The Implementation of an Energy-Saving Society Contributes to the Environment, People, and Economy

Date November 1, 2011
Speaker Francois-Xavier LIENHART(Deputy Delegate in charge of Japan, Saint-Gobain Asia-Pacific / President, MAG-ISOVER K.K.)
Moderator WATANABE Shoji(Director, Housing Industry, Ceramics and Construction Materials Division, Manufacturing Industries Bureau, METI)


Francois-Xavier LIENHART's PhotoFrancois-Xavier LIENHART

Energy saving can be an opportunity for the economy. Looking at the past, there have been voices on the side of industry saying that if regulations are too strict on energy-saving measures, it will be bad for the economy. This is not true. Energy saving is not only good for the planet but also for stimulating economic growth. In particular, the Europeans have developed strict standards that have been translated into quantifiable change; something from which Japan could learn.

Currently, Japan and Europe tackle the issues of energy saving and building standards in different ways—Japan relies on incentives whereas Europe relies on mandatory rules. These different methods of regulation have important consequences, and it is essential to understand the rules and their effects on the industry, country, and citizens themselves. In order to comprehend this, one should first explore what is the European vision and way of conducting these measures, in addition to understanding the current situation in Japan and how it could be improved, using the European model as an example.

What is at stake? In recent years, global warming has moved away from the spotlight, but it remains a relevant and debated topic. This is not only a question of CO2 reduction but also the availability of energy. If energy conservation measures are not taken, then the demand for energy will be difficult to meet. The quantity of energy is limited even if technology for renewable energy is adopted. Additionally, citizens are hesitant to adhere to energy-saving policies that negatively affect the quality or comfort of their lives, but everyone is interested in spending less money, especially when it is related to costs that are avoidable. Waste in the housing industry can easily be avoided with stricter standards, and there is a huge potential for energy saving in business construction. One can start by reducing energy—not only by switching off the lights—but, more fundamentally, by building houses and buildings in a different way to improve the wealth and comfort of the population.

Currently, Japan is promoting new energy sources such as solar panels and energy-saving home appliances, but these programs have done little in the housing industry. In Europe, instead of just renewable energy and energy-saving measures, these countries have thought about the most efficient way to reduce significantly the amount of energy use in the home.

Buildings account for 40% of all energy use in Europe and 30% in Japan. This is a considerable amount. Unfortunately, Japanese buildings are not properly designed to promote energy saving. This can be seen in anxiety about whether the amount of available energy will be sufficient to allow Japan to have its industries working, houses and buildings heated, and corridors lit this winter. Some of these concerns could be eased if energy leaks were fixed through European-style mandatory regulations.

Admittedly, the construction market is a difficult one, because there are many actors with various needs and demands. Therefore, if you want to transmit knowledge, technique, and awareness, it is very difficult to do so just through words. So how do you make sure that thousands of actors are going in the right direction at the right speed? The answer is mandatory building standards. Mandatory adherence to building standards is the only way to overcome market barriers and guarantee good design and construction. This is the way it has been done for earthquake and fire safety, so why not for energy saving?

In Europe, before mandatory regulations, there was relatively no change in energy consumption, but after standards were imposed, there was a direct positive effect on the energy consumption of the continent. Countries in Europe have defined their own standards at different times and different levels, but the general trend is the same—everybody is becoming more efficient after having implemented mandatory standards.

For example, in 2000, France decided to promote energy efficiency through the implementation of national building regulations under the name RT2000 and again in 2005 with RT2005. Between those five years, average energy consumption for new residential constructions decreased by 15%. While these policies were originally promoted on a voluntary basis, they will become mandatory in 2012 with RT2012. In the end, people living in these houses are spending a lot less money, and the energy needs of the country have decreased.

