Voluntary Programs for Low-Carbon Building and City Transformations

Funding programs

1200 Buildings (Melbourne, Australia, 2010)

Government to property owner network developed and implemented by the Melbourne City Council in 2010 (City of Melbourne, 2010) in collaboration with a national bank, a major fund manager, and property owners were involved in the development of the arrangement. The Melbourne City Council administers the program. The arrangement encourages and supports building owners, managers and facility managers to improve the energy and water efficiency, and reduce waste to landfill of their commercial property. In particular the arrangement aims to speed up the retrofitting of commercial buildings in Melbourne’s central business district, and has set a target of seeing two thirds of this building stock retrofitted by 2020 (da Silva, 2011; City of Melbourne, 2010). A key part of the arrangement is environmental upgrade financing, an approach to financially supporting property owners who are unable to find funds for retrofits elsewhere.

Under the arrangement individual property owners commit to a minimum reduction of energy consumption of their office buildings of 38 per cent in a letter to the Mayor of Melbourne, stating what retrofits it will undertake to achieve this aim. Neither the current Building Code of Australia nor other Australian mandatory requirements set performance requirements to existing buildings. As such the arrangement asks for considerable ‘beyond compliance’ behaviour on behalf of its participants. In return the City of Melbourne provides these property owners with funds to retrofit their buildings, and recovers these from the property owners through a statutory charge that is linked to rates collection. The City has entered into an agreement with banks to acquire the funds it provides to the property owners. In short, the City reduces the risks for banks to directly lend funds for retrofitting to property owners. The loans are provided at a competitive and fixed interest rate, and are linked to the property (as opposed to property owner). The City monitors and enforces participant compliance with the arrangement as part of it broader building code enforcement regime. Through the arrangement the City of Melbourne further seeks to provide property owners with information on how to retrofit their buildings (particularly through a website that is accessible to participants and non-participants, www.1200buildings.com.au), and it seeks to create a community of participants so that these can learn from each others’ experiences. Participants in the arrangement may use the promotional ‘1200 buildings’ logo to showcase their leading practice.

Website: www.1200buildings.com.au

Amsterdam Energy Fund (Amsterdam, the Netherlands, 2011)

Revolving loan fund implemented by the Amsterdam City Council in 2011—originally termed the Amsterdam Investment Fund. The fund was established to fund projects that contribute improving Amsterdam’s economic competitiveness, social aspects, and urban sustainability. Within the €137 million Fund a sum of money (€70 million) is specifically earmarked to fund projects that contribute to the sustainability goals of the City of Amsterdam, which includes a 40 per cent reduction of carbon emissions by 2025 as of 1990 emissions and a 70 per cent reduction by 2040 (City of Amsterdam, 2011). The management and administration of the fund is outsourced to private sector fund managers.

The fund is split up in two parts: 20 per cent of funds are invested that yield ‘societal return’, and 80 per cent of funds are invested to yield financial return. The former part of the Fund is managed by the City of Amsterdam; the latter part (termed the Amsterdam Climate and Energy Fund) is managed by private sector fund providers—the Amsterdam Economic Board. Participants seeking funding from this latter part propose a project for funding in one of seven clusters (agriculture and food, creative industries, financial and business sciences, ICT and e-science, life sciences and health, logistics, manufacturing, tourism and conventions, and horticulture) to the Amsterdam Economic Board. Proposals have to meet four basic requirements and at least two out of seven additional criteria. The basic requirements are that the project is to be completed within 15 years, it will generate a minimum return on investment of 7 per cent, and it requires at least €0.5 million and a maximum of €5 million funding. The seven optional requirements include: The project should achieve at least a 1 per cent larger economic growth than European average economic growth, contribute to attracting international organisations to Amsterdam, or create at least an average number of jobs compared to the rest of Europe. The most promising proposals are funded. Compliance is monitored by the private sector fund managers.

Website: www.akef.nl/en

Billion Dollar Green Challenge (United States, 2011)

Revolving loan fund framework implemented by the Sustainable Endowments Institute, a project within the Rockefeller organisation, and a number of partner organisations (mostly education and environment non-profits), in 2011. It encourages colleges and universities, and other non-profit institutions to invest a total of $1 billion in self-managed revolving loan funds to finances energy efficiency improvements of educational facilities (Sustainable Endowments Institute, 2011).

