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Lisø PhD Dissertation Manuscript - NTNU

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<strong>Lisø</strong>, K.R./ Building envelope performance in harsh climates: Methods for geographically dependent design<br />

The building economics of climate change (Paper III)<br />

A way of analysing the building economics of climate change is proposed based on<br />

two approaches. Firstly it is the putty-clay approach to the theory of investment and<br />

production. The starting-point for this approach is that the scope for choosing<br />

different designs of a building is far broader before than after the building is erected.<br />

I.e. a building consists of elements that are costly to change once the building is<br />

erected, and of elements that are more easily maintained. The other pillar is the real<br />

options approach. This approach highlights the fact that information relevant for<br />

decision makers arrives over time. Immediate decisions should take into account that<br />

they affect possible future actions and their profitability. I.e. immediate decisions<br />

affect the value of real options.<br />

The potential benefits or adverse implications of climate change on the building<br />

stock can be addressed at different levels:<br />

How will the performance and cost of operating of existing buildings be<br />

affected, if the buildings characteristics are kept unaltered?<br />

How should existing buildings be adapted to changes in climatic impact? At<br />

what costs can this be done, and when should it be done?<br />

How will the technical and economic lifetime of buildings be influenced?<br />

How will the choice of technology, materials and design in new construction<br />

be affected?<br />

How will the time path of the level of new construction be affected?<br />

The analytical framework developed in Paper III is intended to be applicable at all<br />

these levels. The existing building stock will be less suitable than new buildings,<br />

under a new climate regime. Nevertheless, for the larger part of the building stock it<br />

will be profitable to continue the use. The economic lifetime of existing buildings<br />

will in part depend on their adaptability to changed climate conditions. Given the<br />

long lifetime of the building stock, the time before the whole building stock is<br />

optimally adapted to a new climate regime can amount to a hundred years or more.<br />

The building stock some time into the future consists of the building stock of today<br />

and of future new construction. Parts of the present building stock will in the future<br />

be adapted to externally imposed changes in the environment, while parts are kept as<br />

is. Analysis of how the building stock is affected by climate change should handle<br />

this diversity. This diversity should be treated within the framework of some kind of<br />

vintage model. Formulation of such a vintage model involves complex problems of<br />

aggregation. A central tool in this aggregation will be considerations of how the use<br />

value of different parts (or classes or vintages) of the existing building stock are<br />

expected to evolve over time as more reliable climate models are developed.<br />

The model describes important aspects of the building economics of climate change,<br />

and identifies stakeholders. It is a model of the decisions of a building owner facing<br />

an uncertain evolvement of the climate. The model shows that the decisions are<br />

affected by both the expected profitability of the different actions, and on the effects<br />

the actions have on the profitability of future choices. Hence, using a real option<br />

approach enhances the understanding of actions taken by owners of buildings. Some<br />

simple results are derived. Climate change can reduce both conversion activities (e.g.<br />

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