Canada’s renovation wave: a plan for jobs and climate

Meeting Canada’s climate targets requires eliminating carbon emissions from Canadian homes and buildings before mid-century. Achieving this entails phasing out on-site combustion of fossil fuels and connecting to clean energy, mainly electricity from wind, solar, and hydro. This fuel-switching needs to be combined with upgrades to insulation and ventilation systems to conserve energy, improve air quality, and protect occupants and housing infrastructure from extreme weather, air pollution and earthquakes. Additionally, low-income and vulnerable people are most affected by high energy prices and extreme weather impacts from climate change like heat waves. Dedicated, targeted no-cost programs for low-income people are crucial to ensure that all people benefit from retrofit programs.

To meet this target, Canada must develop a retrofit industry able to decarbonize 600,000 dwellings and more than 30 million square metres of commercial space each year to 2040. This will require owners to invest approximately $20 billion per year on top of normal maintenance costs, generating an additional $48 billion in GDP each year, creating 200,000 long-lasting well-paid jobs across Canada, and reducing scope 1 and 2 emissions from buildings by nearly 90% by 2050.

As we have seen during the pandemic, and following the floods, extreme heat events, and air pollution days of the last few summers, these investments are needed to improve the affordability of housing and to protect the health of people living in Canada.

Background

  • The Emission Reduction Plan, while acknowledging the scale of retrofit effort equired, did not advance policies or funding sufficient to meet the goal. Policy conversations were delayed to 2023, when the Canada Green Building Strategy will be developed.
  • Budget 2022 included some new additional funding for retrofits, but not yet the transformative scale required. New investments included: $458.5 million for low-interest loans and grants for low-income housing retrofits, $200 million for a Deep Retrofit Accelerator Initiative for large residential retrofit projects, and $33.2 million for a market development pilot program.
  • The Canada Green Homes Grant program, launched in May 2021, allocates $2.6 billion over seven years to provide up to 700,000 grants of up to $5,000 to help homeowners make energy-efficient improvements to their homes.
  • Budget 2021 makes available $4.4 billion over five years to help homeowners and landlords do home retrofits with interest-free loans of up to $40,000. This program includes a dedicated funding stream for low-income homeowners and rental properties serving low-income renters, including cooperatives and not-for-profit housing.
  • Budget 2020 included $2 billion to finance commercial retrofits through the Canadian Infrastructure Bank.
  • Launched in 2017, the National Housing Strategy included a co-investment fund providing $4.7 billion over ten years to repair existing rental housing and develop new affordable housing. However, these renovations require only a 25% reduction in GHG emissions, setting a bar too low for our climate targets.

Recommended Investment:

The federal government, in partnership with the provinces, should invest $10-15 billion per year for ten years to power a Canadian renovation wave, including:

  • $10 billion per year to fund deep retrofits for residential buildings, with programs covering 50-75% of the incremental cost of the upgrades needed (above normal replacement costs) to decarbonize and climate-proof buildings and homes [CMHC, NRCan, CIB, HC];
  • $2 billion per year to fund no-cost deep retrofits for low-income households of all types, including privately owned houses and rental units, publicly owned low-income housing, and a top-up for the renovation of social housing through the National Housing Strategy, including climate adaptation measures, and growing the targeted programs to low-income and vulnerable households to 40% of program spending over time [CMHC, HC];
  • $540 million per year for retrofits and energy efficiency top-ups for new housing projects in Indigenous communities [ISC, CMHC, CIB];
  • $300 million per year for skill development, capacity building and recruitment, with funds earmarked to increase diversity in the retrofit economy [NRCan, ISED, HC];
  • $100 million per year to scale up the Greener Neighbourhood Program, which will deploy market development teams across the country to resolve systemic barriers to deep retrofits and facilitate large-scale roll out of new integrated retrofit offerings [NRCan, ISED]; and
  • The federal government should also capitalize a loan guarantee program to reduce the risk to private financing of building retrofits. [CMHC, CIB, NRCan]

These are fiscally sound investments: energy retrofit programs more than pay for themselves through revenues generated by taxation, returning $2 to $5 to public coffers per program dollar spent. Beyond reducing household expenditures on energy and improving affordability (and thereby helping to reduce inflation), they can also generate savings in health care costs due to improvement in indoor air quality and thermal comfort. To this end, Health Canada should be involved in designing these programs to ensure integration of relevant health standards and considerations, such as climate adaptation, radon remediation, asbestos removal, air filtration, fire safety, and seismic upgrades and ensuring that these issues are not only addressed within the programs, but that the retrofits do not create new problems from air-tightness without planning to alleviate potential impacts such as radon levels and other indoor contaminants.

Private finance will need to be leveraged to accompany these programs; however, the rapid decarbonization of the residential sector is unlikely to occur without public investments at this scale. There is limited capacity in the residential real estate market for private capital to take on a large share of the cost of the retrofits because there is already an affordability crisis severely limiting the capacity of households to service additional debts. A significant portion of private funding must be allocated to cover base costs (i.e., what owners need to spend to maintain their building in operating order), reducing the amount that can be allocated to retrofitting a building. In most cases, while retrofits result in lower energy bills, the savings are insufficient to service the debt and pay back the upfront capital investment. From an affordability perspective, it would be undesirable to shift the burden of servicing deep retrofit loans to tenants and provincial residential tenancy acts often limit an owner’s capacity to pass such costs to tenants. Until the cost of deep retrofits can be decreased, and their value can be capitalized so as to attract private investment, transformation at scale requires government investment. The subsidy level suggested here would address these challenges by providing 50 to 75% of the incremental cost of fuel switching and envelope upgrades.

To deliver the renovation wave, these investments must be accompanied by strong policy measures, which need to be committed to in the Canada Green Building Strategy in 2023. This requires the federal government to partner with provinces to accelerate regulatory commitments towards a zero-carbon building sector, including: carbon intensity limits for new and existing buildings; energy performance standards requiring all heating equipment to have a coefficient of performance greater than 100% by 2030; and, benchmarking, labeling, and public disclosure policies to inform real estate market assessment of performance, comfort, climate risks, and carbon risks.

Given the crucial role that provincial policies will play in meeting targets in the building sector, the federal government should make some of the funds contingent on provinces committing and implementing regulatory roadmaps for a zero-carbon building sector.