The Challenge does not manage funds, it provides support in starting up such funds. Participants of the Challenge are supported with guidelines to help them set up their own revolving loan fund, with case studies from other participants on how to improve energy efficiency, and with computer software to track returns of their own investments, and review efficiency investments from other participants as well (Bornstein, 2015).

Website: www.greenbillion.org

Building Innovation Fund (South Australia, Australia, 2008-2012)

Competitive grant funding program developed and implemented by the Government of South Australia in 2008 and concluded in 2012. The $2 million (AUD) fund was established to demonstrate innovative ways to reduce the carbon footprint and resource consumption of existing commercial buildings (Government of SA, 2012).

Participants seeking funding would propose a solution to improve the urban sustainability of property they owned by lodging a fully developed construction or retrofitting plan. The proposals were then evaluated by a jury consisting of Government of South Australia representatives, City of Adelaide representatives, academics and representatives of the property industry. The most promising proposals in terms of resource consumption and waste reductions would be awarded grant funding. Grant funding was considerable when compared to construction and retrofitting costs. A total of 11 projects were awarded a grant, including the instalment of a living wall system (a wall covered in plants to improve the thermal efficiency of a buildings $214,000 AUD) and the instalment of a solar facade (a facade made up of translucent photo-voltaic cells, $240,000 AUD). The arrangement had not in place specific minimum criteria for its participants to meet – note that the Australian Building Code and other mandatory requirements for urban sustainability do not apply to existing buildings in Australia. Any proposal to improve the urban sustainability of a building would de facto move beyond compliance with these mandatory requirements. It was expected that the competitive aspect of the arrangement would incentivise participants to propose projects with far reaching levels of environmental sustainability. Compliance with the arrangement was be monitored and enforced by the Government of South Australia, and partly relied on building code enforcement of construction work by the City of Adelaide building authority.

Website: www.sa.gov.au

ClimateSmart Living (State of Queensland,2009-2013)

Under the ClimateSmart Living program the Queensland Government provided grants, rebates and funding to households and businesses, aiming at a voluntary improvement of their buildings’ environmental performance.

In addition the Council provided house-to-house inspections under the Climate Smart Home Service (a household power assessment and a number of energy and water saving devices provided and installed), and it provided $50 vouchers to residents for the inspection of their solar hot water plumbing inspection.

E+Green Building (Boston, United States, 2011)

Design competition administrated by the City of Boston in 2011. It challenged designers and project developers to propose a building design for three normally highly sought after inner-Boston development sites. Participants had to propose designs that achieve at least LEED Platinum certification (the highest certification tier) and that are energy positive (‘E+’)—this implies buildings that generate more energy than they consume. The winning designs were awarded the development sites (City of Boston, 2013a, 2013b). A total of 14 designs was submitted from which three were selected for development.

Website: www.epositiveboston.org

Energy Efficient Mortgage Program (United States, 1995)

Mortgage program implemented by the United States Federal Housing Administration in 1995. It recognises that homeowners can reduce their utility expenses through energy retrofits or upgrades of their houses, and allows those who seek to do so to top up their approved mortgage. The Agency does not provide loans, but insures the additional mortgages that lending institutions supply (U.S. Department of Housing and Urban Development, 1995).

The mortgage can be used for making energy efficient improvement to new or existing homes. Homeowners are allowed to additional mortgages that are less than the expected savings from building retrofits or energy upgrades. Maximum mortgage limits are set to 5 per cent of the property—exemptions apply. Whilst one of the longest running buildings energy efficiency mortgages in the United States it lacks popularity among homeowners (ACEEE, 2013; Kats, Menkin, Dommu, & DeBold, 2012). The number of mortgages issued under the Program is marginal in comparison to the millions of mortgages issued in the United States yearly: 1065 in 2011, 685 in 2012, 599 in 2013, and 347 in 2014 (Federal Housing Administration, 2011, 2012, 2013, 2014)—in 2011 only 15 million mortgages were issued in the United States (U.S. Federal Reserve, 2012). A number of problems are found to stand out in the low uptake of the Program: On the demand side there is limited interest in energy efficiency retrofits, consumers and industry awareness of the program is low, households interested in energy efficiency retrofits or upgrades often have sufficient funds, and consumers often find the paperwork and other related administrative efforts worth the hassle for a relatively small mortgage (Kolstad, 2014).

