An unbalanced market

Saying that the path leading to full decarbonization of the built environment is impervious would be an understatement. Especially for what concerns the stretch leading to the neutralization of embedded carbon.

Using exclusively carbon smart materials and techniques is, in most cases, not economically viable for contractors, as the few available technologies are far more expensive than their “dirty” counterparts. Furthermore, even if there were enough accessible “clean” products, the grid at its current state would pose a relevant obstacle to the reaching of the industry wide net-zero milestone.  

As a 2012 study by Acemoglu et al. underlines, if the technological gap between “dirty” and “clean” products or raw materials is too big, in other words if the offer is heavily biased towards “dirty” technologies, the transition will require a much bigger and carefully aimed effort on behalf of all stakeholders.

For what concerns the built environment, the gap that needs to be filled to bring the two classes of products at a comparable level is impressively big. To this also adds up the fact that having a clear disparity between two kinds of “offers” makes It a much easier (other than convenient) choice to focus the industry’s efforts and resources on improving the more advanced one, rather than working on something more underdeveloped.

Unless noticeable efforts are made to pull in the opposite direction.

Driving research

The fact that “clean” technologies are much more expensive and less abundantly present on the market than “dirty” ones greatly limits the efficacy of policies such as the imposition of carbon taxes.

In fact, these could, not only negatively affect social welfare by putting all enterprises in front of two extremely dispendious choices, but also risk being inefficient in terms of driving research and, consequently, achieving net zero. They would, in fact, pose barely any motivation for firms to improve their products as demand would be kept low by the pressing prices of a few primitive (compared to the state of the art “dirty” technologies in the industry) products.

The importance of pushing research and development in the right direction, and the correlation between technological improvement and product price reduction, with the consequent increment in a product’s availability on the market, is heavily corroborated by examples such as that of solar panels.

If the sun is not shining, invent one

When they initially hit the market, solar panels had incredibly high production costs, making them unappealing for the majority of people or enterprises.

In order to drive demand up and thus light up a virtuous cycle of research, technological improvement and consequent price reduction, customer subsidies were introduced in countries like Germany, the US and Japan.

These measures had different forms depending on the country in which they were in vigour. They ranged from of a fixed tariff, independent of the cost of other electrical energy, for electricity produced by solar panels in Germany and a 40% tax credit for investments in solar panels in the US.

These subsidies, together with carefully timed carbon tax impositions, allowed for the cost of production of solar panels to drop by 75% between 2010 and 2015.

The study, by modelling alternative scenarios in which customers were not provided with subsidies, also highlights the circular direct dependency between demand, research and offer. In fact it shows how, as demand increased thanks to customer subsidies, firms could put more resources into research and development of state of the art technologies

This in turn contributed to lowering the production costs and selling prices, allowing for (indirectly linked to research) subsidies to be slowly faded out while carbon taxes were increased with the intent of maintaining the positive equilibrium state of the market.

These kinds of subsidies, a part from than being necessary in an initial phase of great disparity, are demonstrated to be remunerative in the long run as well, as they contribute to driving technological advances.

How to turn the construction industry’s sun on

Subsidies, or other forms of incentives, are therefore necessary in order to give the initial necessary boost to research and fill the gap that is preventing the transition to happen smoothly.

If nothing is done to facilitate the transition to carbon smart materials (by making sure everything upstream is fully equipped to support an industry-wide conversion when stricter policies are made) the goals that the built environment has as a whole, might not be reached in time.

If, on the other hand, research is adequately directed and the current offer for carbon smart products and raw materials slowly starts increasing to meet what should be a rising demand for this type of technology, the goal becomes more plausibly reachable.

More information on the above topic and further proofs available at: for Gerarden, 2018, Demanding Innovation: The Impact of Consumer Subsidies on Solar Panel Production Costs∗  for Acemoglu et al., 2016, Transition to Clean Technology for World GBC, Bringing Embodied Carbon Upfront