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Making Money Work for BuildingsAn Overview of Financial and Fiscal Instruments

in Place across the EU

Adrian M JoyceSecretary General

30th November 2011

What is EuroACE?

An Alliance of Europe’s leading companies involved with the manufacture, distribution and installation of energy efficiency equipment and services in buildings

To promote more sustainable energy use in buildings by influencing the EU political agenda, raising awareness, providing research data and communicating on available solutions and policies

We believe that improving the energy efficiency of buildings is the most cost-effective (indeed often zero/negative cost) method of:

Meeting carbon reduction targetsAchieving energy securityWhilst creating employment and securing economic recovery

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Who are its Members?

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Introduction: Why look at Finance?

Most often mentioned barrier to the take-up of Energy Efficiency in Buildings – yet many approaches exist

No mapping of existing measures existed before the EuroACE Study

No evaluation of the effectiveness of existing measures

Work on the Energy Efficiency Directive requires information The current financial crisis is an opportunity Large ancillary benefits need to be quantified

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Introduction: Importance of Buildings to EE

Buildings account for 40 % of total energy consumption in the EU and the sector is expanding

Potential for cost-effective improvements is high Improving energy efficiency in the buildings sector will greatly

contribute to EU meeting its 2020 energy savings target Reduced energy consumption has an important role in

promoting security of energy supply, in developing technology and in creating opportunities for employment and regional development, particularly in rural areas

However, to date there has been a failure to grasp the opportunities presented – understanding how to unlock financing could be a key driver to it uptake

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EuroACE Study: Objectives

To assess the effectiveness of financial and fiscal instruments in encouraging energy efficiency in buildings within European Union countries:

Policies already in place in 17 selected countries Effectiveness of approx. 30 cases Lessons learnt in their implementation Recommendations for EU and Member States

Results are available via: www.euroace.org

Note:Study carried for EuroACE out by Klinckenberg Consultants

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EuroACE Study: Types of Financial Instruments 1/2

Loans / Preferential Loans Loans, with better terms and/or reduced interest rates,

provided for building EE improvements Typically finance all or most of an investment

Grants / Subsidies Subsidies or grants for building EE improvements Typically finance part of an investment

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EuroACE Study: Types of Financial Instruments 2/2

Third party financing Investment is paid for by third party (e.g., bank, ESCO, installer

of systems) Building owner has to pay back investment over time Different forms of 3rd party financing, ranging from pay back as

share of savings to financial lease

Trading (White/Energy certificates) Tradable amounts of energy savings Typically required by government, of energy suppliers Savings generated with end users

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EuroACE Study: Types of Fiscal Instruments

Tax rebates Various forms of personal tax reductions in response to

building owners investing in Energy Efficiency Examples range from personal income tax reductions to

reduction of building transfer tax (stamp duty)

Tax deductions Deduction of personal income or corporate tax for amounts

invested in Energy Efficiency

VAT reductions Low VAT rate for Energy Efficiency products and materials

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EuroACE Study: Overview of Identified Instruments 1/2

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EuroACE Study: Overview of Identified Instruments 2/2

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Examples 1/13: Preferential Loans

Estonia: The Credit and Export Guarantee Fund (KredEx) (2001 – ongoing)

To improve the financing of enterprises, decrease export-related credit risks, enable people to build or renovate their homes and promote energy efficiency in Estonia.

Uses a combination of Structural Funds and EIB loans Fund offering a long term low interest loan for energy

renovations of apartment buildings Minimum energy saving of 20% required By the end of August 2009, 36 contracts with multi-apartment

buildings had been established totalling € 2.7m

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Examples 2/13: Grants

Czech Republic: Green Investment Scheme (2009 – 2012) To support heating installations using renewable energy but

also for energy savings in renovation and new buildings Qualifying investments:

insulation of single dwellings and non-panel multiple dwellings

Installation of low-emission biomass boilers and heat pumps

new Passivhaus standard dwellings Budget expected to amount to Koruna 25 bn (€ 1 bn); funded

from the sales of CO2 quota Expected impacts by 2012 are a reduction in CO2 emissions of

1.1 Mt, 6.3 PJ energy savings and 30,000 jobs created13

Examples 3/13: Subsidies

UK: Carbon Emissions Reduction Target (2008-2012)

To alleviate fuel poverty as well as increase energy efficiency in homes

Obliges energy suppliers to achieve CO2 emission reductions in households

Suppliers promote and often subsidise a range of energy efficiency measures including cavity wall and loft insulation

40% of all savings must be achieved with vulnerable consumers (low-income and elderly)

Estimated cost to suppliers £2.8bn (€ 3.1 bn) for 2008-2011 Estimated CO2 emission reduction 185 Mt cumulatively

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Examples 4/13: Grants and Preferential Loans

Slovenia: Financial stimulation for energy efficiency renovation and sustainable buildings of new buildings (2008-2016)

To promote the implementation of energy audits, feasibility studies, investment and project documentation for EE and RE

Financing for energy renovation, building of low energy buildings and building of new passive solar buildings

Subsidy is limited to 2.5% of the proposed investment Small or medium-sized enterprises are eligible Estimated energy saving 210 GWh p.a. and CO2 emission

reduction of 54 kt p.a.