Another example in Europe shows that because of these regulations, the gap between those with the best energy-saving practices and the average in the market is very narrow. If there was a large gap, it would mean that good house builders were good while poor house builders were very poor, but the mandatory regulations limit this range, and the overall market is driven toward greater efficiency. Those who want to differentiate themselves will be able to do so in terms of quality and developing products that are more efficient than required. For a country to be effective in terms of energy consumption, its industry as a whole has to go in a positive direction.

A complementary system to the mandatory requirements developed in Europe is the Energy Performance Certificate (EPC) program. This is an EU directive that regulates that all apartments or houses that are rented or sold must have a certificate stating the property's energy efficiency rating. This is a tool to make energy efficiency more visible, and it contributes to decision-making for tenants, buyers, and owners. Nobody wants to sell or buy a house which is rated poorly—people want to be proud of what they sell. This drives people to build better houses or refurbish or renovate to increase the energy efficiency of their own buildings. Currently, every real estate company in the EU must show this rating in advertisements. It is up to the consumer whether or not to make the buying decision, but at least they know what they are going to consume.

Another positive side effect of this regulation is the production of more green jobs. France is building new plants that are creating new skilled, domestic employment opportunities. There is also more competitiveness and know-how for the construction business at the national and international levels.

Over the last 40 years, the housing and building sector has experienced a radical increase in consumption. While this is in part because of new construction, it is mostly due to new standards of comfort that depend on heating and air conditioning. Although demand for a higher level of comfort has increased, building standards have not. This has led to consumers heating the streets and air conditioning their gardens.

While Japan is the leader of many sectors including environmentally-friendly energy equipment, the automotive industry, electronics, and environmental awareness, the housing sector is ranked poorly compared with Europe. Japan's standards have not been updated in several years, and, in fact, the best standards, referred to as the new generation standards, came out in 1999. Most importantly, most of these standards in Japan are only indicative, and 95% of houses are under the minimum square meter requirements for mandatory compliance. Additionally, only about 50% of new housing is built according to the 1999 standards.

Japan is considering adopting mandatory energy conservation standards that will be enforced starting in 2020. These standards will be implemented gradually, first in large buildings and then in all residential buildings. However, properties less than 300 square meters will only become regulated in later phases in 2020. Why wait nine more years? It is not a question of skill—Japan has already trained the industry in the latest technologies. Changing from one standard to another is not difficult. It is easier than inventing or installing a solar panel. While the direction is good, progress is too slow. There needs to be a new standard that better reflects the current society. It is not a question of technology, but one of will.

The 1999 standard should not be made mandatory in 2020 but instead as soon as possible. Even if Japan applies these standards in 2015, it would still have five years to prepare. For the government, this is cost effective because implementing these measures means that incentives are not necessary. Instead of incentives to adopt merely these standard measures, they could instead be focused on encouraging the industry to go beyond what is required.

An example of the potential effects of these policies on the economy can be seen in the thermal insulation industry. The increase in thermal insulation demand has resulted in the creation of new industry and employment. For example, our company, MAG-ISOVER has decided to build a new plant in Japan to meet the increasing demand in the area of building insulation. This new plant will employ about 100 new employees and help the production of energy-efficient residential construction insulation glass-wool. If these regulations are put into effect, then the demand for complementary industries will also rise and benefit the economy as a whole.

In conclusion, Japan has to change its energy consumption habits. It should be acknowledged that energy supply is becoming increasingly scarce, and that the cleanest and cheapest energy is the one that you do not produce.

Questions and Answers

Q: I would like to ask about the history or strategy of your company. Why did MAG-ISOVER decide to enter the Japanese market?

Francois-Xavier LIENHART
I think this question is a little bit emotional. It is the same as when you get married and you think why did she choose me? I think Japan needs to be more confident about its ability to attract investors because it has a lot to offer. Personally, I have played a key role in convincing the Saint-Gobain Group to invest in Japan, and this is why I was named the president of MAG-ISOVER. They told me to show them if it was a good idea, and I personally think it was.

