Buildings are the single largest energy user in the United States and are responsible for significant greenhouse gas emissions. In a new Q&A, Alex Dews, CEO of Institute for Market Transformation shares with Senior Communications Officer Kate McLaughlin why building decarbonization should be a top priority for cities and what steps they can take in their communities.

Q: The built environment accounts for roughly 30% of U.S. greenhouse gas emissions, yet building decarbonization doesn’t always get a lot of public attention. Why should this be a top priority for communities, and what makes this a particularly urgent moment?

A: The buildings sector is a major emissions driver because it’s incredibly energy intensive. Historically, the sector doesn’t get as much attention as power, transportation and industry, but that is starting to change. As energy costs rise, the role of buildings is coming into focus. A whopping 75% of the energy that U.S. power plants produce is used in buildings. When you look at the full picture, it’s even more clear how central the role of buildings is in the energy system.

According to Lawrence Livermore National Laboratory, the U.S. in 2022 consumed 100 quads of total energy. Two thirds of that total was “rejected” through inefficient fossil fuel combustion and electricity transmission losses. Of the one-third that converted to “useful energy,” buildings are the largest, most efficient user, outpacing industrial and transportation.

There are a lot of reasons this matters to communities, starting with affordability: energy bills are one of the largest and fastest growing costs for households. Investing in building energy efficiency yields at least $3 for every $1 spent, while reducing air pollution, reducing carbon emissions, and supporting local economic activity. Energy demand is projected to grow for the foreseeable future, and the buildings sector is emerging as a key tool for managing this growth in a way that is faster, cheaper, and more beneficial to the public than building new power plants.

Q: What are high-performing building hubs? How do they function within a city, and what makes the hubs an effective vehicle for driving local building decarbonization at scale?

A: In order to scale energy efficiency, we need to effect widespread market transformation, which starts by changing what is considered normal in real estate. Right now, a lot of efficiency measures are removed from construction and renovation projects (value-engineered out) for a variety of reasons, mostly related to what kind of a return they will generate, and for whom.

One reason is the “split incentive,” where owners and landlords are reluctant to invest in an efficiency measure that will cost them money, while the energy savings go to their tenants (this is the focus of IMT’s Green Lease Leaders program, which provides guidance for sharing the costs and benefits between parties).

The second major challenge is how the real estate industry evaluates payback on energy efficiency investments, often focusing on simple payback within a three-to-five year window, and assuming that energy costs will remain stable. More sophisticated businesses have learned from experience that evaluating cost against energy savings alone is insufficient, since efficiency investments also reduce maintenance costs and increase asset value.

Some industry leaders are willing to speak about why efficiency and overall building performance (including health, lighting, etc.) have been valuable to them, but the reality is that it can still be challenging to navigate the many obstacles that can come up related to financing these projects, complying with codes and regulations, and getting a meaningful return on investment.

In Washington, D.C., IMT manages the Building Innovation Hub (Hub), which was created with funding from the D.C. government and local industry to address these goals. The Hub helps real estate professionals understand the District’s building performance standard, which requires buildings to meet minimum efficiency targets, and works to convene the many groups involved in financing, designing and operating buildings so we can find mutually beneficial solutions.

IMT is looking to scale high-performing building hubs nationally, especially in other locations with building performance policies. We partnered with the Building Energy Exchange (BE-EX) to create the Building Performance Partnership, a national support network for local hubs. Right now we have nine members. The laws and conditions in these locations are different, but there are transferable lessons from each market, and many resources that can be replicated across markets. For example, the Building Innovation Hub in D.C. created a vendor-matching portal and a career map, which can be replicated elsewhere. Similarly, BE-EX created a number of short briefs on common building improvements, like heat pumps, which can be rebranded by the different member hubs. We can also collaborate on thought leadership and fundraising.

Q: What does support for local governments to advance building performance actually look like on the ground, and how do you tailor your approach to meet cities where they are in terms of capacity, political will, and community priorities?

A: IMT is best known for our local policy work, which dates back to our founding 30 years ago. We know from experience that each location has unique needs, but that most of the solutions to building efficiency challenges at the local level are very similar. We develop foundational infrastructure for change by developing our model laws and implementation guidance. We also spearhead efforts like the National BPS Coalition to convene and connect the local leaders who are driving change. This is very important given the limited capacity of many jurisdictions.

