PublicDisclosureAuthorizedPublicDisclosureAuthorizedPublicDisclosureAuthorizedPublicDisclosureAuthorizedReportBuildingGreenSustainableConstructioninEmergingMarketsOCTOBER2023AboutIFCIFC—amemberoftheWorldBankGroup—isthelargestglobaldevelopmentinstitutionfocusedontheprivatesectorinemergingmarkets.Weworkinmorethan100countries,usingourcapital,expertise,andinfluencetocreatemarketsandopportunitiesindevelopingcountries.Infiscalyear2023,IFCcommittedarecord$43.7billiontoprivatecompaniesandfinancialinstitutionsindevelopingcountries,leveragingthepoweroftheprivatesectortoendextremepovertyandboostsharedprosperityaseconomiesgrapplewiththeimpactsofglobalcompoundingcrises.Formoreinformation,visitwww.ifc.org.BuildingGreenSustainableConstructioninEmergingMarketsBUILDINGGREENPage2ACKNOWLEDGEMENTSThisreportwaspreparedundertheguidanceofSusanKruskaiaSierra-Escalante(SeniorManager,CBFNP,IFC)Lund,VicePresidentofEconomicsatIFC.DenisMedvedevandElizabethT.Burden(OperationsOfficer,CBFNP,IFC)(Director,CERDR,IFC),RoumeenIslam(SeniorEconomicfortheirinvaluablehelpwiththeconcessionalandblendedAdvisortotheCEO,IFCMD,IFC),VivekPathak(Director,financedata,andDiepNguyen-VanHoutte(SeniorManager,CBDDR,IFC),andJamieFergusson(Director,CBDDR,CBDSB)forhercommentsonthereport.PeterGumbelIFC)providedresearchleadership.LucioCastro(SeniorandWilliamShawweretheeditorsandIrinaSarchenkoEconomist,CERER,IFC)wastheleadauthormanaging(CommunicationsOfficer,CCOCO,IFC)servedasthetheteam.WorkingteammembersincludeImtiazUlHaqgraphicseditor.BrianBeary(CommunicationsOfficer,(Economist,CERER,IFC),JulianaSomerville(Consultant,CCOCO,IFC)andChrisVellacott(SeniorCommunicationsCERER,IFC),GabrielMichelena(Consultant,CERER,IFC),Officer,CCOCO,IFC)playedaninvaluableroleineditorialSamuelAsuquoEdet(Economist,CERER,IFC),EdgarSalgadoproduction.NadyaSaber(SeniorCommunicationsOfficer,(Economist,CERER,IFC),MatyKonte(SeniorEconomist,CCOIC,IFC),MonicadeLeon(CommunicationsOfficer,CERER,IFC),andArianaTamaraVolk(AssociateEconomist,CCOIC,IFC),andNicolasDouillet(SeniorCommunicationsCERER,IFC).LiTu(SeniorInvestmentOfficer,CMGMF,Officer,CCOIC,IFC)ledthedisseminationefforts.AdamaIFC),JohnAnagnostou(SeniorIndustrySpecialist,CMGMF,Badji(ExecutiveAssistant,CERDR,IFC),IrinaTolstaiaIFC),MarekStec(SeniorIndustrySpecialist,CMGMF,IFC),(ProgramAssistant,CERDR,IFC),andGleiceZanettinandJinhuan(Ursula)Sun,(AssociateInvestmentOfficer,(ProgramAssistant,CERDR,IFC)providedadministrativeCMGMF,IFC)co-authoredChapter3,whileImtiazUlHaqsupport.andJulianaSomervilleco-authoredChapter4.DominiqueWethankthepeerreviewersTomFarole(LeadEconomist,vanderMensbrugghe(DirectorandResearchProfessor,SCADR,IBRD),StephanHallegatte(SeniorClimateChangePurdueUniversity)andMaksymChepeliev(SeniorResearchAdviser,GGSVP,IBRD),SeemaJayachandran(ProfessorofEconomist,PurdueUniversity)developedthemodelandEconomicsandPublicAffairs,PrincetonUniversity)andproducedtheprojectionspresentedinthisreport,jointlyJuanPabloRud(ProfessorofEconomics,RoyalHolloway,withLucioCastroandGabrielMichelena.R.Balaji(ChiefUniversityofLondon)fortheirinsightfulcomments.IndustrySpecialist,CMGMF,IFC),JohnAnagnostouandWeespeciallythanktheFacilityforInvestmentClimateMarekStecprovidedinvaluableexpertiseandsupportAdvisoryServices(FIAS)forthefinancialsupportprovidedonconstructionmaterials,andHaniaDawood(Practiceforthereport.FIASsupportsWorldBankGroupprojectsManager,SCCFE,WorldBank),CorinneFigueredo(Seniorthatfosteropen,productive,andcompetitivemarketsOperationsOfficer,CBDSB,IFC),PrashantKapoor(ChiefandunlocksustainableprivateinvestmentinbusinessIndustrySpecialist,CBDSB,IFC),OmmidSaberi(Seniorsectorsthatcontributetogrowthandpovertyreduction.IndustrySpecialist,CBDSB,IFC),SandeepSingh(OperationsSupportedbynearly20developmentpartnercountriesandOfficer,CBDSB,IFC),NazBeykan(Consultant,CBDGB,IFC),donorinstitutions,co-financedbytheWorldBankGroup,andSmitaChandraThomas(Consultant,CBDGB,IFC)onandmanagedandimplementedbyIFC,FIASisoneofthegreenbuildings.JeanPierreLacombe(Director,CGRDR,oldestandlargestmulti-donortrustfundsintheWorldIFC),VeronicaNavas(SeniorEconomist,CGRDR,IFC),BankGroup.Formoreinformation,seetheFIASwebsiteatandJulioFloresSalvatierra(SeniorEconomist,CGRDR,www.thefias.info.IFC)provideddetailedcommentsontheprospectsforsteeldecarbonizationinemergingmarkets.WealsothankPage3CONTENTSForeword�������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������6MainFindings������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������8ExecutiveSummary��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������10CHAPTER1:ProspectsforReducingCarbonEmissionsfromConstruction�����������������������������������������������������������������������������������������271.1.Summary����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������281.2.ConstructionvaluechainsareamajorcontributortoglobalCO2emissions,particularlyfromemergingmarkets.�����������������������������������������������281.3.Emissionsfromconstructionaresettoriseandareofftracktomeetconstructionclimatecommitments.������������������������������������������������������������361.4.Acombinationofavailableandemergingtechnologiesandpolicyactionscanreversethegrowthinconstructionvaluechainemissions.421.5.$1.5trillionininvestmentinemergingmarketsisneededtoachievetheemissions-reductiongoalinconstruction.��������������������������������������������471.6.Decarbonizingconstructionvaluechainsentailsshort-termtrade-offsforlong-termbenefits.����������������������������������������������������������������������������������50CHAPTER2:BuildingGreeninEmergingMarkets��������������������������������������������������������������������������������������������������������������������������������552.1.Summary����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������562.2.Theenvironmentalandfinancialadvantagesofgreenbuildings.����������������������������������������������������������������������������������������������������������������������������������������������562.3.Decarbonizingbuildingsinthenextdecade.������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������60CHAPTER3:TechnologicalSolutionsforDecarbonizingConstructionMaterials��������������������������������������������������������������������������������713.1.Summary�����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������723.2.Reducingemissionsfromtheproductionofconstructionmaterialsischallenging.������������������������������������������������������������������������������������������������������������723.3.Theconstructionmaterialsindustryiswell-positionedtodecarbonize.����������������������������������������������������������������������������������������������������������������������������������723.4.Moreneedstobedonetodecarbonizeconstructionmaterials.������������������������������������������������������������������������������������������������������������������������������������������������763.5.Opportunitiesandchallengesforinvestmentsingreencementandsteel.���������������������������������������������������������������������������������������������������������������������������85CHAPTER4:FinancingtheGreenConstructionTransitioninEmergingMarkets�������������������������������������������������������������������������������874.1.Summary���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������884.2.Emergingmarketsarenotmobilizingenoughgreenprivatefinancetodecarbonizetheirconstructionvaluechains.���������������������������������������884.3.Marketfailureslargelyexplainthepaucityofgreenfinanceforconstructioninemergingmarkets.��������������������������������������������������������������������������894.4.Concertedactionbyprivateinvestorsandpolicymakerswillberequiredtoovercomemarketfailuresandreduceemissionsfromconstructionvaluechains.��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������93CHAPTER5:WaysForward�������������������������������������������������������������������������������������������������������������������������������������������������������������������111Annexes�������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������117Annex1:TheGeneralEquilibrium—CircularEconomy(CGE-CE)Model����������������������������������������������������������������������������������������������������������������������������������������118Annex2:SupplementaryTablesandFigures��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������122Annex3:MethodologyforGreenBuildingFinanceandPolicyTools���������������������������������������������������������������������������������������������������������������������������������������������130References��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������137BUILDINGGREENPage4EXHIBITSEXHIBIT1������������������������������������������������������������������������������������29EXHIBIT16����������������������������������������������������������������������������������65ConstructionGeneratesAbout40PercentofGlobalCarbonExpectedCostsandAbatementPotentialofDecarbonizationEmissionsOptionsinConstructionEXHIBIT2������������������������������������������������������������������������������������30EXHIBIT17����������������������������������������������������������������������������������67CementandSteelAccountforAbout50PercentofCarbonDistrictCoolingSystemsCanReduceEnergyConsumptionupto40EmissionsfromConstructionMaterialsPercentEXHIBIT3������������������������������������������������������������������������������������32EXHIBIT18����������������������������������������������������������������������������������77CementIstheMostCarbon-IntensiveActivityGloballyAbatementPotentialandEconomicCostsofTechnologicalSolutionsEXHIBIT4�����������������������������������������������������������������������������������33EXHIBIT19����������������������������������������������������������������������������������82Construction-RelatedEmissionsinEmergingMarkets,2022UseofAlternativeFuelsforCementProductionisLimitedinLow-IncomeRegionsEXHIBIT5������������������������������������������������������������������������������������34EmergingMarketsAccountforAbout90and70PercentofGlobalEXHIBIT20����������������������������������������������������������������������������������91CementandSteelProductionGlobalPrivateGreenDebtFinancetoBuildGreenIncreasedTwentyfold,andAbout70PercentFlowedintoGreenBondsEXHIBIT6�����������������������������������������������������������������������������������35ConstructionMaterialsProductionIsMoreCarbonIntensiveinEXHIBIT21����������������������������������������������������������������������������������92EmergingMarketsThaninHigh-IncomeCountriesEmergingMarketsIssuedOnly10PercentofGlobalDomesticandForeignPrivateGreenDebtFinanceforConstructionEXHIBIT7������������������������������������������������������������������������������������37DecarbonizationDisseminationofGreenBuildingMeasuresbythePrivateSectorHasBeenLimitedOutsideHigh-IncomeCountriesandLargeEmergingEXHIBIT22����������������������������������������������������������������������������������93MarketsLatinAmericaandtheCaribbeanAccountsforMoreThan50PercentofPrivateGreenDebtIssuanceforConstructionEXHIBIT8�����������������������������������������������������������������������������������39DecarbonizationinEmergingMarketsOutsideChinaGlobalConstructionEmissionsAreProjectedtoGrowEXHIBIT23���������������������������������������������������������������������������������94EXHIBIT9����������������������������������������������������������������������������������40EmergingMarketsAreIncreasinglyUsingSustainability-LinkedSouthAsiaWillBeDrivingtheIncreaseinConstructionEmissionsinInstrumentsforGreenConstructionFinancingEmergingMarketsEXHIBIT24����������������������������������������������������������������������������������97EXHIBIT10����������������������������������������������������������������������������������43Sustainability-LinkedFinanceCanHelpDecarbonizeHard-to-AbateGlobalConstructionEmissionsCouldDeclineby13PercentBelowConstructionMaterialsthe2022Levelby2035withDecisiveActioninConstructionValueChainsEXHIBIT25��������������������������������������������������������������������������������100FundraisingbyGreenREITsIncreasedMoreThanFortyfoldintheEXHIBIT11����������������������������������������������������������������������������������46LastFourYearsEmergingMarketsWillAccountforMostoftheExpectedReductioninConstruction-RelatedEmissionsEXHIBIT26��������������������������������������������������������������������������������104CarbonTaxesHaveBeenIntroducedinOnlyaFewEmergingEXHIBIT12���������������������������������������������������������������������������������48MarketsInvestmentNeedsforBuildingGreenWillAmountto$1.5TrillioninEmergingMarketsintheNextDecadeEXHIBIT27��������������������������������������������������������������������������������105Regional,National,andSubnationalEmissionsTradingSystem(ETS)EXHIBIT13���������������������������������������������������������������������������������49InitiativesImplementedInvestmentinBuildingGreenWouldBeLargestinResidentialHousingEXHIBIT28��������������������������������������������������������������������������������109LatinAmericaandtheCaribbeanandSub-SaharanAfricaReceiveEXHIBIT14����������������������������������������������������������������������������������59AboutHalfofConcessionalandBlendedFinanceUpfrontCapitalCostsandPaybackPeriodsofGreenBuildingsVaryWidelyEXHIBIT29���������������������������������������������������������������������������������110MultilateralDevelopmentBanksRaisedAbout$16BillioninBondsEXHIBIT15���������������������������������������������������������������������������������60SupportingBuildingGreeninEmergingMarketsin2017–2022GreenBuildingsCanHaveLowerOperatingCostsandHigherAssetValuePage5ABBREVIATIONSANDACRONYMSBF-BOBlastFurnace–BasicOxygenFurnaceCCUSCarbonCapture,Utilization,andStorageCDMCleanDevelopmentMechanismCERCertifiedEmissionReductionCGE-CEComputableGeneralEquilibrium–CircularEconomymodelCO2kgeq.KilogramsofcarbondioxideequivalentDFIsDevelopmentFinanceInstitutionsEAFElectricArcFurnaceEBRDEuropeanBankforReconstructionandDevelopmentEDGEExcellenceinDesignforGreaterEfficienciesEFEnvironmentalFinanceEFTAEuropeanFreeTradeAssociationENVISAGEEnvironmentalImpactandSustainableAppliedGeneralEquilibriummodelESGEnvironmental,Social,andGovernanceETSEmissionsTradingSystemEUEuropeanUnionGCCAGlobalCementandConcreteAssociationGDPGrossDomesticProductGHGGreenhouseGasGTAPGlobalTradeAnalysisProjectIBRDInternationalBankforReconstructionandDevelopmentIDAInternationalDevelopmentAssociationIEAInternationalEnergyAgencyIEAPAMSIEAPolicyandMeasuresdatabaseIFCInternationalFinanceCorporationIMFInternationalMonetaryFundIMFWEOIMFWorldEconomicOutlookKPIsKeyPerformanceIndicatorsMAGCMarketAcceleratorforGreenConstructionMDBsMultilateralDevelopmentBanksMtCO2eq.MetrictonsofcarbondioxideequivalentNDCsNationallyDeterminedContributionsOECDOrganizationforEconomicCo-operationandDevelopmentPM2.5ParticulateMatterPollutionR&DResearchandDevelopmentREITsRealEstateInvestmentTrustsUNFCCCUnitedNationsFrameworkConventiononClimateChangeBUILDINGGREENPage6ForewordConstructionvaluechains,includingtheconstructionandoperationofbuildingsaswellasproductionofmaterialssuchassteelandcement,accountforapproximately40percentofenergyandindustrial-relatedCO2emissionsglobally.Two-thirdsofthiscanbeattributedtoemergingmarkets,andthiscontributionwillgrowsubstantiallyasgrowingpopulations,urbanization,andrisingincomesdrivedemandforbetterhousingandcommercialbuildings.Howdevelopingcountriesmeettheirrisingbuildingneedswillbepivotaltotheworld’sclimatefuture.Thegoodnewsisthattheprojectedemissionsgrowthinconstructionvaluechainscanbereducedsignificantlywiththeapplicationofexistingtechnologies,newfinancinginstruments,andtheimplementationofappropriatepolicies.Evenasemergingeconomiesmeettherisingdemandforresidentialandcommercialbuildings,itispossibletoreducetotalemissionsfromthesectorbelowtoday’slevelby2035.Toavoidperpetuatingthestatusquo,decisiveactionisneededbypolicymakers,developers,constructionmaterialproducers,financiers,andinternationaldevelopmentinstitutions.IFCislaunchingthisreporttoguideinternationaleffortstodecarbonizeconstructionvaluechains.BuildingGreen:SustainableConstructioninEmergingMarketswaspreparedthroughclosecollaborationbetweenIFCeconomists,investmentofficers,andbuildingandconstructionsectorspecialists.Thereportprovidesacomprehensiveanalysisofthechallengesofreducingcarbonemissionsfromconstructionvaluechainsindevelopingcountries,butalsotheconsiderableopportunitiesthatwillcomefrommobilizingtheestimated$1.5trillionofinvestmentrequiredforthistransition.Page7ForewordThereportalsooffersimportantrecommendationsonfinancialinstruments,technicalassistance,standards,technologies,andcapacitybuildingtochannelmorefinancingintogreenbuildingsandmaterialsandaddressthemarketfailureshamperingfurtherprogressonbuildinggreen.IFC'sowngreenbuildingsprogramandsustainability-linkedfinancefacilitiesofferprovenmodelsonhowsuchinitiativescanbeaccomplishedatscale.Realizingthepotentialoutlinedinthisreportwillrequirecoordinatedeffortsbystakeholdersacrossregionsandindustries.IFCiscommittedtoworkingwithpolicymakers,businesses,andinvestorsonseizingtheclimateopportunityinbuildinggreenandturningtoday’schallengesintoopportunitiesforagreener,moreresilientworld.SusanM.LundVicePresident,EconomicsandPrivateSectorDevelopment,IFCBUILDINGGREENPage8MainFindingsGlobalclimategoalswillnotbeTechnologiesthatalreadyexistcansignificantlyreduceachievedwithoutasubstantialreductionconstruction’senvironmentalfootprintwithmoderateinemissionsfromtheconstructionsector.economiccosts.Forbuildingsoperation,thesetechnologiesThisposesaparticularchallengetoemergingincludeelectrificationofbuildingswithnon-fossilfuels,andmarkets:theireconomicdevelopmentdependsuseofspecificmaterialstoreduceenergyconsumption,significantlyonconstructionactivity,buttheylikereflectivepaintingforrooftopsandfilmcoatingforalreadygenerateabouttwo-thirdsofglobalwindows,amongothers.Fornewbuildings,energy-efficientconstruction-relatedemissions.andresilientdesignsandsystems,renewableenergies,anddistrictcoolingandheatingsystems,aresomeoftheThisreportanalyzestheinvestmentsandpolicyactionspossiblemitigationandadaptationoptions.Forconstructionneeded—andtheeconomictrade-offstheyimply—tomaterials,especiallycementandsteel,improvingenergy-reducecarbonemissionsinconstructionvaluechainsefficiency,andswitchingtolow-emissionprocesses,rawinemergingmarkets,includingtheconstructionandmaterials,andfuels,canalsoreduceemissionsnow.Intheoperationofbuildingsandtheproductionofconstructionfuture,potentiallydeployingnascenttechnologiessuchasmaterialssuchascementandsteel.Itexploresthecostscarboncaptureandstorageandgreenhydrogen,amongandavailabilityoftechnologicalsolutionsthatcouldhelpothers,canallservetoreduceemissions,buttheseleversarereduceemissions,anditconsiderspotentialsourcesforonlyexpectedtobecomecommerciallyavailablewithoutfinancingthesesolutionsaswellasthepolicyinterventionsfiscalsupportby2035andbeyond.neededtochannelprivateinvestmentintomitigationandadaptationeffortsinemergingmarkets.ThereportForallemergingmarkets,incorporatingresilienceintoexaminesthealternativepolicyoptionsandavailableandnewgreenbuildingswillbeparamountinthenextdecade,noveltechnologiesforbuildinggreeninemergingmarkets,especiallyincountriesaffectedbyfrequenthazardousconsideringeachregion’sincomelevel,technologicalandclimateevents.Climatechange-induceddisastersarepolicyreadiness,anddependenceonfossilfuels.Keyfindingsalreadycausingsignificantdamagetopeopleandassetsandmessagesinclude:aroundtheworld.Between2008and2018,onaverage24millionpeopleperyearwereinternallydisplacedbecauseofConstructionvaluechainstodayaccountforaboutclimatedisasters,ofwhich85percentinvolvedstormsand40percentofenergyandindustrial-relatedCO2emissionsfloods.globally,accordingtothisreport’sestimates.Withoutadditionalmitigationandadaptationefforts,emissionsareInvestmentsinelectrificationofbrownbuildingswithlikelytoincreasebyabout13percentby2035,thisreportcleanerenergy,energy-efficientnewbuildings,andlow-estimates,whichwouldequalthetotalconstruction-emissionmaterials,andtheadoptionofadequatepolicyrelatedemissionsoftheUnitedStatesin2022.Theshareofframeworkscouldreduceglobalconstructionvaluechainconstruction-relatedemissionsgeneratedinemergingandemissionsby2035toabout23percentbelowtheleveltheydevelopingeconomies,currentlytwo-thirdsoftheglobalareprojectedtoreachwithoutanymitigationefforts—andtotal,isalsolikelytoriseby2035.Thisisbecausethese13percentbelowtoday’slevels—thisreportestimates.marketshavethelargeststockofbrownbuildings(notEmergingmarketswouldaccountforabout55percentadaptedforenergyoremissionsreduction),userelativelyofthisprojectedreductioninconstructionemissions.Themorecarbon-intensiveconstructionmethodsandmaterials,declineinglobalconstructionemissionswouldalsoentailandtheirinvestmentinconstructionislikelytogrowfasteradropintotalglobalemissions—includingconstructionthaninhigh-incomeeconomies.andothereconomicactivities—ofabout20percentincomparisontoascenariowithoutanymitigationPage9MainFindingsinvestmentsandmeasures.TheseresultsemphasizethePolicymakerscansupportthegreenconstructiontransitionimportanceofstartingtodecarbonizehard-to-abateandcrowdinprivatefinancingbycreatingactivitiesnow,suchasbuildingoperationsandmaterials,toanadequatebusinessandregulatoryenvironment.ItismeettheclimategoalssetintheParisAgreement.criticaltoaddressthemarketfailureswhichlimitgreenconstructioninemergingmarketsthroughgreenbuildingWithproperpoliciesandregulationsinplace,adoptingcodesandstandards,greeninggovernmentbuildingsandthesecommerciallyavailabletechnologiesinconstructionpublicprocurement,andinthemid-term,wideradoptionofvaluechainswouldgeneratenewprivateinvestmentscarbonpricingandfiscalsupportmeasures.of$1.5trillioningreenerbuildingsandmaterialsinemergingmarketsoverthenextdecade,accordingtoThepaceofadoptionofthesetechnologiesandmeasuresthisreport’sestimates.Privateinvestorshaveyettowilldependoneachcountry’sincomelevel,accesstotakeadvantageofthisopportunity.Globalprivatedebtfinance,technologicalandpolicyreadiness,anddependencefinancingfordecarbonizingconstructionusing‘green’onfossilfuels.Countrieswithsufficientfiscalspacemaybefinancialinstrumentsreachedarecordhighin2021ofabletomovefasterindeployingrelativelycostlypolicies,about$230billion,butemergingmarketsonlyissuedaboutlikecarbonpricing,stricterenvironmentalregulations,10percentofthattotal,thisreportestimates.retrofittingbrownplantsandbuildings,andprovidingfiscalincentivestonovelgreentechnologiesnon-economicallyThisreportexaminestwopossiblepathwaysforreducingviabletoday.Inothercountries,earlyactioncouldbecarbonemissionsinconstructionvaluechainsinthetakenbyseizing‘lowhangingfruit’,includingtheadoptionnextdecadeinemergingmarkets.Onepathwayinvolvesofcommerciallyavailabletechnologiesforelectrificationacceleratingtheattainmentofthenetzeroemissionstargetofbuildingswithcleanerenergiesandenergy-efficientsetbytheParisAgreementby2050byboostinginvestmentsbuildingsandmaterials.Low-incomeeconomiescanbeginingreenbuildingsandmaterialsthroughwidespreadcarbontheirjourneyinthegreenconstructiontransitionwithpricingandfiscalsupportmeasures.Thispathwaywouldtechnicalandfinancialsupportfromtheinternationalmorethandoubleinvestmentsingreenconstructionbycommunity.2035globallybutwouldentailsignificantshort-to-mid-termoutputlossesduetoearlyretirementofproductiveassetsDecarbonizingconstructionvaluechainsinemergingandothertransition-relatedcosts.Anotherpathwaywouldmarketswillentailrelativelysmallshort-termnegativecostsachieveasimilarreductioninconstructionemissionsbutatforlong-termbenefits.Construction-specificmeasureslowercostsbysupportingtheadoptionof‘low-hangingfruit’andthecostofincentivestoadoptcommerciallyavailabletechnologies,liketheelectrificationofbuildingswithcleanertechnologiesgearedtowardsfosteringenergy-efficientenergymixesandenergy-efficientbuildingsandmaterials,buildingsandmaterialspoweredwithcleanerenergiesamongothers.wouldreduceglobalGDPgrowthby0.03percentagepointsperyearbetween2022and2035,thisreportestimates.MostBasedontheseestimates,thereportstressestheneedforaofthisoutputlosswilloccurincountrieswiththelargestflexiblestrategyfordecarbonizingconstructionvaluechainsconstructionsectorstoday,mostlyhigh-incomeandsomegearedtowardminimizingeconomiccostsforemergingupper-middleeconomies.Themajorityofmiddle-incomemarketsbydeployingthemostefficientsequencingofcountrieswouldbeabletomeettheirrapidlygrowingadaptationandmitigationpoliciesandtechnologies,constructionneedswithlowereconomiccosts.Outputadaptedtoeachcountry’sconditions,andfromalong-termlossesamonglow-incomecountrieswouldbesmallerstill.perspective.Thesereductionspaleincomparisonwiththelossinhumanwelfareoverthenextdecadesifinsufficienteffortsaremadetoaddressclimatechange.BUILDINGGREENPage10ExecutiveSummaryConstructionvaluechainsinemergingEmergingmarketsgeneratetwo-thirdsofmarketsareamajorcontributortoglobalconstruction-relatedglobalemissions,withaboutCO2emissions,andtheproblemissettothree-fifthsoftheseemissionsfromChina,becausegetworseby2035.oftheirdominantsharebothof“brown”buildingsandtheglobalproductionofmaterials,theiruseofmoreConstructionvaluechainsaccountforaboutcarbon-intensiveconstructionmethodsandmaterials40percentofenergyandindustrial-relatedCO2thaninhigh-incomecountries,andtheirrapidgrowthemissionsglobally.1,2Thesevaluechainscompriseinincomepercapita,whichincreasesconstructiontheconstructionandoperationofbuildingsandthedemand.4productionofmaterials.Thisreportestimatesthatoperationofbuildingsexplainsabout20percentWithoutadditionalmitigationefforts,globalofglobalcarbonemissions,followedbythesupplyconstruction-relatedemissionswouldincreasebyofmaterials(19percent),andconstructionservicesabout13percentbetween2022and2035,accordingto(0.3percent)(ExhibitA).About85percentoftotalthisreport’sestimates.This13percentincreaserelativeconstructionemissionsgloballycomefromtheuseoftotoday’slevels,drivenbyincreasingemissionsfromfossilfuelsinbuildingsandmaterialsplantswhiletheemergingmarketswouldbeequivalenttothetotalremaining15percentcomesfromprocessorindustrialemissionsfromtheconstructionvaluechainintheemissionsrelatedtotheproductionofconstructionUnitedStatesin2022.Globalclimategoalsareunlikelymaterials.3tobeachievedwithoutareductioninemissionsfromtheconstructionandoperationofbuildings.Thus,animportantchallengefacingtheglobalcommunityishowtoensuretheintegrationintoconstructionvalue1Thisreportincludesonlyscope1,2,and3CO2emissionsresultingfromenergycombustionandeconomicactivityinagriculture,manufacturing,andservices.Emissionsofothergreenhousegases(e.g.,methane)andotherCO2emissions(e.g.,fromchangesinlanduse)arenotconsideredduetodatalimitations.Emissionsarecalculatedbasedonthelocationwheretheywereproduced,notwheretheyareconsumed.Industrialorprocessemissionsaretheby-productofprocessesthatconvertrawmaterialstochemical,mineralormetalproductssuchascementandsteel,amongothers.2ThisestimateroughlyalignswithrecentcalculationsfromIEA(2021)andUNEP(2021)inwhichconstructionaccountsfor36percentofglobalfinalenergyconsumptionand37percentofenergyrelatedCO2emissions.3IFCcalculationsbasedonGlobalTradeAnalysisProjectdata.4“Brown”referstoconventionalbuildingsandmaterialsinwhichnoenergyoremission-reductionmeasuresortechnologieshavebeenadopted.Page11ExecutiveSummarychainsofcommerciallyavailablegreentechnologieswillthereforebeapriorityinemergingmarketsinthethatcouldsubstantiallyreducecarbonemissionsinthenextdecade.nextdecade.Somepromisingtechnologieswithhighabatementpotential,likegreenhydrogenandcarbonThelevelofeconomicandpolicyeffortrequiredtostorage,amongothers,arelikelytoonlybecomereduceemissionsfromconstructionvaluechainswillcommerciallyavailablewithoutfiscalsupportby2035necessarilyvaryacrossregionsinthenextdecade.andbeyond.DeployingalreadyavailabletechnologiesCountrieswithgreaterfiscalandfinancialresourcesEXHIBITAConstructionGeneratesAbout40PercentofGlobalCarbonEmissionsGlobalCO2emissionsbycategoryTotal:38billionCO2tonsRestofglobalTotal:15billionCO2tonsCO2emissions60.6%GlobalconstructionvaluechainemissionsbyregionBuildingProductionofChinaHighOtheroperationsconstruction40%incomeemerging20.4%materials31%markets18.7%29%Buildingconstruction0.3%Notes:Thisreportincludesonlyscope1,2and3CO2emissionscomingfromenergycombustionandeconomicactivityinagriculture,manufacturing,andservices.Emissionsfromothergreenhousegases(e.g.methane)andotherCO2emissions(e.g.,fromchangesinlanduse)arenotconsideredduetodatalimitations.Scope1emissionsaredirectemissionsfromownedorcontrolledsources.Scope2emissionsareindirectemissionsfromthegenerationofpurchasedelectricity,steam,heating,andcoolingconsumedbythefirm.Scope3emissionsareallindirectemissions(notincludedinscope2)thatoccurinthefirm’svaluechain.OtheremergingmarketscategoryincludesSub-SaharanAfrica.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCcalculationsbasedondatafromtheGlobalTradeAnalysisProject(2022).BUILDINGGREENPage12maybebetterpositionedtodeploymorerapidlyBOXArelativelycostlypolicies—carbonpricing,tighterenvironmentalregulations,andfiscalsupport—SomeExamplesoftheClimateandandnewtechnologieswithsignificantabatementBusinessBenefitsofGreenBuildingspotentialbuthigheconomiccoststoday.Middle-incomecountries,inturn,canacceleratethepaceofEnergysavings.TheMenarcoTowerofficeinadoptionofgreenconstructioncodes,standards,andManila,thePhilippines,achieved41percentenergyreadilyavailabletechnologiesandpractices.Low-savingsthroughvariablespeeddrivesintheairincomeeconomiescanbegintheirgreenconstructionhandlingunits,ahigher-efficiencycoolingsystemtransitionwithfinancialandtechnicalsupportfromandappliances,energy-savinglightingincorridors,theinternationalcommunity.commonandexternalareas,andoccupancysensorsinbathroomsalongwithotherpassivemeasures.Thissummaryofthereportprovides,first,anoverviewoftechnologiesthatareeitherbeingdeployedorareLowercarbonemissions.InGujarat,India,adistrictanticipatedinthenearfuture.IncreasedresourcescoolingsystemhasbeeninstalledintheGujaratwillbeneededtosupportthegreenconstructionFinanceTec-City,ajoint-venturefinancialcenter.transition,andthereportprovidesroughestimatesThesystemdistributesthermalenergyintheformofthemagnitudeoftheprivateinvestmentrequired.ofchilledwaterfromacentralsourcetomultipleGovernmentswillalsoberequiredtomitigatethebuildingsthroughanetworkofundergroundpipesmarketfailuresprevailinginconstructionvalueforuseinspacecooling.Thesystemaimstoreducechainsandgreenfinancialmarketsbyestablishinganpowerdemandandmakeairconditioningmoreappropriatepolicyframework,underwhichcompaniesenergyefficient,reducingCO2emissions.inconstructionvaluechainscanadoptemergingandcommerciallyavailabletechnologies.ThefinalFinancialbenefits.ResidentialgreendeveloperslikesectionofthissummarydiscussespoliciesthatcouldSignatureGlobal(India)andCapitalHouse(Vietnam),encouragecompaniestoundertakemoregreenhavereportedfastersalesresultinginstrongercashconstructionandprivateinvestorstocommitmoreflowsforthem.InSouthAfrica,InternationalHousingresourcestotheseactivities.Solutionsreportsthatitslow-incomerenterssaveanentiremonth’srenteachyearfromlowerutilitybills,Constructionandoperationsofanditsgreenhomes’occupancyratesarehigherthanbuildingsandotherstructures.forsimilarconventionalhomesthatitowns.LoweroperatingcostsandhigheroccupancythusmakeThemenuofavailableoptionstodecarbonizebuildingsgreenbuildingsamoreprofitableasset.rangesfrommeasureswithhighabatementandadaptationpotentialbutprohibitiveeconomiccoststodaytomeasureswithmoremoderateemission-reductionpotentialbutlowercosts.EmergingPage13ExecutiveSummarycountrieswillhavetochooseamongthesealternativesGreenbuildings,buildingswithenergy-efficientdependingoncountryconditions,availablefinancingdesigns,cleanerenergy-mixes,andlow-emissionandpolicyandregulatoryframeworksinplaceinthematerials,offermultipleopportunitiestosignificantlynextdecade.reducecarbonemissionsinconstructionvaluechainswhileofferingabusinessopportunityforprivateDeepretrofitting"brown"buildingsandmaterialsinvestors.Passivemeasuresrelatedtothedesignofplantsthroughreplacinginefficientenergyandgreenbuildingsachieveenergysavingsthroughthethermalelectricalandmechanicalsystemsorbuilding’sorientationtothesun,externalshading,andreconstructingbuildingenvelopes,amongotherreducedwindowsize.Suchmeasuresareparticularlymeasures,cansignificantlyreducebuildings’emissions.effectiveinmanagingheatgainorlossduringtheDuetoitshighcoststoday,however,thisoptionisdayaswellasreducingconstructioncosts.Activelikelytobeaffordableonlyforfewcountrieswithmeasuresingreenbuildingsrelatedtomoreefficientthefiscalandpolicyspacerequiredtostartdeepelectricalandmechanicalsystemsalsolowerenergyretrofittingorimplementingearlyretirementofconsumption.Forinstance,ceilingfans,thermostaticstrandedbrownbuildingsandplantsnow.valves,andheatvalvescanachievehighlevelsofenergyefficiency.Theuseofeco-friendlyrefrigerantsElectrification,orreplacingfossilfuelsforcooking,alsoenablesemissionssavings.Incrementalcosts,waterheatingandcoolingwithelectricsystemspaybackperiodsandemissionreductionpotentialofpoweredwithrenewableenergies,isanattractivegreenbuildingsrelativetoconventionalalternativescomplementtodeepretrofittingbecauseofitsarecontingentonclimatezones,countryconditionsrelativelylowcostsandtheexpectedgreeningofandtypesofbuildings.BoxAprovidessomeexampleselectricitygenerationoverthecomingdecade.oftheclimateandfinancialbenefitsofgreenbuildingsHowever,electrificationalonecannotachievetheandsystems.neededreductionsinemissionsgiventheeconomicunfeasibilityofcompletelyremovingfossilfuelsfromOneimportantaspectofgreenbuildingmeasures,theenergymixinmostcountriesinthenextdecade.likerenewableenergytechnologies,passivecoolingandheatingsystems,waterrecycling,orrainwaterEconomiesforwhichcompleteretrofittingislikelycollectionsolutions,isthattheyimproveresilienceoftoremainoutofreachinthenearfuture,includingbuildingstohazardousevents.Resilienceneedstobemiddle-incomecountriesundergoingrapidpopulationintegratedintoconstructionofnewgreenbuildingsandeconomicgrowth,caninvestinelectrificationtoensurelongerlifecyclesandavoidunnecessaryaswellasconstructionofnewgreenbuildingslandcarbonemissionsrelatedtothereconstructionandmaterialplantstorespondtotheirswellingprocess.Countrieswithsufficientfiscalspacecanalsohousingneedsintheyearstocome.Andforallemployfiscalincentivestointegrateresilienceintoemergingmarkets,incorporatingresilienceintoretrofittedbuildings.greenconstructionwillbecriticalinthenextdecade,especiallyincountriesaffectedbycatastrophicclimateevents.BUILDINGGREENPage14Withsupportivepolicies,theuseofspecificmaterials,construction-relatedCO2emissions.Deepretrofittingsuchasreflectivepaintingforrooftopsandfilmoldbuildingstobemorecarbonefficientcanachievecoatingforwindows,canenhancethermalefficiencysimilarorhigherenergysavingsthanconstructionofinexistingaswellasnewbuildingswithrelativelynewgreenbuildings,butitshighcostmakesitunlikelymoderatecosts.Inspecificlargeprojects,liketobeapriorityinmostemergingcountriesinthenextrenovationofurbanareasorconstructionofuniversitydecade.ormedicalcampuses,districtcoolingtechnologiescanreduceenergyconsumptionbysettingacentralizedManyotherapproachesexisttoreducethecarboncoolingsystemforaninterconnectedgroupofneworfootprintofbuildingconstructionandoperation.completelyrenovatedbuildingsandstructures.Forexample,increasingrelianceonrenewableenergiesanddistrictsystemsforheatingandcoolingGreaterrelianceondigitaltechnologycouldalsocouldsignificantlyreduceemissionsfrombuildingscontributetoreducingconstructionemissions.Usingoperation.Localemissionsfromconstructionsites"smart"internet-connecteddevicestoenhancecouldbeaddressedusingelectricvehiclesandtheenergyefficiencyoflargeappliances,likeairbiomass-poweredmachinery.Someoftheseoptionsconditioners,refrigerators,washingmachines,andmayonlybefeasibleinmiddle-orhigh-incomecookstoves,cansignificantlyreduceemissionsfromcountries,buttheinternationalcommunitycanbuildingsoperations.Increasingtheuseofthiscontributetograduallydisseminatingandsupportingtechnologymayrequireregulatorymeasures,andintheminlow-incomeeconomies.somecases,dependingoncountryconditions,policyincentives.3D-printedconstructioncanreducewasteConstructionMaterials(andthuslessenembodiedcarbon)andconstructiontime,improveenergyefficiency,andlowerlaborCementandsteelarethetwomajormaterialsusedincostsbutcanonlybeappliedtodayinrelativelyconstruction,andforboth,technologicalsolutionstosmallhousingandcommercialprojects.Acrossallreducetheiremissionsintensityarealreadyavailableprojectstages,digitalizationcouldincreasematerials'orbeingdeveloped.By2035andbeyond,novelefficiencybyintegratinglife-cycleemissionsinthetechnologieswithhighabatementpotentialbutnon-constructionprocess,using,forinstance,3Dbuildingcommerciallyavailabletoday,suchascarboncaptureinformationmodeling,enhancingcollaborationandstorageandgreenhydrogen,arelikelytostillneedthroughmanagementappsonmobiledevices,andsignificantfiscalsupport,eveninadvancedeconomies.monitoringsiteswithdronesforscanning.DeepretrofittingorearlyretirementofexistingbrownplantswillalsoremainoutofreachformostemergingImprovingtheuseofspaceandinfrastructurethrougheconomiesinthenextdecade.flexibledesignandundertakingclimate-smartbuildingthatemphasizestheimportanceofresilienceOverthenext10years,thepriorityshouldthereforewouldextendlifetimesofnewbuildings.Thiswouldbepromotingcommerciallyavailableabatementandreducethedemandforcementandsteel,aswellasadaptationlevers,particularlyinemergingmarketsundergoingrapideconomicandpopulationgrowth.Page15ExecutiveSummaryPilotingsomeofthesetechnologiesBOXBandmeasures,withthesupportoftheinternationalcommunity,Someexamplesoftheuseofalreadyavailableandcouldalsocontributetoreducingnoveldecarbonizationtechnologiesincementandemissionsincementandsteelsteelplantsproduction.Biomassandrecycledmaterials.Greenhydrogen.In2021,Forexample,replacingcarbon-Sococim,asubsidiaryofFrenchCompañíaSiderúrgicaHuachipatointensiveclinker,cement’scementmakerVicatS.A,willlaunchedinChileapilotofagreenmaininput,withalternativereplacepartofitsclinkerlinesinhydrogenmillthatisexpectedtonaturalmaterialsandindustrialitsSenegalplantwithmorefuel-becompletedby2023.CEMEXisby-productscansignificantlyefficientfacilities,utilizingupto70alreadyimplementinghydrogenreduceprocessemissions.Usingpercentalternativefuels(biomasstechnologyatitsSanPedrodealternativefuelsourcessuchasandrecycledtires).TheprojectwillMacoriscementplantinthebiomass,waste,andindustrialreducegreenhouseemissionsbyDominicanRepublic.residues,combinedwithwind312,000tonsofCO2equivalentandsolarrenewableenergies,peryearby2030,enablingittoCarboncaptureandstorage.amongothers,ratherthancoalcanproduceoneofthelowest-emissionAnhuiConchCementdevelopedinreduceemissionsfromproductioncementsintheworld.IFCis2017acementwithcarboncaptureofcementby20percent.TakingsupportingtheprojectwithitsfirstplantinWuhu,China.InIndia,energyandresourceefficiencygreenloanformaterialsinAfrica.DalmiaCementLimitedandCarbonmeasurescansaveupto30CleanSolutionsaredevelopingthepercentinelectricityplantneeds.Recycledscrap.RiderSteel,alargestcementplantwithcarbonAdaptiveandself-learningrollingmilloperator,isinvestingcaptureintheglobalcementtechnologiescanalsooptimizeinagreenfieldmanufacturingindustry.TheplantisexpectedtofuelmanagementandmaterialplantintheKumasiareainGhana.capture500,000tonsofCO2perblending.TheseoptionscanhaveThenewplantwillsave332,000year.relativelyshortpaybackperiodstonsofcarbondioxideannuallywithadequatefinancingandbyentirelyusingsteelscrapasregulatoryframeworks.input(283,200tonsperyear).Theplantalsooperatesanenergy-By2035andbeyond,greenefficientinductionfurnacewithahydrogenisexpectedtooffersignificantlylowercarbonintensityapromising(butnotnowthanexistingblastfurnaces.IFCcommerciallyviable)solutionforsupportedtheprojectthrougha$12decarbonizationinthecementmillionloanin2020.BUILDINGGREENPage16industry.5Carboncapture,utilization,andstorage—DeployingthesetechnologiescouldwhichcapturesCO2fromindustrialemissionsandreverseprojectedemissionsgrowthfromeitherrecyclesitforfurtherindustrialuseorstoresconstructionvaluechains,requiring$3.5itsafelyunderground—isanothertechnologicaltrillioninglobalinvestmentbetweeninnovationthatcouldpotentiallyalmosthalveCO22022and2035.emissionsbutalsowillalsorequiresubsidiesandtaxincentives,atleastbefore2035,andpossiblybeyond.Integratingreadilyavailabletechnologies,likeelectrificationofbrownbuildingswithcleanerenergiesInthesteelindustry,injectingpureoxygenintoblastandenergy-efficientbuildingsandmaterials,amongfurnacescanloweremissionsby15–20percent,byothertechnologies,intoconstructionvaluechainsreducingtheuseofcoalasareductantagentforcombinedwithcompliancewiththeNDCtargetsironoxide.Whensourcedfromrenewableresources,couldreduceconstruction-relatedemissionstowellbiomasscanalsosubstituteforcoal,whileincreasingbelowtoday’slevels.Resultsfromthecomputabletheshareofhigh-qualityscrapinelectricarcfurnacegeneralequilibrium–circulareconomydynamicmodel6steelmakingcanlowertheuseofcarbon-intensiveemployedinthereportsuggestthat,takentogether,iron.Greenhydrogencouldimprovetheperformancethesemeasures(the“energyefficiencyscenario”inofconventionalblastfurnacesandproducedirectExhibitB)wouldreduceglobalconstruction-relatedreducedirontobefurtherprocessedintosteel.Asemissionsin2035toabout13percentbelowthelevelwithcement,greenhydrogenandcarboncapturein2022,orabout23percentbelowthelevelthattechnologies,amongothers,combinedwithrenewablewouldbereachedin2035intheabsenceofadditionalelectricitygeneration,holdthepromiseofcarbon-mitigationefforts(the“nomitigation”scenarioinneutralsteelmakinginthelongertermbuttheywillExhibitB).The13percentreductionrelativetotoday’snotbeeconomicallyviablewithoutfiscalsupportbylevelsisequivalenttothetotalemissionsfromthe2035andbeyond.constructionsectorintheUnitedStatesin2022.EmergingmarketswouldaccountformorethanhalfBoxBsummarizestheexperiencesofcompaniesofthisreductioninemissions.whichareimplementingsomeoftheseexistingandnoveldecarbonizationtechnologiesincementandOnaverage,globalconstruction-relatedemissionssteelplantsinemergingmarkets.declinebyabout2percentagepointsperyearintheenergyefficiencyscenariorelativetothenomitigationscenario.Ofthis,1.4percentagepoints5Greenhydrogenishydrogenproducedbysplittingwaterintohydrogenandoxygenusingrenewableelectricity.Hydrogengasisextractedfromwaterbyatechniqueknownaselectrolysis,whichinvolvesrunningahighelectriccurrentthroughwatertoseparatehydrogenandoxygenatoms.Theelectrolysisprocessisexpensivebecauseitinvolveshighenergyexpenditure.6Globaldynamiccomputablegeneralequilibriummodelsprovideanindicationofsomeplausiblepathsofeconomicgrowthandcarbonemissionsunderalternativepolicyscenariosratherthanprecisenumericalestimates.Thesemodels,however,allowustoexaminetheeffectsofthesepoliciesontheglobaleconomytakingintotheaccounttheinteractionsbetweencountries,economicsectorsandeconomicagentsbasedonaconsistentandanalyticalrobusttheoreticalframeworkanddetailedinput-output,balanceofpaymentsandfiscalaccountsdata.SeeBox2andAnnex1foradetailedexplanationofmodelandsimulationspresentedinthisreport.Page17ExecutiveSummaryEXHIBITBGlobalConstructionEmissionsCouldDeclineby13PercentBelowthe2022Levelby2035withDecisiveActioninConstructionValueChains18,00017,000Nomitigation16,000MillionsofCO2equivalenttons+12.8%15,000-12.8%-3.6%Nationally14,000DeterminedContributions(NDCs)13,000EnergyEciency(includingNDCs)12,00020222025202820312034Notes:Theexhibitshowstheresultsofthesimulationsforthenomitigation,NationallyDeterminedContributions(NDCs),energy-efficiencyandnetzero-alignedscenariosdescribedinBox2andAnnex1.Castroet.almimeosimulatesalternativescenarios.TheNDCscenariosimulatestheeffectsofcomplyingwiththeNDCsemission-reductiontargetssetintheParisAgreement.Theenergy-efficiencyscenariosimulatestheeffectsofsector-specificmeasuresgearedtowardscleaningtheenergymixandimprovingtheenergyefficiencyofbuildingsandmaterialspluscompliancewiththeNDCs.Thenetzero-alignedscenariosimulatestheimpactsofwidespreadcarbonpricingonbrownbuildingsandmaterialsandsubsidiestogreenalternativespluscompliancewiththeNDCs.Thedropinemissionsinthenetzero-alignedscenarioissimilartothedeclineinemissionsintheenergyefficiencyscenarioanditisthereforenotshownhere.