I would like to tell you a little bit about the Saint-Gobain Group and its basic industrial policy. The Saint-Gobain Group is an industrial group. It was founded in 1665 in France by King Louis XIV. At that time, he wanted to build the Palace of Versailles adorned with mirrors and glass, so he asked his Ministry to build the first glass plant in France.

Today, the group is still one of the leading companies in the world in glass with sales of 4,000 trillion yen, or 42 billion euro. We want to offer materials for buildings that are environment-friendly, comfortable, beautiful, and economical. We believe that if we can make these elements come together, then we can create sustainable buildings.

Looking at the insulation sector, our company is the leader in glass-wool, and while it is not the only installation material in Europe, it has a very strong presence there as well as in the United States, South Africa, and Asia. The MAG-ISOVER Group was purchased in 2008, while the original MAG Group was founded in 1987 in Japan. At that time, it already had the technology to produce glass-wool. We purchased the shares of the company because we knew them, as they were using our technology, and our engineers were already coming to Japan often for technology transfer. They also already knew us, which is very important for a successful operation.

Why invest in Japan? First, we believe that, as a world leader, it is important to further develop glass-wool because of its benefit to the environment, comfort, and its use in sustainable buildings. Second, we are convinced that Japan will change. It's not because we want it to change, but because this is the best solution for the country to achieve its Kyoto Protocol commitments—by reducing households consumption bills so that the public can spend their money on something else and help the economy grow in different sectors; reducing Japan's imports of fossil fuels, which are expensive and scarce; and helping reduce the costs of energy transport. Our company believes that if we can achieve both the growth of our own company and the industry concurrently, then everybody wins.

We have identified Japan as a country where progress can be made. We are the experts, so for us, it makes sense to invest. Therefore, we made the decision to become a shareholder of MAG and to build a new plant in Japan.

Q: I was wondering how much we could save if we required the use of cutting-edge technology compared to the additional cost incurred from doing so?

Francois-Xavier LIENHART
It is not easy to answer because looking at the cost, you need to consider such things as whether you are doing only installation in the walls, or in the ceilings or the windows at the same time, or how you are organizing the ventilation of the house—there are different levels of quality, and depending on the level you chose, the cost for the house will increase from 5% to 10%. At 5%, you achieve a very good level, such as the French 2012 regulation, but if you have a 10% increase, then it will be even better because the level of energy consumption in the house is nearly zero. Additionally, it is difficult to estimate the cost because there are many options and additions, such as solar panels, heat exchange systems, etc.

In the case of Japan, from 1992 to 1999, you can figure out the saving by dividing the cost by two because efficiency increased 50%. However, keep in mind that this requires that you consider that all of the elements in the house underwent changes. If you only do the walls and not the windows, then it is like a sock with a hole in it—it is not very effective. Similarly, if you go from the 1999 standard to the French RT2012, you still divide by a factor of two as it is also a 50% reduction. Therefore, if you apply the French RT2012 standard to Japan, you would receive a reduction of a factor of four, which would make a huge impact on the country.

If it makes sense from an economic point of view, why not go for it? It is because the people who build the house and the people who live in it are not the same. Especially for apartment or house rentals, you have a developer building the house as cheaply as possible, but at the same time renting the house as expensively as possible. This is why a mandatory standard is necessary.

If you build your own house, and are curious enough to learn about the industry and standards, then you will be able to ask your architect to design a good house. However, in most of the cases, you either buy or rent a house which has already been built, and you cannot choose what you want. Furthermore, even if you do choose, you must have the knowledge necessary to be able to tell your architect that you want a better solution. If you want efficient measures to reduce energy consumption, you cannot wait for people to be educated enough to ask their architect to do so.

Q: The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) has claimed that because of the lack of knowledge about the standards, at this stage, capacity building is most important. How did you overcome this issue in Europe? Second, you pointed out the necessity of mandatory regulations of new buildings, but how about the existing housing? Legally speaking, we cannot introduce mandatory regulations in already existing housing. What is the tool for this in Europe?

