Energy-efficient buildings in China: Standards and financing mechanisms

climate
Jun 11, 2020

Regulatory policy

From the first Chinese Design Standards for Civil Buildings in 1986 to the recently released National Standard of Green Buildings Assessment, policy on energy efficiency and carbon emissions of buildings, including the retrofitting of old ones and the construction of new ones, has undergone significant changes in China during the past decades.

In 2015, at the COP 21 in Paris, the Chinese Government pledged ‘to peak China’s carbon dioxide emissions by around 2030’ and said it would ‘work hard’ to achieve the emissions peak earlier than the 2030 target. The building sector provides huge potential for achieving this goal. China’s total energy consumption in the building sector is equivalent to 899 million tons of standard coal and accounts for 20.6% of the country’s total energy consumption. According to the China Building Energy Consumption Research Report 2018, total carbon emissions are at 1.96 billion tons of CO2, accounting for approximately 19% of the country’s carbon emissions. The carbon emissions per unit area of urban residential buildings and public buildings reached their peaks in 2012, which were at 35 kg CO2/m2 and 74 kg CO2/m2, respectively. Since then, these emissions have decreased to 29 kg CO2/m2 and 64 kg CO2/m2 in 2016. The carbon emissions of energy consumption per unit building also decreased from 2.41 kgCO2e in 2012 to 2.18 kgCO2e in 2016.

Since 2015, the Ministry of Housing and Urban Rural Development (MoHURD) has taken actions to accelerate the transition to low-carbon buildings. The new Technical Standards for Nearly Zero Energy Building, which were published by MoHURD and came into force on 1 September 2019, include different sub-national standards for different climate zones in China. Compared to the previous standards, which usually only had one or two indicators for certain zones, in this new version, different energy consumption control indicators are proposed for near-zero energy buildings. As such, these standards are the most comprehensive ones in the world. In cold and severely cold zones, the aim is to reduce energy consumption by 70%, while in those zones where summers are hot and winters are hot and those where summers are hot and winters are warm, the aim is to reduce energy consumption by 60%.

Along with this new standard, according to the 13th Five-Year Plan on Green Buildings, the national government aims for 50% of new buildings to be certified as green by 2020. This corresponds to scoring at least one star in the evaluation system. Green building certification is divided into a three-star grading system according to the degree to which the control items and scoring items are met. If the total score of green buildings reaches 50 points, 60 points or 80 points, the grade of green buildings will be 1 star, 2 stars or 3 stars, respectively. The old evaluation system is composed of six indexes: land conservation and outdoor environment, energy conservation and utilisation, water conservation and water resource utilisation, material conservation and material resource utilisation, indoor environmental quality and operation management (residential buildings) or comprehensive performance throughout the entire whole life cycle (public buildings). In the new National Standard of Green Buildings Assessment 2019, convenience for inhabitants and innovation are added as new indicators (see chart below). Additionally, the Plan states as its aim to renovate over 500 million square metres of existing residential buildings and 100 million square metres of public buildings in an energy-saving manner by 2020. Energy-saving buildings will then account for more than 60% of existing residential buildings nationwide. The proportion of renewable energy as a substitute for conventional energy sources in public buildings will account for more than 6% of energy consumption in urban areas.

This year, MoHURD also published the National Calculation Standard for Buildings’ Carbon Emission (the Standard), which came into force on 1 December 2019. The standard applies to newly constructed, expanded and renovated public construction and targets single buildings as well as groups of buildings. The standard can be applied during the design phase or after the construction phase. The calculation process can be divided into three phases, namely (i) the construction and demolition phase, (ii) the production of the building materials and transportation phase, and (iii) the operation phase. Added together, these calculation results constitute the carbon offset amount of the building’s entire life cycle. Carbon emissions calculations should include the various types of greenhouse gases listed in the IPCC Guidelines for National Greenhouse Gas Inventories. Corresponding software has been developed based on the standard. MoHURD claims that through its application, more attention will be paid at the design stage to energy-saving and carbon reduction concerns during the building’s entire life cycle.

Besides these standards, the government also introduced voluntary labels or certificates, some of which are, however, mandatory for public buildings. In 2007, MOHURD introduced China’s first national Green Building Evaluation Label to make the market for low-carbon buildings in China more transparent. In 2008, MoHURD released the Building Energy Efficiency Label, which is mandatory for government buildings and applicants for national or provincial demonstration projects or green building labelling. In 2019, the voluntary trading platform Green Electricity Certificates (GEC) was initiated, allowing companies to claim the environmental benefits associated with renewable energy generation as indirect consumers.

