Part 1.2 - Public administration tools to promote green buildings
1.2.1. Objectives
Within the scope of public administration, governments, whether national, regional or local, have the power to implement a variety of regulatory instruments to encourage positive changes in society. Realizing the need to promote resource efficient buildings, governments in countries around the world have developed a variety of public policies to either encourage or require them.
1.2.2. Incentives vs. Regulation
Policy instruments are defined as a set of techniques through which government authorities bring about changes in society. These instruments are classified in the following way:
Mandatory regulations
Instruments that seek to influence the behavior of citizens through mandatory rules and directives that are subject to oversight. An example would be the Technical Codes of Sustainable Construction.
Incentives3
Actions that are not mandatory according to a regulation, but that persuade or motivate citizens to make a decision in order to receive a reward. Subsidies offered to pay for the installation of solar panels or subsidies for sustainable social housing fall into this category.
Information
Aimed at providing information, training, and communication. Public health campaigns are an example for this instrument.
The regulatory framework under which incentives are established, depends on each country, whether it is a Unitary State or a Federal State, and the characteristics that make up the administration of each state or municipality.
Examples of mandatory regulation in the field of sustainable construction
Colombia
Resolution 549 of 20151, promulgated by the Ministry of Housing, City and Territory of Colombia, establishes the mandatory parameters and guidelines for all constructions in the country and offers a guide for saving water and energy in buildings.
Indonesia
The Sustainable Construction Code approved by the Provincial Government of Jakarta in Indonesia, through Governor’s Decree No. 38/2012 (Pergub 38/2012)1, also establishes a series of mandatory conditions for all new constructions in this city.
1.2.3. National vs. municipal policy
Generally, national level entities, such as ministries and public financial entities, may have control over more financial incentives, while local governments, such as municipalities or mayors’ offices, may grant technical incentives, as these are related to construction permits. It is worth noting that in some cases, such as Colombia, municipalities have jurisdiction over the collection of taxes related to buildings and public services, so reductions related to these payments can be part of the regulatory incentives to promote green buildings.
Examples of national policies and regulations that promote sustainable buildings
Colombia
In Colombia, the National Government, through the National Planning Department (DNP), issued CONPES Document (National Council of Economic and Social Policy) No. 3919, through which it approved the National Sustainable Buildings Policy. Its Action Plan seeks to develop a financial incentive program for homes and builders of sustainable buildings, which involves strengthening Green Mortgages and the Green Builder Line (financing for projects that improve energy efficiency), with access to preferential interest rates for building green, through the National Savings Fund and FINDETER (Financiera de Desarrollo Territorial – Colombia’s regional development bank). Likewise, the Action Plan suggests that entities review other types of incentives at the local level, which can help promote the construction of housing with sustainability criteria and other buildings. These incentives include tax exemptions, a reduction in processing times and an increase in permitted construction floor space, among others.
Likewise, Decree 1077 of 2015 of the Housing Sector, City and Territory of Colombia, in its Chapter 1 of Title 7 of Part 2 of Book 2, of the aforementioned decree, indicates that the National Government, through the Ministry of Housing, City and Territory, will promote municipalities and districts to establish incentives for the implementation of sustainable construction measures.
Peru
In Peru, the Ministry of Housing, Construction and Sanitation approved Supreme Decree 022-2016-VIVIENDA, which states that buildings that are built under the parameters of energy and water efficiency, that increase open spaces with vegetation, and that are located in urban areas, will receive a height bonus, as long as they comply with the corresponding technical and legal requirements and follow an international sustainable building certification standard. This decree authorizes municipalities to grant this type of technical incentives.
1.2.4. Incentives for Sustainable Construction
Put into practice in several countries4, public incentives for sustainable construction encourage the construction of buildings with improved energy and water efficiency measures, thereby moving the real estate market towards a low-carbon goal and prepare its participants for potential mandatory sustainable construction in the long term. The incentives are classified into financial incentives and technical (non-financial) incentives. However, the different types of incentives are not exclusive, they can in fact complement each other and be granted gradually depending on the level of water savings, energy or impact mitigation achieved.
