6.1 Baseline and Reference Cases

The economic modelling analysis for this report references a Business-As-Usual (BAU) baseline case where no policies, regulations, prices or incentives are implemented, and CO₂ emissions and energy use follow historic growth patterns. Under the baseline case, emissions in the commercial building sector increase from the 2008 total of 75 Mt to almost 95 Mt by 2020 and to 155 Mt by 2050. This number is higher than the BAU estimate of 127 Mt of CO₂ emissions by 2050 included in the 2006 NRTEE report, which may be partially attributable to a higher assumed economic growth rate, resulting in an increase in the number of new buildings expected.

The modelling analysis also includes a reference case in addition to the BAU, which takes into account the estimated emissions reductions from the range of policies and programs contained in the federal government?s Turning the Corner plan and its Regulatory Framework for Air Emissions, as well as selected provincial initiatives.^t The reference case assumes that these plans will be implemented as outlined by the government, and that the estimated emissions reductions will be attained; therefore, the complementary policies modelled for this report targeted specifically at the commercial building sector are in addition to those in the plans.

According to the assumptions in the reference case, in 2020 absolute emissions decrease to 68 MtCO₂ (compared with 94 Mt in the BAU); however, emissions continue to grow with the economy. In both the baseline and reference cases, the economy is assumed to grow at a rate of 2.1% per annum. By 2035, absolute carbon emissions increase from 2008 levels of 75 Mt, reaching 105 Mt by 2050. The large decrease in emissions from 2009 to 2012 is due to the required 18% reduction in emission intensity in the power sector outlined in the government plan.^u It should be noted that the small difference between the reference and baseline scenarios in 2008 is due to the implementation of some government policies prior to 2008. Figure 10 illustrates the CO₂ emissions from the BAU and reference cases in MtCO₂e over time. Note that while overall cumulative emissions reductions occur, the reference case still sees an increase in emissions from current levels over time, and by 2050.

FIGURE 10: Total Commercial Sector Emissions under the Baseline and Reference Cases

6.2 Carbon Price Scenario

The first scenario modelled in this study was the implementation of a market-wide price on carbon. Assumptions used in the modelling analysis followed the NRTEE ?Fast and Deep? scenario,[88] which was chosen based on NRTEE research conducted in 2007 that found the prices as outlined in Table 6 to be the most effective in achieving deep emissions reductions. The ?Fast and Deep? pricing scenario is designed to achieve the government?s absolute target of 20% overall, Canada-wide emissions reductions by 2020, and 65% reduction by 2050 from 2006 levels.

TABLE 6: Carbon Price Scenario Assumptions

Applying a carbon price reduces emissions further from the baseline and reference scenarios.When the carbon price scenario is applied to the commercial building sector, total emissions decrease by just over 10% by 2050, relative to the reference scenario (Figure 11). However, when compared to the BAU scenario, emission reductions amount to 39% by 2050 (95 MtCO₂e per year). Both are short of the target of 66% below the BAU scenario by 2050,
i.e. 53 MtCO₂ emissions per year by 2050.

FIGURE 11: Total Emission Reductions under the Carbon Price Scenario

The carbon price scenario does not have a noticeable impact prior to 2020, as the reductions that would have been driven by the carbon price are achieved by the expected government policies contained in the reference case. These findings align with previous NRTEE work identifying that other market barriers reduce responsiveness to price signals in the sector, and therefore complementary regulatory policies are required in order to reach its emission reduction potential.
Other findings resulting from modelling the carbon price scenario are:

• Total energy demand from the sector decreases by 7% by 2050, with space heating contributing the most significant decrease at 124 PJ (or 11%) from 2008 levels.
• Electricity demand increases by 4% by 2050 relative to the reference case, as new buildings begin to select electricity for substitutable loads and heating requirements over more expensive natural gas sources. In provinces such as Alberta and Nova Scotia where the current energy mix is more carbon intensive, the motivation to switch to cleaner electricity sources may be more intense.
• Investment in building infrastructure and equipment increases, growing to approximately 11% above the reference case by 2050.

These findings have implications for policy design and help to prepare industry for possible emerging trends.

6.3 Complementary Policies Scenario

Based on input from stakeholder consultation and findings from the research and analysis contained in this report, the NRTEE and SDTC identified the following policies to address energy efficiency technology adoption barriers present in Canada?s commercial building sector. These policies could encourage downstream energy efficiency investments and provide a stronger business case for accelerating upstream (i.e. RD&C) investments. They consist of command and control regulations and several types of subsidies that were deemed effective in the policy evaluation section of this report.

