Building materials will have to become greener

The article was published in the newspaper Dienas Bizness on July 16, 2024

Building construction, as well as their operation throughout the life cycle, is a significant source of CO2 emissions, which over time will need to substantially reduce its emission footprint. To achieve this, not only country's support will be necessary, but possibly also future penalty measures – additional payments.

This picture was outlined during the discussion “How will we promote the production and use of sustainable building materials?” While transport (cars) and agriculture are often mentioned as the main challenges on the path to achieving climate neutrality goals in Latvia, buildings have had, have, and will continue to have a significant impact on CO2 emissions. That is precisely why the topic of sustainable construction will become increasingly pressing.

“Sustainable construction is closely linked to sustainable building materials and their rational use, which together create sustainable buildings. This is even more important considering that buildings are responsible for 40% of all energy consumption and 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 in 2050, 85–95% of the buildings currently in use will still be in operation,” noted Armands Gūtmanis, Chairman of the Board of Latvia’s Climate Neutrality Cluster 2050, pointing to the significant multiplier effect of the problem. He reminded that there are many EU regulations requiring construction to become 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 other products, and the substantial reduction of waste disposal.

It must also be taken into account that the Nordic countries have already taken several important steps in the sustainability segment. For example, Denmark created a National Sustainable Construction Strategy in 2021, which introduced construction threshold values (CO2/m² per year for both buildings themselves and the construction process). In addition, the climate impact of buildings is calculated based on life-cycle assessment. “Importantly, in 2023 an agreement was reached to revise the relevant limits and reduce CO2 emission equivalents,” noted A. Gūtmanis. He emphasized that Latvia has the opportunity not only to study but also to apply Denmark’s experience, as the deadlines for achieving climate neutrality targets are approaching.

The discussion also highlighted that by improving resource-use efficiency, the greenhouse gas emissions generated over the full life cycle of residential buildings in G7 countries could potentially be reduced by 35–40%. “In the coming years – 2027–2028 – it will also become necessary to purchase CO2 quotas for heat consumption in buildings, and this will change the situation for everyone,” added A. Gūtmanis.

Carrot and whip

“Work is currently underway on developing a CO2 footprint calculation methodology (to be integrated into the Construction Information System). This would make it possible to see how much CO2 is generated in the construction of each new building, as well as the volume of emissions throughout the building’s life cycle,” explained Olga Feldmane, Director of the Department of Construction Policy at the Ministry of Economics.

She pointed out that efforts are also being made to introduce circular economy principles – including the reuse of materials, promoting timber construction at the regulatory level (by revising fire safety requirements), as well as providing tax incentives.“Reduced value-added tax rates should be applied to the sustainable renovation of buildings, and such a reduced tax rate should also apply in the case of selling new energy-efficient apartments. These buildings should also benefit from real estate tax relief,” outlined O. Feldmane.

She noted that training sessions are being organized for construction specialists specifically on climate neutrality and how to achieve it. Work is also underway on standard building designs: the first was reinforced concrete, the next focuses on wooden structures, as well as projects for building insulation (energy efficiency).

“This year, there is a desire to implement the idea of using factory-produced ventilated façades instead of regular plaster façades as part of building insulation. This approach not only contributes to achieving climate neutrality goals but also increases labor productivity,” explained O. Feldmane. In practice, the goal is to support and promote sustainable solutions through tax incentives, various guarantee and support programs, as well as through taxonomy and municipal requirements in spatial planning, while simultaneously complicating and restricting non-compliant solutions with regulatory hurdles and additional payments (taxes). According to O. Feldmane, the public sector – the country must set an example by generating demand for sustainable construction and sustainable buildings.

A Unified Understanding Is Needed

“Building material manufacturers are only one part of the entire construction process,” emphasized Leonīds Jākobsons, Chairman of the Board of the Association of Building Material Manufacturers. He noted that at every stage of the chain there must be a unified understanding of sustainable construction criteria – from the client, the designer, the contractor, the construction supervisor, the building material manufacturer, the building certification body, the building operation service, and the waste recyclers.

“The most critical role, of course, is the client,” L. Jākobsons explained. He pointed out several examples that raise questions, such as the large, empty space behind the entrance of the already constructed, beautiful new Stradiņš Hospital complex, where it is unclear whether those who planned it considered the operational costs of these empty spaces. Builders have access to modern technologies that allow management of the entire process while knowing exactly where utility networks are located and preventing errors if those are already in the construction process. Regarding building material compliance, Environmental Product Declaration (EPD) requirements are met, without which work cannot proceed. For example, in Sweden, since January 1, 2022, developing EPDs is mandatory for building materials used in new constructions.

The Netherlands has required environmental impact information for buildings larger than 100 m² since 2013. The greatest demand for EPDs currently comes from the construction sector through Green Certification Schemes such as BREEAM (British Research Establishment Environmental Assessment Method), LEED (Leadership in Energy and Environmental Design) in North America, and others. “A new EU regulation regarding environmental impact factors is expected,” notes L. Jākobsons.

Demand Creates Supply

“The key word is demand, but its absence does not create practice,” assesses Edijs Kupčs, Head of the Latvian Association of Construction Companies. He points out that one of the main challenges and issues for builders is productivity, especially when considering construction service exports.

“Good examples are companies that have already been active in foreign markets, which currently are experiencing the so-called quiet period. However, in Latvia, this has not occurred, and there is an opportunity to work domestically using the experience gained abroad. At the same time, the environment in which work must be carried out in Latvia is more complex than in export markets,” E. Kupčs outlines the overall picture. He notes that builders returning home provide a productivity boost precisely in the way they work.