We also offer multiple pathways to achieve building performance goals, though we often recommend particular pathways based on complexity, efficacy, and cost. Our menu of services and resources helps standardize policies and approaches, and because we are in active conversations with all these places, we connect people who can learn from each other, not just from us.

Q: Can you walk us through a specific place where IMT’s work has gained traction to help reduce emissions and benefit underserved communities?

A: IMT has been very influential in Washington, D.C., in part because we are based here and in part because the District was the first to enact a building performance policy. Our senior advisor, Cliff Majersik, and our policy director, Marshall Duer-Balkind, sit on the District’s BEPS Task Force. Mary Thomas is director of our Building Innovation Hub, which the District helped start, and which is dedicated to helping local stakeholders collaborate on improving their buildings.

The Hub has pushed for ways to connect small business owners to job opportunities for building improvements, and created a Career Map to help residents see the possible trajectories in this space. The Hub also created toolkits specifically for condos/coops and houses of worship with the idea that these places need and deserve extra support in reaching performance goals. Mary is now leading a District-funded collaboration with private and nonprofit organizations to retrofit 10 small buildings. We don’t have final results yet because the first deadlines are not until next year, but these efforts are hopefully setting the stage to benefit frontline communities, including residents and small businesses.

Fundamentally, IMT is a bridging organization, working to identify and remove the barriers that prevent mutually beneficial solutions. We are proud of our work to bring together groups that don’t usually work together, whether that means building managers and nonprofit organizations, or nonprofit advocates and city officials (Precious Rideout, our director of community engagement wrote a great op-ed about our work with WIN, a faith-based organization that developed a better relationship with the District after our project together).

Q: What have you learned from working in different cities about what local governments and communities need most to implement and sustain building performance policies over time?

A: Most places have very limited resources to achieve their energy and climate goals. What we hope to do is make it easier to enact and implement building performance measures so that no one is starting from scratch. And we also know that feedback loops are critical, so we work in real time to update our recommendations and to bring people together for frank discussion. The IMT team has experience working in government, real estate, and as organizers and advocates at the local level. That allows us to understand each context we work in at a deep level so that we can match our support to the needs of the jurisdictions we support.

Q: Looking ahead, how do you see the work evolving, particularly in cities like New Orleans where climate risk, equity, and building performance are deeply interconnected?

A: The reason we say “building performance” instead of “energy efficiency” is that a good building is not just energy efficient, but also affordable, safe, healthy, and resilient in the case of power loss or interruption. There are unique political and geographic challenges, but we have found that we always need to establish strong relationships across a variety of stakeholders in order to make progress. We have been evolving over the last few years to make sure our work on energy efficiency is connected to ongoing work on indoor air quality, tenant affordability, local jobs, and community resilience. This work should not be thought of as purely something for climate action or sustainability. In fact, it is directly intertwined with some of the most pressing issues, like housing affordability (especially energy bills) and power generation, including data centers built for artificial intelligence. By clarifying these connections, we build relationships that are durable to political change.

Q. What systemic barriers still stand in the way of making our building stock cleaner, healthier and more affordable? What role do philanthropy and cross-sector partnerships play in breaking through those barriers?

A: Our current retrofit rate is 1-2% per year, meaning that the majority of our buildings are not improving as quickly as our building codes improve, or as weather conditions shift. There are a lot of reasons for that, ranging from landlord-tenant split incentives, to available financing, to bottlenecks in the workforce and misconceptions about how to value better buildings. Policy frameworks that operate at the system level have proven to be the most successful tool to address these barriers.

Energy benchmarking, for example, measures building performance in order to manage it, and is now a common practice in real estate that yields consistent energy and carbon savings. This was the result of more than a decade of work by IMT and our partners across government, real estate, utilities and the communities they serve, and is the foundation of the work now underway to move the buildings sector toward its full efficiency and decarbonization potential.

This work was made possible by IMT’s partners in the foundation world, who worked closely with us to better understand the problem and develop a pathway to solving it. This required sustained philanthropic investment in the strategy over time, as well as a commitment to changing course based on what we learned. Our goal is to continue to braid philanthropic and private dollars to create financially sustainable models that scale better buildings for everyone.