a. Financial incentives
These are monetary incentives coming from the public treasury that are directed to builders or real estate developers or to those who acquire or use sustainable real estate units5. Public sector financial incentives include:
i. Tax incentives
Benefits that grant a partial or complete discount of national or local taxes, generally related to buildings, as well as the payment of some fees or rights related to public services, such as public sanitation, security, water fees, among others. Generally, these incentives are offered by public entities, which have the necessary competence within the administrative structure of a State6. A clear and transparent oversight system to allow the public entity to carry out audits to verify compliance with the conditions for the benefit is recommended. On the local level, this incentive is an option for taxes over which local governments hold jurisdiction.7
ii. Subsidies or discounts
Economic support granted to those who acquire buildings or technologies that allow saving of water, energy or materials. For example, the cities of Granada and Pamplona (Spain) approved the granting of subsidies for solar energy collection for various thermal uses8, or the program of the Fondo MiVivienda in Peru9, which grants a discount to those who acquire a sustainable property for the first time.
iii. Direct subsidies
Reimbursement of expenses in exchange for investment in clean technologies. An example is the UK Government’s Green Deal, which seeks to support entrepreneurs and homeowners who have employed green technologies in their properties, allowing them to repay the loan in their monthly electricity consumption payment.
iv. Green Mortgages
Additional amount and/or a lower preferential interest rate for a conventional mortgage loan when the borrower purchases a green or sustainable real estate unit. Examples include the Green Mortgage developed by the Instituto del Fondo Nacional de la Vivienda para los Trabajadores (INFONAVIT)10 in Mexico and the MiVivienda Verde Program of the Fondo MiVivienda in Peru.
v. Discounts on fees for building permits or buildings as such
Exemptions or reductions in the payment of some fees or rates paid by builders, owners or users of buildings. The Municipality can reduce the total or partial payment of the building permit, in cases when these represent a significant or attractive amount for the builder, as for example when the cost of these permits are a percentage of the total cost of the construction, as was done by the Municipality of Guatemala City.
Examples of tax exemptions to encourage sustainable construction
National Laws and Resolutions
Argentina
As part of Law 27467, Budget of Expenditures and Resources of the National Administration 2019, the Government of Argentina granted discounts on taxes, related to the purchase of environmentally friendly technologies.
Colombia
Resolution No. 196-2020 of the National Mining and Energy Planning Unit of Colombia approved a VAT exclusion (19%) and income tax deduction (25%) for project design services and technical solutions that are energy-efficient.
Subnational Decrees
Brasil
Decree 36.288 of November 17, 2022 of the Municipality of Salvador de Bahía in Brazil, grants a discount of up to 10% of the Urban Property and Territorial Tax (IPTU), to owners who adopt measures that stimulate protection, preservation and recovery of the environment. As well as a discount on so-called Outorgas Onerosas do Direito de Construir, fees for construction projects that plan to build above the established height limits and meet sustainability conditions.
Peru
Ordinance No. 314-00-CMPP of the Provincial Municipality of Piura in Peru approved a 30% discount on the payment of municipal services (arbitrations), for a period of two years, for projects of social interest that are certified as sustainable.
México
Income Law No. 29501/LXlll/23 of the Zapopan City Council of the State of Jalisco in Mexico, for the fiscal year 2024 has established the temporary reduction of fees for the use of public infrastructure, building licenses, for construction supervision, among others, to those projects that obtain an EDGE or LEED Certification.
Indonesia
The Central Bank of Indonesia increased the loan-to-value ratio by 5% for properties that are certified green.
Guatemala
Municipality of Guatemala
By Agreement COM-12-2022 of April 28, a 25% discount was approved on the building permit fee to reduce environmental impacts,, if a sustainability certification is presented.
b. Non-financial incentives (technical)
Incentives that represent a direct non-monetary benefit, but an incentive that can be monetized by the builder. Among these are:
i. Increased building area
One of the most widely used incentives worldwide, allowing for an increase in the built-up area through a height bonus11, a reduction in the minimum size of the real estate unit or a reduction in the unbuilt area, among others. This incentive is contingent on compliance with a series of sustainability measures and green building certification.
ii. Regulatory flexibility
Relaxation of urban planning parameters for the builder above the established minimums or maximums. For example, the reduction of the minimum number of parking spaces for vehicles per unit, reduction of public spaces, mixed use of rooftops, among others.
iii. Expedited processing of construction permits
This incentive focuses on offering a faster process for obtaining licenses, or any other paperwork linked to buildings, accessible by achieving sustainable construction certification.
iv. Technical or commercial assistance
In this case, the Municipality offers a professional team of experts in sustainable construction to guide the developer/owner in implementing the best sustainable solutions or selling buildings with these characteristics.
v. Other incentives
Including institutional recognition through the publication in official publications and networks for real estate projects that have received incentives for green certification.
Examples of non-financial incentives
India
The municipality of Pune in India grants an additional 3% land use coefficient for achieving 30% savings in energy, water and embodied energy in materials, 5% for achieving 40% efficiency and 7% if savings reach 50%.