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Examples 5/13: Grants and Preferential Loans

Spain: Support for Energy Efficiency in Buildings (2008-2012)

To support: Refurbishment of the building envelope Improvement of heating, ventilation and cooling systems Improvement of interior lighting efficiency Promotion of new and existing very low energy buildings

Budget €804m for the five-year period CO2 emission reduction estimated at 35 Mt over 5 year period

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Examples 6/13: Grants and Preferential Loans

Germany: KfW CO2 Building Rehabilitation Programme (1996 – ongoing)

To support investment in energy renovation of buildings Provides a preferential loan for refurbishment measures aimed

at reducing energy consumption An additional repayment grant is given if the KfW Efficiency

House standard is achieved Budget € 4bn (loans) in 2006-09; € 2bn p.a. in 2010-11 Between 1996 and 2004, €6bn in loans provided; 57 million m2

floor area in existing buildings renovated; Budget €4bn (in loans) from 2006 to 2009; €2bn per year in 2010-11; €1.5bn in 2012

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Example 7/13: Third Party Financing

Austria: Successfully establishing a regional Market for Third Party Finance (2001 – ongoing)

To establish a market for third party financing for public buildings (and later commercial clients and renewable energy sources) in Upper Austria

Financial support up to 6 % of the energy investment (maximum 100,000 €) depending on the type of project

Minimum investment costs have to be 40,000 € Also a number of advice and information activities More than 100 TPF financed projects have been implemented with total

investment of about 35 M€

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Example 8/13: White Certificates

France: White Certificate Trading (2006 - 2009)

To maximise the installation of energy saving measures, particularly in existing buildings

Suppliers of energy must meet government-mandated targets for energy savings achieved through the suppliers' residential and tertiary customers; white certificates represent those savings

Those suppliers exceeding or falling short on their targets can trade energy savings certificates

A penalty of € 0,02 per kWh applies for non-compliance By the end of 2008, 36TWh of savings was achieved

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Example 9/13: Tax Rebates

Belgium: Tax Rebates for Home Improvements (2003 – ongoing)

To increase energy efficiency in existing residential buildings through income tax reductions

Investments to improve the rational use of energy give entitlement to income tax reductions

Qualifying investments: replacement/maintenance of water heaters with new heaters which meet minimum efficiency standards; installation of insulation; installation of certain renewable technologies and undertaking of energy audits

Budget €37m in 2003

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Example 10/13: Tax Rebates

UK: Stamp Duty Relief for Zero Carbon Homes (2007 – 2012)

To help kick start the market for zero-carbon homes, encourage micro-generation and raise public awareness

Available for a newly built zero-carbon home at the first point of sale. No tax when house costs less than £500,000; £15,000 reduction in tax for homes over £500,000.

Budget expected to be negligible 2007-2010, rising to £15m in 2011-2012.

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Example 11/13: Tax Deductions

Netherlands: Energy Investment Allowance (2004 – ongoing)

To support businesses investing in energy saving equipment and sustainable energy

44% of the annual investment costs for qualifying equipment are deductible from corporate tax, up to a maximum of €115m

Budget € 137m in 2005. Budgets are set annually In 2004, estimated savings amounted to 40PJ (1.2 Mt CO2) p.a.

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Example 12/13: Tax Deductions

UK: Landlords’ Energy Saving Allowance (2004 – 2015)

To encourage landlords to improve the energy efficiency of let residential properties

Landlords who pay income tax may claim a deduction for investments, up to £1,500 per dwelling house, per year

Qualifying energy efficient products include cavity wall and solid wall insulation, hot water system, floor and loft insulation and draught proofing

Budget approx. £ 10m (€ 11m) per annum

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Example 13/13: Reduced VAT

UK: Reduced Sales Tax for Energy Savings Materials (2000 – ongoing)

To encourage uptake of energy efficient materials in the residential & charitable sectors

A reduced rate of 5% VAT is charged on energy saving materials, provided that they are professionally installed

Qualifying products: all insulation, draught stripping, hot water and central heating controls; solar panels, wind and water turbines; ground-source and air-source heat pumps and micro-CHP; wood/straw/similar vegetal matter-fuelled boilers.