“Requirements, client expectations, timely payments, and tested projects abroad have adjusted these companies in such a way that they are significantly more productive in the domestic market,” explains E. Kupčs. He emphasizes, however, that the foundation has always been and will continue to be the client, who, especially in the public sector, must be able to explain why something costs what it does and whether it is expensive.

“Clients need not only courage but also access to the necessary funding in order to implement sustainable construction and, in the literal sense, create sustainable buildings,” explains E. Kupčs. In his view, professional project management is an essential prerequisite.

“This is one of the most critical stages, because if planning is incorrect or management is inadequate, one can enter a much higher cost phase,” says E. Kupčs. He notes that even if a project is well-designed, delays in client decision-making can lead to downtime (while rented equipment at the site must still be paid for, whether it is in use or not). Additionally, construction materials are stored on-site, raising questions about how long they can remain under the given conditions without losing their properties, ultimately extending the entire process. Construction service providers also expect training from building material manufacturers on the proper use of materials, especially given the variety available. “The most important element throughout the entire process has been, is, and will continue to be communication between architects, structural engineers, building material manufacturers, the builders themselves, and the client,” emphasized E. Kupčs.

The Knot of Competitiveness Issues

L. Jākobsons points out that for building material manufacturers, energy costs are a major concern, as the industry is highly energy-intensive and any changes affecting electricity prices have a significant impact on the sector.

“A large portion of the profits of industry companies has been consumed by electricity prices, resulting in fewer development opportunities,” says L. Jākobsons. He reminds that electricity prices in Latvia for large industrial companies are relatively high, whereas they should be comparable to those in countries whose manufacturers (Lithuania, Estonia, Poland) compete with Latvian producers. “If electricity prices for manufacturers in these competitor countries are significantly lower, then it is impossible to compete with them,” he emphasizes. He believes a reform of the regulated energy infrastructure is necessary, combining the administrative and technical resources of the high-voltage and distribution networks, thereby reducing costs and service tariffs. Additionally, to attract investment in sustainable processing industries, capital returns on existing and future investments must be improved. Therefore, the current corporate income tax rate should be reduced to the OECD minimum of 15%.

As another unexpectedly challenging factor, L. Jākobsons points out the increase in the natural resource tax on plastic packaging. At the same time, the tax rate is also raised for recyclable plastic packaging, even though part of the plastic used in its production is already recycled. “This means that producers using plastic containing a portion of recycled material for building material packaging will pay the same natural resource tax as those using so-called virgin plastic, which effectively discourages companies from seeking opportunities to reuse recycled plastic,” explains L. Jākobsons.

Possible CO2 Tax for Buildings

It is not ruled out that, in the future, residential buildings may require not only an energy certificate but also a corresponding CO2 footprint calculation, which could serve as a basis for certain consequences. “If the country does not fulfill its commitment to reduce CO2 emissions, the country will have to pay, and the political decision could be whether this payment is passed on to those whose buildings generate the basis for such a payment,” replied Olga Feldmane, Director of the Construction Policy Department at the Ministry of Economics, when asked whether Latvia could potentially introduce a CO2 tax for buildings with a large CO2 footprint. In her view, at this stage, such an option is only open for discussion.

“In my opinion, it would only be fair if those who invest in and construct buildings that generate low CO2 over their lifetime benefit from this activity, compared to those who follow an ‘ostrich policy’ and hope for the cancellation of climate goals,” O. Feldmane explained. She suggested that in the future, a threshold could be established, above which the building owner would be required to pay.

“Currently, we are studying the experiences of other countries – Norway, France – but we are not considering introducing a new regulated profession – a CO2 auditor – which would only increase bureaucracy,” O. Feldmane said regarding the possible creation of a CO2 auditor profession in Latvia.

Construction Waste = Raw Material

Since construction generates construction waste, one of the circular economy approaches that would also reduce CO2 emissions and relieve pressure on extraction industries is to use this waste as raw material for producing new materials.

L. Jākobsons acknowledged that construction waste poses problems not only for builders but also for building material manufacturers themselves. “To transport and process construction waste, the appropriate permits are required; without them, it is simply not allowed,” he noted. He illustrated this with an example: a company may have permits to use construction waste at one plant but not at another. As a result, defective materials produced at one plant can be recycled, while at the other plant they cannot. Transporting them more than 200 km to the plant with recycling capability is economically unfeasible.

“For the use of defective building materials and construction waste in the production of new products to be economically viable, the relevant raw material must be continuously available and stockpiled in a warehouse,” said L. Jākobsons. He believes that a building material manufacturer using construction waste as raw material should not have to go through long processes to become a waste (construction waste) recycler. “When producing a specific product, the manufacturer must ensure that the physical and chemical properties and parameters of the output remain consistent every time,” he added, highlighting another challenge in using construction waste as raw material. He stressed the need for incentives to recycle production residues generated in factories.

Concrete Will Become Greener

It should be noted that in Latvia, work is underway to define “green concrete,” allowing clients to choose how much greener they want their concrete to be – 10%, 20%, 30%, or 40%.

Jānis Ošlejs, Chairman of the Board at Primekss Concrete Technologies Ltd., points out that concrete is the largest industrial polluter in terms of CO2 emissions, accounting for 8% of global emissions. “If our concrete technology could be used everywhere, we could immediately reduce total CO2 emissions by 4%. That is more than all the world’s airlines produce combined,” says J. Ošlejs.

He acknowledges that green concrete per cubic meter is more expensive than conventional concrete due to its higher quality. However, this allows it to be poured in a thinner layer while achieving the same parameters, resulting in a cost per square meter that is similar to or even lower than that of ordinary concrete.

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