The Economic Efficiency Of Market-Based Green Building Policy Instruments In China: A case study of the Chenghuaxinyuan Housing Scheme in Shanghai

Abstract: In order to curb emissions and resulting environmental problems caused by the rapidly growing energy use of its building sector, China has implemented a number of policy instruments to promote Green Building practices, including market-based instruments for energy efficiency in buildings. This thesis aims to evaluate the economic efficiency of these policy measures, using the Four-High Award of Shanghai and its application and impact on the Chenghuaxinyuan housing scheme as a case study. A cost-benefit analysis (CBA) was performed on the case to assess its economic efficiency from society’s perspective, complemented by a cost-revenue analysis from the residents’ and the developers’ perspective, respectively. Conservative estimates were used for all variables. All three analyses were subjected to sensitivity analyses. Data was collected from peer-reviewed literature, and interviews conducted with building market stakeholders in Shanghai. Results suggest that the Green Building policy measures as such are not economically efficient: costs outweigh benefits. Higher electricity prices combined with tougher energy standards could change this. However, the price premium represents an added value for which some customers are willing to pay, which explains why the project was realised, and why it is in fact benefial to society as well as developer: the residents pay many times over for the developer’s incremental investment, which in turn generates socio-environmental benefits to society. To residents, the incremental investment for living in a Green Building does not pay off in pure economic terms. Environmental and status regards appear more important than price to customers in this market segment. To the developer, however, results suggest that Green Buildings are very profitable, thanks to the vast price premium paid by customers. Interviews indicate that financial policy incentives are only a minor driver behind developers’ Green Building decisions. Good relations to government, and branding, are the two critical aspects driving Green Building in Shanghai.