China GB development
New GBs grow fast; less attention to GB renovations
The Chinese central government set building energy efficiency targets in the Five-Year-Plans (FYPs), based on which the local governments made regulations to implement instruments for GB promotion. The State Council (SC) laid out the 11th FYP (2006–2010) and the 12th FYP (2011–2015) for energy conservation and the reduction of emissions, which also set targets for building energy efficiency (SC 2007, 2012). For GB promotion, particularly, the MOHURD released the 12th FYP for GB and Eco-City Development (2011–2015) to achieve the targets set by the SC. During the execution of the 12th FYP, the total square footage of GB increased from 0.04 to 1 billion m2, which is 1.4 times the policy target in the 12th FYP (MOHURD 2017; Qiu 2019, p. 3). In 2017, the MOHURD released the 13th FYP for Building Energy Conservation and GB Development, aiming to have 50% of all new urban buildings to be certified green. By the end of 2018, 10, 139 projects with a total GFA of 2.5 billion m2 in China obtained GBEL certification, and more than 40% of the new residential and commercial buildings in the urban areas are green buildings (MOHURD 2020). Localities with strong regulations or policy support for GB have seen an increase in the number of GBs from 2017-2018 (CSUS 2019, pp. 261–304).Footnote 1
Despite the growth in China, GB still faces many challenges. The higher initial cost is the top challenge as a hurdle to GB promotion (Dodge Data and Analytics 2018, p. 48). Concerns about affordability are still the second challenge facing GB in China. The lack of public awareness and corruption used to rank as top challenges, but they became less important over time (Dodge Data and Analytics 2016, p. 43; 2018, p. 49).
Moreover, GBs still account for a minimal part (around 1%) of all existing buildings in China (MOHURD 2015). Future GB promotion in China may not only focus on large new GB pilot projects. Green renovations in the existing buildings can also have a significant GB potential. Moreover, the government-driven new GBs may not reflect the real client demand for GBs. Some of the new GB communities become ghost towns and ostensibly consume more energy than they can save (Li and Li 2016). As a result, the under-occupation of GB communities may not help to make the most of scarce land in urban areas. Perhaps for that reason, the central government now is putting more effort into green renovations (MOHURD 2015).
Government jump-started GB promotion; international collaboration triggers commercial GBs
The central government in China takes the lead in GB promotion. The central government requires all the public buildings to be certified green (Wang 2016b), and there has been some evidence to show that the public sector has a more prominent role in the GB market in China (Shiet al. 2013). Among other efforts, the National Assessment Standard for Green Buildings (2019) and the Green Building Energy Labelling (GBEL) are the doorways to GB compliance. Unlike the LEED system as a private rating system, the GBEL is a government-led certification programme established by the Ministry of Housing Urban–Rural Development of the PRC (MOHURD). It is reported that the government regulation and environmental policies have become one of the most important triggers for GB in China (CBRE 2015, p. 7; Dodge Data and Analytics 2016, p. 43; Yu et al. 2014, p. 9).
The building industry in China initially did not seem to play a big role (Li and Li 2016). Most of the GB regulations refer to the government-led GBEL certification. For the time being, CGBC focuses mainly on GB professional training and has not quite been engaged in private GB standardization. Private GB standards used in the Chinese GB market are mostly international private GB standards, e.g. BREEAM, LEED, and ISO 14000 (CBRE 2016, p. 3). LEED was chosen for an increasing number of commercial buildings in China because of its global recognition and reputation; GBEL is more often applied in residential buildings (Zou 2018). Through a structured questionnaire survey, Zeng et al. found that entry to the international construction market is one of the major incentives for the construction firms in China to use ISO 14000 (Zeng et al. 2003). The adoption of LEED or ISO 14001 implies that there are spillover effects of global GB practice on GB promotion in China.