Subsidy programmes and funding mechanisms 

The main existing financing models include

  • Government financing model

The government financing model refers to the fiscal subsidies provided by the central government and the subsidies provided by the local government. The fiscal support promotes the energy-saving transformation of buildings, which is conducive to leveraging the effect of fiscal policies and guiding more social capital investment. But the problem is that once the fiscal subsidy fund shrinks, it will be difficult to continue promoting the energy-saving transformation. The existing market will quickly decline, and it will be difficult to form a long-term development mechanism. Key cities in the energy-saving transformation of public buildings are supported by national finances, with the central government subsidising 20 yuan per square meter. Local governments also put forward corresponding fiscal support measures to jointly promote progress as regards energy-saving transformation. Several provinces have published their own subsidy programmes on green buildings, including Beijing, Hebei, Shandong, Jiangsu, etc. For example, in Beijing in 2018, companies constructing green buildings are eligible for a subsidy of 600 yuan per m2.

  • Energy Performance Contract (EPC)

The central government set up an incentive fund in 2010 to promote EPC and the development of the energy service industry. For retrofitting projects that employ EPC, the fund awards RMB 240 per tonne of coal equivalent saved, while matching incentive programmes run by provincial governments add another RMB 60 or more per tonne of coal equivalent saved. The effectiveness of these incentive policies, however, was diminished by the rigorous qualification reviews for ESCOs, strict filing and review standards, and time-consuming application processes. As a result, less than 10% of the projects that received the funding were building retrofitting projects. In May 2015, the State Council cancelled the EPC fund, marking the end of these incentive policies.

  • Self-financing model

Developers or building owners act as the main drivers of the energy-saving transformation, raising the incremental investment for energy-saving projects and recouping the investment through the incremental income of the energy-saving projects.

  • Bank loan model

In China’s current financial system, bank loans are the most important way of providing funds to the market. The energy-saving service industry is no exception: bank loans are the most widely used financing channel for ESCO, including mortgage loans and secured loans. At present, the Bank of Beijing, the Pudong Development Bank, the Industrial Bank, the China Merchants Bank and other commercial banks in China have actively provided credit support for ESCO. Based on traditional business models, many banks have launched a variety of new financial products and updated their credit evaluation system according to the characteristics of EMC and ESCO. The Shanghai Pudong Development Bank, the China Merchants Bank, the Bank of Beijing, the Industrial bank and other institutions have formulated a ‘green financial service programme’ to promote green financial services. Some banks have set up specialised teams to manage green credit, and have even opened special approval channels for financing green credit projects to improve approval efficiency. Thus, banks are paying more and more attention to the financing of energy-saving projects. As an example, future profit pledge loans of the Shanghai Pudong Development Bank EMC were mainly aimed at EMC projects, which are declared and approved by the office of the Shanghai EMC committee and have obtained the relevant fiscal subsidy. The Shanghai Pudong Development Bank provides special loans with a pledge in the form of ‘earnings implemented in the future’ to ESCO. The future profits are distributed as loans in advance, either in a lump sum or in several rounds, according to a certain proportion of projects’ future profit. The terms of payment will be determined by the terms of collection of the project, and the future profit rights of the project will be used as the repayment source of the loan. ESCOs that adopt EMC can obtain loans with project income in the next few years from the SPD Bank and put them into EMC projects undertaken by the companies. This solves the problem of capital turnover in the development of the company and speeds up the pace of development.

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Sino-German Climate Partnership III

Project country
China
Political Partners
German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU); Ministry of Ecology and Environment of the People's Republic of China (MEE); National Energy Administration of the People's Republic of China (NEA)
Implementation Partners
Energy Research Institute of the National Development and Reform Commission of the People's Republic of China
Duration
09/2017 – 09/2020

Germany and China signed the Memorandum of Understanding on Cooperation in Combatting Climate Change and initiated this bilateral dialogue as "Sino-German Climate Partnership". The project has been established to support the cooperation between the German Ministry of Environment, Nature Conservation and Nuclear Safety (BMU) and the Chinese Ministry of Ecology and Environment (MEE). The new phase of the project starts in 2018 with close alignment to the restructuring at the Chinese government. In this phase, the project aims to advance the policy dialogue and cooperation with the Chinese partners domestically as well as within the international context of climate change. Part of the work will be supporting the development and implementation of China's medium- and long-term low-carbon development strategies, hence by supporting the Chinese government in strengthening the climate governance system. Domestically the SGCP project supports the policy dialogue on climate change (Sino-German Working Group on Climate Change) and enhances the exchange of German experiences and best practices, this includes strengthening capacities for the development of integrated climate and energy action plans as well as adaptation concepts for cities. On international level the SGCP project enhances the knowledge of both patterns about best practices in regard of climate policies and their implementation. For new cooperation topics identified by the Working Group on Climate Change, the project acts as an incubator for IKI development. As interface for information management, it serves a as a hub for exchange between partners of the IKI within and outside China, especially within the UNFCCC process.