Example of incentive programmes for retrofits: the KfW in Germany
Author: Georg Kraft
In Germany the KfW Bank handles incentive programs on behalf of the Federal Ministry of Transport, Building and Urban Development. The programs for energy-efficient construction and refurbishment receive favorable terms through German federal budget funds to provide financial incentives for more energy efficiency in the housing sector. Recent studies show that in Germany, energetic refurbishment of buildings is a win-win situation for the home owners, the environment, the economy and the federal budget. The effects of the supported energy efficiency measures have been evaluated since 2006. The current and previous evaluations and studies on the economic impacts are available on the website of the KfW Bank, in German.
The refurbishment of existing buildings to high energy standards significantly contributes to the reduction of energy demand and the lowering of greenhouse gas emissions. It also achieves enormous savings in heating costs. The additional demand in the construction sector has a positive effect on employment, which benefits SMEs in particular. In 2011, KfW committed loans and grants of EUR 2.9 billion for the retrofit of residential housing, this induced investments of 3.9 billion, and secured employment for 52,000 people. For each Euro spent from the budget to promote the retrofit of existing buildings and the construction of energy-efficient new builds, the German Federal Government received at least 3 Euros in tax income and savings, according to a study by Forschungszentrum Jülich (STE Report, also see Page 7, Table 2 of the study Energieeffizient Bauen und Sanieren.
The impacts of this program are noticeable. Incentives for energy efficient new builds and retrofits trigger high turnover. If the sales resulting from additional demand for wholesale service items (such as demand for insulation materials, heating furnaces, etc) are included with direct sales, for 2011 alone, the program resulted in a total turnover volume of EUR 27 billion for 262,000 homes (181,000 retrofits and 81,000 new builds). Energy retrofits are, for the most part, cost-effective when incorporated as part of the retrofit cycle, in other words with already planned modernization measures.
The promoted energy efficiency measures also have a noticeable impact on the labor market in that they trigger considerable employment effects. In 2011, for energy efficiency investments in the building sector overall, about 251,000 jobs were secured or created. The construction industry accounts for nearly three quarters of the direct employment effects. This also triggers indirect employment effects through the demand for inputs such as heating furnaces or insulation material in other industries. Due to the strong representation of SMEs in the construction industry, SMEs particularly benefit from the employment effects: 83 % of the overall employment effects occur in SMEs.
Macroeconomic analysis of the KfW’s EBS programs demonstrates that the continuation of these programs would provide the German economy with long-term growth impulses. Significant expansion of the programs, guaranteeing that the targets set in the context of the Federal government’s energy revolution strategy are met, would substantially increase these effects (see also Energieeffizient Bauen und Sanieren/).
In view of the very positive results of the KfW incentive programs on retrofitting in Germany, the implementation of similar programs in other countries is recommended. The ELENA facility provided by EIB and KfW may be used to refinance such programs for the public sector. See European Commission and European Investment Bank launch European Local Energy Assistance (ELENA) facility
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