Hong Kong needs to start decarbonising its buildings. Here’s how

The EU’s net-zero plan for buildings is a good model. For a start, Hong Kong needs a mandatory energy label for buildings as a basis, and a combination of information, incentives and regulation to succeed

Mark Hinnells

Published: 9:30am, 19 May 2024

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It has been over five months since more than 110 countries at the Cop28 UN climate change conference agreed to double their energy efficiency improvements to an annual rate of 4 per cent as part of a deal towards meeting the Paris Agreement. What has Hong Kong done since?

In many areas of environmental policy, Hong Kong has followed international practice. It recently adopted a taxonomy for sustainable finance, seeking consistency with guidelines issued by the Chinese government and European Union. This covers lending for building refurbishment and includes standards for listed companies reporting their climate change impact and risks.

Back in 2009, Hong Kong introduced a mandatory energy efficiency labelling scheme for household electrical appliances similar to the EU standard (which I was involved in developing in the early 1990s). The city has a long history of harmonisation on environmental issues. But not yet in buildings. And this is where the urgent action to meet Cop28 targets could be taken.

The EU introduced its energy performance certificate (EPC) system for sold or leased buildings in 2002, with A being the best and G the worst. Larger public buildings, which are never sold or leased, must carry a display energy certificate (DEC) to show what they actually use.

There is an important point here. A rating on a building (modelled under idealised circumstances) can be very different from its actual use when occupied. Arguably, both EPCs and DECs are needed, especially for larger buildings. Buildings are all too often over-cooled and over-lit, with lights frequently left on in empty rooms.

Recently, the EU decided to revise its Energy Performance of Buildings Directive, requiring all new buildings to be net zero by 2030 and setting out a timescale for decarbonising existing buildings. Is it time for Hong Kong to follow suit?

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The city’s policy on energy use in buildings is weak. In Hong Kong, buildings account for over 60 per cent of carbon emissions, much higher than the global average of around 39 per cent. Yet Hong Kong is only targeting 2050 (not 2030) for all new buildings to be net zero, and appears to have no timetable for refurbishing existing buildings.

Confusingly, Hong Kong has several voluntary building energy labelling schemes, including the Building Research Establishment Environmental Assessment Method (BREEAM), Leadership in Energy and Environmental Design (LEED) and Zero-Carbon-Ready Building Certification Scheme – all competing in a small space for new buildings and refurbishment. Improving new buildings only reduces the rate at which emissions increase. To get emissions down, Hong Kong must focus on all buildings.

So what does Hong Kong need? First, it needs a mandatory building energy label applied at the point of sale or lease. A mandatory label is the basis for tracking changes in building efficiency in the market.

It is the basis for other policies, like taxing the worst buildings more and the better buildings less, or subsidy schemes for retrofitting (in Europe, energy efficiency refurbishments are often paid for by the electricity and gas utility companies). And the label can be used to signal that the worst buildings cannot be rented out or sold unless brought up to energy efficiency standards.

Earlier this month, Climate Bonds Initiative published a report titled “20 Policy Levers to Decarbonise Buildings in Europe”, building on the foundation of the mandatory energy label with measures from education, skills and training, to financial incentives, public procurement initiatives and green mortgages.

Quite simply, without a mandatory energy label for buildings, there is no market in efficiency, and there will be little progress towards the Paris climate targets.

Residential buildings can be made more energy efficient by making changes to air conditioning. Photo: Edmond So

Second, there needs to be a more informed conversation between the owners and occupiers of commercial buildings, driven by tax incentives (which can be designed to be neutral to the taxpayer). This means performance ratings and asset ratings as well as a “green” lease framework where the party that benefits from energy efficiency is incentivised to drive it, whether through investment or behavioural change.

Third, the implications of an energy label for every residential property are not trivial, when there could be more than 100 flat owners, a high proportion of tenanted units, and a building owner/manager. Some of the options for improvement would apply to the whole building (such as walls and windows), and some to the individual flat (like air conditioning and lights). This is not a new problem. Suppose the tax paid on rent or sale varied based on efficiency. Wouldn’t that encourage change?

Fourth, Hong Kong needs to refresh its (now teenage) mandatory energy labelling scheme for electrical appliances. There are many more product categories that could be covered, and there are loopholes and ways around the labelling that need to be closed – for example, by improving test protocols to make them more consistent with real-life use, implementing appropriate enforcement, educating retailers and consumers, and keeping the scheme up to date with technical and market changes.

Fifth, buildings also create greenhouse gas emissions in construction. Across the world, this is 11 per cent of emissions. In Hong Kong, the proportion is likely to be higher given the speed and scale of construction. The basic model of construction has not altered in decades. It’s time to account for carbon in construction and create market incentives – information, financial incentives, regulation – to drive it down.

Hong Kong can’t leave improvement to the market, it needs the right combination of information, incentives and regulation acting together to transform markets. The EU’s recent revision of its Energy Performance of Buildings Directive is a good model. It is necessary to meet the enhanced energy efficiency commitments made at Cop28, or we won’t meet the Paris Agreement.

Dr Mark Hinnells is director of strategy at Climate Finance Asia