Residential housing is more difficult, because many homeowners may have less spare cash and move houses rarely. Subsidies can be hugely expensive: in Italy, you can claim the full cost of green home renovations, plus an extra 10%, through generous tax credits worth up to €100,000 ($104,000) per home. An eye-watering €21bn has been paid out under this scheme since its launch in July 2020, often to wealthy homeowners. Governments would do better to invest in addressing the knowledge gap and skills shortages associated with green-building technology and refurbishment—and to eliminate red tape so that property-owners who want to improve their energy efficiency, as oil and gas prices surge, can do so more easily.
The second goal is to facilitate more rational decisions about when to retrofit buildings and when to demolish them and rebuild, which generates waste and pollution but in some cases can reduce emissions overall. Regulations and tax codes are often skewed arbitrarily and can be reformed. In Britain, for example, until earlier this year most new buildings were exempt from value-added tax, but spending on renovations and repairs was not.
The final goal should be to ensure that the construction of new buildings that does take place is far cleaner than it has been in the past. Green building codes are a powerful tool; in the long run, higher carbon taxes would also force the entire construction and building-materials supply chain to clean up its act.
The good news is that there is huge room for improvement: new industrial processes can reduce the emissions from cement and steel. Better construction methods, including prefabricated houses, are more energy- and carbon-efficient but rarely used. The construction industry has a dire record on productivity growth—a sign that there has not been enough fresh thinking. Time to start building a new approach.■