Regulatory Reform to Promote Green Building Development

Hans Shrader
June 2012

Why are greener buildings important?

Demographic Trends

World population will reach 9 billion by 2050: 34% higher than today; poor countries will double current population levels. Age is a significant factor; emerging market populations are creating a huge demand for homes that need to be affordable and green.

Urbanization

70% of the worlds population will live in urban areas by 2050 (today 50%); 1 in 3 will live in urban areas in Africa & Asia. The emerging middle class with rising income levels is growing by 90 million per year. To meet this demographic change, increased employment opportunities will have to be generated in urban areas- requiring additional commercial buildings. Buildings of almost every type represent necessary long-term development infrastructure, yet present a real danger of locking in inefficiencies for decades if constructed unsustainably. Current GHG Emissions: Buildings account for 15%. One of the fastest growing sectors. IPCC estimates building-related GHG emissions to double by 2030 under a high-growth development scenario. This increase would take place almost entirely in the developing world. Reducing climate change requires investments/innovation in energy efficiency, renewable energy. McKinsey forecasts that low cost abatement measures are in the building sector.

Climate Change

Buildings provide the low hanging fruits for abatement

Buildings offer us the single largest global opportunity to make deep emission cuts at low, no, and even negative cost. Developing countries represent the greatest opportunity for reductions, underscoring the need for an international effort to rapidly enhance sustainable building practices in such countries and to capitalize on this emission reduction potential.

Carbon Abatement Curve

Cost of Abatement
/t CO2e, 2030

Options not currently cost effective: role for advisory, regulation, concessional finance

Abatement
Gt CO2e/year

Options are cost effective with relatively quick paybacks

All relevant for Green Buildings

Source: McKinsey Analysis

Mapping Macro drivers: Where is the biggest demand?

IFCs approach to addressing challenges is tailored to the needs of specific market contexts, prioritising counties with high CO2 from buildings, high cost of electricity and high urbanization Economic driver
percentage cost of electricity vs. GDP [%]
Kyrgyzstan

Urban populace added each year [In millions]

1 5

10 15

Mozambique

High Cost but low carbon grid

Jamaica

High Priority

Vietnam & Philippines

Pakistan Ghana Vietnam Bulgaria

Caribbean
Nicaragua Dominican Republic Gambia Syria

Philippines

Asian Giants
China India

Priority countries

Slovakia
Tajikistan

Croatia

Azerbaijan

Mediterranean East coast

Jordan

Uzbekistan

Brazil
Honduras Cameroon Paraguay Uruguay Zambia Ethiopia Malawi Colombia Kenya Morocco Argentina Ecuador Panama El Salvador Costa Rica Peru Haiti Sri Lanka Guatemala Egypt

Cape Verde

Ukraine^

Thailand
Zimbabwe Turkey South Africa

Russia^
Tanzania Angola Togo

Ivory Coast Bolivia Nigeria

Mexico
Bangladesh Sudan

Lebanon Senegal
Eritrea Indonesia

Low Priority

Trinidad

Low cost but high carbon grid

Environmental driver
CO2 from electricity generation [gCO2/kWh]

Why electricity?: The largest amount of energy used by buildings is in the form of electricity. Typically 20-40% of the electricity generated in a country is used by the buildings sector. ^ Russia and Ukraine have a net decreasing urban population

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Building Sector Emission Current & Projected

Source: IPCC A1 scenario, www.ipcc.ch

Advice on Green Building Regulation for Indonesia

GHG Emissions from Buildings: 24% to 40% in 20 years IFC to support Jakarta energy and water efficiency requirements for large buildings (Commercial and Residential). Use of Modeling is key. EXTENSIVE use of consultation with architects, developers, engineers, professional associations and govt. Implementation is the challenge: Simple to implement and easy to monitor.

Green Buildings Code* for Jakarta has a potential carbon reduction of 3MtCO2/year by 2020.

with effective implementation of the green buildings code in Jakarta, the city can serve as a model for implementation in other cities in Indonesia. Fauzi Bowo, Governor Jakarta Province

Different markets require different solutions

Urban housing [apartments, social housing]

Informal homes Approach to green buildings: Access to low cost materials, better planning, awareness raising, investments in power, water and sewage infrastructure, and microfinance for low-cost building materials

Approach to green buildings: Corporate Finance; Incentives through FI using products such as green mortgages, Market for green materials, appliances labeling and ordinance for solar heating and lighting products

Mid-size commercial [hotels, hospitals, offices] Approach to green buildings: Debt/ Equity; Investments in ESCOs and EE tech companies, inc, BIPVs and cooling/heating systems Green building regulations on Large complexes [i.e., large retail, airports, energy use. SEZs or housing schemes involving more sophisticated building developers and consultants] Approach to green buildings: PPPs, Direct investments in green building projects to create a demonstration effect.