Savings vary by product, e.g. 430 ktCO2 (est.) for micro-CHP

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Impacts and Cost-Effectiveness

Assessment of cost-effectiveness is difficult: No evaluations or impact analyses for many instruments No obvious tracking of actual investments in building EE

measures Where evaluation results are available they are often non-

standardised and incomparable with other programmes

This study’s assessment of cost-effectiveness: Simple methodology - cost of programme per ton CO2. Not necessarily representative of all instruments in place Examples of what can be achieved

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Case (DE): KfW Renovation Programme

Programme resulted in very substantial investments in energy efficiency: First phase € 2.5bn loans 2002-2004 € 2.4bn loans; € 5.4bn investments

Emission reduction of 1.9 Mt (first phase) and 0.8 Mt p.a. (2002-2004)Programme cost: interest rate subsidy, plus grantsOur estimate of programme cost (2002 - 2004): approx € 0.5bn interest rate subsidy; approx € 0.25bn grantsCost effectiveness (for gov’t) estimated € 25/tCO2

Jülich Study shows quick, high return to Federal Government

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Case (CZ): Green Savings Programme

New programme, no results available yetBudget Koruna 25bn (€ 1bn) over programme lifetimeExpected impacts, by 2012:

250,000 houses improved CO2 emission reduction of 1.1 Mt p.a. Energy savings 6.3 PJ (1.75 TWh) p.a. 3.7 PJ (1 TWh) heat generated from renewable sources 2.2 kt reduction in fine particle matter 30,000 jobs created or retained

Cost effectiveness (for gov’t) estimated around € 20/tCO2

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Case (ES): Support Programme for EE in Buildings

Ongoing programme, 2008 to 2012Programme budget € 800m; expected resulting investment volume € 13bnExpected cumulative savings (2008-2012): Insulation: 4.7 TWh 5.2 Mt CO2

HVAC systems: 5.5 TWh 6.5 Mt CO2

Lighting: 10.8 TWh 17.9 Mt CO2

New low-energy buildings:5.1 TWh 5.3 Mt CO2

Overall: 26 TWh 35 Mt CO2

Cost effectiveness (for gov’t) expected € 23/tCO2

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Case (UK): Carbon emissions Reduction Target

Ongoing programme, 2008 to 2011

Expected results: 700,000 homes improved each year £ 2.8bn (€ 3.1bn) invested in energy efficiency measures (over programme

duration) Emission reduction of 185 Mt CO2 cumulatively

Cost effectiveness (for suppliers) estimated € 17/tCO2

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Conclusions 1/4

1. Monitoring and evaluation of programmes appears to be underdeveloped:

There is a lack of comparable impact analyses Metrics and methods of assessing the results of the

instruments are neither uniformly adopted nor rigorously enforced

More detailed understanding is required of the wider benefits of schemes beyond simple energy and CO2 savings.

The beneficial impact of instruments (Carbon Savings) needs to take account of the impact of rebound effects

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Conclusions 2/4

2. Grants and preferential loans are the most prevalent forms of instrument, and probably the most cost-effective

3. Schemes not directly delivered by Governments but by third parties seem, generally, to be effective

4. Complex application or transactional procedures can badly affect take up of an instrument

5. Some instruments are only successful in practice if they are accompanied by a good information campaign, particularly for residential schemes

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Conclusions 3/4

6. Instruments aimed at reducing fuel poverty sometimes have relatively poor take-up rates from those in the eligible groups

7. For instruments involving loans, there would appear to be a correlation between take up and the level of interest rates.

8. There is a danger of negative impact from poorly conceived schemes

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Conclusions 4/4

9. Within Individual Member States, different instruments need to be coordinated with each other to ensure success

10. Accurate targeting of eligible audiences is key to a scheme’s success.

11. Schemes targeting zero-carbon homes require skilful political handling.

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Pointers for Practitioners

Collaborative working with all stakeholders is important, ensuring that the same message is sent out to all.

Advice needs to be targeted and clear; procedures should be standardised; administrative costs, processing times and inconvenience should be minimised for all parties.

Appropriate training needs to be given to all those involved in the delivery of an instrument.

Eligible technology lists for tax deductions and rebates should be ‘open’, and manufacturers and entrepreneurs should be engaged with such schemes.

Promotion activities are often required before schemes reach the attention of large numbers of the target audience.

Monitoring and evaluation need to be built in to new policies from the start

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The Wider Policy Landscape

Financial and fiscal instruments need to be part of wider policy packages, which should include regulatory, facilitation and communication elements. Policy makers should align their package instruments to maximise the impact of financial instruments.

An in-depth gap analysis is necessary to determine which energy efficiency measures should be supported, which barriers need to be overcome, which type of instruments are best placed to do so, what level of support is needed, and which auxiliary instruments are needed to make financing work.

The European Commission could facilitate this by providing guidelines and templates for a gap analysis, the definition of energy efficiency measures, monitoring protocols and common approaches to measuring cost-effectiveness.

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EuroACERond Point Schuman, 6, 8th floor

B-1040 Brussels

Tel.: +32 (0) 2 639 10 10Fax: +32 (0) 2 639 10 15Email: info@euroace.org

http://www.euroace.org

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