This paper is the output of an exercise that aims to build the foundation for future work by the Cities Climate Finance Leadership Alliance (the Alliance) through a structured approach to analyze the challenges and priorities relevant to cities in decarbonizing the buildings sector. It is not an exhaustive study of zero carbon buildings, but rather a guide for future alliance work and exercise to build in-house knowledge.

Buildings contribute 37% of global energy-related CO₂ emissions. Nine percent of emissions are from on-site energy generation, 18% are from grid electricity, and 10% are from materials and construction (UNEP, 2021).

The IEA estimates that total investment in the global buildings sector must increase from USD 4.9 trillion in 2017 to approximately USD 5.4 trillion in 2050 to limit global warming to well below 2°C. China, India, the European Union, and the United States will receive 60% of investments. New construction will account for 67%, with heating and cooling in existing buildings accounting for another 18% (IEA 2019).

New building construction, driven by population growth, urbanization, and rising incomes, will be concentrated in low and middle-income countries in Africa and Asia that will experience 93% of urban population growth between 2020 and 2050 (UN DESA 2018). Cooking and heating are currently the largest energy end-uses, but cooling is the fastest-growing energy end-use, with new demand concentrated in emerging markets.

Achieving net zero carbon buildings at scale will require changes to every building element, including materials, thermal envelopes, passive heating and cooling design, active heating and cooling (HVAC), appliances, lighting, and electricity generation. The greatest opportunities lie in reducing embodied carbon in construction materials and cleaner and more efficient heating and cooling, including through passive design. Clean cooking will also play a major role in reducing emissions and air pollution from cooking, which is responsible for 0.5 GtCO₂e of emissions annually (Ritchie, 2021).  Financial instruments that can support net zero carbon building include traditional instruments used for all buildings, such as equipment leases, mortgages, and bonds, as well as specialized mechanisms that utilize the cost savings energy efficiency such as on-bill repayment, energy service contracts, and property assessed clean energy loans. Traditional instruments like bonds and commercial debt have already demonstrated they work at scale, but on their own will not help shift the market to lower carbon buildings, while specialized instruments explicitly targeting net zero buildings have had difficulty scaling and reaching lower-income households.

Several policies to support net zero carbon buildings exist, such as green building labeling, energy efficiency buildings codes, and equipment performance standards. However, those policies are not widespread, especially in low and middle-income countries with the greatest building stock growth, and often lack ambition. The success of policies is dependent on capacity to implement and enforce them, and a construction sector that can deliver low carbon buildings.

Each country and region have unique challenges and opportunities for net zero carbon buildings, and to this end this work also includes two deep dives on Nigeria and Indonesia to explore country-specific dynamics.

In Nigeria, the use of fossil fuel generators to address power shortages, expected heat waves, poor quality of building materials are key challenges. Addressing cooling and building-level electricity generation are high impact areas for intervention in Nigeria but building the enabling framework for private investment in zero carbon buildings must be strengthened to enable investment in net zero buildings at scale.

In Indonesia, the new green buildings regulation set national standards for buildings and is set to greatly expand the low carbon buildings market. However, implementation of this regulation will be left to municipalities. The success of the new regulations will depend on ensuring cities and the construction industry have sufficient implementation capacity. The growing demand for cooling will be the focal point as the largest energy end-use.

Future Alliance work in 2022 on net zero carbon buildings will focus on city-level policies and financing modalities  that facilitate private investment in low-carbon buildings. These will be supplemented by country deep dives on Nigeria’s regulatory framework and policy and blended finance support for cooling in Indonesia.