Number of buildings

Potential for IFC to make directly investments

Size of buildings

Green Buildings Regulation The Big Picture

Methodology
Data Collection Stage: Existing Building Stock, Availability of technology and costs. Creating typical building models based on building stock data. Subjecting the building models to parametric sensitivity analysis.

Implementation list collating costs of technologies with the energy saving potential Draft technical recommendations

Sensitivity Analysis: Example findings- WWR

Potential saving from reducing the proportional glazed area of a buildings facade
Potential Energy Saving % -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16%

Wall to Window Ratio (WWR)

Current Building Regulations

Wall to Window Ratio is not mentioned in SNI, however, Table 1-14 (SNI_03_6389_2000_selubung bangunan) covers the selection of roof, window glass and walls

Proposed value for GBC

WWR= 40% and SHGC = 0.40 as mentioned below 69% 53% 40% 34% 20%
Hotel School Retail Apartment

%WWR
Office Hospital

Potential Enhancements
Table 1. Recommendation for WWR Value
Building type Base Case (WWR Ratio) Recommendation (WWR Ratio) Potential Energy saving (%)

Regulating the percentage area of windows of an office building such that it does not exceed 40% will reduce energy consumption by 8% compared to a typical office building in Jakarta.
Note: WWR: Wall to Window ratio. Net glazing area (window area minus mullions and framing, or ~80% of rough opening) divided by gross exterior wall area (e.g., multiply width of the bay by floor-to-floor height) equals window-to-wall ratio (WWR). School and Apartment: Base case considered for these is 33.5% & 40% WWR respectively compared to 70% for other types. Therefore, the % saving are lower

Office Retail Hotel Hospital Apartment School

70% 70% 70% 70% 40% 33%

40% 40% 40% 40% 33.5% 33.5%

8% 4% 9% 8% 2% Base case

69% 53% 40% 33% 20%

What is the cost impact? Payback assessment for offices

Green Building Measure
Window to wall ratio Solar Shading Devices Reflectivity - Wall Thermal Conductance (Wall U-Value) Reflectivity Roof Thermal Conductance (Roof U-value) Glazing Assembly Properties (U-value, SHGC, VLT) COP of air conditioning equipment Variable Speed Drives for cooling towers Heat recovery on extract air Solar collectors for Hot water

%Saving
8.0% 17.3% 0.5% 0.3% 0.2% 0.1% 7.3% 11.4% 9% 2% NA

Cost increase
Negative 7.2% 0.0% 0.5% Negligible 0.0% 0.1% 1% 0% Cost awaiting NA

Payback period (yr)

0 25.0 4.8 98.6 18.1 0.9 5.4 0 26.2 ---

Action
Include Consider Include Exclude Include Consider Include Include Include Consider Exclude

Photo electric control perimeter lighting

Exterior lighting controls Low energy lighting [CFL, T5, LEDs etc] Electronic Ballast Sub-metering benefits Water efficient fittings Rainwater harvesting

18%
NA 7%

2%
NA 0.12%

7.4
--1.0

Include
Exclude Include

2%
3% 40% 15%

Negligible
NA 0.35% Cost awaiting

0.0
NA 6.0 26.2

Include
Consider Include Consider

Recycling onsite Sewage T plant

Water metering Storm water attenuation and ground water recharge

67%
NA NA

Cost awaiting
Negligible Minimal impact

7.4
NA NA

Consider
Include Include

The energy saving potential of each measure has been correlated with the cost impact and therefor the simple payback.

In Sum & In addition

In EAP, GHG reduction is a core strategic target IFC is has a complementary financing mechanism

Work on regulations is technical and require participation from a broad set of stakeholders.

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GB Barriers and Drivers

Green Building Market Report, BCI Asia 2008

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Crisis reaches Asia Pacific; clients anticipating slowdown

Significant linkages with external sector heightens vulnerability in Asia, esp in smaller economies

China: Growth is slowing in response to weak external demand and domestic policy measures taken to stem the surge in credit India: Elevated inflation, exchange rate volatility, high interest rates, weak investment activity & sluggish reforms Vietnam: Material external exposure: trade with the EU (11% of GDP), remittances (7% of GDP)

High inflation a concern in most economies; further escalation in commodity Syndications prices could hurt external and fiscal balances

IMPACT ON CLIENTS market drying up, risk of inadequate funding for major projects (eg infrastructure) As in 2008, projects are getting deferred Increased costs of borrowing, shortened tenors and limited availability of USD Increased demand for IFC Smaller businesses hit harder