Due to the difficulty in quantifying the direct impacts of information programs on carbon emission reductions, they were omitted from the modelling analysis. Eight policy instruments were included in the modelling scenario:

• Mandatory efficiency standards in building equipment
• Incorporation of energy into Canada?s National Building Code
• Application of accelerated Capital Cost Allowance rates to equipment
• Application of high performance standards to public buildings
• Provision of resources to increase skills development in the workforce
• Provision of resources to expedite the building permit process
• Implementation of an energy efficiency tax credit
• Promotion of the Canadian building commissioning industry

When all eight policies are modelled, emissions reach 86 MtCO₂ per year by 2050, a reduction of 19% below the reference scenario. Relative to the baseline (BAU) scenario, emissions are reduced by 45%. However, while absolute reductions are sustained for a period, total emissions climb back up to 2008 levels by 2042, and increase to 86 Mt in 2050 as illustrated in Figure 12. Emissions are lowest in 2018, amounting to 63 MtCO₂e; however, absolute emission reductions are not attained by 2050, again resulting in an emission level much higher than the targeted 53 Mt.

FIGURE 12: Total Commercial Building Emissions under the Complementary Policies Scenario

Other findings resulting from the Complementary Policies Scenario that have implications for policy development include the following:

• Fuel expenditures decrease significantly, dropping by 15% from the reference case;
• The largest decrease in energy demand occurs in space heating, similar to the result found in the carbon price scenario;
• There are relatively significant emissions reductions related to water heating (14%) and air cooling (33%); and
• Emission intensity decreases across all sub-sectors, by 17% on average, with the greatest increases in efficiency occurring in the Finance, Insurance and Real Estate (FIRE), Offices and Wholesales sub-sectors.

6.4 Combined Scenario

To further assess the impact of both carbon pricing and complementary policies, a modelling scenario combining the two was conducted. When the complementary commercial building policies are modelled with the market-wide carbon price signal, emission reductions are the greatest, reaching 82 MtCO₂e, or 24% below the reference case and 47% below the BAU case by 2050^v as shown in Figure 13. Absolute decreases in emissions compared to 2008 levels in 2050 are achieved in the Food, Lodging, Recreation, Education, and FIRE sub-sectors as illustrated in Figure 14. All other sub-sectors increase in absolute emissions by 2050 as compared to 2008 levels due to an increase in the number of new buildings related to population and economic growth.

FIGURE 13: Combined Impacts of a Carbon Price and Complementary Policies

FIGURE 14: Absolute Changes in Emissions per Building Sub-sector from 2008 levels in 2050

6.5 Regulatory Scenario

Modelling results for the combined scenario are not sufficient to achieve the emission reduction target of 53 MtCO₂e per year by 2050, but the policies contained in it can play a role in preparing the industry for more stringent regulatory measures. A second modelling analysis applying mandatory regulations together with an economy-wide carbon price was conducted for the commercial building sector to assess the effectiveness of this more stringent approach in realizing significant emission reductions. The scenario combined the ?fast and deep? emissions price that was used for the carbon price scenario with the addition of the basic LEED certification as a regulation for all new buildings.

This modelling analysis also accounted for the incorporation of renewable energy and cogeneration to achieve emissions reductions. Figure 15 shows the results of this regulatory scenario. By 2050, emissions in the commercial building sector decreased by 65% from 2008 levels in this analysis, thus exceeding the sector target of 66% below BAU by 2050. This scenario also shows the feasibility of the industry vision captured by SDTC that targets an emission reduction of 50% below the 2007 level by 2030.

FIGURE 15: Combined Impact of a Carbon Price and Regulations

Given the current low levels of industry awareness and energy efficiency technology deployment, it is unrealistic to implement immediate sector-wide mandatory regulations on all new and existing commercial buildings, despite the identified environmental benefits of doing so. Neither the building industry nor Canadian governments are prepared for a scenario in which all buildings have to be immediately retrofitted. Time is required to ensure that skilled workers, information resources, and technologies are available in the required quantities, etc. A phased approach to regulation will be required, with the policy recommendations contained in this report feeding into the process in order to ensure that economic competitiveness is maintained over time.

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t The modelling results that are presented here are all based upon the baseline and reference case modelling that was completed by ICF International in analysing the impacts of the Turning the Corner plan.

u The only commercial sub-sector that maintains an absolute emission reduction is Education, which achieves a 5% reduction from 2008 levels.

v The total reduction under this scenario is not the combined total of the carbon price and policy scenarios. Instead, some of the reductions that were driven by the price on carbon overlap with those driven by the policies; in essence, they overlap.

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