Website: www.portal.hud.gov

Energy Star Lender Partnership Program (United States, 2006)

Partnership program implemented by the United States Department of Energy in 2006 (now concluded) to promote the Federal Housing Administration’s Energy Efficiency Mortgage Program (discussed above). Through the program the Department of Energy partnered with lenders who provide energy efficiency mortgages to borrowers. Partners were allowed to use the Energy Star brand for marketing purposes and had access to an (expected) market of clients for mortgages for Energy Star rated homes.

Website: www.energystar.gov

Environmental Upgrade Agreements (Sydney, Australia, 2011)

Government to property owner network developed and implemented by the Sydney City Council in 2011 (NSW Government, 2012). The arrangement resembles the earlier discussed 1200 Buildings program in Melbourne (above).

Website: www.cityofsydney.nsw.gov.au

Energy Service Companies (the Netherlands, 2010)

Energy Service Companies, or ESCOs, are businesses providing a wide range of energy solutions to clients. These solutions range from design and implementation of energy saving measures to the finance of these. The savings in energy costs will pay back capital investment and the cost of involving an ESCO. Yet, even after taking out these costs of the energy cost savings ESCo clients generally see a significant decrease in their overall spending.

Although ESCOs are implemented widely in for instance the US, the arrangement is fairly novel in the Netherlands. Various public and private sector organisations are experimenting with ESCos in the Netherlands. An example is GreenFox, a business that helps organizations to reduce their energy consumption by installing low-energy lightning. This ESCo is supported by a major Dutch bank and lightning manufacturer.

Website (in Dutch only): rvo.nl. For more information on ESCOs see this website.

Property Assessed Clean Energy (PACE; United States, 2008)

PACE was developed and implemented by PACENow, a non-profit organisation, in 2008. It is a tripartite financing instrument that helps property owners to access long-term loans for energy retrofits and upgrades. Loans are sought from local governments and repaid through a property tax. Local governments issue bonds to obtain funds that can be lend to property owners. PACE requires state and local government to pass laws that enable PACE financing (PACE Now, 2013)—the instrument is somewhat comparable to the environmental upgrade agreements in Australia (including 1200 Buildings), discussed above.

PACE initially applied to commercial and residential property, but as a result of the subprime mortgage crisis the United States mortgage authorities (Fannie Mae and Freddie Mac) refused to finance mortgages under PACE (Bird, 2012; Kirkpatrick, 2014; Sichtermann, 2011). Whilst this has affected the uptake up PACE the instrument is gaining interest throughout the United States: By the start of 2015, PACE enabling legislation was enacted in 30 states with 13 states having active commercial programs in place (in 34 cities). It included some 25,000 residential property projects and some 300 in the commercial property projects. For this study local implementation of PACE was studied in San Francisco (GreenFinance SF) and Sacramento (Clean Energy Sacramento).

Website: www.pacenow.org

Small Business Improvement Fund (Chicago, United States, 2000)

The Small Business Improvement Fund provides grants to small businesses in the City of Chicago for buildings improvements. It was introduced in 2000 by the City of Chicago government and is managed and administrated by SomerCor, a non-profit development firm. It does not set requirements to the type of building improvements as long these are permanent—it does however prefer building upgrades for improved urban sustainability such as energy related investments in lighting, heating, ventilation and air-conditioning upgrades (int. 185). Requirements apply to who is allowed to apply for funds, and how much funds once can apply for. Those seeking funds have to pay the upfront costs of their building and can then reimburse the grant from SomerCor (SomerCor, 2014).

