This article is compiled based on the presentation delivered at the forum China’s Urbanization Pathways Under the Dual Carbon Goals: Cutting-Edge Reflections, one of the series of forums marking the 15th Anniversary of the PKU-Lincoln Center on November 5, 2022, and has been reviewed by Professor Zheng Siqi.
Speaker Profile
Zheng Siqi, Distinguished Professor of Sustainable Urban and Real Estate Development at the Department of Urban Studies and Planning and the Real Estate Center, Massachusetts Institute of Technology (MIT); Faculty Director of the MIT Real Estate Center.
Abstract
This presentation discusses how to build a decision analysis model for building electrification heating retrofits amid pervasive uncertainties. The model quantifies three heating schemes: conventional gas heating, all-electric heating, and hybrid flexible heating (combined gas and electric systems). The research finds that the flexible hybrid heating scheme delivers superior cost-benefit performance under all uncertainty scenarios.
I. Building Electrification Heating Retrofits Amid the Green Transition
The building sector constitutes a major source of carbon emissions, accounting for 33% to 40% of total carbon emissions nationwide (Figure 1). In large metropolises, buildings generate 70% to 80% of all emissions. When the central government formulates energy conservation and emission reduction regulations, green transition of the built environment stands as a core priority.
Decarbonization of buildings is an interdisciplinary challenge encompassing environmental, livability and economic dimensions. Environmentally, building decarbonization improves overall ecological conditions. Meanwhile, architectural design must guarantee residents’ comfort and convenience. In addition, since the majority of existing building stock is privately owned, mandatory administrative policies cannot fully regulate renovation behavior; economic instruments are therefore essential to incentivize green upgrades.
Figure 1 Energy Consumption and Carbon Emissions of Buildings
II. Construction of the Analytical Model for Electrification Heating Retrofits
The model framework is structured around two dimensions: the demand side and the supply side.
On the demand side, the model incorporates the interests of three stakeholders — tenants, building operators and real estate developers — enabling all parties to capture proportional gains from building electrification heating retrofits (Figure 2).
From tenants’ perspective: Improved livability and lower energy bills enhance residential satisfaction, making tenants willing to pay higher rents.
From operators’ perspective: Higher rental income and reduced energy expenditure raise resale values of assets, boosting operators’ willingness to acquire properties.
From developers’ perspective: Higher sales premiums and lower equipment outlays lift profit margins, stimulating new green development activity.
When demand-side incentives fail to drive progress, regulatory policies and capital injections from financial markets act as supply-side levers to advance green building development. For example, New York City mandates that all buildings over 25,000 square meters meet strict carbon reduction benchmarks, with financial penalties imposed for non-compliance.
Figure 2 Model Framework
III. Integrating Uncertainty into the Model Design
Building electrification retrofits are subject to substantial uncertainties, which add complexity to the analytical framework (Figure 3).
First, electrification retrofits impose extra construction costs and reduce rentable floor area, compressing potential returns and discouraging developer investment.
Second, building electrification must align with urban energy system transitions. Uncertainties in urban planning complicate coordination between building retrofits and city-wide energy infrastructure upgrades.
Third, energy is a globally traded commodity characterized by extreme price volatility, making it difficult to precisely forecast revenues and expenditures associated with electrification projects.
Figure 3 Sources of Uncertainty Risks
IV. Current Research Outcomes
Professor Zheng shared ongoing pilot research conducted by her team in New York City. The model quantifies three alternative heating systems: conventional gas heating, full electric heating, and flexible hybrid gas-electric heating. The results demonstrate that the hybrid flexible heating scheme achieves better cost-benefit outcomes under every tested uncertainty scenario (Figure 4). Accordingly, Professor Zheng concluded that building electrification heating retrofits must adopt flexible, adaptive implementation pathways amid pervasive uncertain risks.
Figure 4 Model Analysis Results
Compiled by: Jiang Sheng