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCcalculationsbasedondatafromtheGlobalTradeAnalysisProject(2022)andGlobalClimateChangeAlliance(2021).BUILDINGGREENPage18EXHIBITCInvestmentNeedsforBuildingGreenWillAmountto$1.5TrillioninEmergingMarketsintheNextDecadeHighIncomeTotal$2.01trillion$3.50trillionChina$1.33trillionOtherEmergingMarkets$0.16trillionNotes:Investmentneedsarecalculatedasthedifferencebetweeninvestmentsinelectrificationofbrownbuildingswithrenewableenergiesandnewbuildingsandmaterialspoweredwithlow-emissionenergiesinthenomitigationscenarioandtheenergyefficiencyscenario.SeeBox2foranexplanationofthemodelandscenarios.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCcalculationsbasedondatafromGlobalTradeAnalysisProject,GlobalClimateChangeAlliance,InternationalEnergyAgencyandothersources.comefromreductionsinenergyintensityofbuildingsenergiesandenergyefficientbuildingsandmaterialsandmaterials,while0.6percentagepointscome(theenergyefficiencyscenarioinExhibitB)wouldfromadeclineincarbonintensity.Constructionresultinadeclineintotalglobalemissions,includingdemandwouldonlyexperienceaminordropofconstructionandallothersectors,ofabout0.04percentagepointsperyear.719.8percentby2035,comparedwiththenomitigationscenario.8TheseresultsemphasizetheneedtoThesimulationsalsosuggestthatthedropinpavethewaynowfordecarbonizinghard-to-abateconstructionemissionsachievedthroughtheactivities,suchasconstructionandoperationofelectrificationofbrownbuildingswithrenewablebuildingsandmaterials,inthenextdecadestomeet7IFCcalculationsbasedonGlobalTradeAnalysisProject(2022).EnergyintensityreferstotheunitofenergyusedperunitofconstructionoutputandcarbonintensityreferstotheunitofCO2metrictonperunitofenergyconsumedinconstruction.Castroet.al,mimeopresentadetaileddecompositionofthesecarbonandenergyintensityandtotaldemandeffects.The2percentaverageyearlydropinemissionsreferstothe23percentdeclineinconstruction-relatedemissionsintheenergy-efficiencyscenariorelativetothenomitigationscenariobetween2022and2035.8IFCcalculationsbasedonGlobalTradeAnalysisProject(2022).Page19ExecutiveSummaryEXHIBITDAThirdoftheInvestmentNeedsinEmergingEconomiesOutsideChinaWouldBeinLatinAmericaandtheCaribbeanandSouthAsiaLatinAmericaTotal&theCaribbean$160billion$76.7billionEurope&SouthAsiaCentralAsia$25.4billion$17.6billionMiddleEast&EastAsiaPacificNorthAfrica$12.9billion$14.9billionSub-SaharanAfrica$12.4billionNotes:TheexhibitshowstheresultsofthesimulationsofthecumulativeinvestmentneedsfortheenergyefficiencyscenariodescribedinBox2andAnnex1relativetothenomitigationscenario.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCcalculationsbasedonGlobalTradeAnalysisProject(2022).theclimategoalssetintheParisAgreement.marketswouldbechanneledtoelectrificationofbrownbuildings,newenergyefficientbuildings,andTheresultsofthemodelalsosuggestthattheglobalmaterialspoweredwithcleanerenergies.Aroundcumulativeinvestmentneededfrom2022to203575percentofinvestmentwouldbefunneledintotoachievethisreductioninconstructionemissionscleaningtheenergymixandimprovingtheenergy-intheenergyefficiencyscenariocouldamounttoefficiencyofbuildings.Increasedsupplyoflesscarbon-$3.5trillion.9Theinvestmentneedsinemergingintensivecement,steel,andothermaterialswouldmarketswouldamounttoalmost$1.5trillion,ofwhichabsorbabout20percentoftherequiredinvestment.$1.3trillionwouldbefromChina.(ExhibitC).Theremaining5percentwouldfinancebuiltenvironment-relatedservicesonandoffconstructionMostofthe$1.5trillioninvestmentneedsinemerging9InvestmentreferstogrossfixedcapitalinvestmentintheGlobalTradeAnalysisProjectdatabase.SeeAnnex1.BUILDINGGREENPage20sites.10Thesefinancingneedswouldrequireamarkedcostinforegoneoutputastheconstructionvalueriseindomesticandinternationalgreenprivatedebtchainundergoesamorerapidtransitiontonetzerofinancefordecarbonizingtheconstructionvalueemissions.chaininemergingmarkets,whichamountedtoabout$23billionin2021.Decarbonizingconstructionvaluechainsentailsshort-termtrade-offsforlong-termOftheadditional$160billioningreenconstructionbenefits.investmentinemergingmarketsotherthanChinabetween2022and2035,LatinAmericaandtheCombiningcompliancewithNDCswithconstructionCaribbean,SouthAsiaandEuropeandCentralAsiavaluechain-specificmitigationandadaptationwouldaccountforabout$77billion,$25billion,andmeasuresandreadilyavailabletechnologiesgeared$18billion.IntheMiddleEastandNorthAfricaandEasttowardscleaningtheenergymixandimprovingtheAsiaandthePacific,theinvestmentwouldamountenergyefficiencyofbuildingsandmaterialswouldtoabout$15billionand$13billion.Greenbuildinglikelyhaveonlyalimitedimpactoneconomicgrowthinvestmentwouldamountto$12billioninSub-ratesby2035.ThemodelemployedinthisreportSaharanAfrica(ExhibitD).About86percentofthesuggeststhatcompliancewiththeNDCs(withoutinvestmentwouldbedirectedtoresidentialbuildingsmeasuresspecifictotheconstructionsector)would(ahalfofthatinLatinAmericaandtheCaribbean),reduceglobalconstructionemissionsby3.6percentespeciallyinsingle-familydetachedhousing.andtotalglobalemissions,includingconstructionandtherestoftheeconomicactivities,by13.04percentTheresultsofthemodelemployedinthisreportalsoforadeclineinyearlyglobalGDPgrowthofsuggestthatanalternativescenariogearedtowards0.02percentagepointsby2035.acceleratingthepacetoachievenetzero-constructionby2050byboostingthestockofgreenbuildingsPursuingconstruction-specificmitigationpoliciestoandmaterialsthroughwidespreadcarbonpricingpromotecleaningtheenergymixandimprovingtheandfiscalsupportmeasures(thenetzero-alignedenergy-efficiencyofbuildingsandmaterialsinadditionscenariodescribedinthenotesofExhibitB)wouldtocompliancewithNDCs(theenergyefficiencyattainasimilardropinconstructionemissionsby2035scenarioinExhibitB)wouldreduceglobalconstructionastheenergy-efficiencyscenariobutwithmarkedlyemissionsby13percentandtotalglobalemissions,higherinvestmentneeds.Bringingdownconstructionincludingconstructionandallothereconomicemissionsbyabout23percentwiththispolicymixactivities,by19.8percentrelativetothenomitigationwouldrequireinvestmentsinnewgreenbuildingsscenarioforadeclineinyearlyglobalGDPgrowthofandmaterialsamountingto$6trillionglobally,almost0.03percentagepoints.However,thisshort-termtwicetheinvestmentsneededintheenergyefficiencylosswouldbemorethancompensatedbylong-termscenario,butalsowouldcomeatamuchhighergainsinreduceddamagesfromclimatechangetoinfrastructure,growth,andhumanwelfare.10IFCcalculationsbasedonGlobalTradeAnalysisProject(2021);andGCCA(2021).Page21ExecutiveSummaryAnalternativepolicymixofapplyingcarbontaxesTheseresultssuggestthatrelativelyfewcountriestobrownbuildingsandmaterials,subsidizinggreenwithavailablefiscalspacemaybeinapositiontoalternatives,andcomplyingwithNDCtargets(the“netoffsetthedeclineinprivateinvestmentinconventionalzero-aligned”scenariodescribedinExhibitB)wouldconstructionduetocarbontaxesonbrownbuildingsachieveasimilarreductioninglobalemissionsastheandmaterialsthroughincreasedpublicinvestmentenergyefficiencyscenario.Itwouldalsocontributeandfiscalsupportmeasures.Forotheremergingtoputtingconstructionmorerapidlyonthepathtomarkets,promotingtheadoptionof‘lowhangingnetzeroby2050byboostingthestockofgreenerfruit’technologies,liketheelectrificationofbuildingsbuildingsandmaterialsinconstructionvaluechains.withcleanerenergiesandenergy-efficiency,wouldbeamorepragmaticandfeasiblepathwaytoreducingThenetzero-alignedscenariowouldbringdownemissionsinconstructionvaluechainsinthenextglobalcarbonemissions,however,atsignificantlydecade,untilhorizontechnologies,likecarboncapturehighercoststhantheenergyefficiencyscenario.andstorageandgreenhydrogen,becomewidelyThe19.8percentreductioninglobaltotalemissions,availableatscale.includingconstructionandtherestoftheeconomicactivities,inthisscenariowouldentailadropofBy2050,thecostintermsofforegoneoutput0.4percentagepointsinaverageyearlygrowthstemmingfromtheemissionsreductionscenariosingloballyby2035,morethan10timestheoutputlossesthisreportislikelytobemorethanoffsetbyreducedoftheenergyefficiencyscenario.damagestoinfrastructure,productivity,andgrowthfromglobaltemperatureincreases.RecentsimulationsThislargeroutputlossinthenetzero-alignedusingsimilarmodelstothemodelemployedinthisscenariorelativetotheenergyefficiencyscenarioisreport,forinstance,suggestthattheeconomicexplainedbythecrucialimportanceofconstructionbenefitsofreducingthegrowthinglobaltemperaturesvaluechainsinglobalinvestment.11Asmostbuildingsby2050,particularlyrelatedtolowermortalityandandmaterialsarebrowntoday,12imposingtaxesonmorbidityrates,wouldexceedby1.4to2.5timestheconventionalconstructionwouldcauseamarkeddropoutputcostsofreducingcarbonemissionsinthisintotalconstructioninvestmentthatisunlikelytobedecade.13offsetinthenextdecadebytheexpansionofgreenalternatives,evenwithfiscalsupportmeasures,atEmergingmarketsreceiveonlyasmallleastuntiltechnologieswiththehighestabatementshareofdomesticandforeigngreenpotentialbecomecommerciallyavailableby2035financefordecarbonizingconstruction.andbeyond.Severalfinancialtoolsare,orcanbe,usedtochannel11Constructionaccountsforabouthalfoftotalfixedcapitalinvestmentglobally(IFCcalculationsbasedonGlobalTradeAnalysisProject,2022).12Onlyabout7percentofthestockofbuildingsisgreentodayglobally,accordingtoIFCcalculationsbasedontheGlobalTradeAnalysisProject.13See,forinstance,Markandyaetal.(2018).BUILDINGGREENPage22EXHIBITEGlobalDomesticandForeignPrivateGreenDebtFinanceforConstructionDecarbonizationIncreasedTwentyfoldintheLastFiveYearsCompoundAnnualGrowth250RateSustainability-Otherlinkedbonds221%Sustainability200bonds192%150$billions100Greenbonds93%50Sustainability-313%linkedloans70%02017201820192020Greenloans2021Notes:Calculationsonlyconsidergreen,sustainability,sustainability-linked,andtransitionbondsandloanswith"greenbuildings"intheuseofproceedsorissuedbyconstructionmaterialsectorsandusedfordecarbonization.‘Other’includestransitionbondsandsustainabilityloans.SeeAnnex3formoredetailsonthemethodology.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCcalculationsbasedondatafromEnvironmentalFinanceandBloomberg(2022).domesticandforeignprivatefundstogreeninginvestmentfordecarbonizinghard-to-abateconstructionvaluechains.Theseinclude:constructionmaterialsbyaligningfinancialincentivesbetweeninvestorsandmaterial•Sustainability-linkeddebtcanmobilizeprivateproducerstoreduceemissions;1414Sustainability-linkedfinanceincludesloansandbondsinwhichcompliancewithasetofpre-determinedsustainabilitytargetstriggersreductionsinfinancingcosts.Page23ExecutiveSummaryEXHIBITFOnly10PercentofGlobalDomesticandForeignPrivateGreenDebtFinanceforConstructionDecarbonizationWasIssuedinEmergingMarketsCompoundAnnualGrowth250RateOtheremergingmarkets146%Sub-SaharanAfrica138%China86%200150$billions100Highincome109%50020172018201920202021Notes:Calculationsonlyconsidergreen,sustainability,sustainability-linked,andtransitionbondsandloanswith“greenbuildings”intheuseofproceedsorissuedbyconstructionmaterialsectorsandusedfordecarbonization.Volumesshownbyincomeandregionarebasedonthelocationofheadquartersand/orcountryofrisk(determinedbythefirm’sgeographicalexposuretooperations)oftheissuingentity.Compoundannualgrowthratesarecalculatedusingthefirstyearofissuanceasbaseyear:2018forSub-SaharanAfricaandotheremergingmarkets,and2017forhighincomecountries.SeeAnnex3formoredetailsonthemethodology.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCcalculationsbasedondatafromEnvironmentalFinanceandBloomberg(2022).•Greenmortgagescandriveconsumerdemandforenergysavingsovertime;investmentsinnet-zerobuildings;•Greenfundsandrealestateinvestmenttrustscan•Performancecontractsandleasingcanofferinjectequityfinanceinneworretrofittedgreenoff-balancesheetfinancingfromlocalenergybuildingsandmaterials;providersforenergy-efficiencyinvestmentsin•Venturecapitalfundscanfinanceorco-financebuildingsandmaterialsthatcanberepaidthroughgame-changingdecarbonizationconstructionBUILDINGGREENPage24technologies;and,Thelowlevelofinvestmentforgreenconstructionlargelystemsfrommarketfailuresthatmakegreen•Carbontransitionbondsandcarbonretirementbuildingsmoreexpensivethantheyshouldbe,sinceportfolioscancontributetodecarbonizingorintheabsenceofcarbonpricingthesocialbenefitdecommissioningbrownconstructionassets.frombuildinggreenisnotreflectedintheirmarketprice.Othermarketfailures,suchasthelimitedOfthesegreenfinancialinstruments,greenbondsinformationondefaultratesandmonetarybenefitshaveattractedmostofthedomesticandforeignofgreenbuildinginvestments,coupledwithhighprivatefinancingforgreenconstructionbetweenscreeningandmonitoringcostsofemission-reduction2017and2021,althoughsustainability-linkeddebttargets,furtherrestrictfinanceforgreenconstruction.instrumentsexperiencedthehighestgrowthratesThesefailurescompoundwithothermarketfailures,(ExhibitE).15,16Equityinstrumentsarelesscommonlythedecentralizedstructureofconstructionvalueusedforsuchfinancing,thoughRealEstatechains,andfragmentedregulationsandpoliciesatInvestmentTrustshavethepotentialtoscalefinancingthenationalandsub-nationallevel.Dependingonofgreenbuildingconstructionandoperations.Thecountryconditionsandfiscalandpolicyresources,volumeofotherinnovativegreenfinancetools,suchpolicymakerscantakeactiontomitigatethemarketastransitionbondsorcarbonretirementportfolios,failuresinconstructionvaluechainsandremovetheisquitesmallandalmostnon-existentinemergingbottleneckstoprivateinvestment.Measurescanmarkets.includethefollowing:Emergingmarketsissuedonly10percentoftotal•Improvingtheefficiency,transparency,anddepthdomesticandforeignprivategreendebtfinanceforoflocalfinancialmarketsthroughimprovedconstructiondecarbonizationin2021(ExhibitF).Ofmacroeconomicmanagementandprudentialthatshare,Chinaaccountsfor6percentoftheglobalregulationsisparamounttoexpandingfundingfortotalandtherestoftheemergingeconomiesforthebuildinggreen;remaining4percent.Privategreendebtfinancingforconstructionisalsoheavilyskewedtowardgreen•Electrification,orreplacingfossilfuelsforcooling,buildings,withdecarbonizationofconstructionheatingandcookingwithcleanerenergies,canmaterialsattractingonly9percentoftheissuancecontributetoreducingemissionsfrombuildingglobally.operations;Concertedactionbyprivateinvestorsand•Greenbuildingcodesandstandardsandotherpolicymakerswillberequiredtoreduceregulationscancontributetoenticingprivateemissionsfromconstructionvaluechains.financeintogreenconstruction;15IFC(2020)providesabroaderanalysisofthegreenbondmarket.16Calculationsonlyconsidergreen,sustainability,sustainability-linked,andtransitionbondsandloanswith“greenbuildings”intheuseofproceedsorissuedbyconstructionmaterialcompaniesandusedfordecarbonization.SeeAnnex3formoredetailsonthemethodology.Page25ExecutiveSummary•GovernmentsshouldtaketheleadonconstructionDevelopmentfinanceinstitutionshavedecarbonizationthroughgreeningpublicbuildingscriticalrolestoplayinconstructionvalueandpublicprocurement,aswellasencouragingchaindecarbonization.theadoptionofcarbontransitionbondsandDevelopmentfinanceinstitutionscanplayancarbonretirementportfoliosfordecarbonizingandimportantroleinpromotingfinancingtowarddecommissioningbrownplants;constructionvaluechainsdecarbonizationinemerging•Carbonpricingcanhelpinternalizeemissionsmarkets.Theycanhelptomobilizesignificantvolumesexternalitiesbyprovidinganeconomicincentiveofdomesticandinternationalprivateandpublictoemitterstoeithergreentheirproductionandfundsthroughinvestingingreenbondsandloanslowertheiremissionsorcontinueemittingandpayandotherfinancialinstruments,supportinnovativethepricefortheiremissions.Itcanalsoencouragegreenfinancialinstrumentsfordecarbonizingbrownconsumerstoswitchfrombrowntogreenbuildings,providetechnicalassistancefortheadoptionconstructionproducts;ofgreencodes,regulations,andstandards,serveas•Compulsoryorvoluntarycarbonmarketscanananchorinvestor,provideconcessionalandblendedunlockdomesticandforeignprivatesectorfinancing,andoperationalizevarioussupranationalinvestmentinconstructiondecarbonization;climatefunds.•GreenbankscanplayaroleinmobilizingfinanceConcessionalfinancedeployedbydevelopmentforsmall-scalegreenbuildingprojectsthatmayfinanceinstitutionscanprovidefinancialproductstonototherwisebewidelyavailableinthemarket;de-riskprivateinvestmentsthroughsubordinatedand,loans,equity,andguarantees.Blendedfinanceutilizeslimitedpoolsofconcessionalfundstomobilizelarger•Subsidies(e.g.,grants,below-market-rateloans,sumsofprivatesectorfinancingtowarddevelopmentanddirecttransfers)andtaxincentives(e.g.,taxgoals,oftenwithclimate-relatedobjectives;therebyitbreaks)cancontributetofinancingtechnologiescanprovidemoreimpactperdollarthanpuregrantsforconstructiondecarbonizationandincentivizewhilereducingpotentialmisallocationofcapital.17thedecarbonizationordecommissioningofConcessionalandblendedfinanceforbuildinggreenbrownmaterials’plants.However,moreempiricalwillneedtobescaledupinthepoorestcountries.evidenceisneededontheeffectivenessandefficiencyofsuchtools.ManyemergingmarketsHowthisreportisstructuredalsolackthefiscalresourcesandpolicyreadinesstomanageefficientlythesemeasures,inparticularEmergingmarketsencompassaheterogeneousinlow-incomecountries.groupofcountries.Theircapabilitiesforadoptingandimplementingmitigationandabatementpoliciesin17IFC(2021).BUILDINGGREENPage26construction,therefore,varywidely.Thesecountriesvaluechains.Thelastchaptersummarizesthemainalsodifferintheirrelianceonfossilfuelsfordrivingrecommendationsforpolicymakers,privateinvestors,economicgrowthanddivergeinthecarbonintensityandotherstakeholdersformakingarealityoftheoftheproductionofmaterialsandtheconstructionopportunityforbuildinggreeninemergingmarketsinandoperationofbuildings.thenextdecade.Thereportfocusesontheprospectsforreducingemissionsinconstructioninemergingmarketsinthenextdecade,aperiodwheresomeofthetechnologieswiththelargestabatementpotentialareunlikelytobecomecommerciallyavailablewithoutsupportivepolicies.Thisapproachalsoemphasizesthemostplausiblepathforadoptingcarbonpricingprogramsinemergingmarketsoverthenext10yearsbasedontheexistingNDCs,ratherthansimulatingthehypotheticalcarbonpricesrequiredtolimitemissionsbelowthelevelsestablishedintheParisAgreementby2050.Otherrecentreportsanalyzetheimpactsofglobalwarmingandabatementpoliciesoneconomicgrowthinthenextdecadesby2050andbeyond.18Thisreportisorganizedasfollows.Thefirstchapterdetailsthesize,source,andprospectsforreducingcarbonemissionsfromconstructionvaluechains.Thesecondchapterconsiderstechnologicalimprovementsthatwouldreducecarbonemissionsfromtheconstructionandoperationofbuildings,whilethethirdchapteraddressestechnologiestoreduceemissionsfromtheproductionofbuildingmaterials.Thefourthchapteroutlinesthefinancenowavailableforgreenconstruction,themeasuresrequiredtoimproveincentivesforgreenconstruction,andmeasurestochanneltheincreaseddomesticandforeignprivatefinancingtoemergingmarketstoachieveasignificantreductionincarbonemissionsfromconstruction18See,forinstance,IMF(2022),Chapter3;andAcemogluet.al.(2012).IEA(2020)explorestheeffectsofinvestmentsandpoliciespromotingenergyefficiencyonglobalwarmingby2050.CHAPTER1:ProspectsforReducingCarbonEmissionsfromConstructionBUILDINGGREENPage281.1.Summaryreport.Theoperationofbuildingsishighlyenergy-andresource-intensive,generatingabout20percentofEmergingmarketsgenerateabout70percentofglobalemissions.Thesupplyofmaterialsaccountsforconstruction-relatedemissionsgloballyandthatshareabout19percentofglobalemissions,mainlyfromtheisprojectedtoincreaseby2035.Technologiesarefossilfuel-poweredandenergy-intensiveprocessesavailableoremergingthatcanreduceemissionsacrossusedtoproducethesematerials.Theconstructionconstructionvaluechains,bothfromtheoperationprocessitselfaccountsforonly0.3percentofglobalofbuildingsandfromtheproductionofconstructionemissions,asitreliesheavilyonrelativelylesscarbon-materials.Thespeedofthegreenconstructionandresource-intensiveactivitieslikeoff-siteandon-transitionwilldependoneachcountry’sincomelevel,siteconstructionservices.About85percentoftotaltechnologicalandpolicyreadiness,availablefiscalandconstructionemissionsgloballycomefromtheuseoffinancialresources,anddependanceonfossilfuels.fossilfuelsinbuildingsandmaterialsplantswhiletheThischapterexaminesscenariosforconstruction-remaining15percentcomesfromprocessorindustrialrelatedemissionsreductioninemergingmarketsandemissionsrelatedtotheproductionofcement,steel,theamountofinvestmentthattheseeffortswouldandotherconstructionmaterials.21require.ItalsoestimatestheimplicationsforeconomicgrowthinemergingmarketsoverthenextdecadeandThecontributionoftheoperationofbuildingstobeyond.globalemissionsaccruesoverthebuildings’lifetimefromtheuseofenergy-intensiveandfossilfuel-1.2.Constructionvaluechainsarepoweredsystems,likecooling,heating,andlighting,amajorcontributortoglobalCO2andlargeappliances,likerefrigeratorsandcookstoves.emissions,particularlyfromemergingInefficientenvelopeinsulationanddesignfeaturesmarkets.