The Fund is funded through tax increment financing (TIF), a method that uses future tax gains for subsidising current improvements. Such financing allocates a part of tax revenue from a specific part of the city (a TIF district) for building upgrades within that district—funds that go to a specific applicant come from tax revenue for that applicant’s local TIF district. When there are more applicants than available funds can accommodate the City of Chicago holds a public lottery to allocate the available funds to applicants. By 2014, the Fund had issued some 1600 grants with an average value of $40,000 each (int. 185).

Website: www.somercor.com/sbif

Sustainable Backyard Program (Chicago, United States, 2009-2014)

The Sustainable Backyard Program was a partnership between the City of Chicago and the Center for Neighborhood Technology (CNT), a nationwide NGO. It sought to educate homeowners about backyard composting, harvesting rainwater, making a rain garden, planting trees, and much more. Through such education and activities it was hoped that participants will also improve their environmental performance in other parts of their lives.

The program main incentive was a rebate of up to 50% for homeowners if they bought trees, native plants, shrubs, compost bins, and rain barrels from participating suppliers. In addition workshops were organised to inform homeowners on how they could significantly improve their environmental performance, even through small changes in their lifestyle or behaviour.

Website: www.cityofchicago.org

Sustainable Development Grant (Brisbane, Australia, 2007-2010)

Competitive grant funding program developed and implemented by the Brisbane City Council in 2007, and terminated in 2011. The program aimed to improve urban sustainability major office development projects. A system of criteria was introduced to ‘score’ the sustainability performance of grant applicants’ developments. The criteria moved above and beyond the criteria in the Building Codes of Australia. If a threshold score was reached, the applicant would receive a grant. Higher scores correspond with greater levels of sustainability and would attract greater financial grants. The minimum score to be achieved corresponded with a 4 Star rating under Green Star (see above) with additional elements brought in by the applicant – though, a building achieving a 5 Star Green Star certification met the minimum grant requirements. In particular it aimed to reward best practice within Brisbane office market (Allens, 2007; Gold Coast City Council, 2008).

Assessment of projects was carried out by the Brisbane City Council. Funds would however not be released to participants before they had obtained Green Star certification of their building project. In the first two years of the program $10 million (AUD) grant funding was available. Grant funding awarded related to gross floor area of a development project. From the interviews it was learnt that grant funding was relatively low (int. 27), which is confirmed by some documented cases. For instance, a nine story commercial building awarded with a 5 Star Green Star received $206,000 (AUD) funding through the arrangement – roughly 1 per cent of its $19.5 million (AUD) construction costs. As a result of the 2011 flood damage, Brisbane City Council has decided that funding for these Grants is to be redirected towards Brisbane’s flood recovery effort.

Sustainablility Fund (State of Victoria, Australia, 2005)

Competitive grant funding program. Through the Sustainability Fund the State Government of Victoria supports businesses, local governments and communities to take action on climate change across Victoria. The fund was implemented in 2005 and has since supported over 200 projects ranging from under-$10,000 grants for informational campaigns to over-$500,000 grants for the instalment of solar panels in urban areas.

Website: www.sustainability.vic.gov.au/sustainability-fund

Temporary Energy Efficient Homes Mortgage Requirements (“Tijdelijke Regeling Hypothecair Krediet”; the Netherlands, 2012)

Temporary softening of home mortgages regulation by the Dutch Minister of Finances for the period 2012 to 2018. It allows mortgages suppliers to issue higher mortgages to lenders who seek to improve the energy efficiency of their (future) house. In 2012 they were allowed to lend up to 6 per cent more than the value of the house at the time of transaction (with a maximum of €8,000), in 2013 up to 5 per cent (with a maximum of €9,000), and so on until the temporary regulation is phased out again in 2019. A specific temporary rule allows mortgage suppliers to lend up to €25,000 more than the value of the house at the time of transaction to lenders who seek to make their (future) house energy neutral (Dutch Ministry of Finance, 2012).

An evaluation of the temporary rule in 2015 indicates that it is not widely known by consumers, and that mortgage suppliers are concerned about it. They argue that technical upgrades do not guarantee energy saving by consumers (which would reduce their energy costs and allow them to pay back their higher mortgages) because consumer behaviour is at play as well (BuildingBusiness, 2015).