This overview shows that new GBs have been growing fast in China, especially due to the policies and regulations supporting GB. Although there is an increasing number of commercial GBs using private GB certifications, the government-made GBEL is still dominant in the Chinese GB market. Section 4.2 will further investigate the instruments (mixes) in the Chinese GB policies and regulations.
Instruments (mixes) for GB in China
The promotion of GB in China is in line with the theoretical framework we sketched in Sect. 3, not relying on just one type of instrument either. In practice, a combination can again be found of government regulation, market-based instruments as well as persuasive instruments.
Command-and-control instruments: building permits and planning
For compliance at the firm level, the Chinese GB laws use building permits incorporating an environmental impact assessment (EIA). In theory, an EIA should be ex-ante to prevent non-compliance from the very beginning, and the possibility that permits can be revoked will be a more effective incentive to minimize social harm than would be monetary sanctions imposed ex-post (Ogus 1994, p. 229). However, the EIA Law of 2003 in China used to allow the violators to submit an EIA after the project had begun to run.
Article 61 of the Environmental Protection Law of 2014 has ended the ex-post EIA, requiring that a building permit can be granted if an EIA has been performed. For a life-cycle assessment, some central GB regulations require a follow-up EIA to see whether or not a project works in line with the EIA approved at the pre-construction stage, especially for projects that will generate hazardous substances or cause environmental risks. However, in practice, the ex-post EIA still exists in 8 jurisdictions,Footnote 2 so as to attract firms that can contribute to the local tax revenues (Wang 2016a, pp. 41–46).
Building permits can induce GB compliance at the firm level but are not an instrument to stimulate overall GB development. Therefore, GB compliance has also been required in land use planning or planning for renovations to improve building energy efficiency. The Urban and Rural Planning Law of the PRC (2008) requires governments to give land entitlements in the light of the land use planning. At the local level, the law requires the different government agencies to jointly make one plan that integrates the general planning, land use planning, and emission reduction planning of the city. However, GB planning may sometimes clash with property rights. An example could be the central government’s attempt to tear down the fences of residential communities and schools (SC 2016). The government intended to open up closed communities to connect the roads in the community to the public transportation network. The policy was viewed as trespassing on private properties and resulted in a backlash by the property owners or occupiers.
Combining building permits and land use planning can provide overall control of GB development as well as incentives for individual GB compliance. The two instruments are ex-ante and hence help to induce new GBs. However, in the long run, the information and administrative costs of the two instruments can be high for the government.
Market-based instruments: subsidies and public procurement
The central and local governments provide subsidies for new GBs or renovations for building energy efficiency (CSUS 2019, p. 270; Kong et al. 2012; Shui and Li 2012, p. 50).Footnote 3 Subsidies may lower the initial cost of GB and hence can be a direct incentive for private building stakeholders. However, subsidies are likely to create perverse incentives and lead to an increase in total environmental impacts (Baumol and Oates 1988, pp. 223–224; Murray et al. 2014). Perhaps for that concern, GB Regulations in the Nanking City require that energy-saving renovations should not take place in buildings that are planned to be torn down soon. In this way, the subsidies may not be used perversely to create incentives when the amount of money is higher than the actual costs of renovations.
Moreover, subsidies for new GBs may face an additionality problem, due to which subsidies may not have real impacts in changing behaviour (Baumol and Oates 1988, pp. 211–230). As GB compliance is becoming mandatory for new GBs, building stakeholders should build green, even without subsidies. Therefore, the governments divert the subsidies from new GBs to renovations in private buildings, where GB compliance is mostly voluntary.
The Chinese government also promotes GB via public procurement. Public procurement can increase the quantity demanded of GB in the short run (UNEP 2013, pp. 16–24). Public procurement may also indirectly increase private investment in green products in the long run (Marron 2003, p. 82). Those public GBs are likely to make professionals and customers better aware of GB (Simcoe and Toffel 2014, p. 413).