(e.g.,buildingplacementandexposuretosunlight,windowsizeandrooftops’heatabsorption,andairConstructionvaluechains—thatcompriseconstructioncirculation)inconventionalbuildingsfurtherincreasesandoperationofbuildingsandproductionofheating,cooling,andlightingsystems’energyloads.22constructionmaterials—accountforabout40percentRetrofittingisextremelyexpensivetoday;brownofCO2emissionsglobally(Exhibit1).19,20Box1describesbuildings23accountformostofthestockofbuildingswhatismeantbyaconstructionvaluechaininthis19Thisreportincludesonlyscope1,2and3CO2emissionscomingfromenergycombustionandeconomicactivityinagriculture,manufacturing,andservices.Emissionsfromothergreenhousegases(e.g.methane)andotherCO2emissions(e.g.,fromchangesinlanduse)arenotconsideredduetodatalimitations.Scope1emissionsaredirectemissionsfromownedorcontrolledsources.Scope2emissionsareindirectemissionsfromthegenerationofpurchasedelectricity,steam,heating,andcoolingconsumedbythefirm.Scope3emissionsareallindirectemissions(notincludedinscope2)thatoccurinthefirm’svaluechain.20ThisestimateroughlyalignswithrecentcalculationsfromIEA(2021)andUN(2021)inwhichconstructionaccountsfor36percentofglobalfinalenergyconsumptionand37percentofenergy-relatedCO2emissions.21IFCstaffcalculationsbasedonGlobalTradeAnalysisProjectdata.22IEA(2021).23Brownbuildingsrefertobuildingsnotdesignedoradaptedforenergyoremissionsreduction.Page29Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionEXHIBIT1ConstructionGeneratesAbout40PercentofGlobalCarbonEmissionsGlobalCO2emissionsbycategoryTotal:38billionCO2tonsRestofglobalTotal:15billionCO2tonsCO2emissions60.6%GlobalconstructionvaluechainemissionsbyregionBuildingProductionofChinaHighOtheroperationsconstruction40%incomeemerging20.4%materials31%markets18.7%29%Buildingconstruction0.3%Notes:Thisreportincludesonlyscope1,2and3CO2emissionscomingfromenergycombustionandeconomicactivityinagriculture,manufacturing,andservices.Emissionsfromothergreenhousegases(e.g.methane)andotherCO2emissions(e.g.,fromchangesinlanduse)arenotconsideredduetodatalimitations.Scope1emissionsaredirectemissionsfromownedorcontrolledsources.Scope2emissionsareindirectemissionsfromthegenerationofpurchasedelectricity,steam,heating,andcoolingconsumedbythefirm.Scope3emissionsareallindirectemissions(notincludedinscope2)thatoccurinthefirm’svaluechain.OtheremergingmarketscategoryincludesSub-SaharanAfrica.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCcalculationsbasedondatafromtheGlobalTradeAnalysisProject(2022).BUILDINGGREENPage30EXHIBIT2CementandSteelAccountforAbout50PercentofCarbonEmissionsfromConstructionMaterials41%7%43%10%MetalsOtherOtherCementservicesmater-andproductsialsTotal:6.7billionCO2tonsNotes:About50percentofdemandforsteelcomesfromconstruction(WorldSteelAssociation,2020).About99percentofcementproductiongoestoconstruction(GCCA,2020).Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCstaffcalculationsbasedonGlobalTradeAnalysisProjectandGCCA.globally,eveninhigh-incomeeconomies.24Giventheaccountsforabout45percentofthoseemissions,averagelifetimeofabuildingisabout50years,thewhileotheremergingcountries,particularlyinEuropestockofbrownbuildingswillkeepthecontributionofandCentralAsia,MiddleEastandNorthAfrica,andbuildingoperationstoglobalcarbonemissionshighSouthAsia,explaintherestwithabout55percentofanditwillincreaseasnewbrownbuildingsarebuiltinglobalbuildings’operation-relatedemissions.26theabsenceofadditionalmitigationandadaptationefforts.25Materialsandconstructiontodaygenerateonly22percentoftheemissionsofatypicalbuildingduringAbout56percentoftheglobalemissionsfromitsaverage50-yearlifespan.27Mostoftheseembodiedbuildings’operationoriginatesinemergingmarkets.carbonemissionsareassociatedwithproductionThissizablecontributionisexplainedbytheprevalencematerials,witharoundhalfoftheseemissionsofbrownbuildingsandappliancesinemerginggeneratedbycementandsteel.28Embodiedcarbonmarketsrelativetohigh-incomecountries.Chinareferstothecarbonemissionsassociatedwiththe24SeeSections2.2.and3.3onthecurrentlandscapeandprospectsforretrofittingbuildings.25IEA(2020).26IFCstaffcalculationsbasedonGlobalTradeAnalysisProject.27WBCSD/ARUP(2021)Exhibit1measuresemissionsfrommanufacturingconstructionmaterialsinthebaseyear2022ratherthanemissionsresultingfromthematerials’productionoverthebuilding’slifespan.28MaterialEconomics(2018).Page31Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionBOX1SchematicRepresentationoftheConstructionValueChainWhatIsaConstructionValueMaterialandOperationsEndofLifeChain?ConstructionPhasePhaseDemolitionTheconstructionvaluechainisacomplex~3-5years~50yearsnetworkwithmultiplestagesandstakeholders.ThediagramshowsthatthevaluechainofDecisioninfluencersGovernmentconstructionandoperationofbuildingsandregulationsotherinfrastructurescomprisesthreemainDecisionmakersstageswithvaryingduration:(a)materialsandArchitects,engineers,construction(3–5years);(b)operations(uptoconsultants50years);and(c)endoflife(demolition).Banks,investorsThreemaindecisionmakersinterveneoverthelifecycleofbuildingsandotherconstructions:Buyers(a)materialmanufacturers;(b)developers;and(c)users.GovernmentregulationsplayakeyroleOccupiersinshapingtheavailabilityandemission-intensityofmaterialsandthedesignandspecificationsofMaterialsconstruction.UsersdetermineemissionintensityManufacturersandwastegenerationintheoperationphase.FinancialinstitutionsandinvestorsinfluenceDevelopersthesupplyofmaterialsandconstruction,whilearchitects,engineersandotherspecialistscanaffectdesignandconstructionspecifications.Theconstructionvaluechainplaysacrucialroleintheglobaleconomy.Investmentinconstructionaccountsfor15percentofglobalGDPandabout10percentoftheGDPinemergingmarkets.Constructionisthemaincomponentofinvestmentinmosteconomies.Therefore,itisakeydriverforaggregatedemandandeconomicgrowth.Constructionisalsoalabor-intensiveactivity,generatingmillionsoflow-skilledjobsinemergingmarkets.Thevaluechainalsoencompassessomeofthemainindustrialactivities,likecementandsteel,alongwithanextendednetworkofdownstreamon-siteandoff-siteserviceslikelogisticsandtransportation,amongothers.IFCcalculationsbasedonGlobalTradeAnalysisProjectandWEO.OwnersBUILDINGGREENPage32EXHIBIT3CementIstheMostCarbon-IntensiveActivityGloballyCement2.46.9Electricity1.91.5kgCO2per$1ofoutputCoal1.3Ironandsteel1.24.6Non-ferrousmetals0.9Othernon-metallicminerals0.9Notes:Outputiscalculatedasthesumofvalueaddedandintermediate0.8consumptionbyactivity.Onlythetop10mostcarbonintensiveactivitiesTransportgloballyareincluded.CarbonintensityisestimatedastheratiobetweenGastotalcarbonemissionsandoutputbysector.Emissionsonlyincludeprocessandindustrialemissions;thosegeneratedbymethanearenotMetalscastingincluded.Figuresinthetextmightnotbeidenticalduetorounding.ChemicalproductsSource:IFCstaffcalculationsbasedonGlobalTradeAnalysisProjectandGCCA.materialsandconstructionprocessesthroughoutThecontributionofconstructionmaterialstoglobalthewholelifecycleofabuildingorinfrastructure.emissionsis,inturn,mostlyduetotheproductionofItincludesmaterialextraction,transporttothecementandsteel.Theconstructionindustryconsumesmanufacturer,manufacturing,transporttosite,almostalltheworld’scementandnearlyhalfthesteelconstruction,usephase(e.g.,concretecarbonationproduced.30Cementandconcreteproductiongeneratebutexcludingoperationalcarbonfrom,forexample,about43percentoftheemissionsfrommaterials,energyuseofthebuildingorinfrastructure),steelmakingabout10percent,andothermaterialsmaintenance,repair,replacement,refurbishment,about7percent.31Constructionmaterialsarealsodeconstruction,transporttoend-of-lifefacilities,heavyusersofotherhighlycarbon-intensiveactivities,processing,anddisposal.29mainlyelectricity,transportation,andotherservices,29MaterialEconomics(2018).30Karlsonet.al(2020).31About50percentdemandforsteelcomesfromconstruction(WorldSteelAssociation,2021).About99percentofcementproductiongoestoconstruction(GCCA,2021).Page33Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionwhichaccountfortheremainingEXHIBIT4approximately40percentofemissions(Exhibit2).Construction-RelatedEmissionsinEmergingMarkets,2022Accordingtothisreport’scalculations,cementisthemostPercentoftotal,excludingChinacarbon-intensiveactivityglobally(about7CO2kgeqper$1of7.2EuropeandCentralAsiaicasoutput),andsteelmaking(ironAmerandsteel)isthefourthmostintensive(about2CO2kgeqper6.3IndiadthehAfrica$1ofoutput).OthermaterialsAsiaanandactivitiesheavilyusedinNortconstruction,suchaselectricity,-incomedcarbon,non-ferrousmetals,otherleEastannon-metallicminerals,transport,LowiddficmetalcastingandchemicaldthePaciproducts,arealsoamongthe0.85.8MtheastAsiaantop10mostcarbonintensive(Exhibit3).Thecarbonintensity2.7RestofSouofcementandsteelderivesinpartfromthemassiveamountsof1.5IndonesiaenergyneededtogeneratethehightemperaturesrequiredtoproduceAfrica2.4RestofLatinAmericaandtheCaribbeanthesematerials.Thisenergyisstillouth0.8Brazilmainlydependentonfossilfuels,0.8especiallyinemergingmarkets.0.5SThechemicalprocessesinvolvedin0.1NigeriaRestproducingthesematerialsarealsoofSualargesourceofemissions.320.1Ethiopiab-SaharanAgainstthisbackdrop,emergingAfricamarketsgeneratemorethan70percentoftotalconstruction-Notes:Onlythelargestcountriesmeasuredbypopulationarereportedduetodatalimitations.ColorofcategoriescorrespondstotheofficialWorldBankGroupregions.Figuresin32Hasanbeigi(2021).SeeBox4inChapter3foranthetextmightnotbeidenticalduetorounding.explanationofhowcementandsteelareproduced.Source:IFCstaffcalculationsbasedonGlobalTradeAnalysisProjectandGCCA.BUILDINGGREENPage34EXHIBIT5EmergingMarketsAccountforAbout90and70PercentofGlobalCementandSteelProductionCement11%61%26%2%Steel33%54%12%1%HighincomeChinaOtheremergingmarketsSub-SaharanAfricaNotes:FiguresinthetextmightnotbeidenticalduetoroundingSource:IFCstaffcalculationsbasedonGlobalTradeAnalysisProjectandGCCA.relatedemissionsgloballytoday.Chinaisthelargestconstruction-relatedemissions),followedbyEthiopiacontributor,accountingforabout40percentofandNigeria(bothwith0.1percent).InSoutheastAsiatheworld’sconstruction-relatedemissions.OtherandthePacific,Indonesiacontributesthelargestemergingmarketscontributeabout30percentshareofglobalconstructionemissions(1.5percent).(Exhibit1).33BrazilisthelargestemitterinLatinAmericaandtheCaribbean,withabout0.8percentofglobalInotheremergingmarketsexcludingChina,Centralconstructionemissions(Exhibit4).Table2.3inAnnexAsiaandEuropeaccountsforabout7percentofglobal2showstheprojectedcontributionofeachcountrytoconstructionemissions,andIndiaandtheMiddleEastconstruction-relatedemissionsbycountrygrouping,andNorthAfricafollowwithabout6.3percentandregionandgloballybetween2022and2035.5.8percent,respectively.InSub-SaharanAfrica,SouthAfricaisthelargestemitter(0.5percentofglobal33OtheremergingmarketsincludesSub-SaharanAfricaunlessstatedotherwise.Page35Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionWithinconstructionvaluechains,EXHIBIT6emergingmarketsaccountforabout83percentofglobalConstructionMaterialsProductionIsMorecarbonemissionsgeneratedbyCarbonIntensiveinEmergingMarketstheproductionofconstructionThaninHigh-IncomeCountriesmaterials.Forinstance,Chinageneratesabout68percentofAverageCO2kgeq.emissionsperunitofoutputcementemissionsandabout62percentofsteelemissionsglobally.CementOthermiddle-incomeemergingmarketsaccountfor26percentofChina8.4globalemissionsfromconstructionmaterials.34ThecontributionofSub-SaharanAfrica7.0low-incomecountriesismarginal.Otheremergingmarkets6.9Thisdisproportionatecontributionofmiddle-incomeemergingHighincome4.4countriesinpartreflectstheirdecisiveroleinthesupplyoftheseIronandsteelmaterialsglobally.Theyaccountforabout90percentoftheworld’sOtheremergingmarkets1.9cementproductionandabout67percentofsteel.ChinaexplainsChina1.5abouthalfofthat,butotherlargeemergingmarketssuchasIndia,Sub-SaharanAfrica1.6Indonesia,BrazilandotherSouthAsianandEastAsiancountrieshaveHighincome0.6beenrapidlyexpandingproduction,drivenbytheirrisingpercapita0246810incomes,growingurbanization,andincreasedinvestmentsinbuildingsAverageCO2kgeq.emissionsperunitofoutputandinfrastructure.EmergingmarketsexcludingChinaproduceNotes:Outputiscalculatedasthesumofvalueaddedandintermediateconsumptionbyabout26percentofcementsector.Figuresinthetextmightnotbeidenticalduetorounding.34IFCstaffcalculationsbasedonGlobalTradeAnalysisSource:IFCstaffcalculationsbasedonGlobalTradeAnalysisProjectandGCCA.Project.BUILDINGGREENPage36andabout12percentofsteelglobally.Sub-Saharanabout30percentin2000.Bycontrast,theshareofAfricahasaminorparticipationinthesupplyofbothhigh-incomecountriesinconstructioninvestmentmaterials.High-incomecountriesonlyaccountfordeclinedfrommorethan70percenttolessthanabout11percentoftheglobalsupplyofcementand50percentoverthesameperiod.Overall,investmentabout33percentofsteel(Exhibit5).Table2.1and2.2inconstructionandmaterialsaccountsforaboutinAnnex2showsthecontributionofeachcountryby20percentofthecombinedGDPofemergingregiontotheproductionofcementandsteelinthesemarkets.37countrygroupingsandglobally.1.3.EmissionsfromconstructionareThesignificantcontributionoflargeemergingmarketssettoriseandareofftracktomeettotheemissionsfromconstructionmaterialsalsoconstructionclimatecommitments.reflectsrelianceonrelativelymorecarbon-intensiveproductionmethods.Forinstance,emergingmarketsTheParisAgreementcallsforeverybuildingtobeproducesteelwithalmostthreetimesmoreemissionsnet-zerocarbon(highlyefficientandpoweredfromperunitofoutputthandevelopedeconomies(Exhibitrenewableenergysources,withanyemissionsoffset)6).Similarly,cementproductioninemergingmarketsby2050.Only5percentofnewbuildings,however,areismuchmorecarbon-intensivethaninhighincomenet-zeroandlessthan1percentofthesebuildingsarecountries.Useofmorepollutingenergysources,builtwithzero-carbonspecificationstoday.38likeheavyfueloilsandcoal,andmoreenergy-andresource-intensiveequipmentmainlyaccountforAstheexpectedlifespanofbuildingsconstructedtheselargedifferencesincarbon-intensityofcementtodayisabout50years,theconstructionmethodsofandsteelproductionbetweendevelopingandtodaydetermineemissionsandenergyconsumptiondevelopedeconomies.35ofbuildingsfortheforeseeablefuture.Non-carbon-neutralbuildingswillalsoneedtoberetrofittedintheFinally,highlevelsofconstructionemissionsbynext30years.39Retrofitratesareinsufficient,however,emergingmarketsalsoreflecttherapidgrowthofasaverageannualretrofitratesinbuildingsamountinvestmentinnewbuildingsandmaterialsinthesetolessthan1percentofthebuildingsstockperyearincountries,particularlyinmiddle-incomeeconomies.36mostmajormarkets,eveninhighincomecountries.Today,emergingmarketsaccountforabouthalfofBecauseofitshighcosts,movingaggressivelyindeeptheglobalinvestmentinconstruction(Chinaaloneretrofittingordecommissioningbrownbuildings,hasaboutaquarteroftheglobaltotal),upfromhowever,willbechallengingformosteconomiesandit35WorldBank,mimeo.36InvestmentinthisreportreferstogrossfixedcapitalinvestmentintheconstructionsectorintheGlobalTradeAnalysisProjectdatabase.SeeAnnex1.37IFCstaffcalculationsbasedonGlobalTradeAnalysisProject.38Azerocarbonreadybuildingishighlyenergyefficientandeitherusesrenewableenergydirectlyorusesanenergysupply(e.g.,electricityordistrictheating)thatwillbefullydecarbonizedby2050.IEA(2020).39IEA(2020).Page37Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionEXHIBIT7DisseminationofGreenBuildingMeasuresbythePrivateSectorHasBeenLimitedOutsideHigh-IncomeCountriesandLargeEmergingMarkets2015:Positivesentimentssharerelatedto'GreenBuildingCertification'shareofpositivedocumentsbycountry61%-100%46%-60%31%-45%16%-30%0%-15%Nodata2021:Positivesentimentssharerelatedto'GreenBuildingCertification'shareofpositivedocumentsbycountry61%-100%46%-60%31%-45%16%-30%0%-15%NodataNotes:Analysisbasedonidentifyingselectedkeywordsongreenbuildingcertificationsandconstructionmethodsincompany’sdocumentsusingartificialintelligencetext-recognitionmethods,naturallanguageprocessing,andmachinelearning.Algorithmsassessthetoneofatranscriptonaspectrumofpositivetonegative.Thescalemeasurestheshareofcompany’sdocumentsregisteringpositive“sentiment”bycountry.Thedataonlyincludescompany’sdocumentsinEnglish.Source:IFCandIBRDDECbasedonFacsethttps://www.factset.com/solutions/data-solutions.BUILDINGGREENPage38willthereforemostlikelynotbeapriorityformiddle-potentialinvestmentopportunities.Thesummaryofandlow-incomecountriesintheyearstocome.resultsofthesimulationsofthemodelemployedinthisreportarepresentedinthefollowingparagraphs.Morethan110countrieslackedmandatorybuildingenergycodesorstandardsin2021,meaningthatmoreIntheabsenceofadditionaleffortstoreducethan2.4billionsquaremetersoffloorspacewereemissions(thenomitigationscenariodescribedinbuiltlastyearwithoutmeetinganyenergy-relatedBox2),theresultsofthemodelsuggestthattotalperformancerequirements—theequivalentofSpain’sconstruction-relatedemissionswouldincreasebyentirebuildingstock.40about13percentbetween2022and2035globally.About45percentofthisincreasereflectstherapidLackofadequatebuildingcodes,insufficientgreeninvestmentinconventionalcarbon-intensivebuildingsfinancing,andthedearthoftechnicalandenforcementandconstructionmaterialsinemergingmarketsothercapabilitiesexplainthesparsityoflow-emissionthanChina,drivenbyfasturbanizationandeconomicbuildingsandmaterialsinleastdevelopedeconomies,growthinIndia,EastAsiaandthePacific,theMiddleandsomemiddle-incomeeconomies.ThehighlylocalEastandNorthAfricaandSub-SaharanAfrica.China’sanddecentralizedorganizationoftheconstructioncontributiontotheincreaseinemissionswillbeindustryalsomakesdesigningandenforcingconsistentmoderateduetotheexistingexcesssupplyofcement,greenbuildingregulationsandstandardschallengingsteel,andothermaterialsaswellasthealreadyinmanyemergingmarkets,especiallyinsomeLatinmassivestockofbuildings(Exhibit8).Low-incomeAmericanandSoutheastAsianeconomies.41economieswouldmakeonlyamarginalcontribution.Table2.3inAnnex2providestheprojectedtrajectoryThisreportemploysacomputablegeneralequilibriumofconstruction-relatedemissionsbycountryanddynamic-circulareconomymodeltoanalyzeregion.Onlythemajorcountriesmeasuredbyalternativescenariosforconstructionvaluechainspurchasingpowerparity-adjustedGDParedisplayeddecarbonizationinemergingmarketsby2035(Seethereduetodatalimitations.Box2andAnnex1foradetaileddescriptionofthemodelandthescenarios).ComputablegeneralTheoperationofbuildingswillaccountformostoftheequilibriummodelsprovideanindicationofplausibleprojectedriseinconstruction-relatedemissions.Itspathsofconstructioncarbonemissionsandthecontributionwillincreasefromabout50percentofeconomiceffectsofalternativepolicyoptionsratherconstructionemissionsin2022toabout60percentbythanprecisenumericalestimates.Thesemodels2035.Intheabsenceofvigorousmitigationefforts(theoffervaluableguidancetopolicymakersandprivatenomitigationscenarioinBox2),thiswillbemainlyinvestorsforthedesignanddeploymentofmitigationpropelledbytheconstructionofnewbrownbuildings,andadaptationmeasuresandtheidentificationofandtherefore,bytheexpansionofthestockof40IEA(2021).41WorldBank(mimeo);andIEA(2020).Page39Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionEXHIBIT8GlobalConstructionEmissionsAreProjectedtoGrow+13%MillionsofCO2equivalenttons15,01915,80416,46416,9436,0696,5246,7756,735China4,6994,8695,184Otheremergingmarkets4,6624,2894,5804,8205,023High-incomecountries2022202620302035Notes:SeeBox2andAnnex1foradescriptionofthemodelusedfortheprojections.OtheremergingmarketsincludeSub-SaharanAfrica.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCstaffcalculationsbasedonGlobalTradeAnalysisProject.carbon-andenergy-intensivebuildings.42Retrofittingandpromotingnovelmitigationandadaptationiscostly,andtheconstructionofnewenergy-efficienttechnologiesnotcommerciallyviabletodaythroughbuildings,andtheexpectedprogressivegreeningofthefiscalincentives.Mostmiddle-andlow-incomeenergygrid,isunlikelytooffsettheemissionscomingeconomiesarelikelytofocusmoreonseizing‘low-fromconventionalbrownbuildingswithoutdecisivehanging-fruit’measureswithmoderatecostslikeadditionalmitigationeffortsinthenextdecade.43greencodes,regulationsandstandardsandalreadycommerciallyavailabletechnologies.WithfinancialAgainstthisbackdrop,inthenextdecade,advancedandtechnicalsupportfromdevelopmentfinanceeconomieswillmostlikelyconcentratetheirpolicyinstitutions,someupper-middleincomecountrieseffortsonscalingupcarbonpricingprograms,couldalsoacceleratethepilotingofpromisingadoptingstrictergreencodesandstandards,42IFCstaffcalculationsbasedonGlobalTradeAnalysisProject.43IEA(2020).SeeChapters2and4.BUILDINGGREENPage40EXHIBIT9SouthAsiaWillBeDrivingtheIncreaseinConstructionEmissionsinEmergingMarkets1,268SouthAsiaMillionsofCO2equivalenttons1,0581,1671,150EuropeandCentralAsia1,0431,0831,039MiddleEastandNorthAfrica861920726EastAsiaandthePacific(excl.China)622674604LatinAmericaandtheCaribbean460518396Sub-SaharanAfrica202229420352027Notes:SeeBox2andAnnex1foradescriptionofthemodelusedfortheprojections.OnlythemajorcountriesmeasuredbyGDPadjustedbypurchasingpowerparityaredisplayedhereduetodatalimitations.