Policy and Financing for Net Zero Carbon Buildings: Insights from COP27

November 17 was Solutions Day at the recent climate conference COP27 in Sharm-el-Sheikh, Egypt. To discuss how to combine financial modalities with city-level policies to facilitate public and private investment in low- and zero-carbon buildings, the German Federal Ministry for Economic Cooperation and Development co-hosted an event with the Cities Climate Finance Leadership Alliance. By Laura Puttkamer

“Until 2060, the floor average of buildings will double. It might triple on the African continent. Imagine what this means for the environment if we continue using concrete and steel”, Martin Kipping, head of division for climate policy at the BMZ, said in his introductory speech. The new BMZ headquarters in Berlin would show how to decouple growth from emissions: It will be the first wooden high-rise structure in Berlin. “We are trying to do our part by showing what net zero carbon buildings in cities can look like”, he added.

But how can we shift to greener buildings on a larger scale?

Access to Funding is Key

Cities need better access to funding to create greener buildings. The Cities Climate Finance Leadership Alliance (CCFLA) presented findings from their soon-to-be-published city guide that covers financial and policy instruments along the value chain to facilitate carbon-neutral buildings. Priscilla Negreiros, manager at the Climate Policy Initiative (CPI) and moderator of the event, said that “With CCFLA, we are trying to increase the amount of finance that cities are receiving. We should all be talking about buildings and the building sector, understand the necessary policies and go into the nitty-gritty details”.

In 2020, the built environment accounted for 37 per cent of energy-related carbon emissions worldwide. Up to 5.4 trillion US dollars per year are necessary to fund low-carbon alternatives, Chavi Meattle from CPI added. The current investment gap is as high as 300 to 500 billion a year.

Why is the financing not flowing? According to CPI, there are financial barriers, opportunity barriers, a lack of market readiness, and regulatory barriers. These are not isolated barriers but instead strongly interconnected obstacles to climate finance. At the same time, CPI has identified more than 70 successful financial and policy instruments that can help achieve a transition to net zero carbon buildings in cities, such as the expedition of permits or pay-as-you save instruments. “Financing and policy always go together. Cities should try to not use too many instruments at once but rather integrate them and find an impactful pathway”, she explained.

Political Barriers to Green Buildings

Soumya Chaturvedula, Deputy Director of ICLEI-South Asia, explained that cities also face important barriers in the policy space when it comes to greener construction. “Cities don’t have free rein. There is usually some form of national policy driving green buildings and a plethora of regulations like building codes, rating systems, LEED certificates, and energy building codes for different kinds of buildings. Cities have to implement the national building code and carry the onus for implementation. It comes down to their capacities and political interest whether they implement other regulations and policies, too.”

Capacity building was a red thread during the discussion. Mike Enskat, head of sector for energy, water, and infrastructure at GIZ, works on the Programme for Energy Efficiency in Buildings (PEEB), a French-German cooperation. He said that it is important to take a multilevel government approach. “The government settings are very different from country to country. There is no one-size-fits-all solution. You need to understand the particular challenges and have a long-term engagement with governments on the regulatory and policy side, which eventually leads to investments.” Ultimately, this would also incentivise private sector investment that will help to finance the green transition, since public funding will likely not be enough.

Incentivising Green Buildings

Prashant Kapoor, Chief Industry Specialist at the World Bank Group member IFC, works to support cities like Jakarta and Bogotá. He suggested to walk the talk and support local governments in enabling finance. “The key is setting the rules to the game, like they did in Colombia. For a few years, 20 to 30 per cent of new construction there has been meeting green building standards thanks to a government policy. It works through a simple green bond. Working with developers has created the necessary momentum. Now, there are five banks offering green bonds for buildings in Colombia.”

Cities are certainly early movers and leaders when it comes to net zero carbon buildings. In India, social housing is the biggest housing market. States like Maharashtra have been successful in including green elements in social housing projects. This creates a new standard and pushes developers to offer net zero carbon buildings as part of their portfolio. “We need tremendous capacity building, starting with construction workers and reaching right up to building associations”, Soumya Chaturvedula from IFC explained. “But we are still missing frameworks around performance management, which is where you create an evidence base.”

Net zero carbon buildings don’t concern only new buildings, but also older building stock. The EDGE green building certification by IFC helps to provide assurance from a third party that the energy profile of a building has been validated. This tool is important for investors, but it also serves as a marketing initiative that furthers green funding. “We tend to focus so much on new construction, which especially in emerging markets is important as the lowest hanging fruit. But existing buildings are a much tougher nut to crack. The needed refurbishments go beyond AC replacements and must also consider embodied energy and carbon”, Prashant Kapoor added.

How to Leverage the NDCs for Net Zero Carbon Buildings

The Breakthrough Agenda for Buildings shows that there is an emerging consensus in the building sector. Apart from mobilising international climate finance, standardisation of net zero carbon buildings is important.

The building sector is notoriously complex and consists of many different actors. It is easy to forget climate. Here, cities play a key role. By making access to funding easier for local governments, they will be able to build capacity and adapt schemes to their specific context.

International city networks communicate successes and best practices. Geneva, for example, managed to refurbish and renovate whole urban areas through collective efforts and community development. By analysing these examples, we can learn from other cities.

Another consideration in terms of policy is that many cities do not have a building department, meaning that no one is really in charge of building stock. New York City, Singapore, and Tokyo are pioneering integrated solutions with policies like carbon pricing and cap and trade. Priscilla Negreiros summarised: “We need leaders at the city level to lead the way, to implement and to create policies from the city side. Getting easier access to funding will be key to realise more and more net zero carbon buildings in cities.”