Energy Saving and Carbon Finance in the Building Sector – A Comparison between China and Germany

Background Information

Climate change is one of the greatest challenges of mankind. In April 2007, the Intergovernmental Panel on Climate Change (IPCC) published its Fourth Assessment Report, stating that global atmospheric concentrations of CO2, CH4 and N2O have increased markedly due to human activities, which cause global warming. Due to the negative impacts of global warming, the United Nations Framework Convention on Climate Change (UNFCCC) and, on February 16th 2005, the Kyoto Protocol entered into force, pushing international endeavors to mitigate greenhouse gas (GHG) emissions. Although the COP 15 climate negotiations in Copenhagen failed to commit to a binding agreement for the time after 2012, they do request developed and developing countries to submit their unilateral mitigation actions by the beginning of 2010. China committed itself to reducing the emissions intensity of its GDP by 40-45% by 2020 compared to the level of 2005. Concrete steps are expected for the coming high-level climate talks in Mexico and South Africa in 2010 and 2011.

Since the economic reforms of the late 1970s, the Chinese economy has grown rapidly with an average annual growth rate of 10%, making China now the largest emitter of GHGs in the world. One main driver of these emissions is the Chinese building sector, which accounts for almost 30% of the total emissions. The average energy efficiency level of Chinese buildings is very low. Given the fact that China’s urbanizations rate in 2008 was only 48%, it can be expected that the building sector’s emissions will rise in the future.

Due to the fact that reducing one ton of GHG emissions in developed countries is more expensive than reducing emissions in developing countries (while at the same time this has the same effect on global warming), the flexible instruments of the Kyoto Protocol were introduced, allowing developed countries to participate in the international emission trading system. The Clean Development Mechanism (CDM) allows entities to reduce emissions on a project level, turn them into emission rights and sell them to developed countries. Some sectors like the electricity sector have a large share in the portfolio of projects designed for the international emission trading system. Other sectors like the building sector, however, are hardly affected by emission trading: Up to May 1st, 2010 only 22 CDM projects of the building sector were in the UNFCCC certification process; however, over 3.500 wind and hydropower projects have already been registered by the Executive Board.

Main Focus and Approach

The main focus of this thesis is to analyze the barrier of high transaction costs for the CDM project development and discuss opportunities to overcome this barrier On the one hand, a single building’s energy consumption is relatively low so that its potential for emission reductions is limited as well; on the other hand, CDMs in the building sector cause the same transaction costs within the UNFCCC certification process as other projects reducing GHG emissions, like renewable energy projects, whose reduction potential is much higher. Buildings can be classified into several categories, such as residential/public, urban/rural, high-rise/low rise, etc. Similar characteristics can be used for bundling; this leads to the opportunity to conduct and certify bundled energy saving measures in buildings not only on a project level (within fixed physical boundaries) but also on more aggregated levels, such as the programme or even the sectoral level.

Therefore, the goal of this thesis is to discuss the following issues and present proposals for solutions for the relevant authorities and institutions:

- Present the main characteristics and evaluate strengths and weaknesses of the already existing carbon finance instruments, the CDM and the pCDM (Programmatic CDM), and discuss case studies. In contrast to the CDM, many regulatory issues are still missing or uncertain in case of the pCDM and have to be clarified or revised by the UNFCCC as the authority in charge. Additionally, this thesis will come up with recommendations on how to eliminate these weaknesses, such as high transaction costs, time consuming approval procedure etc. On the national level, the designated Chinese authority, the National Development and Reform Commission (NDRC), still has to set up the national legislation for pCDM; the thesis will also give advice on how to tap the potential of pCDM in the Chinese building sector in an optimal way.

- Outline the characteristics of new carbon finance instruments in order to promote and support energy efficient buildings in China. New carbon finance instruments, such as the sectoral approach, are widely discussed among scientists, but are not yet adopted by the UNFCCC as the international body as well as national authorities. Therefore, this thesis will outline the whole regulatory framework of this approach to be set up by the UNFCCC and give advice to the NDRC (being the designated national authority for carbon finance issues) how to establish the related national legislation.

- Provide advice to national authorities that are in charge of energy efficiency issues of buildings on the issue and clarify which preconditions, such as institutional and regulatory frameworks, have to hold in order to support the carbon finance instruments mentioned above.

- Germany is a pioneer in terms of both, buildings’ energy efficiency technology as well as low carbon buildings’ legislation. This thesis shall identify potential fields of cooperation with foreign companies and other institutions, such as transfer of know-how, selling of products, introduction of advanced management practices, purchase of certificates, etc.


Dissertation of Dr. Haoping Wang.