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCstaffcalculationsbasedonGlobalTradeAnalysisProject.technologieswithhighabatementpotentiallikegreenduetothepresenceofeconomieswithabundantandhydrogen.44intensiveuseoffossilfuelsintheoperationofbuildingsandproductionofmaterials.LatinAmericaandtheLookingattheregionaldistributioninthesimulations,Caribbean,andespeciallySub-SaharanAfrica,wouldthemodel’sresultssuggestthat,intheabsenceonlymakeaminorcontribution(Exhibit9).ofadditionalmitigationefforts(thenomitigationscenarioinBox2),rapidpopulationandeconomicThegrowthinconstructionactivitywillbemainlygrowthinSouthAsiaandEastAsiaandthePacific,propelledbyexpansioninbuildingfloorspaceinespeciallyinIndiaandIndonesia,andtoalesseremergingmarkets,especiallyinhighgrowthSouthextent,inEuropeandCentralAsia,woulddrivetheAsianandEastAsiancountries,likeIndia,Indonesia,increaseinglobalconstructionemissions.TheMiddleandMalaysia.BuildingfloorspaceisexpectedtoEastandNorthAfricawouldfollowinimportanceincreasebyafactoroftwotothreeindeveloping44SeeChapter4.Page41Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionBOX2ModelingAlternativeScenariosforConstructionInvestmentandEmissionsby2035Giventhecomplexityofconstructioneffectscause,inturn,changesintotaltaxesonallsectorstoachieveNDCvaluechainsintheirinteractionsemissions.targets.Scenarioc)issimulatedbywiththebroadereconomyandtheapplyingcarbontaxesonelectricityenvironment,IFChaspartneredwithThemodelrepresentstheeconomyasgenerationforbuildingsoperationsandtheGlobalTradeAnalysisProject(GTAP)acircularflowinwhichfirmsacquireconstructionmaterials,andassumingatPurdueUniversity,whichdevelopedfactors(e.g.,labor,capital,materials,improvementsintheuseofenergy.forthisreportacomputablegeneralenergy,etc.)toproducegoodsandScenariod)issimulatedbyapplyingequilibrium–circulareconomy(CGE-services.Households,inturn,receivetaxesdirectlyonthestockandflowCE)model.Themodelaggregatesincomefromfirms(e.g.,wages,capitalofbrownbuildingsandmaterialsinformationonnationalaccounts,gains,etc.),anddemandgoodsandanddirectsubsidiestolow-emissionbalanceofpayments,andinput-outputservicesproducedbyfirms.Equalityalternatives(Annex1).matricesinaconsistentrepresentationofsupplyanddemanddeterminesofthedynamicinter-dependenciesequilibriumpricesforfactors,goods,Thesimulationsfocusonatimespanacrosssectors,agents,andmarkets.andservices.Usingtheeconomic(thenextdecade,2022-2035)whenandenvironmentaldatadescribedmostofthetechnologieswiththeToanalyzetheeffectsofeconomicabove,themodeliscalibratedtolargestabatementpotential,likegreenandpopulationgrowthandalternativethistheoreticalrepresentationofhydrogenandcarbonstorage,aremitigationpoliciesonemissionstheeconomyforthebaselineyearunlikelytobecomewidelyadoptedandotherenvironmentalindicators,of2022andsolvedasasequenceofwithoutsupportivepolicies(IEA,2023).theCGE-CEmodelincorporatesancomparativestaticequilibriawhereThisapproachalsoemphasizestheexplicitrepresentationofproductioninputsarelinkedovertime.mostplausiblepathforadoptingcarbontechnologies(e.g.,primary,secondary,pricinginemergingmarketsbasedonandrecyclingactivities)andmaterialsForthisreport,themodelsimulatestheexistingNDCs,insteadofsimulating(e.g.steel,cement,glass,fossilfuels,fourscenarios:a)nomitigation,whichthehypotheticalcarbonpricesrequiredminerals,amongothers).Bycapturingassumescontinuationofthecurrenttolimitemissionsbelowthelevelschangesinbothsupplyanddemand,climatepolicieswithoutadditionalestablishedintheParisAgreement.themodelsimulatesadjustmentsinthemitigationmeasures;b)NDC,whichAnnex1providesthecarbonpriceseconomyfollowingtheimplementationassumescountriescomplywiththeirbycountryandregionusedintheofapolicyshock.NationallyDeterminedContributionssimulations,consideringtheexpected(NDCs);c)energyefficiency,thatdifferencesinthelevelandvelocityofForinstance,ifcarbonpricingisincludescompliancewiththeNDCs,andadoptionofcarbonpricingprogramsadopted,thisleadsinthemodeltoelectrificationofbrownbuildingswithbetweenhigh-incomeeconomiesandhigherpricesinbrownprimaryandcleanerenergiesanddecarbonizationemergingmarkets.Italsoprovidessecondaryactivities,reduceddemandofconstructionmaterialsandnewfurtherdetailsaboutthemodelforbrowngoods,aswellasshiftsinbuildingswithnon-fossilfuelsandemployedinthereport.thesupplymixbyincreasingtheshareimprovedenergyefficiency;andd)net-oflow-carbonactivitiesinoutputzero-alignedthatincludescomplianceandemployment.CarbonpricesalsowithNDCs,anddirecttaxationofinducechangesincarbonandenergybrownbuildingsandmaterialsandintensityoftotaloutput.Thesedemandsubsidiestogreenalternatives.Scenarioandenergy-andcarbon-intensityb)issimulatedbyapplyingcarbonBUILDINGGREENPage42countriesby2060.45Accordingtothisreport’stowellbelowtoday’slevels.Chapters2and3calculationsusingthemodeldescribedinBox2anddiscusstheseexistingandemergingtechnologiesAnnex1,emergingmarketscouldaccountforaboutandChapter4examinesthepoliciesandfinancinghalfofglobalconstructioninvestmentby2035intherequiredtoachievetheprojectedreductioninglobalnomitigationscenario.constructionemissions.Despitetheexpecteddecelerationofitseconomy,46ThemodelemployedinthisreportfocusesontwoChinaisstilllikelytoaccountforaquarterofthealternative,butnotnecessarilyexclusive,pathwaysworld’sconstructioninvestmentbecauseoftheorscenariosforreducingcarbonemissionsincombinationofnewinvestmentsandtheneedtoconstructionvaluechainsby2035(SeeBox2andmaintaintheexistingstockofbuildingsandotherAnnex1).Onepathwayinvolvesacceleratingthestructures.Thecontributionofotheremergingattainmentofthenetzeroemissionstargetsetbymarketsisexpectedtorisetoabout25percent,withtheParisAgreementby2050byboostingthestockmostoftheconstructionoccurringinIndiaandotherofgreenbuildingsandmaterialsthroughwidespreadAsianeconomies.carbonpricingandfiscalsupportmeasures(thenetzero-alignedscenarioinBox2).AnotherpathwayTheshareattributabletoSub-SaharanAfricaandinvolvesfosteringtheadoptionof‘low-hanginglow-incomeeconomiesinotherregionswouldbefruit’technologies,suchaselectrificationofbrownrelativelysmall,at3percent,despitetheregionmorebuildings,energy-efficientbuildingsandmaterials,andthandoublingitsconstructioninvestmentinabsolutecleanerenergiesthroughmeasureswithmoderateterms.Incontrast,theconstructioninvestmentshareeconomiccosts(theenergyefficiencyscenarioinofhigh-incomeeconomiesislikelytodeclinefromBox2).50percentin2022to48percentby2035duetodeceleratingpopulationandeconomicgrowth.47Thesescenariosentailtradeoffsbetweenacceleratingnowthedecarbonizationofhard-to-abatesectors1.4.Acombinationofavailableandandthepotentialcostsintermsofforegoneoutputemergingtechnologiesandpolicyactionsandinvestmentrequiredby2035.Whenandhowcanreversethegrowthinconstructionemergingmarketsstartdownthesepathwaysvaluechainemissions.towardsconstructiondecarbonizationwoulddependoncountryconditions,availablefinancing,CompliancewiththeNDCsandconstruction-technologicalandpolicyreadiness,anddependencespecificmitigationpoliciesandnovelandavailableonfossilfuels.Thesimulationsofthemodeldescribedtechnologiescouldbringdownconstructionemissions45UNEnvironmentandIEA(2017).46China’sGDPgrowthisexpectedtodeceleratefromanaverage6percentperyearin2014–2022to4percentin2022–2035(GlobalTradeAnalysisProjectmodelcalculationsbasedonnear-termoutlookinWEO(2022).47IFCstaffcalculationsbasedonGlobalTradeAnalysisProject(2022).Page43Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionEXHIBIT10GlobalConstructionEmissionsCouldDeclineby13PercentBelowthe2022Levelby2035withDecisiveActioninConstructionValueChains18,00017,000Nomitigation16,000MillionsofCO2equivalenttons+12.8%15,000-12.8%-3.6%Nationally14,000DeterminedContributions(NDCs)13,000EnergyEciency(includingNDCs)12,00020222025202820312034Notes:Theexhibitshowstheresultsofthesimulationsforthenomitigation,NationallyDeterminedContributions(NDCs),energy-efficiencyandnetzero-alignedscenariosdescribedinBox2andAnnex1.Castroet.almimeosimulatesalternativescenarios.TheNDCscenariosimulatestheeffectsofcomplyingwiththeNDCsemission-reductiontargetssetintheParisAgreement.Theenergy-efficiencyscenariosimulatestheeffectsofsector-specificmeasuresgearedtowardscleaningtheenergymixandimprovingtheenergyefficiencyofbuildingsandmaterialspluscompliancewiththeNDCs.Thenetzero-alignedscenariosimulatestheimpactsofwidespreadcarbonpricingonbrownbuildingsandmaterialsandsubsidiestogreenalternativespluscompliancewiththeNDCs.Thedropinemissionsinthenetzero-alignedscenarioissimilartothedeclineinemissionsintheenergyefficiencyscenarioanditisthereforenotshownhere.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCcalculationsbasedondatafromtheGlobalTradeAnalysisProject(2022)andGlobalClimateChangeAlliance(2021).BUILDINGGREENPage44inBox2andAnnex1explorethesepotentialtradeoffs.abateactivities,suchasconstructionandoperationofSection1.4presentstheresultsofthemodelforthebuildingsandmaterials,tomeettheclimategoalssetinvestmentneededtoreduceconstructionemissionsintheParisAgreement.inthenextdecade,whileSection1.5presentstheresultspertainingtoforegoneoutputunderthetwoTheseresultsalsosuggestthatbuildingsandscenarios.constructionmaterialswillnotdecarbonizeintheyearstocomewithoutdecisivepolicyaction,privateExhibit10showsthesimulatedtrajectoriesoftotalsectorinvestment,andwidespreadadoptionofconstruction-relatedemissionsgloballyundertheexistingabatementtechnologiesandpractices.50nomitigationscenarioandtheenergyefficiencyNoveltechnologiesholdthepromiseofnetzeroscenario,usingthemodeldepictedinBox2andAnnexbuildingsandmaterials,buttheyareexpectedto1.Accordingtothesimulations,constructionemissionsremainnon-economicallyviablewithoutfiscalsupportwouldnotonlydeclineintheenergyefficiencyby2035andbeyond.51scenariobyabout13percentgloballywithrespectto2022—equaltoabout1.9billionCO2equivalentThespeedanddepthofthepoliciesrequiredtotons—buttheywouldalsofallbyabout23percent,promotetheadoptionoftheseexistingandnovelabout3.8billionCO2equivalenttons,relativetothetechnologieswillvaryacrosscountriesinthenextnomitigationscenario(Exhibit10).The13percentdecade.Countriesthathavealreadymadesignificantreductionrelativetotoday’slevelsisequivalenttotheprogressindecarbonizingactivitieswithlowertotalemissionsfromtheconstructionvaluechaininmarginalabatementcosts,suchasenergysupplytheUnitedStatesin2022;whencomparedwiththeandtransportation,andthatpossessadequatefiscaldeclinerelativetothenomitigationscenarioin2035,itspacemaybeabletomovefasterindeployingcarbonwouldbeequivalenttothecombinedemissionsofthepricingandpromotingtechnologiesthatarenon-UnitedStates,theEuropeanUnion,andtherestofthecommerciallyavailabletoday.WithadequatepolicyOECDcountries.48andregulatoryframeworksandinternationalfinancialandtechnicalsupport,middle-incomeeconomiesThesimulationsalsosuggestthatby2035globaltotalcouldbeabletoreapthebenefitsofalreadycarbonemissions,includingconstructionandtherestcommerciallyavailabletechnologies,andthepilotingoftheeconomicactivities,woulddeclinebyabout19.8ofnovelmitigationandadaptationtechnologies.Low-percentintheenergyefficiencyscenariocomparedincomecountrieswillneedassistancetostartwalkingwiththenomitigationscenarioduetothedropinthepathtowardsbuildinggreenintheyearstocomeconstructionemissions.49Theseresultsemphasizethe(SeeChapter4).needtopavethewaynowfordecarbonizinghard-to-48IFCstaffcalculationsbasedonGlobalTradeAnalysisProject(2022).49IFCcalculationsbasedonGlobalTradeAnalysisProject(2022).50Castroet.al,mimeo.51IEA(2023).Page45Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionTheresultsofthesimulationssuggestthatthetheroadtowardsbuildinggreeninemergingmarketsoperationsofbuildingswouldaccountforaboutthreewouldrequiresequencingthedecarbonizationofquartersofthe23percentprojecteddeclineinglobalconstructionvaluechainsby2035.Reducingtheconstructionemissionsby2035intheenergyefficiencyenergyandcarbonintensityofnewbuildingsandscenariocomparedtothenomitigationscenariomaterialsorelectrifyingthestockofbrownbuildings(Box2).Thiswouldoccurthroughtheelectrificationwithcleanerenergies,forinstance,couldcontributetoofbrownbuildingswithrenewableenergies,thereducingemissionswithmoderateeconomiccostsinconstructionofnewnet-zerocarbonandresilientthenextdecade(SeeSection1.6).buildings,andothermitigationandadaptationalternatives.TheincreasedsupplyofcleanercementCommerciallyavailablemeasuresandtechnologies,andsteel,spurredbytheincreaseduseofrenewablesuchasimprovingthermalandenergyefficiencyandenergy,low-emissionrawmaterials,andimprovedswitchingtolesscarbonintensiveinputsandnon-energyandthermalefficiency,wouldaccount,infossilfuels,canalsocontributetoreducingemissionsturn,forabout25percentoftheprojecteddropinfromconstructionmaterialsnow.Retrofittingbrownemissions.Greeningtheconstructionactivityitselfplantsorbuildingscouldpotentiallyyieldsizeablewouldonlyhaveamarginalcontributionasitreliesonreductionsinglobalemissions,butthehighcostsrelativelylesscarbon-andenergy-intensiveactivitiesarelikelytolimitsubstantialprogressinthisarealikeoff-siteandon-siteconstructionservices.52inthenextdecadeinmostemergingmarkets(SeeChapter3).Inthelongerterm,widespreadadoptionofOnaverage,globalconstruction-relatedemissionscarbonpricingandtechnologieswithhighabatementdeclinebyabout2percentagepointsperyearinpotential,butnotcommerciallyavailablenow,theenergyefficiencyscenariorelativetothenocouldfurtherdecreaseconstructionemissions(Seemitigationscenario.Ofthis,1.4percentagepointsChapter4).comefromreductionsinenergyintensityofbuildingsandmaterials,while0.6percentagepointscomefromAgainstthisbackdrop,emergingmarketswouldadeclineincarbonintensity.Constructionoutputaccountformorethanhalfoftheapproximatelywouldexperienceonlyaminordeceleration(adropof23percentdeclineinglobalconstruction-related0.04percentagepointsperyear).53emissionsintheenergyefficiencyscenariorelativetothenomitigationscenario(Box2).AccordingtoDependingontheexpectedabatementcoststheprojections,China’scontributiontothedropinandemission-reductionpotentialofalternativeemissionswouldbe10.3percentagepoints,whileothertechnologies,54theresultsofthemodelsuggestthatemergingmarketsandSub-SaharanAfricawould52IFCstaffcalculationsbasedonGlobalTradeAnalysisProject.53Energyintensityreferstotheunitofenergyusedperunitofconstructionoutput,whilecarbonintensityreferstotheunitofCO2metrictonperunitofenergyconsumedinconstruction.Castroet.al,mimeopresentadetaileddecompositionofthesecarbonandenergyintensityandtotaldemandeffectsThe2percentaverageyearlydropinemissionsreferstothedeclineinemissionsofabout23percentintheenergy-efficiencyscenariocomparedtothenomitigationscenariobetween2022and2035.54Chapters2and3analyzetheeconomiccostsandabatementpotentialofalternativetechnologiesandmeasuresforbuildingsandmaterials,respectively.BUILDINGGREENPage46EXHIBIT11EmergingMarketsWillAccountforMostoftheExpectedReductioninConstruction-RelatedEmissionsSub-SaharanAfricaOtherEmergingMarkets-0.1%-2.4%HighIncome-9.9%ChinaTotal-10.3%-22.7%Notes:Theexhibitdepictsthecontributionofeachregiontothechangeinconstruction-relatedemissionsinthepolicyscenariorelativetothenomitigationscenario(SeeBox2andAnnex1).Thecontributioniscalculatedbymultiplyingtheshareinglobalemissionsinthebaseyearbythepercentagechangeinemissionsforeachregion.Castroet.al,Forthcomingexplorealternativescenariosandassumptionsforthesimulations.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCbasedonGlobalTradeAnalysisProjectandGCCA.contribute2.4and0.1percentagepoints,respectively,Theresultsofthemodelalsosuggestthatthenettothedecline(Exhibit11).zero-alignedscenario(Box2)wouldachieveasimilar13percentreductioninglobalconstructionemissionsEmissionsfrommiddle-andlow-incomeeconomiesastheenergyefficiencyscenarioandalsoplacearesettoexperienceamoremoderatedeclineinconstructionvaluechainsclosertothegoalofnetconstructionemissionsbecauseoftheirexpectedzeroemissionssetbytheParisAgreementby2050byhighergrowthrates,lessdevelopedcarbonpricingincreasingtherelativeimportanceofgreenbuildingsandregulations,55andmorecarbonandenergy-andmaterialsintotalconstructioninvestment.Thisintensiveconstructionandoperationofbuildingsandalternativewould,however,entailsignificantlyhigherconstructionmaterials,evenintheenergyefficiencyinvestmentneedsandeconomiccostsby2035scenario.55SeeSection4.4forananalysisofcarbonpricingprogramsinemergingmarkets.Annex2providestheassumedcarbonpricesusedinthesimulationsemployingthemodeldescribedinBox2.Constructionvaluechainsemissionsreductionsbycountry/regioninthe“energyefficiency”and“net-zero-aligned”scenariosareroughlyproportionaltothereductionsintheNDCscenario.Page47Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionthantheenergyefficiencyscenario,particularlyforenergiesthandevelopedeconomies.Accordingtoemergingmarkets,asshowninthenexttwosections.themodeldescribedinBox2,inemergingmarketsexcludingChina,investmentsincleanerbrown1.5.$1.5trillionininvestmentinbuildingsandnewgreenbuildingswouldamounttoemergingmarketsisneededtoachievethe$160billioninthenextdecade,comparedto$2trillionemissions-reductiongoalinconstruction.inhigh-incomeeconomiesintheenergyefficiencyscenarioincomparisonwiththenomitigationAccordingtothemodeldescribedinBox2andAnnex1,scenario.InvestmentinChinawouldamounttoreducingconstruction-relatedemissionsby13percent$1.3trillion(Exhibit12).between2022and2035wouldrequirecumulativeinvestmentsinelectrifyingbrownbuildingswithConstructionpracticesandtechnologiesincleanerenergiesandenergyefficientnewbuildingsemergingmarketsaremorecarbonintensivethanandmaterialsofabout$3.5trillionglobally(Exhibit12),inhigh-incomecountries,especiallyinfast-growing56supportedbycomplementarypolicyreforms.57economieswithhighersharesoffossilfuelsintheenergymix.59Moreimportantly,theexpectedfasterThesimulationsalsosuggestthatthealternativepaceofbothpopulationandeconomicgrowthinpathtoreduceconstructionemissionsbyshiftingemergingmarketsoverthenextdecadecouldallowconstructioninvestmenttowardsgreeneralternativesforavailableenergy-efficienttechnologiestobethroughwidespreadcarbonpricingandfiscalembeddedinexistingandnewbuildingsratherthanincentives(thenetzero-alignedscenarioinBox2anddeeplyretrofittingorretiringexistingbrownassets.60Annex1)wouldbeamuchcostliersolution.Thispathwouldrequirecumulativeinvestmentsofabout$6Theresultsofthesimulationsoftheenergytrilliongloballyby2035,abouttwicetheinvestmentefficiencyscenariousingthemodeldepictedinBox2,requiredforelectrifyingconventionalbuildingsandsuggestthatmostofthe$1.5trillioninvestmentnewenergy-efficientbuildingsandmaterialspoweredneedsinemergingmarketswouldbechanneledtobycleanerenergies(theenergyefficiencyscenarioinelectrificationofbrownbuildingsandnew,moreBox2).58energyefficientbuildingsandmaterials,poweredwithcleanerenergies.Around75percentofinvestmentEmergingmarketsoffermorecost-effectivewouldbefunneledintocleaningtheenergymixopportunitiestoreducecarbonemissionsinofbrownbuildingsandnewgreenbuildingswithconstructionvaluechainsthroughinvestmentsinlowerenergyandwaterconsumption,lesspollutingelectrification,energyefficiencyandrenewablewastemanagementsystems,low-carbonembodied56InvestmentreferstogrossfixedcapitalinvestmentintheconstructionsectorintheGlobalTradeAnalysisProjectdatabase.SeeAnnex3.57Chapter4examinesindetailthepoliciesandfinancingrequiredforincentivizinginvestmentingreenconstructioninemergingmarkets.58IFCcalculationsbasedonGlobalTradeAnalysisProject(2022).59IEA(2020).60IEA(2021).BUILDINGGREENPage48EXHIBIT12InvestmentNeedsforBuildingGreenWillAmountto$1.5TrillioninEmergingMarketsintheNextDecadeHighIncomeTotal$2.01trillion$3.50trillionChina$1.33trillionOtherEmergingMarkets$0.16trillionNotes:Investmentneedsarecalculatedasthedifferencebetweeninvestmentsinelectrificationofbrownbuildingswithrenewableenergiesandnewbuildingsandmaterialspoweredwithlow-emissionenergiesinthenomitigationscenarioandtheenergyefficiencyscenario.SeeBox2foranexplanationofthemodelandscenarios.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCcalculationsbasedondatafromGlobalTradeAnalysisProject,GlobalClimateChangeAlliance,InternationalEnergyAgencyandothersources.materials,carbonoffsetsanduseofrenewableelectrifiedbrownbuildingsandgreenbuildingswithenergies.Increasedsupplyoflesscarbon-intensiverenewableenergiesandimprovedenergyefficiencycement,steel,andothermaterialswouldabsorbforemergingmarketsbyregion,assumingthatabout20percentoftherequiredinvestmentfortheconstructionmaterialsandservicesarealreadydecarbonizingconstructionvaluechainsinemergingembeddedinthebuildings.Section3.5analyzessomemarketsby2035.61Theremaining5percentwouldspecificinvestmentopportunitiesingreencementfinancebuiltenvironment-relatedservicesonandoffandsteel.constructionsites.62Oftheadditional$160billioningreenconstructionEmployingthemodeldescribedinBox2,Exhibit13investmentinemergingmarketsotherthanChinafurtherdisaggregatestheprojectedinvestmentinbetween2022and2035,LatinAmericaandthe61IFCcalculationsbasedonGlobalTradeAnalysisProject(2021);andGCCA(2021).62IFCcalculationsbasedonGlobalTradeAnalysisProject(2021);andGCCA(2021).Page49Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionEXHIBIT13InvestmentinBuildingGreenWouldBeLargestinResidentialHousingInvestmentneedsbyregionandbuildingtype,2022–2035,$billionEurope&Sub-SaharanMiddleEastLatinEastAsiaSouthAsiaTotal&NorthAmerica&PacificCentralAsiaAfricaAfrica3.6the4.3Oce0.40.50.5Carribean0.40.77.32.4Retail0.80.40.41.10.41.01.81.21.5Education1.01.10.83.40.40.61.50.822.4Healthcare0.40.40.50.70.10.294.00.343.6Hotels&Restaurants0.30.10.20.50.20.41388.1160Institutional/Assembly0.30.30.447.90.10.220.7Warehouse0.20.30.268.60.10.276.7TotalCommercial3.43.03.01.73.2Single-FamilyDetached10.48.18.95.812.8Multi-UnitResidential3.91.33.05.49.4TotalResidential14.39.412.011.222.2GrandTotal17.612.414.912.925.4Notes:Investmentinmaterialsandconstructionservicesarealreadyembeddedintheinvestmentbytypeofbuildingandstructure.Thecoloringiscomparingbuildingtypeswithinaregion.Withinaregion,thebuildingtypewiththehighestvaluehasthebrightestbluecolor.TheseforecastsdifferfromtheestimatespresentedinIFC,2019becausethemodelusedinthisreportconsidersthedynamiceffectsofinvestmentsingreenbuildingsoninvestmentinconventionalalternativesaswellastheeffectsofthelatteronothermarketsandsectorsandtheentireglobaleconomybetween2022and2035.SeeBox2andAnnex1foranexplanationofthemodelandscenarios.