Peru
Regulation of Territorial Conditioning and Sustainable Urban Development of Peru, Supreme Decree No. 022-2016-VIVIENDA, features a height bonus as an incentive for sustainable construction, as long as the buildings meet the technical requirements of an internation building sustainability certification.
Peru
Examples of regulatory flexibility
Ordinance N°285-2020-MDC of the District Municipality of Cayma in Arequipa, Peru
This ordinance provides for the possibility of selecting from four types of incentives, including two additional floors and additional permitted floor space for newly built or ongoing projects in Medium Density Areas (MRD) and High Density Areas (HRD), and Commercial areas.
Ordinance N°610-MSB of 2018, Ordinance for the promotion of sustainable buildings in residential areas in the district of San Borja (Lima) modified by Ordinance N°623-MSB of 2019.
This ordinance provides for a height bonus of up to two additional floors in the first project certified as sustainable, as well as a reduction in the minimum area of the real estate unit and a reduction in the number of parking spaces required.
Examples of expedited processing
Ordinance No. 314-00-CMPP of the Provincial Municipality of Piura, Peru
This ordinance stipulates that it will issue construction licenses in twenty days to those who can prove that their projects meet international sustainable standards.
Recommendations for Choosing Incentives in a Regulation
1. Applicability and good reception
It is essential to choose incentives that are attractive, feasible and applicable by developers, so that they meet the objective of promoting green construction.
2. Maximum territorial application
It is recommended to offer them in the largest area or, as far as possible, in all the territory of the municipality to generate an impact. It is also possible to grant incentives differentiated by areas.
3. Categories
Consider the possibility of offering financial incentives together with technical incentives, since they complement each other. Consider the possibility of benefiting builders/developers and also the owners and/or tenants of the buildings.
4. Typologies
Consider offering incentives to all types of buildings including residential, commercial, mixed, educational, industrial and social housing.
5. New or existing buildings
Take into account that incentives can be offered for both new and existing buildings, the latter stimulating comprehensive energy retrofit strategies.
2 Alza, Carlos (2011). What types of public policies exist? Valor Público Blog http://carlosalzabarco.wordpress.com/2011/05/06/tipologiade-politicas-publicas/. 2 July 2014.
3 It should be noted that incentives can also be used to promote compliance with a mandatory regulation or to achieve results above the minimums established by the regulation. An example of this is Resolution 549 of the Colombian Ministry of Housing, City and Territory, which empowers municipalities to establish incentives to increase the minimum percentages of energy and water savings established in the resolution.
4 En la publicación “Green Buildings Policy Pathways for Emerging Markets” el IFC recopila diversas políticas públicas implementadas para promover las edificaciones verdes.
5 There are financial incentives that can come from private banks that can translate, for example, into better interest rates for those projects that comply with a sustainable construction certification. However, in this guide we will be focusing on those financial incentives that come from public entities, such as national governments or entities such as ministries, or others.
6 For example, the property taxes are usually set at the national level, usually managed by the Ministry of Economy and Finance or the Treasury. However, in countries such as Brazil, municipalities can approve exceptions to the property tax.
7 In the case of Peru, the recommendation is to implement a discount in the payment of property taxes exclusively for social housing projects, since this type of projects have technical incentives provided by the National Government.
8 Mapping of economic incentives for green construction, various authors, Brazilian Chamber of Industry and Construction (CBIC), 2015.
9 The MiVivienda Fund is a set of programs offered by the Government of Peru, which provides subsidies and better interest rates for the purchase or construction of a first home for lower-income families. Among these programs is Mivivienda Verde, a mortgage loan aimed at the purchase of housing in projects certified as sustainable, which grants a subsidy and preferential interest rates based on the implementation of sustainability measures.
10 Hipoteca Verde is a housing financing scheme developed by the Instituto del Fondo Nacional de la Vivienda para los Trabajadores (INFONAVIT) to encourage the use of energy-efficient systems and technologies in low-income households. Families that purchase homes with INFONAVIT also receive a ‘green’ mortgage (a credit in addition to the mortgage loan itself) of up to US$1,250, to cover the cost of other green technologies. The initiative aims to encourage builders to construct homes using energy-saving materials and technologies, and the low-interest mortgage allows families to save more on their utility bills than the increase in their monthly mortgage payments. To date, more than 900,000 Green Mortgage loans have been granted, benefiting more than three million people.
11 A height bonus allows building above the maximum limits established in the Urban Development Plan, Land Use Plan, Master Plan or other regulations, as long as sustainability standards that allow savings in water, energy and energy embodied in materials are complied with.