The article was published in the newspaper Dienas Bizness on 16.07.2024
The construction of buildings, as well as their operation throughout their life cycle, is a significant source of CO2 emissions, which will have to significantly reduce its emissions footprint over time. To achieve this, not only state support will be needed, but also, possibly in the future, some kind of penalty – additional payments.
This was the scene of the discussion on How to promote the production and use of sustainable building materials. Although transport (cars) and agriculture are mentioned as the most significant challenges on the way to achieving climate neutrality goals in Latvia, buildings have had, are and will have a significant impact on CO2 emissions. That is why the topic of sustainable construction will become increasingly hot.
“Sustainable construction is closely linked to sustainable building materials, their rational use, which together create sustainable buildings, even more so when buildings are responsible for 40% of all energy consumed, and buildings generate 36% of energy-related greenhouse gas emissions, at the same time 75% of buildings in the European Union are not energy efficient, and it is expected that 85–95% of current buildings will still be in use in 2050,” said Armands Gūtmanis, Chairman of the Board of the Latvian Climate Neutrality Cluster 2050, pointing to the large multiplier effect of the problem. He reminded that there are many EU regulations that require construction to be made more sustainable – the Energy Efficiency Directive, the Renewable Energy Directive, the Energy Performance of Buildings Directive, the new Construction Products Regulation, the expansion of the Emissions Trading System, the Taxonomy Regulation, the Corporate Sustainability Reporting Directive, the Circular Economy, the Conversion of Waste into Raw Materials for the Production of Other Products, and a Significant Reduction in Waste Disposal. It should be noted that the Nordic countries have already taken several significant steps in the sustainability segment, for example, in Denmark, a National Sustainable Construction Strategy was created in 2021, which introduced construction thresholds (CO2/m2 per year for both the buildings themselves and the construction process), in addition, the building’s impact on the climate is calculated based on a life cycle assessment.
“It is important that an agreement was reached in 2023 that the relevant limits are reviewed and CO2 emission equivalents are reduced,” A. Gūtmanis pointed out. He emphasized that Latvia has the opportunity not only to get acquainted with, but also to use the experience of Denmark, as the deadlines for achieving climate neutrality are approaching. The discussion also revealed that by improving the efficiency of resource use, the GHG emissions generated during the entire life cycle of residential buildings in the G7 countries could potentially be reduced by 35–40%. “In the coming years – in 2027–2028 – we will have to start buying CO2 quotas also for heat consumption in buildings, and this will change the situation for everyone,” said A. Gūtmanis.
Burkāns un pātaga
“Work is currently underway to develop a methodology for calculating the CO2 footprint (which would be included in the construction information system). This would allow us to see how much CO2 is produced during the construction of each new building, as well as the amount of these emissions over the life cycle of the building,” explained Olga Feldmane, Director of the Construction Policy Department of the Ministry of Economics.
She pointed out that work is also being done on implementing the principles of the circular economy – the reuse of materials, promoting wooden construction at the regulatory level (reviewing fire safety requirements), as well as tax breaks.
“Reduced value added tax rates should be applied to sustainable renovation of buildings, such a reduced tax rate should also be applied to the sale of new energy-efficient apartments. It would also be necessary to apply real estate tax relief to such buildings,” O. Feldmane outlined the sectors of activity. She pointed out that training is being organized for construction specialists specifically regarding climate neutrality and how to achieve it. Work is also being done on standard construction projects, the first was reinforced concrete, the next – wooden structures, as well as building insulation (energy efficiency) projects.
“This year, there is a desire to implement the idea of not using conventional plaster facades, but industrially produced ventilated facades, within the framework of building insulation, thus not only creating benefits in achieving climate neutrality goals, but also in increasing labor productivity,” explained O. Feldmane. In fact, the goal is to support and promote sustainable solutions with tax breaks, various guarantee and support programs, as well as taxonomies and municipal requirements in spatial planning, while at the same time making it difficult and limiting inappropriate solutions both with various complications at the level of regulatory enactments and additional payments (taxes). In O. Feldmane’s opinion, the public sector – the state must set an example by creating an appropriate demand for sustainable construction and sustainable buildings.
