that preceded the urban cap-and-trade. This provided historical data and context for buildings to know their baseline energy usage and reduction potential.
Second, and most fundamental, the Tokyo trading model is a closed system for a single sector—buildings. Other regions are considering the inclusion of buildings within their multi-sector cap-and-trade schemes. However, to group building retrofits in the same market as industrial- or energy generation-level emissions reductions, buildings would not be able to compete within the market place, as the reductions would be too small make a meaningful profit within the scheme. This would actually disincentivize retrofits because it would be cheaper to purchase carbon credits. Linking a building sector trading scheme to another building sector trading scheme could work. Expanding the scope of an emissions trading market can drive economic efficiency without compromising the target, as long as the caps and structure of the markets are similar and compatible.
The Tokyo cap-and-trade model continues to impress as it achieved 23% reductions in the second year of operation. This innovative policy for drive building retrofits and green building investments should be considered for replication in other cities around the world. With the proper structure and policies, an urban cap-and-trade system could revolutionize the way we think about green building incentives.