The 12th FYP for GB in China required all the public buildings to be GBEL certified. Besides, all central government agencies need to purchase building materials certified by China Environmental Labelling (CEL) in line with a specification environmental standard coded as HJ/T223 (MOF 2019). From 2008 to 2015, public GBs have accounted for more than 50% of the existing certified GBs (Wang 2016b, p. 9). Public procurement for GB in China increased the government-guaranteed demand for GBs (Zhu et al. 2013). Also, public procurement for green infrastructure projects is expected to grow because of the redevelopment of brownfields (Dion et al. 2015, p. 76).
Nevertheless, subsidies and public procurement may not guarantee the long-run growth of GB, in the absence of public spending to stimulate the GB market. For example, the CGBC report showed that, as the subsidy programme phased out, China’s retail sales of energy-efficient air-conditioners in 2012 decreased by 25.1% year-on-year (CGBC 2013). Also, it is found that the market demand has been the top trigger for GB activities, whereas the client demand for GB is much lower (Dodge Data and Analytics 2016, p. 49; 2018). This may imply that the GB market demand increased as a result of the increasing government spending, rather than as a result of private demand for GBs.
From this brief overview, it appears that the market-based instruments concerning GB are mostly the result of public spending (subsidies and public procurement). The subsidy and public procurement programs can reduce the higher initial cost and jump-start GB at the early stage. But the public spending may not guarantee the long-run growth of the GB market and may create perverse incentives for individual GB stakeholders.
Persuasive instruments: labelling and reporting
The Green Building Energy Labelling (GBEL) certification became dominant as most of the GB laws and policies refer to GBEL. GBEL is also available for residential and commercial buildings voluntarily. As noted in Sect. 2, the GBEL standards may not always score better in terms of GB techniques, compared to other private GB certifications like LEED. Also, the Chinese government has to constantly update GBEL standards, which may increase the administrative cost of GB regulation. However, private certifications are likely to be captured by the regulated community. For instance, LEED was incorporated into some GB regulations in the USA as a result of influential lobbies, and the USGBC, which created LEED, was later discovered to be offering generous certifications to their members (Shen and Faure 2018, p. 74). In contrast, GBEL standards are made by the Chinese government, and the certification process is also administered by a technical panel affiliated to the government. In this way, GBEL can be less subject to private interests.
Benchmarking or auditing is encouraged for energy efficiency in buildings. For energy auditing, the central government has established some databases to collect real-time information on energy use. During the 12th five year plan on GB, the MOHURD put in place a real-time monitoring system for GB renovations in more than 9000 buildings across 33 provinces (MOHURD 2013). With the databases, the central and local governments can predict the energy use in buildings and decide whether or not renovations for building energy efficiency should be undertaken (Wei et al. 2009).
However, so far, the real-time information seems to work more for the regulators and less for the private building stakeholders. Using data from buildings in the urban areas within the five climate regions in China, a study found that energy use may vary with buildings of the same type, depending on how the occupiers use the HVAC system or other appliances (Li 2016). Also, through survey data in the Guangdong Province, Ji and Chan found a positive relationship between perceived usefulness, social norm, and the intention to adopt smart home energy technology (Ji and Chan 2019). The empirical information indicates that GB regulation can use real-time energy efficiency information or peer comparison feedback to persuade end-users into GB compliance (Qiu 2016, pp. 6–7; Xia et al. 2014).
It can be observed that the informational instruments in China have long been in place for the government to oversee building energy efficiency.
An instrument mix: regulation meets liability for brownfield redevelopment
GB compliance also concerns land use and sustainable redevelopment, which may help to deal with land contamination. In 2017, the central environmental regulator made the Rule of the Management of Brownfields in the PRC (hereinafter ‘Brownfield Rule 2017), which identifies the responsible parties and the way to carry out the redevelopment. In the Chinese property regime, building projects and land entitlements are tied to each other. Project developers, as land users, are responsible for the redevelopment of brownfield sites.
