Energy Efficiency Investments in Buildings, Industry and SMEs

Tuesday, April 21st, 2015
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The Energy Efficiency Financial Institutions Group (EEFIG) has launched its final report, Energy Efficiency – the first fuel for the EU Economy: How to drive new finance for energy efficiency investments, which outlines a framework for energy efficiency investment to reduce the EU’s reliance, and expenditure, on energy.

The objective is to make energy efficiency investments strategically important due to high levels of energy imports, energy price instability and the need for Europe to transition to a competitive low carbon and resilient economy. Investment is broadly defined within the context of market, financial and regulatory arrangements, in conjunction with capacity building and long-term redevelopment planning.

EEFIG’s researchers found data that shows that buildings are responsible for the largest share of European final energy consumption (40 per cent) and they represent the greatest potential to save energy due to their long-term asset classification, with over 50 per cent of the commercial, industrial and high-rise buildings standing today expected to still be in use in 2050.

Energy efficient renovation and investments in Europe’s existing buildings stock, in combination with construction of highly energy efficient new builds, will be Europe’s energy efficiency challenge. How these changes are managed will shape future patterns of growth, productivity and living standards. More compact and connected urban development, built around mass public transport, can create cities that are economically dynamic and healthier, and that have lower emissions.

A key challenge in delivering on this objective is the creation of uniform urban planning and economic development strategies and initiatives that facilitate the installation of new technologies to buildings and infrastructure in an expeditious manner (for instance, new external facades that reduce the need for expensive air-conditioning operations at the individual building level).

Technological changes, massive disruptive business model opportunities, global mobility of finance and a deeper understanding of the effect of climate change on the economic, social and environmental conditions of communities are providing the impetus for decision makers in the public and private sectors to tackle climate change related issues as they also address more immediate issues of economic growth and competitiveness, social need and poverty.

Greater investment in energy efficiency – in businesses, buildings, transport and mass transit – has huge potential to cut and manage demand. The ability to successfully manage our cities and city infrastructure, land use planning and community planning is dramatically affected by the speed of change in these core systems. Infrastructure planning that drives retrofitting of new technologies into existing systems should be encouraged through planning and development policy.

EEFIG’s members see energy efficiency investing as having a fundamental and beneficial role to play in the transition toward a more competitive, secure and sustainable energy system with an internal energy market at its core. EFFIG identifies the need to engage multiple stakeholder groups nationally and internationally, and to scale-up the use of several financial instruments within a clear and enforced “carrot and stick” legislative framework to drive EU policy settings. These policy settings are needed to facilitate structural reforms that can deliver economies of scale, drive down costs, improve efficiency and supply opportunities that improve the economic and social health of nations, states, cities, communities and business.

By making energy efficiency investment a priority for policy makers, business and financial institutions, all jurisdictions can unlock the multiple benefits of energy efficiency investments, including energy security, competitiveness, social and territorial cohesion, job creation, well-being and greenhouse gas emissions reductions. Buildings, industry and SME competitiveness (including running costs) require insulation from the uncertainties and volatility in global oil and coal prices. Rapidly falling costs in wind and solar power could lead renewable and other low-carbon energy sources to account for more than half of all new electricity generation over the next 15 years. Volatile market conditions in oil, coal, iron ore and other building related products is providing the opportunity for policy makers to:

  • Enforce existing regulations (in energy efficiency, emissions reduction, and so on)
  • Use fiscal tools to incentivise energy efficiency and reduce subsidies to large energy consumers and recycle those funds into greater support for energy efficiency, resilience and long-term competitiveness investments.

While the EEFIG report focuses on the European context, the recommendations are valid for all jurisdictions. Recommendations include, but are not limited to, the following:

Building a vibrant market for buildings energy efficiency investments through:

  • Improvement of building certification methodologies, Energy Performance Certificate standards, standardised technical and risk assessment frameworks, and the implementation of minimum performance standards upon building, upgrade, sale or rental of buildings
  • Improving information sharing and technical experiences across multiple industry sectors through open-source energy and cost data bases for buildings and systems
  • Facilitating the creation of fiscal and monetary mechanisms to help grow energy efficiency investments in commercial and residential buildings, and motivating both building owners and companies to prioritize energy efficiency during their natural replacement cycle.

Developing and implementing economic mechanisms that facilitate effective complementary and parallel trading regions (e.g. European Union, ASEAN, NAFTA), national energy efficiency funding and energy market reforms, including but not limited to:

  • Review of public and private accounting treatment of Energy Performance Contracts
  • Continued examination of the discount rates used in energy modelling, policy-making and investment decision-making, to adequately balance the benefits and risks of energy efficiency.

Adjusting financial regulatory frameworks to better support capital market innovation to help with:

  • Ensuring that risk assessment and related capital requirements for long-term energy efficiency investments correctly reflect their risks
  • Developing market potential for green bonds, citizen financing, factoring funds for Energy Performance Contracts and other more innovative sources of financing for energy efficiency
  • Addressing barriers to expanding the green mortgage market, and their affect on mortgage affordability calculations.

Driving capacity building (and research) at government, institutional and organisational levels to facilitate ongoing project development and technical assistance for the development and aggregation of energy efficiency investments in buildings, industry, SMEs and households. This will also:

  • Enable long-term planning and supply chain scale-up to deliver and finance ambitious buildings renovation programmes
  • Assess and where necessary amend public authority procurement rules to better value lower operational costs as a part of their tender assessment processes

Trading Region Member States have a clear role to play in pursuing the necessary institutional and structural reforms, exercising fiscal (and monetary) responsibility, providing regulatory certainty and boosting investment in support of jobs, economic growth and environmental protection.

Such actions can help unlock the multiple benefits of energy efficiency investments including energy security, competitiveness, social and territorial cohesion, job creation, well-being and greenhouse gas emissions reductions. For example, France has recently passed laws that mandate that all new buildings that are built in commercial zones must be partially covered in either plants (vegetation) or solar panels.

There is clearly a need to (globally) reframe the role that energy and energy efficiency plays in how each jurisdiction plans for, finances, and constructs its energy system; the need to establish parallel and complementary policy and other mechanisms within sovereign nations with different governance, regulatory, national and community objectives may prove too difficult. From a land-use planning perspective, individual nation states will have differing capacities and levels of desire to influence how energy efficiency of existing buildings can be improved at the local level.

Planning and development regimes need to be aligned to economic development frameworks, employment generation, energy efficiency and emissions reduction targets and community expectations. Planning and development regimes also need to be flexible to allow innovators in both public and private sectors to take advantage of new technologies and respond responsibly to new market conditions and societal expectations.

Stimulating innovation in technologies, business models and social practices (including land use planning and economic development methodologies) can drive both growth and emissions reduction. Well-designed policies in these fields can make growth and climate objectives (including energy efficiency programs) mutually beneficial in both the short and medium term.

Managed well, the additional investments in (energy efficient) infrastructure, buildings, industry and SMEs needed to make the transition to a low-carbon economy will be modest, supported by high quality, targeted planning and development policy and frameworks.

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