7.6.2 Financing Programmes
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
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.