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IFC Asia Strategy Remains Relevant

Strategic Themes Development challenges 3 Year targets
8,000

Total GHG Emissions (million tpa)

WRI 2005 data Incl. land use change

Climate Change

40% of Global CO2 Emissions

6,000 4,000 2,000 0 China USA

9.5 M tons GHG /yr

India [1] Japan [1]

EU

Brazil

Indonesia Russian Fed

China

Inclusion

71% of Global Poor at $2 per day in Asia 66% of IDA population in Asia

East Asia & Pacific (ex-China)

Share of World's Poor $2/day

Rest of the world

South Asia (ex-India)

India

A2F Micro: 23.4M A2F SME: 1.13M A2 Infra: 17.8M Farmers: 1.25M H&E: 2.49M Cost savings: $340M 10 S-S deals % of key sectors with improved ES&G standards 2-3 innovative business models replicated

China and India 6% of global OFDI (2010)

Global Integration

China & India major source of Emerging Mkts FDI

Outward Foreign Direct Investment Share Directed to Emerging Economies

* Data for China does not include Hong Kong

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CleanTech disruptions will create and destroy multi-billion dollar markets

Disruption area Renewable power 1 generation Disruption scenarios

20% of power from renewables by 2020

Growth business

Wind Solar Grid energy storage technologies Insulation LEDs and lighting controls Energy service companies Advanced HVAC CHP/micro CHP Biomass fuel Advanced CCS SmartMeters High voltage DC technology In home energy management Grid IT Battery Electric motors Power electronics Charging infrastructure and comms Heat reflective windows/coating films Carbon negative cement Gel based insulation

Declining business

Coal, oil burning power plant building, and operation

2 Energy efficiency

30% reduction in energy use Mandated replacement of incandescent bulbs

Traditional light bulb Power/energy company

Innovation in fossil 3 fuel Overhauling power 4 infra-structure

2-10x increases in US natural gas capacity from shale discoveries

Oil refinery Petrochemical

SmartMeters in all homes by 2020 Grid energy storage proliferates

Traditional meters Meter reading services

Electric 5 Vehicles

15% of new car sales to be xEV in 2015

Gasoline stand Traditional power train companies

Material/ dematerial6 ization

>10x energy efficient building material

Traditional single and double pane glasses High emission cement Fiber glass insulation

7 Water

90% of world population with water shortage

Advanced pipes, pumps, and valves Civil engineering Desalination plants Efficient irrigation systems Microgrids/islanding of military bases Cyber security for smart grid Storage Biofuels, coal to liquids

Existing agricultural region Manufacturing plants (textile, chemical, semiconductors, etc)

Energy & cyber 8 security & microgrids

All US utilities mandated to adhere to cyber and energy security standards

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Source: Mckinsey & Co.

Oil refinery Utility sales to bases

Context

IFC Response

We must combine financial products, mobilization and metrics/KM to scale our impact,
Strategy, Metrics and Knowledge Management Financial Products
New tech and business models - venture capital Cleaner Production Facilities

Carbon Delivery Guarantees

Enabling environment Resource efficiency: TA and benchmarks Risk assessment Wholesaling through FIs Innovation Transfer Fund

Post 2012 Carbon Facility 150m

Trade Finance

Mobilization

Standards
GEF, CTF

Debt/Mezz Facility KfW

Green Bond

AS-IS Integration

CP3 Fund

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Context

IFC Response

The Climate Business mix will evolve.

$3.2bn 3,500 3,000 2,500
$ millions

Transport / Logistics

Recycling / Waste Agriculture / Forestry Green Buildings

$1.6bn
2,000 1,500 1,000 500 FY10 FY13
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RE/EE Eqpt 31% Other EE

36%
26% 22%

EE in Metals & Cement

Credit Lines, Trade, Funds Renewables generation

Context

IFC Response

At least 20% of commitments by FY13

and more with mobilization.
Plus Mobilization of 1.5BN USD
7,000 6,000 5,000 4,000 Infra. + Nat. Res. MAS FM Cleantech VC Clim. Fin. Prod. & Funds Syndication 0
06 07 08 09 10 11 12 13

$ million

3,000 2,000 1,000

Special Facilities and Donor Funds

FY

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EAP: Energy Efficiency Financing: Existing Clients Scale Up

Emission Reduction Potentials of existing banks
140 SPDB 120

$1.5 bn loans 57mn tons CO2 reduction per year by FY10.

CO2 emission ( in millions tons)

BOB IB 51

100

80

39 13

60

27 7

10

40
10 2 17 0 FY12

15
5 39 25 53

67

20

131 mn tons by FY16.

FY13

FY14

FY15

FY16

20