Brownfield Rule 2017 seems to combine regulation and liability. The governments are the main parties to identify brownfields. In this way, brownfields left in the public domain can still be detected when private parties have no incentives to sue. The remedy work is assigned to the injurers or to the land users in cases where no injurer can be identified. In that sense, Brownfield Rule 2017 follows the idea that resources should be given to those who can value and make the most of them.
Moreover, Brownfield Rule 2017 includes not only the present users but also the former users of the property, which may help to reduce the under-deterrence and under-compensation problems with liability. On the one hand, the retrospective liability makes it easier to spot a liable party, given the lag between acts and harm that happens in land contamination. On the other hand, more responsible parties will pay the costs that could be too high for just one party to afford (the judgement-proof problem). Apart from the land users, the central government has launched a special fund for brownfield remediation, which may help to ease the insolvency risk.
Lessons from China
To summarize, instrument mixes not only make theoretical sense, but they have also been available for GB in China. The regulatory planning of GB keeps buildings away from areas of ecological concern and pursues a smarter use of urban land. However, the planning may interfere with the entitlements of private properties, as has been the case with the Chinese government’s attempt to open up closed residential communities for a smarter transportation network. Building permits are used to pursue GB compliance at the firm level and hence may not take into account the GB targets at the central level.
Subsidies and public procurement are financial incentives to reduce the higher initial cost and split incentive problem in GB. Public procurement may jump-start GB by increasing the quantity demanded in the short run and inducing private investment in GB in the long run. However, too much government spending may have the disadvantages of crowding out private investment and of making the GB market rely too much on the government.
Liability does not play a major role in GB promotion in China. Liability deals more with harmful externalities and may not be well-suited to induce environmentally beneficial behaviour. GB in the early days focused more on energy efficiency, which can hardly be associated with harmful externalities. Since GB takes into account indoor air quality and brownfield redevelopment, liability is likely to function as a complementary instrument for GB.
Persuasive instruments are mostly informational, as with labelling or reporting for building energy efficiency. The Chinese GB stakeholders adopted government-led GBEL or some international private GB certifications voluntarily. Energy auditing enables governments to oversee energy use in buildings. Yet the information collected through reporting works better for the regulator and less well for private parties like end-users. Real-time information and peer comparison feedback about energy use are likely to work as a behavioural intervention for more efficient energy use.
Brownfield Rule 2017 combines regulation with liability for the brownfield redevelopment as part of GB compliance. Brownfield Rule 2017 makes use of the advantages of liability and regulation to better detect and compensate for harm. However, Brownfield Rule 2017 does not clarify the scope of responsible parties and the distribution of responsibilities among them.
Although GB promotion lends itself to smart mixes, in China, regulation seems to play a more significant role than liability or self-regulation. The central government has been active in making laws and policies for GB. The government makes GB compliance mandatory for public buildings, which now account for the majority of all GBs. Subsidies and public procurement have been the main market-based instruments that rely on public spending. Informational instruments like labelling and energy auditing are better ways for the government to oversee energy use in buildings, and the standards and databases are mostly drafted by the government and not by the industry.
The way in which GB has so far been promoted via government intervention in China is perhaps one of the more successful areas of environmental policy in China. Even though quite a lot has already been achieved in this domain, it is likely that in the future, the instruments already used now (like public procurement or specification standards) will only be used on a larger scale, thus contributing more to the promotion of GB. Apart from Brownfield Rule 2017, some other instrument mixes with government intervention, such as emission trading systems that combine regulation with property rules, are expected to play a role in GB promotion in China (MOHURD 2019b).
There can, of course, be many more roles for the government in promoting GB than discussed in this contribution. One other role for the government could be to promote building knowledge capacity for professionals; another could be to provide protection for green products via intellectual property law (more particularly patent law). This paper, however, mostly focuses on the smart mixes of instruments that can be employed to promote green building and the government’s role in that respect.