6.8.3.3 Investment subsidies, financial incentives and other fiscal measures

As noted in Section 6.5.5, applying an integrated design process (IDP) can result in buildings that use 35–70% less energy than conventional designs, at little or no additional capital cost, but with a potential increase in the design cost. Providing financial incentives for the design process rather than financial incentives for the capital cost of the building is an approach used in several regions, such as by Canada in its Commercial Building Incentive Program (Larsson, 2001), by California in its Savings By Design programme and in Germany under the SolarBau programme (Reinhart et al., 2000).

Going beyond IDP, other measures – particularly those that include renewable energy options – entail significant added capital costs. Many developed countries offer incentives for such measures (IEA, 2004f). Types of financial support include subsidies, tax reduction (or tax credit) schemes and preferential loans or funds, with investment subsidies being the most frequently used (IEA, 2004f). Capital subsidy programmes and tax exemption schemes for both new construction and existing buildings have been introduced in nine OECD countries out of 20 surveyed (OECD, 2003). Several countries (USA, France, Belgium, UK and the Netherlands) combine their financial incentive policy for the existing building stock with social policy to assist low-income households (IEA, 2004a; VROM, 2006; USDOE, 2006). Increasingly, eligibility requirements for financial support are tied to CO₂ emission reduction (IEA, 2004a; KfW Group, 2006). Within the Energy Star Homes programme in the USA, houses that meet the energy-efficiency standard are eligible for a special mortgage (Nevin and Watson, 1998; Energystar, 2006). Financial incentives for the purchase of energy-efficient appliances are in place in some countries, including Mexico, the USA, Belgium, Japan and Greece (Boardman, 2004; IEA, 2004f). Incentives also encourage connection to district heating in Austria, Denmark and Italy.

There has been limited assessment of the efficiency of these schemes. The cost-effectiveness of subsidy-type schemes can vary widely, depending on programme design. Joosen et al. (2004) have estimated that subsidy programmes for residential buildings cost Dutch society 32–105 US$/tCO₂, whereas this range for the commercial sector was between 64 and 123 US$/tCO₂. A variety of financial incentives available simultaneously may make the decision process difficult; simplicity of the schemes might be an asset (Barnerjee and Solomon, 2003). A combination of government financial incentives and private bank loans may be more effective than a government-subsidized loan, as may combining building rating or labelling with a loan-especially when the labelling scheme has public approval.