A common understanding is needed
“Building material manufacturers are only one part of the entire construction process,” emphasized Leonids Jākobsons, Chairman of the Board of the Building Material Manufacturers Association. He pointed out that there must be a common understanding of sustainable construction criteria at all stages of the chain – from the customer, from the designer, from the construction contractor, from the construction supervision, from the building material manufacturer, from the building certification institution, from the building and structure operation service, from the waste recyclers.
“The most important role, of course, is played by the customer,” explains L. Jākobsons. He points out that there are several examples in which many questions can be asked, for example, in the already built, beautiful complex of the new Stradins Hospital, there is a huge, empty space behind the entrance, and it is not clear whether those who created this idea thought about how much it would cost to operate this empty space. Builders have access to modern technologies that allow them to manage the entire process, while knowing where communication networks should be and are located, and at the same time, to prevent any errors if they are already in the construction process itself. Regarding the compliance of building materials, environmental product declaration requirements (EPD certificates) are met, without which it is impossible to work. Namely, in Sweden, from January 1, 2022, the development of an EPD is a mandatory requirement for building materials that will be used for new buildings.
The Netherlands has been requiring information on the environmental impact of buildings larger than 100 m2 since 2013. The greatest demand for EPDs is currently in the construction industry – Green schemes – BREEAM (British Research Establishment Environmental Assessment Method), the North American LEED (Leadership in Energy and Environmental Design) system, etc. “There will be a new EU regulation on environmental impact factors,” says L. Jākobsons.
Demand creates supply
“The key word is demand, but its absence does not create practice,” says Edijs Kupčs, head of the Latvian Construction Contractors Association. He points out that one of the most important challenges and issues for builders is productivity, especially when it comes to the export of construction services.
“Good examples are those companies that have already been active in foreign markets, which are currently experiencing a so-called quiet period, but in Latvia this has not happened and there is an opportunity to work at home, using the experience gained abroad, while at the same time the environment in which one has to work is more complex in Latvia than in export markets,” E. Kupčs outlines the overall picture. He points out that those builders who have returned home are ensuring a leap in productivity precisely in what they do.
“Requirements, customer wishes, timely payments, proven projects abroad have adjusted these companies in such a way that they are significantly more productive in the domestic market,” explains E. Kupčs. However, he draws attention to the fact that the basis of everything was, is and will be the customer, who, especially in the public sector, must be able to explain why it costs as much as it does, and whether it is expensive.
“Clients must not only have the courage, but also have the appropriate funding available to implement sustainable construction and create sustainable buildings in the truest sense of the word,” explains E. Kupčs. In his opinion, professional project management is a prerequisite.
“This is one of the most important stages, because if planned incorrectly and managed inappropriately, you may have to enter a much higher cost phase,” says E. Kupčs. In his opinion, even if the project is well-designed, when decisions need to be made, the client makes them slowly (slowly), which results in downtime (but the rental fee for the equipment on the site must be paid regardless of whether it is working or not), in addition, building materials are stored on the site, and there are questions about how long they can be stored in the relevant conditions so as not to lose their properties, and ultimately the whole process becomes longer. Construction service providers also expect training from building material manufacturers on how to properly use the relevant materials, especially if there are many different materials available. “The most important thing in the whole process was, is and will be communication between architects, civil engineers, building material manufacturers, the builders themselves and the client,” emphasized E. Kupčs.
A cluster of competitiveness problems
L. Jākobsons points out that energy costs are a big issue for building materials manufacturers, as the industry is very energy-intensive and any changes that affect the price of electricity have a significant impact on the industry.
“A large part of the profits of companies in the sector have been eaten up by electricity prices, and as a result there are fewer development opportunities,” says L. Jākobsons. He reminds that the price of electricity in Latvia for large industrial companies is relatively higher, but it should be on par with those countries with which producers (Lithuania, Estonia, Poland) in our country have to compete. “If the price of electricity for producers in these competing countries is significantly lower, then it is impossible to compete with their producers,” emphasized L. Jākobsons. In his opinion, a reform should be carried out in the regulated energy infrastructure, combining the administrative and technical resources of the high-voltage network and the distribution network, thus reducing costs and, accordingly, service tariffs.
