B. Other Obstacles to GHG Reductions in the Building Sector
Many obstacles in addition to fragmentation hinder the widespread use
of energy efficient and other low GHG technologies in the building sector.
obstacles include the involvement of intermediaries in decision making; regulatory, pricing, and fee barri
ers; insufficient and imperfect information; decision making complexities; and lack of availability of cli
mate friendly technologies.
Each of these categories is discussed below.
The involvement of intermediaries in the purchase of energy technologies limits the ultimate
consumer's role in decision making and leads to an under emphasis on life cycle costs, which works
against investments in energy efficiency. This obstacle is typically called the principal agent problem
in the economics literature. This problem occurs when an agent has the authority to act on behalf of a
consumer but does not fully reflect the consumer's best interests. Decisions about the energy features of
a building (e.g., whether to install high efficiency windows and lighting) are often made by people who
will not be responsible for the energy bills. For example, landlords often buy the air conditioning
equipment and major appliances, while the tenant pays the electricity bill. As a result, the landlord is not
generally rewarded for investing in energy efficiency. Conversely, when the landlord pays the utility bills,
the tenants are typically not motivated to use energy wisely.
The prevailing fee structures for building design engineers cause first costs to be emphasized over
life cycle costs.
Projects are often awarded in the first place to the team that designs the least cost
building; their fees are typically reduced if actual construction costs exceed the estimated costs. This
schism tends to hinder energy efficiency because initial capital costs are typically higher for the installa
tion of superior heating, ventilation, and air conditioning systems that reduce subsequent operating costs.
Another clear cut example of market failure lies in electricity pricing practices. The electric sector
is characterized by a highly variable load that cycles widely over seasonal and daily time periods. The
result is a real time cost of electricity production that can vary by a factor of 10 within a single day.
The consumer, however, is not generally aware of the time of day or seasonal cost schedule the utility
faces. Instead, the consumer sees a monthly electricity bill that is essentially an average monthly cost.
Some companies even allow customers to avoid billing spikes in high usage months by averaging costs
over entire years such that no price variation is seen. In this case, the consumer is likely to be entirely
unaware when production costs are high. These flat rates cause households to over consume during peak
Towards a Climate Friendly