Paul Caica

11 July 2012  – The South Australian Government looking to join Melbourne and NSW in offering Environmental Upgrade Agreements mechanisms.

The state government wants to hear from key stakeholders, specifically from the property, finance and local government sectors, to comment on a consultation paper regarding the establishment of environmental upgrade finance.

Announcing the consultation at the Clean Revolution Leadership Summit at Rio+20 last month Minister for Sustainability, Environment and Conservation Paul Caica said the environmental upgrade finance had the potential to help building owners gain access to commercial finance and overcome key barriers in implementing building retrofits.

Submissions must be received by 20 July, 2012.

“Environmental upgrade finance is an innovative green building financing mechanism for retrofitting existing buildings,” Mr Caica said.

“It is important to support the commercial property industry in their sustainability efforts, so I encourage key stakeholders from the property, finance and local government sectors to get involved in this consultation.

“There is significant potential to encourage greater investment in upgrading existing buildings. This can generate employment in the construction sector, reduce occupancy costs for tenants and lower energy use and associated carbon emissions.”

The move was endorsed on 30 April by the Premier’s Climate Change Council.

The consultation paper says green building finance mechanisms allow a loan to be tied to a property, rather than a property owner, to finance a building upgrade project that results in environmental benefits such as reduced greenhouse gas emissions, improved energy use and reduced water consumption.

“This mechanism allows loan repayments to be made through a property related charge such as council rates, property tax or an energy bill.

“Upgrade projects may include bundles of measures such as the installation of insulation, shading devices, energy efficient lights and fixed appliances, water efficient taps and plumbing fixtures and on-site energy generation such as solar photovoltaic and co-generation.

“These projects are designed so as to result in lower energy, water and maintenance costs. In the event of a transfer in ownership of the property, the loan remains with the property, and the obligation to make the repayments transfers to the new owner, along with the benefit of reduced utility costs.

“Capital is usually provided through the banking and finance sector at a lower interest rate due to the reduced level of risk to the financier.

“The role of state and/or local governments usually centres on enacting the enabling legislation and providing ongoing coordination or administration.

“Such mechanisms overcome a number of key barriers to implementing environmental upgrade projects of buildings, including: lack of available capital for environmental upgrades from traditional financiers; building owners’ perception that the investment won’t yield a sufficient return ín savings; and the split incentive in leased buildings where the building owner is not incentivised to invest in energy and water efficiency as the tenant pays the utility bills.

“Under green building finance mechanisms, tenants can share in both the costs and the benefits.”

The paper says green building finance is well established in the United States, with 24 states enacting legislation between 2008 and 2010 to enable Property Assessed Clean Energy Schemes.

“The US model allows municipal governments to offer a special bond to financiers, and the revenue raised is then loaned to consumers and businesses to put towards an energy retrofit of either a commercial or residential property.

“The loans are repaid by an increase in the property tax payable on the property.

“The UK is also in the process of establishing a similar mechanism referred to as Green Deals.

“The Green Deal framework will enable private firms to offer consumers energy efficiency improvements to their homes and community businesses at no upfront cost, and recoup payments through an additional charge on their energy bill.

“The financial obligation for repayments moves to the next bill payer at the property following a change in occupancy.”

The paper says Melbourne was the first Australian city to implement a green building finance mechanism underpinned by amendments to the City of Melbourne Act 2001 that were passed by the Victorian Parliament in September 2010.

“The amendments allow Melbourne City Council to enter into voluntary tripartite agreements, known as Environmental Upgrade Agreements, with Australian financial institutions and building owners, to finance environmental upgrades for non-residential buildings located within the municipality.

“Following the establishment of an agreement, the financial institution advances funds to a building owner for environmental upgrade works on the building, and Melbourne City Council then applies a special charge against the property, referred to as an Environmental Upgrade Charge, which is collected on top of rates before being forwarded to the financial institution.

“Being a council charge, the building owner is able to pass the additional cost of the charge through to tenants as part of the lease arrangement.”