Retrofitting existing buildings to make them more energy efficient is by far the most effective way to dramatically reduce the CO2 emissions associated with the built environment.

Over 90% of buildings in the U.S. are over five years old and inefficient enough that they could not be built under current energy requirements, according to a review of U.S. building stock by Lawrence Berkeley Labs. That's a huge opportunity for retrofits.

A viable retrofitting financing model has already emerged for larger buildings in the form of Energy Service Companies (ESCOs) for larger, institutional and corporate customers. ESCOs sell performance contracts wherein the company that conducts the retrofit charges a lower up-front cost but shares in the financial benefits created by an energy efficient retrofit. As the smart grid is built and buildings begin to include more meters, sensors and building automation systems, those financial benefits will be easier to calculate and predict.

Meanwhile, in the residential market, which has languished without a financing model that provides enough incentives for homeowners to retrofit, home energy monitoring systems connected to the smart grid could provide the push needed. Some interesting financing models are also starting to emerge.

For the residential market, rather than selling homeowners energy services that they'll be able to pay for over the long term with their energy savings, a new model exists whereby the energy services company bears all of the upfront cost and reaps all of the financial benefit—the homeowner's utility bill stays the same, but they don't bear any of the upfront cost of an energy efficient retrofit, a home improvement that could dramatically increase their property value.