Francois-Xavier LIENHART
First, your second question—how does Japan go about with renovation? For renovation, one tool is making a mandatory certificate that shows how energy efficient a house or apartment is. This will motivate every owner before they sell or rent to do renovations to improve the quality. Nobody wants to receive a poor certification, so people will do their own work to improve.

Second, if your total renovation cost is equivalent to 75% of your initial building cost, then you must conduct mandatory renovation. It is much more difficult to do renovation than to construct well from the beginning, and that is one more argument for doing it at the construction stage. Renovation does not mean just cosmetic renovation—that is just for decoration—it is changing the structure of the building itself.

Third, another way to promote renovation for insulation is through incentives, or tax benefits for renovation. Since you don't need tax incentives for new buildings, because it is mandatory, you can focus your incentives on renovations and creating housing above the standards. However, for this, you must have a good minimum that is already mandatory.

For your other question on training and capacity building, in France, there are two levels of training that correspond to the different levels of performance. The first level is easy—you use better products. There may be a slight change in the product but not in the way you want to use it. If you want to go one step further, then you need better training for air tightness, ventilation, etc., and for these, I agree training is necessary and will take time. However, today we are not talking about making a new standard mandatory, but instead about making a standard that is already 12 years old mandatory. All carpenters in Japan already have had 12 years to train themselves. This means going from a 10 kg product to a 16 kg product. What does it change? Nothing; it is just a better product, and you use it in the same way. What training do you need for that? Nothing.

Q: I think there is another problem, large house builders can procure these materials at lower prices because they can produce large volume; however, small companies cannot purchase these materials at lower prices.

Francois-Xavier LIENHART
This is the case for all building materials. It is the same for wool, tiles, and scrap metals. All big companies have the advantage when they buy because they buy big quantities. If you take the value of glass-wool for a house, it is very small. Where is the big value? The land and then the cost of the house referring to the architecture, materials, or the building itself, but the difference in the margin on glass-wool itself is very small. This is not a big problem to me.

However, you raise another question, which is what happens between the maker and the buyer? This is specific to Japan because there are many different intermediaries in the distribution process. This again is not specific to glass-wool, but it is a characteristic of the distribution system in Japan where there is sometimes a big difference between the price when it exits the plant and the price when people actually use it.

Q: MAG-ISOVER has decided to construct a new plant in Tsu City, Mie Prefecture, and I would like to know why you selected Tsu City.

Francois-Xavier LIENHART
The decision was made in several steps. First, should we increase the manufacturing capacity in Japan? Yes; we could see in the same period last year, our company ran out of product because of the success of housing eco-points, and we came to a temporary situation when demand was rising very quickly and production had to adapt. It actually came so quickly that production did not meet the level of demand. Until then we were still exiting from the Lehman Shock crisis, and everyone had worked to reduce production capacity and inventory levels so it took time to reorganize production. However, it gave a signal that the market was finally starting to move, and we needed to have a greater capacity available.

Instead of choosing to import, we decided on domestic production. One reason for this was that the cost of transportation of our products is high, so it is more cost efficient to produce closer to where you want to sell. We do not want to develop transport companies but our own industry. The second reason was it was a good opportunity to revitalize the industry of Japan. This has worked in France, so we believe it will work again in Japan.

Finally, we had several options on where to build this plant. A possibility was expanding our plant in Ibaraki Prefecture, but we wanted to develop a plant in western Japan in order to be able to send products to Nagoya and Osaka. Therefore, in terms of cost and time of delivery, it is much more efficient to have a plant in the west rather than in Ibaraki. With the new plant, we will be able to deliver from Nagoya to Kyushu, while continuing to provide for the area from Nagoya to Hokkaido with the existing Ibaraki plant. We surveyed various sites, and, finally, we managed to find a good-sized area of land that allowed for the type of plant we wanted and the best possible transport conditions for our customers.

*This summary was compiled by RIETI Editorial staff.