The Fraser Institute released a report in September 2023 on the “economic impact of the new federal building energy efficiency mandates”, claiming that new model building codes will reduce Canada’s GDP.
A look into the report shows that it has gone out of its way to over-inflate costs and discount benefits to arrive at its conclusions. It is driven by a market fundamentalist ideology that would leave customers exposed to significant risk of purchasing substandard housing at a time when climate change requires our buildings to protect us from extreme weather and to avoid accelerating the climate problem.
Over-inflated costs
The report overestimates the cost of construction of more energy efficient buildings, and then compounds this over-estimate.
It relies on one study from the Central Okanagan Canada Home Builders Association in BC, leading the author to claim an average increase in construction costs of 8.3%. This is cherry picking an analysis to fit the author’s conclusion. A comprehensive overview for the Energy Step Code Council shows average costs to be 3-4% higher than a comparative code minimum building, and these studies do not take into account cost reduction opportunities that come from whole building energy efficiency design.
The author then multiplies this over-inflated cost estimate by the most recent average home selling price instead of actual construction costs. There are market dynamics driving Canada’s very expensive home prices, such as land costs, a lack of supply, and high demand from developers and existing home owners trading up. Instead of working with actual construction costs, the author uses Canada’s historically over-inflated housing prices to increase the already over-estimated cost assumption.
The reality is that making a new home more energy efficient need not cost more. Design decisions and integrated project planning can reduce the need for more expensive materials and equipment. Policymakers should focus on accelerating adoption of more productive building practices and technologies. This is already part of the federal government’s strategy, through the codes acceleration fund, which supports local capacity building. As building high-performance, net-zero energy-ready buildings become the norm, costs should decrease as supply chains reorient and builders refine their construction processes.
Discounted benefits
The report also counts typical benefits as costs. The author makes the arbitrary assumption that any additional investments in labour and two-thirds of investments in capital are losses, instead of additions to economic activity.
This assumption is justified by an ideological belief that people don’t want energy efficient homes, because if they did, they would already buy them. Of course, consumers cannot be reasonably expected to become instant experts in building science so they can incrementally purchase energy efficiency. Consumers can expect minimum standards within housing markets that ensure the places we live are safe, energy efficient, and climate friendly.
An Efficiency Canada 2018 study analyzed the GDP impact of federal energy efficiency policies (including building codes) and found a 1% boost in GDP (or $25 billion addition annually). It took an approach that factors in the increased economic activity from making our economy more energy efficient and the impact of energy savings giving consumers more spending power, and then reducing GDP growth in sectors impacted by lower energy sales.
The Fraser Institute report assumes away benefits from energy savings by cutting them in half. The so-called “rebound effect” in the report is 50%. This concept highlights the potential for estimated energy savings to be partially offset due to lower costs of using more efficient products and/or more consumption due to higher incomes. The impact is real, but not very large. It is only meaningfully discussed on a sector by sector basis, and very large estimates of rebound rely on macroeconomic analyses that confuse this limited effect with changes in wealth, technology and structural economic dynamics. The report provides no justification for an extreme 50% rebound effect in new buildings. This assumption downplays the benefit Canadians receive from energy savings putting more money in their pocketbooks, and the benefit to the economy if those dollars are spent on more productive and welfare enhancing activities than energy waste.
The report also neglects that productivity improvements and use of new technologies and techniques is what really drives economic progress. Building homes that are climate friendly opens up the possibility to improve productivity in a lagging sector, and to see Canada develop expertise in new building practices and technologies.
Leaving consumers on their own
The numbers in the report should not be taken seriously, for all the reasons noted above. The report’s conclusions are driven by the author’s belief that homebuyers should be left to the mercy of the market instead of expecting some minimum requirements for their homes to be energy efficient and climate friendly.
Building codes were created because it is not reasonable to just leave it to consumers to figure out if the homes they purchase are safe and structurally sound. With extreme heat, storms, forest fires, and floods Canadians should now expect their buildings to protect them from such weather extremes and to not add to the climate problem. A failure to improve building codes will result in customers left with unexpectedly high energy bills, high maintenance costs, and uncomfortable living conditions, and more GHG emissions that take us away from meeting net-zero emission goals.
Good building codes protect consumers and our environment, and present an economic opportunity for Canada. That’s why Canadians should expect policymakers to update them for today’s climate.
