The buildings sector faces inherent problems when it seeks to attract environmentally sound investments. The size of the investment in any one building application is relatively small. As a result, the acquisition cost for a building project is a relatively high share of the total project cost when compared with other investment opportunities. In addition, the number of parties involved in a project is large and diverse, including the architects and engineers, who design the project; the technicians, who install the measures; and the owners and occupants, who operate and maintain the new systems. As a result, there is an increased risk that the project will not achieve its expected benefits. To address these complications, financing programmes need to be developed that lower administrative costs and reduce risks.
The risks are perceived as being particularly high in countries with limited experience in energy efficient investments. In such settings, there is little experience in preparing, reviewing, approving, financing, implementing, evaluating, and replicating climate friendly projects. Because of these barriers, a market transformation strategy needs to consider approaches that will attract environmentally sound investments. Direct approaches have included tax credits for energy efficiency or renewable energy investments and partial subsidies of the project costs. Special funds have been created to cover all or part of the cost of such investments. Energy-saving performance contracts have been used, where the investment costs are paid back from the energy savings. A new business venture has emerged, the energy service companies (ESCOs), which deliver energy performance contracts and a broad range of contract energy services (see also Section 5.6.3 on ESCOs). Lending institutions can encourage efficiency in new buildings by allowing the additional administrative costs to be included in the normal financing agreement.
The lack of investment by developed countries in developing countries and in CEITs is often cited as the greatest obstacle to the deployment of mitigation and adaptation technologies. In addition, developed countries, when they undertake investments in developing countries, do not always bring in the latest technologies in which they have invested in their own home countries. This financial support by developed countries is crucial for increasing the transfer of advanced technologies to developing countries. Host countries can make such investments more attractive by taking appropriate, supportive public policy decisions. These include the elimination of trade barriers, the avoidance of punitive taxation, the lifting of import and export restrictions, and the adoption of fair and expedient procedures for resolving disputes.
After reviewing data from 52 countries, a World Bank Policy Paper has recommended major reforms in financing programmes in the building sector (World Bank, 1994). The reforms would shift government policy from producing small-scale public housing toward managing the housing sector as a whole. On the demand side, it suggests ways to develop property rights, increase mortgage finance, and target housing subsidies. On the supply side, it shows how to regulate land and housing development and organise the building industry for maximum productivity. The framework for initiating the reforms brings together public agencies, NGOs, community groups, and the private sector. Different strategies are recommended for low-income countries, highly indebted middle-income countries, other middle-income countries, and CEITs.
The creation of special funds to finance energy-saving and climate-friendly investments has also been done successfully in a number of countries. An international example is the use of German Coal Aid to create the Hungarian Environment and Energy Service Co. (EESCO). The fund has made more than 200 revolving loans totaling more than 7 billion HUF (28 million USD4 and been producing savings of more than 110 thousand tonnes of oil per year. A significant portion of these savings is being returned to replenish the fund.
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