Financial stimulus packages for the building sector are an ideal tool for a quick economic recovery.
This is the chance to make the paradigm shift towards green construction and zero-carbon buildings.
Examples from the Republic of Korea, Germany, and the US can point the way.
The construction sector is essential for an economic recovery after the COVID-19 crisis. It can rapidly create large amounts of jobs and involves far-reaching value chains of small and large businesses. In 2015, the sector accounted for 11-13% of global GDP. It is indeed a major employer: 7% of total global employment or 220 million jobs depend on it. Globally, USD 4.5 trillion were spent on construction and renovation of buildings in 2018.
At the same time, the building sector presents a massive – and largely unused – opportunity to respond to the climate crisis. The construction and operation of buildings is responsible for 40% of all energy-related carbon dioxide (CO2) emissions, even more than transport or industry. This trend is accelerating, as the building floor area is set to double by 2060, and energy demand is growing fast.
Green Buildings Help Both Economy and Climate
The building sector holds the potential for a double win: providing a powerful tool to stimulate the economy, while moving the whole sector to a new and greener state. For small extra investments, green buildings can achieve massive long-term savings of cost and greenhouse gas (GHG) emissions. The International Energy Agency (IEA) estimates that realizing the potential of sustainable buildings will save USD 1.1 trillion by 2050. Nevertheless, the real estate business is slow to change its way of doing things and mobilize these small extra investments without external nudges in the form of legal obligations or incentives.
Crisis Response as Investment in the Future: Examples from Republic of Korea, Germany and US
Therefore, we have at this moment of global crisis a unique opportunity to shift the course of the building sector and earmark investments for green construction. Governments all over the globe are devising the best strategies to deal with the crisis, under enormous time pressure. If we aim for “business-as-usual,” we will repeat or even aggravate the mistakes of the past. Instead, we need to urgently change the path of the building sector to move towards green buildings, or even zero-carbon buildings.
The response to the crisis should be an investment in the future. Governments already successfully used green building programmes to help recover from the financial crisis in 2008. For example, the Republic of Korea used stimulus measures for green buildings that combined stricter policies with financial support. A green building code for large residential buildings required a 20% energy efficiency improvement. In parallel, the government provided a financial incentive programme for the retrofitting of homes. A ‘Building Energy Certification Programme’ was gradually extended to all building types.
Germany used programmes for energy-efficient construction and refurbishment. Preferential loans for new residential constructions and refurbishments of residential, municipal, and social buildings set increasingly higher standards for energy efficiency. With government funding of EUR 2 billion in 2016, the programmes leveraged investments of EUR 45 billion, roughly half of which was directly spent on energy efficiency measures. In 2016, more than 400,000 private residential units were financed and 286,000 jobs induced. The subsidised buildings saved 1,730 GWh of final energy and 619,000 tonnes of GHG emissions in 2017.
The US provided more than USD 11 billion in stimulus funding for building upgrade programmes in sectors such as homes, businesses, government buildings, and public facilities such as schools and hospitals after the financial crisis. These programmes delivered about USD 2 in energy cost savings for every USD 1 invested. More than 200,000 jobs were created.
Successful Blueprints for Green Building Programmes Exist
Green building programmes can stimulate economic activity and create jobs, while simultaneously achieving environmental and social goals. The French-German PEEB programme is currently working with its partner countries in Morocco and Vietnam on such stimulus programmes for energy-efficient buildings.
A combination of several instruments such as financial incentives or public procurement can be employed, targeting either investors or private households. This can be done through:
- Residential or commercial energy efficiency programmes for new buildings or refurbishments that use public funds to leverage private investments, through instruments such as subsidies, grants, or concessional loans.
- Public procurement programmes for energy efficiency in public buildings through retrofits or new construction, for example in schools, hospitals or administrative buildings, can improve hygienic standards at the same time.
- Replacement programmes for equipment and appliances, such as boilers, energy-efficient lighting or household appliances through bulk purchasing or installation programmes, which provide financial incentives, like subsidies or tax exemptions, to suppliers (supply-side) or households (demand side).
- Green energy generation in buildings, providing incentives to households or private investors.
Ambitious policies and standards for green buildings should be developed in parallel, to ensure a lasting transformation of the building sector. This should be accompanied by knowledge transfer and the development of local green building and construction skills.
“Strings Attached” – Green Conditionality for Stimulus Packages for Building Sector
Green stimulus packages for the construction industry need to have “strings attached”: a “green conditionality” is needed to set the bar higher for buildings that receive support.
Some basic criteria can be applied, based on the national context, to favor a sustainable development of the construction sector in the long term:
- Rewarding performance: higher energy or low-carbon performance goals should be rewarded with higher financial incentives.
- Incentives for project certification and labeling through a systematic inclusion of energy efficiency and environmental criteria in public and private procurement documentation and lending.
- Preferential treatment for green buildings: Priority should be given to green construction projects, for example through including green criteria for public procurement or “fast track” processing of building permits.
- Accelerate national climate policies: short-term economic stimulus programmes should be geared towards a country’s climate and sustainable development
By setting smart and effective criteria for green buildings, short-term stimulus packages can become a double tool for economic recovery and environmental sustainability. If we work towards the goals of the Global Alliance for Buildings and Construction (GlobalABC) of a zero-emission, efficient, and resilient building and construction sector, the response to the crisis becomes an investment into the future.
The author of this guest article, Christiana Hageneder, is the Head of Secretariat, Programme for Energy Efficiency in Buildings (PEEB). PEEB is a French-German initiative, implemented by AFD, GIZ and ADEME, funded by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), the French Ministry for the Ecological and Inclusive Transition (MTES), AFD and the French Facility for Global Environment (FFEM).