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0 Making Money Work for Buildings An Overview of Financial and Fiscal Instruments in Place across the EU Adrian M Joyce Secretary General 30 th November.

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Presentation on theme: "0 Making Money Work for Buildings An Overview of Financial and Fiscal Instruments in Place across the EU Adrian M Joyce Secretary General 30 th November."— Presentation transcript:

1 0 Making Money Work for Buildings An Overview of Financial and Fiscal Instruments in Place across the EU Adrian M Joyce Secretary General 30 th November 2011

2 What is EuroACE? An Alliance of Europes 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 targets Achieving energy security Whilst creating employment and securing economic recovery 1

3 Who are its Members? Aereco BASF Danfoss Honeywell Johnson Controls Kingspan Insulated Panels Knauf Insulation Philips Lighting Pilkington Group PU Europe Rockwool International Saint-Gobain Isover Solutia United Technologies URSA VELUX Group 2

4 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 3

5 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 4

6 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: Note: Study carried for EuroACE out by Klinckenberg Consultants 5

7 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 6

8 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 3 rd 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 7

9 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 8

10 EuroACE Study: Overview of Identified Instruments 1/2 9 Preferential Loans Subsidies Grants 3rd party financing Trading Tax Rebate Tax Deduction Reduced VAT Austria 1132 Belgium 511 Czech Republic 116 Denmark* 1 Estonia 1 France 52111 Germany 31 Hungary 43 Italy 31121

11 EuroACE Study: Overview of Identified Instruments 2/2 10 Preferential Loans Subsidies Grants 3rd party financing Trading Tax Rebate Tax Deduction Reduced VAT Netherlands 111 Norway 11 Poland 11 Romania 1 Slovenia 25 Spain 22 Sweden 11 UK 26211 Totals 2583342653

12 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 11

13 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 CO 2 quota Expected impacts by 2012 are a reduction in CO2 emissions of 1.1 Mt, 6.3 PJ energy savings and 30,000 jobs created 12

14 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 CO 2 emission reduction 185 Mt cumulatively 13

15 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 CO 2 emission reduction of 54 kt p.a. 14

16 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 CO 2 emission reduction estimated at 35 Mt over 5 year period 15

17 Examples 6/13: Grants and Preferential Loans Germany: KfW CO 2 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 m 2 floor area in existing buildings renovated; Budget 4bn (in loans) from 2006 to 2009; 2bn per year in 2010-11; 1.5bn in 2012 16

18 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 17

19 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 18

20 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 19

21 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. 20

22 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 CO 2 ) p.a. 21

23 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 22

24 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 ktCO 2 (est.) for micro-CHP 23

25 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 studys assessment of cost-effectiveness: Simple methodology - cost of programme per ton CO 2. Not necessarily representative of all instruments in place Examples of what can be achieved 24

26 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 grants Our estimate of programme cost (2002 - 2004): approx 0.5bn interest rate subsidy; approx 0.25bn grants Cost effectiveness (for govt) estimated 25/tCO 2 Jülich Study shows quick, high return to Federal Government 25

27 Case (CZ): Green Savings Programme New programme, no results available yet Budget Koruna 25bn ( 1bn) over programme lifetime Expected impacts, by 2012: 250,000 houses improved CO 2 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 govt) estimated around 20/tCO 2 26

28 Case (ES): Support Programme for EE in Buildings Ongoing programme, 2008 to 2012 Programme budget 800m; expected resulting investment volume 13bn Expected cumulative savings (2008-2012): Insulation: 4.7 TWh 5.2 Mt CO 2 HVAC systems: 5.5 TWh 6.5 Mt CO 2 Lighting: 10.8 TWh 17.9 Mt CO 2 New low-energy buildings:5.1 TWh 5.3 Mt CO 2 Overall:26 TWh35 Mt CO 2 Cost effectiveness (for govt) expected 23/tCO 2 27

29 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/tCO 2 28

30 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 CO 2 savings. The beneficial impact of instruments (Carbon Savings) needs to take account of the impact of rebound effects 29

31 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 30

32 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 31

33 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 schemes success. 11. Schemes targeting zero-carbon homes require skilful political handling. 32

34 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 33

35 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. 34

36 EuroACE Rond Point Schuman, 6, 8th floor B-1040 Brussels Tel.: +32 (0) 2 639 10 10 Fax: +32 (0) 2 639 10 15 Email: 35

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