In addition, attracting investment in sustainable manufacturing processes requires improving the return on capital for existing and future investments, which is why the current corporate income tax rate should be reduced to the OECD minimum of 15%. As another unpleasantly surprising factor for the industry, L. Jākobsons mentioned that the natural resource tax on plastic packaging is being increased, while at the same time this tax rate is being raised for recyclable plastic packaging, the production of which would already have used some recycled plastic, but it is not subject to a lower natural resource tax payment. “This means that those manufacturers who use plastic for packaging construction materials, in which some part of it is recycled plastic, will pay the same amount of natural resource tax as those who use the so-called new plastic and in fact do not encourage entrepreneurs to seek opportunities to reuse recycled plastic,” says L. Jākobsons.
Possible CO2 tax on buildings
It is not excluded that in the future residential buildings will require not only an energy certificate, but also an appropriate calculation of the CO2 emission footprint, which could also serve as a kind of consequence. “If the state does not fulfill its commitment to reducing CO2 emissions, then the state will have to pay, and the political decision could be whether the relevant payment is transferred to those whose buildings create the basis for such a payment,” Olga Feldmane, Director of the Construction Policy Department of the Ministry of Economics, answers the question of whether a CO2 tax for buildings with a large CO2 footprint could be introduced in Latvia in the future. In her opinion, such an option can only be discussed at present.
“I think it would only be fair if those who invest and build buildings that produce little CO2 over their lifetime would benefit from such action in the long run compared to those who pursue an ostrich policy and hope for the abolition of climate targets,” O. Feldmane justified her statement. She suggested that a threshold could be set in the long run, above which the building owner would have to pay.
“We are currently studying the experience of other countries – the experience of Norway and France, but we are not thinking about introducing a new regulated profession – CO2 auditor – which would increase bureaucracy,” O. Feldmane replies regarding the possible creation of the CO2 auditor profession in Latvia.
Construction debris = raw material
Since construction waste is generated, one of the directions of the circular economy, which would also reduce CO2 emissions and pressure on the mining industry, would be to use it as a raw material for the production of new materials.
L. Jākobsons acknowledged that construction waste creates problems not only for builders, but also for the manufacturers of building materials themselves. “In order to transport and recycle construction waste, appropriate permits are required; if there are none, then it should not be done at all,” L. Jākobsons pointed out. He justified his statement with an example where a company has permits to use construction waste at one production facility, but not at another, as a result of which the scrap produced at one production facility can be recycled, but not at another, and transporting it more than 200 km away to a production facility that has such recycling of scrap materials is economically unprofitable.
“In order for the use of these rejected building materials and also construction waste in the production of new products to be economically justified, the relevant raw material must be available continuously, there must be a stock of it in the warehouse,” says L. Jākobsons. In his opinion, a building materials manufacturer who can use construction waste as a raw material should not have to go the long way to become a waste (construction waste) processor. “When producing a specific product, the manufacturer must be able to ensure the relevant physical and chemical properties and parameters of its product, which must not differ from time to time,” mentions another problem of using construction waste as a raw material, L. Jākobsons. In his opinion, motivation is also needed to process the production process residues generated in factories.
Concrete will become greener
It should be noted that in Latvia, work is underway on a definition of green concrete, where the customer can choose how much (10%, 20%, 30% or 40%) greener the concrete they want.
Jānis Ošlejs, Chairman of the Board of Concrete Technologies SIA Primekss, points out that concrete is the largest industrial pollutant in terms of CO2 emissions, accounting for 8% of global emissions. “If our concrete technology could be used everywhere, we could immediately reduce the total amount of CO2 emissions by 4%. This is more than all the world’s airlines produce together,” says J. Ošlejs. He admits that m3 of green concrete is more expensive compared to regular concrete, because it is of higher quality, but that is precisely why it can be laid in a thinner layer, obtaining the same parameters, and as a result, the price per m2 is similar or lower compared to regular concrete.
Reduced value added tax rates should be applied to sustainable renovation of buildings, such a rate should also be applied to the sale of new energy-efficient apartments, Olga Feldmane, Director of the Construction Policy Department of the Ministry of Economics.