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCstaffcalculationsbasedonGlobalTradeAnalysisProjectandIFC(2019).Caribbean,SouthAsiaandEuropeandCentralAsiaThisamountofinvestmentimpliesamajorscale-wouldaccountforabout$77billion,$25billion,andupinfundingforinvestmentinbuildinggreenin$18billion.IntheMiddleEastandNorthAfricaandEastemergingmarkets.AccordingtoIFCcalculations,localAsiaandthePacific,theinvestmentwouldamountandforeignprivategreendebtfinance—bondsandtoabout$15billionand$13billion.Greenbuildingloans—fordecarbonizingtheconstructionvaluechainsinvestmentwouldamountto$12billioninSub-amountedgloballyto$230billionin2021,withonlySaharanAfrica.About86percentoftheinvestment$23billionissuedinemergingmarkets.Lessthanhalfofwouldbedirectedtoresidentialbuildings(ahalfofthisamountwasissuedinemergingmarketsoutsidethatinLatinAmerica),especiallyinsingle-familyChina(SeeChapter4).detachedhousing.BUILDINGGREENPage50Inthenextdecade,newbuildingsandplantswillExistingevidenceindicatesthatwithoutreductionsstillhavetobebuilt,andtherefore,investmentwillinhigh-emissionactivities,climatechangeishavetobefinancedinemergingmarkets.Financialexpectedtohaveanincreasinglynegativeimpactmarketsofferanopportunitytochanneldomesticontheglobaleconomy,particularlyintheperiodandinternationalcapitaltoinvestmentsingreenafter2050.Risingtemperaturescausedbyincreasingconstructioninemergingmarketswiththeadequateemissionsdampenagriculturalproductivity,workers’policyandregulatoryframeworkinplace(Seehealth,landavailability,hydropowercapacity,andChapter4).Concessionalandblendedfinancewilllaborproductivity,andincreasethefrequencyandalsohavetobesteppedupforbuildinggreeninmagnitudeofadverseclimaticevents,hamperingthepoorestcountriesinthenextdecade.In2022,economicgrowth.Besidesitseffectsonhumanmultilateralclimatefundsissued$1.79billioningrantssystems,climatechangehindersbiodiversity,waterand$1.39billioninconcessionalandblendedclimatequality,andnaturalhabitats.65finance.Developmentfinanceinstitutionsprovided$3.06billioningrantsand$16.81billioninconcessionalAgainstthisbackground,themostcost-efficientandblendedclimatefinance.63solutiontostartdecarbonizingconstructionvaluechainsinemergingmarketsnowwillbetofoster1.6.Decarbonizingconstructionvaluetheadoptionof‘low-hangingfruit’technologies,chainsentailsshort-termtrade-offsforparticularlyswitchingtheenergymixtowardsnon-long-termbenefits.fossilfuelsandimprovingtheenergyefficiencyofnewandexistingbuildingsandthesupplyofmaterials(theClimatechangeactionentailsfacingthetrade-offsenergyefficiencyscenarioinBox2),throughpoliciesbetweenshort-termadverseeffectsoneconomicwithrelativelymoderateeconomiccosts,likegreengrowthandlong-termpositiveimpactsonconstructioncodes,energyefficiencyregulationsandproductivityandhumanwelfare.Recentpublicationsgreenbuildingstandards(SeeChapter4),atleastuntilsuggestthatadoptionofambitiousmitigationtargetshigh-abatementtechnologies,likegreenhydrogenandnowcouldhaverelativelysmalleconomiccostsinthecarbonstorage,becomecommerciallyavailable(IEA,nextdecadethatwouldbemorethancompensated2023,andChapters2and3).bythebenefitsoftamingglobalwarmingby2050andbeyond.64Againstthisbackdrop,thissectionexaminesThealternativepathwaytoreduceconstructionthesetrade-offsusingthemodeldescribedinBox2emissionsinthenextdecadethroughwidespreadtosimulatetheeconomicandenvironmentaleffectstaxationofbrownbuildingsandmaterialsandofalternativeadaptationandmitigationpoliciesinsubsidiestogreenalternatives(thenetzero-alignedconstructionvaluechains.scenarioinBox2)wouldcomewithgreatercoststo63Thereisnodisaggregateddatabyuseofproceedsforconcessionalandblendedfinance.SeeChapter4.64See,forinstance,IMF(2022).65IMF(2022)andChepelievet.al(2022).Page51Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionshort-to-mediumtermeconomicgrowththanthewithoutsignificantconcessionalsupportordirectenergyefficiencyscenario.Thecarbonintensityoftransfersfromhigh-incomecountries.constructionvaluechainswouldrequireimposingsignificantlyhighercarbontaxesonbuildingsandTheseoutputlossesarenotlikelytobeoffsetfullybymaterialsthaninrelativelyeasiertodecarbonizetheexpansionoflow-emissionconstructionactivitiessectors,likeelectricitygeneration,atleastuntiloverthenextdecade.Workers’reallocationfromhigh-technologieswithhighabatementpotentialbecometolow-emissionactivitiescouldinvolvesignificantcommerciallyavailableby2035andbeyond.Givencostsduetointer-sectoralskillsmismatchesandtheimportanceofconstructionintotalglobalotherfrictionsinlabormarkets.67Shiftingcapitalinvestment,66deployingcarbontaxesdirectlyontolow-emissionactivitiescanalsofacesubstantialpredominantlybrownbuildingsandmaterialswouldobstaclesduetofinancialmarketimperfections.68thereforeentailalargerdeclineineconomicgrowthAstheresultofthesefrictionsincapitalandlaborratescomparedtomeasuresgearedtowardscleaningmarkets,contractionofhigh-emissionsectorscausedtheenergymixandimprovingtheenergyefficiencyofbycarbontaxescouldresultinlowereconomicgrowthconstructionvaluechains.ratesthaninacounterfactualscenarioinwhichnoadditionalmitigationmeasuresareundertaken—TheresultsofthesimulationsofthemodeldescribeduntilthedamagesfromrisingtemperaturesstarttoinBox2suggestthatdirecttaxationofbrownincreaserapidlyinthesecondhalfofthecentury.buildingsandmaterials(thenetzero-alignedscenario)wouldresultina0.4percentagepointsdecelerationAgainstthisbackground,theresultsofthemodelinglobalyearlygrowththrough2035withaboutadescribedinBox2andAnnex1suggestthatthe20percentdropinglobaltotalemissions,includingalternativepathwayofpromotingtheadoptionof‘lowconstructionandotheractivities,incomparisontohangingfruit’technologies-electrificationofbuildings,thenomitigationscenario.Emergingmarketswouldcleanerenergysupplyandenergy-efficiency-(theexperiencerelativelylargeroutputlossesthanhighenergyefficiencyscenario)wouldachieveasimilarincomeeconomiesbecausetheirconstructionvaluedropinglobalcarbonemissionsthanthe‘netzero-chainsaremorecarbonintensive.Noveltechnologiesaligned’scenariobutwithmuchmoremoderatewithhighabatementpotentialarealsoextremelyoutputlosses.expensivetodayandwouldthereforerequiremassivesubsidieswhichareunlikelytobeattainableformostThetotalcostofreducingglobaltotalemissionsemergingeconomies,atleast—includingconstruction—byabout13.04percentthroughcompliancewiththeNDCs(withnoconstruction-specificmitigationmeasures)would66Constructionaccountsforabouthalfoftotalfixedcapitalinvestmentglobally(IFCcalculationsbasedonGlobalTradePolicyProject,2022).67Policiesrequiredtofacilitatethereallocationofworkersfromhightolow-emissionactivities(e.g.,reskilling,laborsupportprograms,amongothers)areoutofthescopeofthisreport,andnotanalyzedhere.68SeeChapter4.BUILDINGGREENPage52amountto0.02percentagepointsinannualGDPimprovedenergy-efficiencyandcleanerenergysupplygrowthby2035incomparisonwiththenomitigationthroughadequatepolicyandregulatoryframeworks,scenario.Promotingenergy-efficientbuildingsandinternationaltechnicalandfinancialsupport.70andmaterialspoweredwithcleanerenergies(theenergyefficiencyscenario)wouldreducetotalglobalTheseresultsalsosuggestthatdecarbonizingemissions,includingconstructionandothersectors,byconstructionvaluechainsinemergingmarketsislikelyabout20percent,likethenetzero-alignedscenario,torequireasequentialstrategyintheyearstocome.butwithoutputlossesamountingto0.03percentageEarlyactioncouldbetakenonelectrifyingbuildingspointsinyearlyglobalgrowthrelativetothenowithrenewableenergies,andonswitchingtheenergymitigationscenario.Theresultsofthesimulationsmixandprocessesofmaterialplantstolesscarbon-underthisscenarioalignwiththeClimateActionintensivefuelsandrawmaterials.ImprovedenergyTracker(CAT)pathways,themainreferenceforandthermalefficiencyandresilienceofnewandclimate-relatedsimulationsusingsimilarcomputableexistingbuildingsandplants,andadoptionofothergeneralequilibriummodelstothemodelemployedinreadilyavailabletechnologies,shouldalsobeprioritiesthisreport(Annex1).foremergingmarkets.Inthelongerterm,retrofittingbrownbuildingsandplants,acceleratingthepaceAccordingtothesimulationsofthemodeldescribedofgreeningmaterialsandthereadinessofnovelinBox2,upper-middleincomecountrieswouldtechnologieswithhighabatementpotentialbutnon-experiencethelargestoutputlossesintheenergycommerciallyviabletodaywithoutfiscalincentivesefficiencyscenarioamountingtominus0.06percentthroughwidespreadcarbonpricingprogramsandinyearlygrowthby2035,incomparisonwiththenofiscalsupportmeasures,willalsoberequiredtoreachmitigationscenario.Lower-middleincomecountriesthenetzerocarbontargetssetintheParisAgreementwouldexperiencethelowestoutputlossesamountingby2050.toaboutminus0.01percentagepointsinyearlygrowth.Low-incomeeconomiesinSub-SaharanAfricaThemodalitiesandpaceofthisintegralandsequentialwouldexperienceasimilardecline.69approachwilldependoneacheconomy’sconditions:availablefiscalandfinancialresources,technologicalTheseresultssuggestthatemergingmarketsfacingandpolicyreadiness,anddependenceonfossilrisinghousingdemandsinthenextdecade,drivenfuels.Countrieswithsufficientfinancialandpolicybyhigheconomicandpopulationgrowth,haveancapabilities,suchashigh-incomeeconomiesandopportunitytobuildgreenwithmoderateeconomicperhapssomeupper-middleincomecountries,couldcostsbypromoting‘low-hangingfruit’mitigationandbeginnowthedeepdecarbonizationofbuildingsandadaptationtechnologiesforbuildingselectrification,materialsthroughcarbonpricingandfiscalsupport69IFCcalculationsbasedonGlobalTradeAnalysisProject(2022).70IFCcalculationsbasedonGlobalTradeAnalysisProject.SeemoredetailsonthemodelinBox2andAnnex1.Chapters2and3detailtheavailablemitigationandadaptiontechnologiesandmeasures.Chapter4discussesalternativepolicyoptionsforfosteringbuildinggreeninemergingmarkets.Page53Chapter1:ProspectsforReducingCarbonEmissionsfromConstructionmeasuresattheexpenseofassuminghigheroutputinconstructionvaluechains,emissionscouldfallloses.Mostmiddle-incomeeconomiesshouldprioritizesubstantially.theadoptionofsomereadilyavailabletechnologiesandregulationswithmoderateeconomiccosts.Low-Thetechnologyrequiredtoachieveasignificantincomeeconomiescanbegintheirjourneyinthegreenreductioninconstruction-generatedemissionsconstructiontransitionwithtechnicalandfinancialisavailablenowbuttechnologieswithhighestsupportfromtheinternationalcommunityandabatementpotentialwouldonlybecomecommerciallydevelopmentfinanceinstitutions.71availableby2035andbeyond.InvestmentopportunitiesforbuildinggreenaresignificantInthelongerterm,theresultsofsimilarcomputablebutrequiredecisivepublicandprivateactiontogeneralequilibrium-circulareconomydynamicmaterialize.Decarbonizingconstructionvaluechainsmodelstothemodelemployedinthisreport(SeewilldemandanintegralstrategythatincludesBox2andAnnex1)showthatthesecostsintermsofthemostefficientsequencingofmeasuresandforegoneoutputwillbemorethanoffsetbyreducedtechnologies.Thespecificmodalitiesofthisstrategydamagesfromglobaltemperatureincreasesby2050wouldvaryacrossemergingmarketsdependingonwiththeadequatepolicyframeworkinplace.Recenttheirincomelevel,carbonintensityofconstructionsimulations,forinstance,showthattheeconomicvaluechains,andpolicyandtechnologicalreadiness.co-benefitsoflowerglobaltemperaturesby2050,Potentialtechnologicalimprovementstoreduceparticularlyrelatedtolowermortalityandmorbidityemissionsareoutlinedinthenexttwochapters.Atrates,wouldexceedby1.4to2.5timestheoutputcoststhesametime,sufficientdomesticandinternationalofreducingcarbonemissionsthisdecade.72financialresourcesmustbemobilizedtoachievethetransitiontoloweremissionsinemergingmarkets,Conclusionsandpolicymakersneedtosupportnet-zerocarbonconstructionthroughfinanceandchangesinAswehaveseen,theconstructionsectorisamajorincentives.TheseeffortsaredescribedinChapter4.sourceofglobalemissions,withdevelopingcountriescontributingthelargestshare.AndtheworldisfarofftrackfromachievingtheParisAgreementtargetthateverybuildingontheplanetshouldbenet-zerocarbonby2050.Indeed,intheabsenceofadditionalmitigationefforts,emissionsfromtheconstructionsectorareexpectedtogrowsignificantlyoverthenextdecade.However,bymeetingtheNDCs,combinedwithstrongeffortstoreducecarbonemissions71Chapter4analysesthesepolicyoptionsandtheroleofdevelopmentfinanceinstitutions.72Markandyaetal.(2018).CHAPTER2:BuildingGreeninEmergingMarketsBUILDINGGREENPage562.1.SummaryThesebuildingsminimizenegativeimpactsontheenvironmentandclimate.GreenbuildingsthatGreenbuildings,whichfeatureenergyefficientdesigns,incorporaterecyclingcanreducewasteoutputbylow-emissionmaterials,anduserenewableenergy,90percentanduse30percentlessenergy.Infinancialcouldmakeasignificantcontributiontoreducingterms,thisequatestoa5percentincreaseinnetcarbonemissionsfromconstructionvaluechainsandoperatingincomecomparedtotraditionalbuildings.constituteabusinessopportunityforprivateinvestors.GreenbuildingsusetechnologieswithalongerThetechnologytoachievenewzero-carbonbuildingsanticipatedlifespanand/ormoredurablecomponentsortoelectrifybrownbuildingswithcleanerenergies(suchasLEDlights),reducingmaintenancecosts.73alreadyexists.Emergingmarkets,particularlymiddle-incomecountries,canbuildgreennowtorespondtoKeyconsiderationsforbuildinggreenincludetherapidpopulationandeconomicgrowthinthenextphysicalfeaturesandoperatingsystemsofbuildings,decade.Inlow-incomecountries,adequatefinancialtheembodiedcarbonofbuildingswhichisdeterminedandtechnicalsupportcouldcontributetopavingthethroughthechoiceofmaterials,andtheenergywayforgreeningbuildings.Retrofittingofbrownefficiencyandwastelevelsofdesignandconstructionbuildingsisunlikelytobecomeaprioritybecauseofpractices.Forinstance,naturalcrossventilationcanitshighcosts,butsomerelativelysimplestepscanreducetheneedforairconditioningandsuppliesfreshbetakentoreduceenergyconsumptioninexistingairduringtheseasonswhenexternaltemperaturesarebuildings.Thischapterexaminesbothpassiveandcomfortable.activemeasuresrelatingtothedesign,constructionandoperationofbuildingsthatcanreduceemissionsMoreefficientmechanicalandelectricsystemscanby,amongothers,energy-efficientdesignsandalsoreduceenergyconsumptioningreenbuildings.electricalandmechanicalsystems,electrificationwithForinstance,theMenarcoTowerofficeinManila,renewableenergies,improvingbuildingresilience,thePhilippines,achieved41percentenergysavingsenhancingtheefficiencyofmaterialsused,modifyingthroughvariablespeeddrivesintheairhandlingunits,buildingpractices,exploitingdigitaltechnologiesandhigher-efficiencycoolingsystemsandappliances,smartdevicesandappliances,andextendingthelifeofenergy-savinglightingincommonandexternalareas,buildings.andoccupancysensorsinbathroomsalongwithotherpassivemeasures.74Embeddingresilienceintothe2.2.Theenvironmentalandfinancialdesignofbuildingscanalsolimitemissionsbyreducingadvantagesofgreenbuildings.theneedfornewbuildings(Box4).Greenbuildingsfeatureenergy-efficientdesigns,low-emissionmaterials,andrenewableenergy.73IFC(2021).74IFCstaffanalysis.Page57Chapter2:BuildingGreeninEmergingMarketsSomeevidencesuggeststhatgreenbuildingscanandresourceandenergyefficiency.AccordingtoofferdiscernablefinancialadvantagesinadditionasampleofIFCEDGE’sprojectdata,forinstance,tocreatingsocialvalue.Dependingonthetypeoftheratioofincrementalcosttoconventionalcostisbuilding,thepassiveandactivemeasuresundertaken,largest,at5percent,forretailbuildingsandsmallestandcountryconditions,greenbuildingscanhave,forforhospitals(withhospitality,home,andofficesinstance,relativelylowincrementalupfrontcostsandfallingsomewhereinbetween).Hospitalsalsohadtheshortpaybackperiods.DatafromIFCEDGE-certifiedshortestpaybackperiod(atalmosttwo-and-a-halfprojectssuggestthattheaverageincrementalcapitalyears),whilehomeshadthelongestpaybackperiodatexpenditureforsomegreenbuildingscanrangefromuptofiveyears(Exhibit14).1to10percent.SavingsinutilitycostsrelativetoatraditionalbuildingcanalsoresultinshortpaybackPaybackperiodsandincrementalcostsalsovaryperiodsoftwotothreeyearsinsomeresidentialsubstantiallybycountry.ProjectsinKenyaandprojects.CostscanbelowenoughforgreenmeasuresVietnamhadthelongestpaybackperiods,eachtobeattractiveevenforsomelow-incomehousingoversixyears,whileprojectsinIndonesia,Jordan,projectsincertaincountryconditions,climatezones,andPeruwereamongthelowestperiods(allunderandtypesofbuildings.twoyears).Ontheotherhand,MalaysiaandPeruhadthehighestincrementalcosts(bothover10percent),India’sTataRealty&InfrastructureLtd,forinstance,whileprojectsinthePhilippinesandVietnamhadreportedincrementalcostsof2percentforitsgreensomeofthelowest.76Thesevariationsareexplainedresidentialprojects.JoyvilleShapoorjiHousingPvt.Ltd.,bydifferencesindesign,buildingcodesandotheranIndianaffordablehousingdeveloper,hasmanagedregulations,costsoflaborandotherservices,thetokeeptheseincrementalcoststounder1percentbyavailabilityoftechnologyandmaterials,andclimate.77focusingprimarilyonpassivedesignfeatureswhichcreateenergysavingsofupto45percent.AccordingtoGreenbuildingscanhaveloweroperatingcostsandAavasFinanciersLimited,anIndianhousingfinancingcanalsohavehigherassetvaluesthantraditionalcompany,constructioncostsforgreenhomesarebuildings.Arecentsurvey,78forinstance,suggestsabout2percentmorethanforatraditionalhome,thatgreenbuildingscanhaveanaverageof10towhilethesavingsforhomeownersareverytangible17percentloweroperatingcostsandassetvaluesthatwithpaybackperiodsofjusttwotothreeyears.75canbemorethan9percenthigherthancomparableconventionalbuildings(Exhibit15).Incrementalupfrontcostsandpaybackperiodscanvaryacrosstypeofbuilding,countries,climatezones,75FormoredetailsonAavasFinanciersLimited’sexperience,withdirecttestimoniesfromIndianhomeowners,see:https://www.ifc.org/wps/wcm/connect/news_ext_content/ifc_external_corporate_site/news+and+events/news/green-buildings-in-india-are-reducing-emissions?deliveryName=DM17072376IFCbasedonEDGEinternalprojectdata.77UNEnvironmentProgram(2021).78DodgeDataandAnalysis(2022).BUILDINGGREENPage58BOX3WhatIsaGreenBuilding?Greenbuildingsproducesignificantlytoreducerelianceonfossilfuels.Inthefuture,adoptionofnet-zerolowercarbonemissionsthanPassivemeasures-theorientationcarbonbuildingstandardscouldconventionalbuildings.Whileofabuildingtothesun,naturalcreateincentivesforindustrialsomedefinitionsincludeavarietyventilation,externalshading,andproducersofsteel,cement,glass,ofotherrequirements(includingreducedwindowsizearethemostandotherinputstodecarbonizepreservationofbiodiversityandthecost-effectiveandreliablemeanstheirproductionprocesses.Thesephysicalandpsychologicalwellbeingtoensurehigherenergyefficiency.standardscouldalsofostercompleteofoccupants),mostfocusonThesemeasurescostlessthanmanyelectrificationofgreenbuildingsenergy,water,andwastetreatmentactivemeasurestoimplement,andwithrenewableenergiesandefficiency,anduseofrenewabletheirefficacydoesnotdependonmoreambitiousenergyreductionenergies.IFChasestablishedthreehowthebuildingismanaged.Theytargetsthanexistinggreenbuildingcriteriaforidentifyingabasicgreenareparticularlyeffectivetomanagestandardsandregulations.building:heatgainorlossthroughtheyear.Forinstance,asmallerwindowarea•Certificationunderarobustreducestheheatingenergyneedgovernancesystem,suchasIFCthatisassociatedwithheatlossesExcellenceinDesignforGreaterincoldclimatesandthecoolingEfficiencies(EDGE).energydemandduetoheatgainsinhotclimates,andalsoreduces•Ambitiousperformancelevels,constructioncosts.includingatleast20percentlowerenergyuseinoperationsActivemeasuresinvolvemechanicalthanconventionalbuildings;orelectricalsystems.Forexample,and,ceilingfansareamoreefficientwaytoprovidecomfortthanair-•Abilitytoquantitativelyreportconditioning.Mostcommercialimpact,suchasenergyandbuildings,fromofficestowatersavings,andreductionsinwarehouses,targetimprovinggreenhouse-gasemissions.theefficiencyoftheircoolingandlightingsystems.Incoldclimates,Greenbuildingscanreduceradiators’thermostaticvalvestoemissionsthroughpassiveandcontrolheatingineachroomreduceactivemeasures.Passivemeasuresenergyconsumption.Bothcoolingrelatetofixedphysicalfeatures,andandheatingcanbeaddressedbyactivemeasuresinvolvemechanicalheatpumps.orelectricalsystemsandtheuseofrenewableenergymeasuresPage59Chapter2:BuildingGreeninEmergingMarketsEXHIBIT14UpfrontCapitalCostsandPaybackPeriodsofGreenBuildingsVaryWidelyIncrementalcapitalcostrelativePaybackofincrementaltoconventionalbuildingscapitalcosts5%Retail2.96%4%Oces3.41%Hospitals2.32%Hospitality3.62%Homes4.964%2%0%024PercentageYearsNotes:Incrementalcapitalcostsaretheratioofincrementalcostovertypicalconstructioncosts.Source:IFCbasedonasampleofIFCEDGEinternalprojectdata.Forinstance,residentialdevelopers,likeSignatureamandatorygreenbuildingcode,followedbypoliciesGlobal(India)andCapitalHouse(Vietnam),havetoincentivizevoluntarycertification,whichyieldedreportedfastersalesresultinginbettercashflowsimmediateresults(Box4).forthem.InSouthAfrica,InternationalHousingSolutionsreportsitslow-incomerenterssaveawholeDespiteitsfinancialandclimatebenefitsandmonth’srenteachyearfromlowerutilitybills,anditssupportiveregulations,however,theconstructiongreenhomesoccupancyratesarehigherthansimilarofnewgreenbuildingsfacesstringentchallenges.conventionalhomesitowns.Constructionisafragmentedsectorandhighlylocalized;customarybuildinguseandconstructionSeveralemergingmarketcountrieshavebegunpracticesvarywidely.Mostofthecompaniesareimplementinggreenbuildingpolicies,orareplanningsmallandmedium-sizedandthereforelackscaleandondoingso,toencouragetheprivatesectortoaccesstofinancingtodeploynewtechnologieswithinvestingreenconstruction.Colombiain2015,foruncertainreturns.79instance,asthefirstLatinAmericancountrytoadopt79WorldBank,mimeo.BUILDINGGREENPage60EXHIBIT15GreenBuildingsCanHaveLowerOperatingCostsandHigherAssetValueNewGreenBuildingsAveragereductioninAveragereductioninAverageperceivedincreaseGreenRenovation/Retrofitoperatingcostsinthenextoperatingcostsinthenextinassetvalue12months5years9.2percent10.5percent16.9percent9.1percent11.5percent17.0percentNotes:Surveyofover1,200respondentsfrom79countries.Source:Dodge,2022.Nosinglesolutionisappropriateforallcontexts,andfurtherreducethecarbonfootprintofconstructionsignificantawareness-raisingandcapacitybuildingandoperationofbuildings.Anewgenerationofgreenareessentialtofomentchange.Splitincentivesandbuildingsneedstobefosteredinthenextdecade.Theinformationasymmetriesareamongtheindustryembodiedcarbonofgreenbuildingscanbereducedchallenges.Whiledesigndecisionsliewithdevelopersthroughlessuseofhigh-emissioncementandsteel.andbuildingsponsors,thebenefitsoflowerutilityThiscanbeaccomplishedinseveralways,includingcostsgototheend-userssuchashomebuyersortechnologicallydrivenabatementpracticesthattenants.Thelackofskilledconstructionworkersimproveenergyefficiencyintheproductionofthesewithadequateknowledgeabouthowtobuildwithmaterials(SeeChapter3),constructionpracticesthatloweremissionsfurtherlimitsthepotentialforgreenreducetheneedfor,andthewasteof,thesematerials,construction.Moreover,whiledevelopersknowwhatandsubstitutionwithothermaterials.Electrification—resource-efficiencymeasuresliebehindthefaçade,substitutionoffossilfuelsforrenewableenergiesinthebuyerorinvestormaynothavetheexpertisetocooking,cooling,andheating—canalsobeacost-evaluateclaimsofhigherefficiencyorresilience(theeffectivemeasuretoreduceemissionsinbuildings’financialimplicationsoftheseissuesareexploredinoperation.Chapter4).Thefurtherdevelopmentofthesetechnologiesand2.3.Decarbonizingbuildingsinthenexttheirwidespreadadoptionwouldrequireappropriatedecade.policies,includingregulations,carbonpricing,andfiscalincentives,toencouragegreenconstruction.How,Inadditiontothegreenbuildingmeasuresalreadyinwhichandwhentheseleversareadoptedwilldependuse,otherpracticesandemergingtechnologiescanonincomelevel,policyandtechnologicalreadinessandPage61Chapter2:BuildingGreeninEmergingMarketsBOX4InColombia,PublicPolicyandPrivate-SectorInvestmentHaveMadetheCountryaLeaderinGreenConstructionIn2015,theColombiangovernmentgreenprojects.ThisenablingIn2021,about20percentofenactedthefirstmandatorygreenenvironmentgavebanksconfidenceColombiannewconstructionbuildingcodeinLatinAmerica.Thistolaunchgreenconstructionfinancewascertifiedasgreen,fromincludesminimumrequirementsforandgreenmortgages.virtuallynogreenbuildingsintheconstructionofnewresidential2017.CAMACOLisnowpushingandcommercialbuildingsaimedatIn2016,Bancolombiabecamethememberstowardzero-carbonensuringlowerenergyandresourcefirstbankinLatinAmericatofinanceconstruction.Banksmeanwhileconsumptionthanconventionalgreenbuildingsbyraising$400areincreasingtheirproductbuildings.Byestablishingclearmillioninthreebondissuances.Inofferingsforgreenconstruction:directionforpublicpolicy,the2017theColombianChamberofBBVA,forinstance,planstolaunchgovernmentraisedawarenessintheConstruction(CAMACOL)startedpreferentialfinancingforEDGEindustryandsuccessfullyunleashedanaggressiveeducationalprogramAdvancedbuildings(higherresourceawaveofprivate-sectorinvestmentwithitsmemberstopromoteEDGEefficiency).ingreenbuildingstotaling$9billioncertification.By2021,fivebankstodate,accordingtoIFCestimates.wereofferinggreenbuildingfinanceproducts—mainlygreenmortgages:PoliciesincludedtaxincentivesforBancolombia,Davivienda,BBVA,greentechnologiesandcertifiedBancoBogotá,andCajaSocial.thesupportoftheinternationalcommunity,especiallyenergyorcarbonoffsets.80In2017,therewere2,500inlow-incomecountries(SeeChapter4).Here,wenet-zerobuildingsworldwidethatwererecognizedexploreindetailthesedecarbonizationlevers.throughagreenbuildingcertificationoradheredtoanofficialstandard.Someoftheseachievedself-Fosteringanewgenerationofzerocarbonsufficiencyinoperationalenergybygeneratingasbuildings.muchrenewableenergyastheyconsumeannually.81Inaddition,somelow-carbonmaterialsarealreadyThetechnologytoachievezero-carbonbuildingsavailabletoaddressembodiedemissionstoreducealreadyexists.Thenextfrontierforgreenbuildingsistheemissionsfromconstruction.Apushbythepublictohavenet-zeroemissions.Net-zerobuildingsaresectorcouldmainstreamtheadoptionofapproacheshighlyefficientbuildingsthatuseonlyrenewable80IFC(2021).81IFCstaffestimates.BUILDINGGREENPage62alreadytriedandtestedbyindustryleaders,especiallybeneeded,especiallyinlow-incomeeconomies(Seeinmiddle-incomeeconomies(SeeChapter3).Chapter4).SomebuildingsindevelopingcountriesarealreadyIntegratingresilienceintonewnet-zerozerocarbon.FrancisKere,thefirstAfricantoreceivebuildingsandexistingbrownbuildings.architecture’scovetedPritzkeraward,iswellknownforhismasteryofpassivedesign.WithinthecadreResilienceneedstobeintegratedintoconstructionofEDGEZeroCarboncertifiedbuildings,officesofbothnewgreenbuildingsandexistingbuildingstodominate,forinstance,theUfficioBJXofficeinMexico,ensurelongerlifecyclesandavoidunnecessarycarbonandtheArthalandCenturyPacificTowerinPhilippines.emissionsrelatedtothereconstructionprocess,Awiderangeofhighlyefficientbuildingsarebeingespeciallyinregionsaffectedbyincreasinglyfrequentconstructedinvariousmarketsusingcommerciallycatastrophicclimateevents,likeSouthAsiaandavailabletechnology.AsofJune30th,2022,over9.7someCaribbeaneconomies.GreenbuildingmeasuresmillionsquaremetersoffloorspacehadbeenEDGElikerenewableenergytechnologies,passivecoolingAdvancedcertifiedin55countries.82systems,waterrecycling,orrainwatercollectionsolutionscanimproveresiliencetothesehazardousImprovingenergyefficiencyprimarilythroughpassiveevents.84measuresanddecarbonizingenergydemandshouldbethekeypriorityforthenextgenerationofgreenClimatechange-induceddisastersarealreadycausingbuildings.Theformeristhecheapestwaytoreducesignificantdamagetoassetsandpeoplearoundtheemissions,resultinginlessenergydemandandlessworld.Anynewbuildingorretrofitmustconsidertheneedforheating,ventilation,andairconditioningandpotentialimpactsfromextremeweatherevents.Whenrenewableenergygenerationsystems,allofwhichstructuralintegrityandclimateresiliencearenothavetheirowncarbonfootprintaswellascost.83Moreconsidered,damagedorentirelylostpropertiesneedfinancialandtechnicalsupportwillbeneededfromtoberebuilt,especiallyasthefrequencyandintensitydevelopmentfinanceinstitutionsinthenextdecadeofclimaticdisastersincrease.Onaverage,24milliontoencourageandsupporttheconstructionofnetzeropeopleperyearwereinternallydisplacedbetweenbuildings.Insomespecificconstructionprojects,like2008and2018becauseofclimatedisasters,ofwhichhousingforlowerincomehouseholds,blendedfinance85percentinvolvedstormsandfloods.85,86andotherconcessionalfinance,orfiscalincentiveswill82IFCstaffestimatesbasedonEDGEprojectdata.83IFC(2019).84IDMC(2019).85IDMC(2019).86IDMC(2019).Page63Chapter2:BuildingGreeninEmergingMarketsAstrikingexampleisthe2017HurricaneMaria’selectricitydemandandannualemissionsequivalenttoimpactonDominicaintheCaribbean.About38thecurrentlevelofemissionsfromtheUnitedStates.91percentofthehurricane’sdamageswasinthehousingsector;15percentofthecountry’shousingstockwasCommerciallyavailableelectrictechnologiesfordestroyedand75percentpartiallydamaged.87Theheatingandcooking,suchaselectrichotwaterdisaster’sdamagetopropertiesandinfrastructureheaters,electricheatpumps,andelectricstovesalonewasestimatedtobearound200percentofpoweredwithcleanerenergies,canhelptoreduceDominica’sGDP.88emissionsfrombuildingsoperation.Stimulatingthedemandforelectric,renewableandenergyefficientElectrifyingbuildingswithcleanerheating,cooling,andcookingsystemsthroughenergies.developing,supporting,andenforcingminimumenergyrequirementstandards,energylabels,fiscalElectrification,orreplacingfossilfuelsforcooling,supportprograms,andenergyefficientpubliccooking,andheatingwithtechnologiesthatdrawprocurementsystemswillthereforebeessentialtoelectricityfromrenewableenergies,isalow-hangingreduceemissionsfromtheoperationofbuildingsinfruitfordecarbonizingbuildingoperations.Naturalthenextdecade.gas,forinstance,accountsforaround44percentoftheenergymixusedincooking,cooling,andheatingTechnologiesandpracticestofurtherglobally.Inemergingcountries,about60percentreduceemissionsfromtheconstructionoftheenergyemployedincookingcomesfromandoperationofbuildings.traditionalbiomass.Otherfossilfuels,suchasnaturalgas,LPG,andkerosene,arealsowidelyused,especiallyExhibit16summarizestheexpectedcostsandinlow-incomeeconomies.89abatementpotentialofsomeofthesemeasuresinthenextthreedecades.MaterialefficiencyoffersLargeappliances,likeairconditioners,refrigerators,thelargestabatementpotentialwithmorethanwashingmachines,cookstoves,amongothers,are1,000tonsofcarbondioxideequivalent,followedoneofthefastestgrowingsourcesofenergydemand,byswitchingtolow-emissionmaterialswithdrivenbyemergingmarketswithgrowingpopulations500–1,000tonsofcarbondioxideequivalent.Therestandeconomies,andhightemperatures.90Together,ofthesetechnologiesoffersimilarabatementpotentialtheseappliancesaccountfor40percentofglobalwithlessthan500tonsofcarbondioxideequivalent.87GFDRR(2017).88GFDRR(2017).89BP(2023).90IEA(2018).91IEA(2021).BUILDINGGREENPage64Thepotentialcostsofthesetechnologiesareratherspecificlocationinthebuilding,movingawayfromlow,butwidespreadadoptioninemergingmarketsuniformsteelbeams.Computer-drivendesignscouldhasbeensofarlimitedmainlyduetolackofregulatoryhandletheincreasedcomplexityofdesignandpreventandtechnologicalreadiness,especiallyinlow-incomeconstructionerrors.countriesbutalsoinsomemiddle-incomeeconomies,combinedwiththefragmentedmarketstructureReplacingcarbon-intensiverefrigerantsandheatingandhighlylocalizedregulationsofconstructionvaluematerialscanalsosignificantlycontributetoreducingchainsandsplitincentivesbetweendevelopers,emissionsfromtheoperationofbuildings.Forfinanciersandowners(SeeChapter4).Here,weinstance,inEasternEurope,oldersupermarketsthatanalyzethesetechnologiesindetail.havehighleakageratesinfridgesandfreezerscansavethesamelevelofcarbonemissionsasfromImprovementsinmaterialefficiency.reducingelectricitybyusingeco-friendlyrefrigerants.WorldBankestimatesshowthatimprovingmaterialAnotheroptionwouldbetosubstitutecementandefficiencyintheconstructionofnewbuildingssteelforlesscarbon-intensivematerials.Forinstance,andotherstructuresalonecouldcutembodiedtimbercanbeusedasanalternativetosteelinconstructionemissionsby2050inhalf,whilenotbuildingsunder12–18storiesinbothresidentialandsignificantlyaffectingthecostofconstruction.92commercialsettings.TheuseoftimberhasbeenThiswouldbeachievedbyreducingtheamountofdeemedoneofthemostgreenhousegas-abatingusescementandsteelusedinconstructionthatexceedsofbiomasswhenusedinsteadofsteelandcement.94theamountneededtomeetstandards,amongotherHowever,thecostoftimberishighlydependentonmeasures.Achievingthisdependsonhowmuchsteellocalavailabilityandcanbe10–20percentabovetheandconcretedemandcanbereasonablyreduced.Topriceofacomparableconcreteframe.Theincreasedillustrate,estimatesofexcessstructuralsteelrangeuseoftimberinconstructionalsoraisesissuesfrom20–46percent.93aroundsustainablesourcinganddeforestationandwillrequirechangesinthedesignandconstructionSubstitutionofhigh-emissionwithphases.Theuseofothermaterials,suchasengineeredlow-emissionmaterials.woodproductsandrammedearth,toreducecarbonemissionsalsoshouldbeexplored.95ReplacingconcreteandsteelwithlowCO2primarymaterialscanreduceembodiedconstructionBuildingtechniquestoenhancethermalemissions.Inthecaseofsteel,optimizeddesignwouldefficiency.customizethesizeofeachstructuralbeamtoits92WorldBank(Mimeo).93C40Cities(2019).94WorldBank(2022).95WorldBank(2022).Page65Chapter2:BuildingGreeninEmergingMarketsEXHIBIT16ExpectedCostsandAbatementPotentialofDecarbonizationOptionsinConstructionMeasuresandTechnologiesAbatementPotentialCostMaterialefficiencyTonsofCO2equivalentin2050LowMaterialsubstitution<$50/TonsofCO2equivalentEnhancedbuildingutilization>1,000500–1,000DigitalconstructionModularconstruction<500<500Source:WorldBank(forthcoming).<500AccordingtotheInternationalEnergyAgency(IEA),three-floorretailbuildingsinJakarta,Indonesia.98energyuseforspacecoolinghasdoubledsince2000—from1,000terawatt-hoursto1,945terawatt-hours—Centralizedcoolingsystems.duetohotterweather,rapidurbanization,increasedownershipofairconditioners,anduseofinefficientForlargeprojects,suchasrenovatedornewurbanairconditioners.96Spacecoolingisresponsibleforareas,industrialparks,andhealthanduniversitysignificantenergyuseandemissions,contributingcampuses,amongothers,usinga“district”centralizedaround1gigatonofCO2andnearly5percentoftotalcoolingsystemforaninterconnectedgroupofneworenergyconsumptionworldwidein2020.97renovatedbuildingscanreduceenergyconsumptiondramatically(SeeExhibit17foradiagrammaticAgainstthisbackground,reflectivepaintingandfilmrepresentation).Forexample,KeppelIndustriescoatingcanenhancethermalefficiencyinexistingasdevelopsandoperatesdistrictcoolingsystemsforwellasinnewbuildings.Forinstance,reflectiveroofsindustrialandcommercialparksinSingaporeandcouldsavemorethan$20,000peryearinelectricityChina,enablingenergysavingsofupto40percentbillsrelativetoaconventionalbuildinginone-floorthroughuseofsolarpanels,innovativethermalwarehousesinBogota,Colombia.Utilitysavingsfromenergystoragetechnologies,andsmartoptimizationtintedwindowscouldreachupto$2,000peryearinsystems.9996IEA(2021).97IEA(2021).98IFC(2022)basedonEDGEsimulations.99“IntroductiontoKeppel”.PresentationpreparedforIFC.October,2022.BUILDINGGREENPage66InGujarat,India,adistrictcoolingsystemhasbeenImprovingbuildingdesignandinstalledintheGujaratInternationalFinanceTec-City,constructionpractices.ajoint-venturefinancialcenter.ThesystemdistributesthermalenergyintheformofchilledwaterfromaThoughtfuldesigncanreducetheamountofconcrete,centralsourcetomultiplebuildingsthroughanetworkmetal,orglassinabuilding,forexample,byreducingofundergroundpipesforuseinspacecooling.Theglazing,usinghollowconcreteblocksand‘filler’infloorsystemaimstoreducepowerdemandandmakeairslabs.Designfordisassemblyisanotherexampleofconditioningmoreenergyefficient,reducingCO2life-cycledesignthinking.Improvementinthedesignemissions.100andconstructionprocesscanincludeprefabricatingcomponentsandstructuresatcentralizedfacilities,TheEnergyCenterfortheOlympicParkinLondon,andreducingvehicleemissionsatsites,forexampleUnitedKingdom,reducedemissionsbymorethanthroughusingelectricvehiclesandbiomass-powered20percentandenabledenergysavingsinenergymachinery.103Zero-emissionconstructionsitesconsumption,comparedtoconventionalfacilities,by(whichalsohavespilloverbenefitsrelatingtonoiseadoptingdistrictcoolingsystems.101DistrictClima,andpollutionreduction)arealsowithinreach.ForlocatedinarenovatedurbanareainBarcelona,Spain,instance,around14.5percentoffineparticulatematterhasachievedreductionsinfossilfuelconsumptionbypollution(PM2.5)inLondonisestimatedtobedueto63percentthroughdistrictcoolingsystems.102constructionsites.104IFChaspartneredwithUAE-basedcoolingsystemHavingsystemsinplacetomeasureandtrackcompanyTabreedtosetupAsia’sfirstgreenfieldembodiedcarbonwillbekey,andcradle-to-cradleplatformtoinvestinsustainabledistrictcoolinganalysismustbemainstreamedtomeetnet-zerosolutionsforcommercialandretaildevelopments.Itscarbongoals.ManymaterialmanufacturersnowprimaryfocusisonIndia,followedbyotherSoutheastdeclaretheircarbonfootprintthroughEnvironmentalAsiancountries.IndiahasagrowingdemandforProductDeclarations.ProductsundergoaLifeCyclecoolinginfrastructure,andtheuseofdistrictcoolingAnalysiswhichmayreportcarbonemissionsfromtechnologyisatanearlystage.Theprojectwillassistcradle-to-gate(fromprimarymaterialextractiontomarketcreationbyestablishingproofofconceptforthefactorygate),cradletograve(materialextractiondistrictcoolingtechnology,economicandcommercialtoend-of-productlife),orcradle-to-cradle(materialviability,andsustainableenergyefficiency.extractiontorecyclingofproductcomponentsintomoreproducts).100Patel(2017).101See:https://www.power-technology.com/projects/olympic-park-energy-centre/102IFCstaffcalculations.103OsloKommune(2020).104OsloKommune(2020).Page67Chapter2:BuildingGreeninEmergingMarketsEXHIBIT17DistrictCoolingSystemsCanReduceEnergyConsumptionupto40PercentCustomer’sbuildingCustomer’sbuildingCustomer’sbuildingCustomer’sbuildingAHUAHUChilledwaterAHUstoragesystem(indischargemode)DistrictcoolingCustomerstationplantThermalstoragetankChillerChilledwaterreturnMeterHeatexchangerChilledwatersupplySource:Keppel(2022).Cradle-to-cradleanalysis105iskeytopromotingthetypicallyprovidecradle-to-gatedata.Nevertheless,regenerativeloopsnecessaryforacirculareconomy,cradle-to-cradleanalysis,whichrecognizesthevaluehoweveritisdifficulttoexecute.106Manufacturersoflongproductlife,recyclability,reusability,andthe105Cradletocradlecanbedefinedasthedesignandproductionofproductsofalltypesinsuchawaythatattheendoftheirlife,theycanbetrulyrecycled(upcycled),imitatingnature’scycle(Sherrat,2013).106EU(2021).BUILDINGGREENPage68minimizationofwaste,mustincreasetomeettheofspaceandinfrastructurethroughflexibledesignParisAgreementgoals.Ofcourse,thebiggestimpactcouldextendbuildinglifetimes.Possiblereductionscomesfromrepurposingawholebuildingratherthaninthedemandfornewbuildingsinthefuturerangedemolishingit.from10to20percent.108Thismeasurecanalsoreducethedemandforsteelandcementfornewbuildings,Recycling.reducingembodiedconstructionemissions.Extendingabuilding’slifespancouldreduceCO2construction-Embodiedcarbonofgreenbuildingscanalsoberelatedemissionsby50percentincountrieslikeChina,reducedvia‘secondarysubstitution’,i.e.,recyclingwheretheaverageresidentiallifespanisabout25buildingcomponents(forexample,usingoldsteelyears,comparedto100yearsintheEuropeanUnionbeamsinanewbuilding).InthecityofMedellin,andtheUnitedStates.109Colombia,forinstance,constructioncompanies,producersofcementsandconcretemixtures,firmsEfficientuseofspacecanbeparticularlyimportantproducingpavements,andquarriesarerecyclingfordevelopingcountries,wheremostinvestmentinandreusingconstructionwasteintheirconstructionnewbuildingsandconstructionisexpectedtohappenmaterialsandworks.107inthenextdecade(SeeChapter1).Efficientuseofspacecanalsogeneratesavingsinconstruction,Elongatingthelifeofsteelandcementcomponentsdependingonthetypeofbuilding(e.g.,commercial,orviarecyclingrequires‘constructionfordeconstruction’,residential),buildingdesign,andlocalregulationsandorthoughtfuldesignaroundhowinputmaterialscanmaterialsavailability.110eventuallybereused.Theseemergingsolutionsmustbeimplementedatscale.Low-andmiddle-incomeRetrofittingexistingbuildings.countriesare,however,unlikelytoidentifymaterialefficiencyandrecyclingasapolicypriorityduetoGreenretrofitpracticestoreduceenergyconsumptiontheneedforencouragingbuildingandinfrastructureincludethermalinsulationofthebuildingenvelope,constructionfordevelopmentpurposes.increasednaturalormechanicalventilationwhenoutdoortemperaturesareatcomfortablelevel,Helpingbuildingslivelonger.replacementofwindowsanddoors,improvedlightingsystems,water-savingfaucets,ultraviolet-disinfectedDesignforrefurbishmentovernewconstructionorfilteredaircirculationsystems,andtheinstallationcanbeanotherroutetoreduceemissionsfromofenergy-efficientheatingandairconditioningconstructingnewbuildings.Encouragingefficientuse107UNEnvironmentProgram(2021).108C40Cities(2019).109Hertwichetal.(2019)110C40Cities,(2019).Page69Chapter2:BuildingGreeninEmergingMarketssystems.111Giventhelongoperationallifeofatypicalespeciallyinlower-middle-andlow-incomecountries.building,retrofittingcanachievesimilarorhigherLimitedfiscalresourcesfurtherrestricttheuseoftaxenergysavingsthanconstructionofnewgreenincentivesandsubsidiestopromoteretrofittingofbuildings.112Typicalbuildingretrofitsreduceenergyusecommercialandresidentialbuildings.byupto25percentwhiledeepretrofitscansometimessavemorethan50percent.113Innovativeconstructiontechnologies.TheretrofitmarketisestimatedtohavegrownataBuildingscanalreadybe3Dprinted.Thisisancompoundannualgrowthrateof8percentfrom2018automatedprocessthatcanproducecomplexwallto2023,mainlydrivenbydemandfromhighincomestructuresusingfast-curingviscousmateriallayer-by-economies.114Energyefficiencyretrofitshaveshownlayer.Itminimizesconstructionwasteandachievesattractivereturnsoninvestment,evenforshort-termhigherenergyefficiencyduetoseamlessconstruction,investors.Thisisbecause,inadditiontogeneratingwhiledecreasinglaborcosts.Theprocessisfastanddirectcostsavings,thesemeasurespositivelyaffecthasthepotentialtouselocallow-carboninputs,suchtheoverallvalueofbuildings.115ABNAMROandINGassoil.havefinancedretrofitsasawayofaccessingthegreenbondmarket,complyingwithstricteremissionForinstance,thedeveloper14TreesinKenyabuiltanregulations,andreducingtheirexposuretocarbon-IFCEDGEAdvanced3Dprintedsustainablehome,theintensiveassetsintheirportfolios.InsomeEuropeanfirstofitskindinAfrica.The3Dprintingprocessusescountries,likeGermany,governmentsareprovidingminimalmaterials,onlyprintingexactlywhatisneededtaxbreaksforimprovingtheenergyefficiencyofforthestructureofthehouse.14Treeshopedtonotexistingbuildingsthroughreplacingtheheatingonlysaveenergyandwaterduringtheconstructionsystem,fittingnewwindows,orinsulatingroofsandprocess,butalsoduringtheoperationalphases,whichexternalwalls.116ledthecompanytocertifythehouseswithEDGE.Inemergingcountries,however,thedisseminationPrefabricatedwallpanelscanbemanufacturedinaandadoptionofretrofittingpractices,especiallydeepfactorytoprecisedimensionsandassembledonsite.retrofitting,remainslimitedbecauseofthehighAdvantagesarelikethoseof3Dprinting:reducedcostsofreplacingenergyinefficientmechanicalandwaste;betterenergyefficiency;fasterconstruction;electricalsystems,andmodifyingbuildingenvelopes,anddecreasedlaborcosts.Prefabricatedpanelshavelessembodiedcarbonandyethavetestedasmore111IFC(2019).112Hillsetal(2016).113IFC(2021).114IFCstaffestimates.115IFC(2021).116See:https://www.bmwk.de/Redaktion/EN/Pressemitteilungen/2019/20191016-altmaier-tax-breaks-for-retrofitting-buildings-benefit-both-climate-change-mitigation-and-local-craft-workers-and-jobs.htmlBUILDINGGREENPage70typhoonresistantthantraditionalhollowconcretedevelopingcountries,especiallyinlow-incomeandblocks.117Thistechnologycanbecostcompetitivefragilecountriesandmiddle-incomeeconomieswithexistingconstructionprocesses,butthisishighlywithconstructionsectorscharacterizedbythedependentontransportcosts.118largepresenceofinformalandsmallconstructioncompanies.120Climate-smartbuildingstrategies.Internet-connectedappliancescanhelpreduceAclimate-smartbuildingstrategyshouldalsoenergyconsumptionbyenablingtheuseofdynamicrecognizetheimportanceofbuildingbothgreenelectricpricingandtime-of-usetariffs.Thesesmartandresilient.Theresourceefficiencyandresilienceappliances,alongwithenergyefficientmanagementofabuildingislargelylockedinatthedesignstage.retrofitsystems,canreduceenergyconsumptionbyRetrofittingisfinanciallyfarlessattractivethan20to30percent.121TheSuper-EfficientEquipmentconstructinganewbuildingwithoptimalefficiencyandApplianceDeploymentInitiative,ledbythebecauseitusuallyinvolvesdemolitionandreplacementInternationalEnergyAgency,forinstance,providesofexistingfeatures.Moreover,effectivepassivesupporttomorethan20governmentstoimplementmeasuresarebestincorporatedatthedesignstage.energyefficientpoliciesforappliancesandequipmentNevertheless,retrofittingisessentialgiventhelongandidentifyandpromotetheadoptionofinnovativeoperationallifeofatypicalbuilding,asmostbuildingssmartdevicesandsystems.122builttodayareexpectedtobeinuseforthenext50yearsormore.119Atthesametime,extremeweathereventsarebecomingmoresevereandfrequent.Digitaltechnologyandsmartappliances.Acrossallprojectstages,digitalizationcouldincreasematerials’efficiencybyintegratinglife-cycleemissions,using3Dbuildinginformationmodeling,enhancingcollaborationintheconstructionprocessthroughmanagementappsonmobiledevices,andmonitoringsiteswithdronesforscanning.Paper-basedworkpractices,costincreases,andtechnologicalilliteracyare,however,likelytorepresentkeybarriersin117See:https://www.connovate.com/technology118McKinsey&Company(2017).119UNEP(2021).120WorldBank(Mimeo).121IEA(2021).122IEA(2021).CHAPTER3:TechnologicalSolutionsforDecarbonizingConstructionMaterialsBUILDINGGREENPage723.1.Summaryexistingtechnologiesorproductionprocessesandunderliningtheriskofstrandedpollutingassets.IntheConstructionmaterialsincludesomeofthemostabsenceofcarbonpriceprograms124orregulationscarbon-intensiveandhard-to-abateindustrialthatinternalizethesocialcostsofcarbonemissions,activitiesglobally.Thischapterfocusesonthetwoproducersoftendonothaveanincentivetoinvestkeymaterialsfortheindustry,cementandsteel,andinexpensiveandstilluncertaindecarbonizationexploresarangeoftechnologiesandotheroptionsfortechnologies,particularlyasdemandissensitiveboththatcouldsharplyreducetheircarbonintensitytobothpriceandquality,ortooffloadplantsandemissions.Theseincludecommerciallyavailableinoperation.125Demandfromenvironmentally-alternativessuchasimprovingenergyandresourceresponsibledevelopersandownersisalsolimitedbyefficiency,switchingtoalternative,lower-carbonthelackofwidelyacceptedstandardsandregulationsfeedermaterialsandusingalternativenon-fossilfuels.thatdeterminewhatlow-emissionmaterialsare,andNascenttechnologies,includinggreenhydrogenandregulatehowtheyshouldbeemployedinconstruction.carboncapture,utilization,andstorage,holdthepromiseofnetzerocementandsteelbuttheyare3.3.Theconstructionmaterialsindustrylikelytoremainnon-economicallyviablewithoutiswell-positionedtodecarbonize.substantivefiscalsupportby2035andbeyond.Theconstructionmaterialsindustryhasmade3.2.Reducingemissionsfromthesignificantprogressandimportantcommitmentstoproductionofconstructionmaterialsisdecarbonize.Forinstance,resourcerecyclingandmorechallenging.energy-efficientproductionprocesseshavereducedcarbonemissionsinthesupplyofsteelandcement.CementandsteelareconsideredsomeofthehardestBothprivate-sectorcompaniesandgovernmentsindustrialsectorstoabate.Productionisextremelyaremovingtoputinplacemeasurestofurtherenergyintensive(Box5):process-relatedemissionsdecarbonizeconstructionmaterials.generateabout60percentoftotalcarbonemissionsintheglobalcementindustry,andabout86percentThissectionfocusesonthecementandsteelofcarbonemissionsfromsteelmaking.123Cementandindustries’currentdecarbonizationefforts.Thesesteelarehighlycapital-andscale-intensiveactivities,twomaterialsareresponsibleforabout80percentandchangingproductionprocessesentailsmassiveoftheembodiedemissionsinbuildingsandotherinvestments.Plantshaveanaverageoperationallifestructures.126Critically,therearenocost-effectiveofover50years,makingitevenhardertoreplaceandscalablealternativestodayforthesematerialsin123WorldBank,mimeo.124Chapter4analyzesalternativecarbonpriceprograms,liketaxes,markets,andregulations,inemergingmarkets.Castroetal,mimeoexploretheimpactsofcarbontariffsinhighincomecountriesonthesteelindustryindevelopingcountries.125EnvirotechOnline,2019.126SeeChapter1.Page73Chapter3:TechnologicalSolutionsforDecarbonizingConstructionMaterialsconstructionvaluechains.Cementisalsothemostconcretehasverylowembodiedcarboncomparedtoconsumedgoodinconstructionintheworld,whilealternatives.steelcanbefoundnotonlyinbuildingsandotherstructuresbutalsoinothercrucialactivitiessuchasMajorcementindustryassociationshaveannouncedaviationorautomobiles.Eventechnologiesthatareplanstomeetthecarbonneutralityambition.Thedrivingdecarbonization,likewindturbinesandsolarWorldCementAssociationrecentlyissuedastatementpanels,requirecementandsteel.127supportingacceleratingchangestoachievefulldecarbonization.TheGlobalCementandConcreteDecarbonizingcementandsteelcan,therefore,haveAssociationhasalsoissuedasetofsustainabilityadecisiveimpactonreducingcarbonemissionsinguidelinesandanambitiousroadmaptocutCO2theentireglobaleconomybeyondconstructionvalueemissionsbyaquarterby2030,andtoachievenet-chains.Box6providessomeexamplesofIFCrecentzeroCO2emissionsby2050.128CEMBUREAU,whichexperienceinsupportingprivatemanufacturersofrepresentstheEuropeancementindustry,hassetacementandsteelinemergingmarketsontheirpathtogoalofreducinggrossCO2emissionsby30percentdecarbonization.forcementandby40percentfortheclinker-cement-concrete-construction-carbonationvaluechainbyExistingtechnologiesarealreadyhelping2030andachievingcarbonneutralityby2050.129todecarbonizecement.IntheEuropeanandNorthAmericanmarkets,Between1990and2020,globalemissionsperinvestorscrutinyandregulatorypressuretoreducetonproducedofcementfellbyaboutonefifth.carbonemissionsarelikelytointensify.TheEuropeanManufacturersachievedthesesavingsmainlybyUnion’sambitiousGreenDealanditspackageofimprovingproductionenergyefficiency,utilizingmeasures,includingtheintroductionofacarbonwasteasafuel,andsubstitutingclinkerwithindustrialborderadjustmentmechanismforcement,couldbyproducts,suchasflyashfrompowergenerationreducecarbonemissionsacrosstheentireregion.130Inplantsandblastfurnaceslagfromsteelplants.NorthAmerica,decarbonizationeffortsarepromotedthroughstate-andcountry-wideinitiatives,suchasConcreteiswell-positionedtobecomecarbonneutral.Canada’s2019implementationoftheCarbonPricingThismaterialisdurable,canbe100percentrecycledBackstopprogram.131andusesotherindustrywastesdirectly(throughrecycledaggregates)orindirectly(throughcement).Steelisoneofthemostrecycledmaterials.Exceptfortheembodiedcarbonofcement,Steelisamongthemosthighlyrecycledmaterialsinusetoday,andabout30percentisproducedwith127UNIDO(2022).128GCCA(2020).129EuropeanCementAssociation(2022).130EU(2022).131IEA(2020).BUILDINGGREENPage74recycledscrap.SteelrecoveryratesBOX5areestimatedat90percentforautomotiveandmachinery,85HowAreCementandSteelProduced?percentforconstruction,and50percentforelectricalanddomesticCementandconcreteareessentialmaterialforvirtuallyallaspectsappliances.Atotalof1,085millionconstructionmaterials.Astheofourbuiltenvironment.Steelistonsofsteelisrecycledperprincipalingredientofconcrete,producedviatwomainroutes:year.132Recycledsteelsavesrawcementactsasthebinderbetweentheblastfurnace-basicoxygenmaterials,energyconsumption,aggregates(fineandcoarserocks)furnace(BF-BOF),andelectricandemissions:recyclingonetonofintheformationofconcrete.Inthearcfurnace(EAF).TheBF-BOFsteelscrapsaves1.5tonsofCO2,1.4cement-manufacturingprocess,routepredominantlyusesironore,tonsofironore,740kgofcoal,andrawmaterials—limestoneandcoal,limestone,asrawmaterials,120kgoflimestone.133afewothernaturalmaterials,whiletheEAFrouteusesmainlyincludingclayorshale—areheatedrecycledsteelandelectricity.InInthefuture,recycledsteeltoatemperatureofupto1450°Ctheproductionprocess,theseproductioncouldriseasmoreinakilninafuel-intensiveprocess.ingredientsturnintoliquidsteelsteel-madeproductsreachtheThisprocessandtheresultingthroughaseriesofchemicalendoftheirlifecycleinemergingchemicalreactionsleadtothereactionsatatemperatureofupmarkets.However,scrap-basedformationofthematerialthatinto1700°C.Theheatisgeneratedsteelisunlikelytosatisfythetheindustryisreferredtoasclinker.bycokingcoal,whichismadefromindustry’sneedforrawmaterialsOncecooled,thesmallroundcoalinfurnaces.becauseofthegrowthindemandclinkernodulesaregroundtoafineandthelackofavailabilityofpowderandcombinedwithotherTheadditionofelementssuchasqualityscrapmetalanddevelopedingredientslikegypsumtoproducechromiumortitaniumcanproducerecyclingvaluechains,especiallyincement.alloysthataremoreabletoabsorblow-incomecountries.Steelmakersenergy(toughness),easiertoareadoptingsimilartechnologiesCementproductionisalocalcast,scratchresistant(hardness),andmeasuresascementproducersindustrywithplantsusuallylocatedorrust-resistant(corrosion-fordecarbonization.nearlimestonedeposits.Givenitsresistance,suchasinstainlessperformancecharacteristicsandsteel).HugerollersandmoldsSomemajorsteelproducersandtheplentifulsupplyoflimestone,helptoshapethemetalwhileitbusinessassociationshavemadecement(andthereforeconcrete)isstillhot,withfurtherprocessingimportantcommitmentstoislikelytoremaintheconstructionpotentiallyincorporatingprotectivedecarbonizetheindustry.Chinamaterialofchoicegloballyandiscoats,color,orotheradditions.partofthefutureofdevelopmentSteelmakingisatrulyglobal132TheWorldCounts(2022).andurbanization.industry,andrawmaterials(such133WorldSteelAssociation(2022).asironoreandscrap)andsteelSteeloffersthemosteconomicalproductsaretradedglobally.andthehigheststrength-to-weightratioofanybuildingmaterialandservesasanintegralPage75Chapter3:TechnologicalSolutionsforDecarbonizingConstructionMaterialsBOX6IFCExperienceSupportingCementandSteelDecarbonizationIFChasbeenalong-timeinvestorinthecementandNCCL.Kenya'slargestdomesticcementproducersteelindustriesinemergingmarkets.IFCissupportinginvestedin2019inreducingfuelconsumption,achievingtheadoptionofthebestavailabletechnologiesandenergysavings,andreducedcarbonemissionsthroughinternationalenvironmentalandsocialstandardsinorderlowerclinker-to-cementproduction,useofreactivetostrengthensustainability.IFChasenableditsclientstopozzolana,andawasteheatrecoveryunit,whichwillimproveenergyefficiency(viameasuressuchaswastebethefirstofitskindforcementinEastAfrica.IFCheatrecovery),resourceefficiency(viameasuressuchassupportedNCCLintworounds:$55mloanand$7.5mwasterecycling),andvaluechainintegration.Here,weequityinvestmentin2014,andin2019with$25mIFCincludesomerecentexamplesofIFCprojectssupportingloan,and$103minsyndicationsbetween2019and2020.decarbonizationincementandsteelinemergingmarkets.RiderSteel.Thecompany,arollingmilloperator,isinvestinginagreenfieldmanufacturingplantwithbestCIMAF.Cimentsdel'Afrique,asubsidiaryofOmniumdesavailabletechnologiesintheKumasiareainGhana,withIndustriesetdelaPromotionGroup,aleadingcementatotalproductioncapacityof240,000tonsperyear.producerinMoroccoandWestAfrica,isinvestinginThenewplantwillsave332,000tonsofcarbondioxidethebestavailabletechnologiesincementproductionannuallybyentirelyusingsteelscrapasinput(283,200inGhana,Mali,andSenegal.Theprojectwillreducetonsperyear).Theplantalsooperatesanenergyannuallyupto332,000tonsofcarbondioxidebyentirelyefficientinductionfurnacethatachievesmuchlessusingsteelscrapasinput.IFCprovided€165milliondebtcarbonintensitycomparedtoexistingblastfurnaces.financingfortheprojectsince2021.TheIDA19PrivateIFCsupportedtheprojectthrougha$12millionloanSectorWindowBlendedFinanceFacilityalsoprovidesupin2020.to€7.5milliontosupporttheprojectinMali.BaowuGroupandLuxembourg-basedArcelorMittal,by2050relativeto2019,andtheemissionsintensitytwooftheworld’slargeststeelmakers,134forinstance,ofcrudesteelproductionwouldneedtodeclinebyhavecommittedtobecomingcarbonneutralby58percent,tobeinlinewiththegoalsoftheParis2050.135TheWorldSteelAssociationpublishedarecentAgreement.136reportindicatingthattotaldirectemissionsfromironandsteelwouldneedtofallbymorethan50percent134WorldSteelAssociation,(2022).135ArcelorMittal(2020);ChinaBaowuGroup(2021).136WorldSteelAssociation(2021).BUILDINGGREENPage763.4.Moreneedstobedonetoprocessisexpensivebecauseitinvolveshighenergydecarbonizeconstructionmaterials.expenditure.138TherearethreeprincipalapproachestodeeplyTechnologicalreadiness,abatementpotential,decarbonizethecementandsteelindustries,includingandeconomiccostsvarysignificantlyacrosstheseoperationaladvances,alternativeconstructioninputsdecarbonizationlevers.Noveltechnologies,likeandfuels,andtechnologicalinnovations.Adoptioncarboncaptureandgreenhydrogen,forinstance,ofbest-available-technologiescanalreadyreduceofferthehighestabatementpotential(500toenergyandresourceintensityandconsumption.1,000tonsofcarbondioxideequivalentby2050)Replacingcarbon-intensivematerials,likeironininmostapplications,buttheircoststodayarestillsteelmakingandclinkerincement,forreadilyavailableextremelyhigh(rangingfrom$50tomorethan$100/greenerorganicorrecyclablealternativescanalsocuttonofCO2)forbothcementandsteelproduction.process-emissionstoday.SwitchingfromfossilfuelsThesetechnologiesareexpectedtoremainnon-tobiomass,waste,orrecycledalternativesisalreadyeconomicallyviablewithoutfiscalsupportinthenexttechnologicallyfeasibleforcementandsteelplants,decade,andpotentiallybeyond.139Incontrast,biomassenablingthereductionofemissionsrelatingtoenergyandwastefuelsarealreadyeconomicallyfeasible,butconsumption.theirabatementpotentialisrelativelymorelimited(Exhibit18).Inthefuture,newtechnologies,likecarboncapture,utilization,andstorageandgreenhydrogen,couldThischapterfocusesseparatelyonthesetechnologiescontributetomakingcementandsteelproductionforthecementandsteelindustriesindetail,giventheircarbonneutralbutitisnoteconomicallyviableandspecifictechnical,regulatory,andeconomicchallenges.willmostlikelyremainsountil2035andbeyond.137Weexaminetheirabatementpotential,economicCarboncapture,storage,andutilizationisaprocesscosts,andtechnologicalandprocessapplications.Thethroughwhichcarbondioxideiscapturedandthenfurtherdevelopmentofthesetechnologiesandtheirtransportedtostorageorforfurtherindustrialuse.widespreadadoptionbyprivatecompanieswouldGreenhydrogenishydrogenproducedbysplittingrequireestablishinganappropriatepolicyframeworkwaterintohydrogenandoxygenusingrenewabletoencouragegreenconstructionandmitigatingelectricity.Hydrogengasisextractedfromwaterbymarketfailuresinconstructionvaluechainsandgreenatechniqueknownaselectrolysis,whichinvolvesfinance(SeeChapter4).runningahighelectriccurrentthroughwatertoseparatehydrogenandoxygenatoms.Theelectrolysis137IEA(2023).138IRENA(2020).Whilethereareothertypesofhydrogenlikeblueandgreyhydrogen,thisreportfocusesongreenhydrogengiventhepotentialofthisleverforthecementandsteelindustry.IFC(2023)providesanindepth-analysisofthesealternativetypesofhydrogenandhowgreenhydrogenisproduced.139IEA-IFC(2023).Page77Chapter3:TechnologicalSolutionsforDecarbonizingConstructionMaterialsEXHIBIT18AbatementPotentialandEconomicCostsofTechnologicalSolutionsExpectedTechnologyCosts(current$/tonofCO2)AbatementpotentialHighMediumLow(tCO2in2050)(>$100/tCO2)($50–100/tCO2)(<$50/tCO2)HighTop-gasrecyclinginsteelCement-specificCCUSAlternativenon-clinkered>1,000tCO2blastfurnacewithCCUSoptionscementsMediumHydrogenandSmeltingreductionforAlternativeclinkered500–1,000tCO2electrificationincementsteelproductionwithcementsCCUSLowHydrogeninsteelblastHydrogendirectreductionBiomassandwastefuels<500tCO2forcementfurnaceinsteelIronoreelectrolysisforsteelproductionNotes:CCUS—carboncapture,utilization,andstorage.Source:WorldBank(forthcoming).Cement.technologieswiththehighestabatementpotentialinthecementindustrybutthatarenotexpectedtobeThecementindustryhasseveraloptionstoreducecommerciallyavailableuntil2035andbeyond:theuseemissionsinthenextdecade.Someofthemareofgreenhydrogenfuelandadoptingcarboncapture,alreadyavailable,whileothersarestillinthepilotutilization,andstorage;andrecyclingconstructionandphasewithhigheconomicandfinancialcosts.Here,demolitionwasteforconcreteproduction.140weanalyzethreecommerciallyavailableoptionsforcementdecarbonization:improvingenergyandImprovingenergyandresourceefficiency.resourceefficiency;reducingandreplacingclinker,cement’smaininput,forless-pollutingalternatives;Furtherenergyefficiencymeasuresarepossible,andincreasingtheuseofalternativefuelstofossilincludingintegratingwasteheatrecoverysystems,energies.Wealsoexaminetheprospectsofthewhichcangenerateupto30percentofoverallplant140Loreaetal(2022)providesalistofgreencementprojectsannouncedworldwide.BUILDINGGREENPage78electricityneeds,141andinvestinginstate-of-the-artinvestmentinbuildingsandinfrastructure.Inthoseequipment,suchasmultistagepreheatersandpre-countries,thereisthereforeanopportunitytoadoptcalcinersandhigh-efficiencycoolersthatcanreducestateoftheartorbestavailablelow-emissionenergykilnheatrequirements.Multistagepreheatersandandresourceefficientequipmentinnewcementpre-calcinersmakeuseofthewasteheatfromtheplants.Incontrast,thefuturefordecarbonizationkilnandclinkercoolertopre-heatandpre-processtheincountrieswithsubstantialinstalledcapacitywillkilnfeed,andtherebyallowforconsiderableenergymainlylieineitherengaginginexpensiveretrofittingsavings.142oroffloadingexistingplants.InstallationoflongkilnsthatrecoverheatfromSubstitutionofclinkerwithalternativetheclinkerheatingunitcanreduceemissionsby7materials.percent.143EnergyintensitycanbereducedthroughbetterplantutilizationandincreasingequipmentCO2emissionsaredirectlyproportionatetotheeffectiveness.Advancedanalyticscancreateadaptive,amountofclinkerusedincementproduction.Clinkerself-learningmodelstoenablehigherlevelsofcanbesubstitutedbyalternativematerials,suchautomationandoptimizationofkilnsandmillsfuelaslimestone,naturalandcalcinedpozzolans,146managementandmaterialblending.144Futurecementandindustrialby-products,suchasflyash147andplantscouldfurtherreducecarbonemissionsbyblastfurnaceslag,148forproducingblendedcement.combiningdigitaltechnologyandmoresustainableLimestonecalcinedclaycement,forinstance,anewoperations.145typeofcementthatisbasedonablendoflimestoneandcalcinedclay,canhelpreduceCO2emissionsintheThisisparticularlyimportantforemergingmarketsproductionprocessbyupto40percent.149Alternativewheremostoftheglobaldemandfornewcementnaturalorrecyclednon-clinkeredcementscanachieveplantswilloriginateinthenextdecade,drivenzeroornegativecostabatement,withasignificantbyincreasedeconomicgrowth,population,andemissionsreductionpotentialofnearly2,000tons141IFC(2014).142InstituteforIndustrialProductivity(2022).143Schorchtetal.(2013).144Forinstance,advancedanalyticscanbeusedforcontrollingandmonitoringratesoffuelstoensureconsistentburning;optimizingthegrindingcircuittoincreasethroughputandsecureconsistentoutputquality,whilealsoloweringenergyconsumption;andensurecementisblendedintherightproportions,whichisessentialtoensuringspecificationsandqualityofproducts.145WorldBank(mimeo).146Anaturalpozzolanisaraworcalcinedpozzolanthatisfoundinnaturaldeposits.Amaterialisreferredtoas“calcined”whenithasbeenheatedbelowthetemperatureoffusiontoalteritscompositionorphysicalstate.ACI(2022).147Flyashisthefineashproducedatcoal-firedpowerplantsthatdevelopscementitiouspropertieswhenmixedwithcementandwater.148SlagcementisahydrauliccementformedwhengranulatedblastfurnaceslagisgroundtosuitablefinenessandisusedtoreplaceaportionofPortlandcement.Itisarecoveredindustrialby-productofanironblastfurnace.149ConstructionWorld(2021).Page79Chapter3:TechnologicalSolutionsforDecarbonizingConstructionMaterialsofcarbondioxideequivalentby2050.ThiscouldIncreasinguseofalternativenon-fossilrepresentareductionofnearly90percentincarbonfuels.emissionsgeneratedbycementproductioninnon-OECDcountries.150Alternativefuelsonlysupplyabout8percentoftotalthermalenergyusedinheatingcementkilnsOnechallengetoswitchingtonon-clinkeredglobally,andthistechnologyislittleusedinemergingalternativesisthelackofavailabilityofthesematerials.markets.153AlternativefuelsrefertofuelsthatcanForinstance,thequantityofblast-furnaceslagbeusedinsteadofconventionalfossilfuelssuchandflyashisexpectedtodeclineastheindustriesascoal,oil,andnaturalgas.Somealternativefuelsdecarbonizeinhigh-incomecountriesbutalsoincommonlyusedinthecementindustryareresidueoiluppermiddle-incomeemergingmarkets.Naturalandsolvents,contaminatedwoodandprocesswastereservesofpozzolansarelimitedtospecificregionsfromwood,usedtiresandrubberwaste,plasticwaste,closetovolcanicregions,suchasnortheastArgentina,thermalfractionofdomesticwaste,sewagesludge,Chile,China,Germany,Greece,Italy,andPeru,amongandanimalmeal,amongothers.154others,andhavenotyetbeenassessedatscale.StringentlocalcementregulationsalsohamperAshifttolesscarbon-intensivealternativefuelsforpilotingandadoptingnaturalandindustrialclinkerheatingcementkilnscouldreduceCO2emissionsbysubstitutes.151around12percentby2050.155ProducerstodayfacenotechnicallimitationsonincreasingtheshareofDespitethesechallenges,someglobalcompaniesarealternativefuels.However,thefeasibilityofthisshiftalreadysubstitutingclinkerwithnaturalandrecycleddependsontheavailabilityofalternativefuels.Thematerials,giventhehighabatementpotentialanddevelopmentoflocalsupplychainsanddomesticrelativelymoderatecostsofthissolution.Forinstance,regulationsalsoplaysacriticalroleinenablingfirmstheMexican-basedbuilding-materialcompanyCEMEXtoswitchtoalternativefuels.Forinstance,regulationhasdevelopedaclinker-freecementthatenablesofthewastemanagementvaluechaincaninducecarbonemissionreductionsof40percentrelativetotheuseofwasteasanenergysource.156Adoptionconventionalconcrete.152ofthisalternativefuelalsorequiresinvestmentsintechnologyandequipmenttoturnwasteintofuelandincorporateitintothecementmanufacturingprocess.150WorldBank(mimeo).151WorldBank(mimeo).152CEMEX(2021).153EnergyTransitionCommission(2022).154Chinyama(2011).155IEA(2018).156WorldBank(Mimeo).BUILDINGGREENPage80IFCestimatesthatusingbiomassandnaturalandtoremainnon-commerciallyviablewithoutfiscalindustrialwasteincementplantswithcapacitiessupportinthenexttenyearsandpossiblybeyond.158ofmorethan5tonsperhourinvolvesacapitalThistechnologycaneliminatedirectemissionsfromexpenditureinvestmentofbetween$5millionandheatingthecementkiln,whichaccountforaround$18millionandresultsinanoperatingexpenditureof35percentoftotalemissionsincementproduction.between$5and$25pertonofcement,representingAdoptioniscontingentonavailabilityandcosts,whicharelativelysmalladditionalcost.157Asaresult,currentlyarehighatmorethan$100pertonofCO2.recycledandbiomassfuelshaveincreasedincementproductionindevelopedcountriesandsomeoftheSomecompaniesindevelopedcountries,withsupportmainproducingcountriesinLatinAmerica,butarefromgovernmentagenciesandbusinessassociations,lagginginSub-SaharanAfricaandotherlow-incomearealreadypilotingthistechnology.In2021,acementregions.(Exhibit19).kilnwassuccessfullyoperatedintheUnitedKingdomusinghydrogentechnologyforthefirsttime.159HighSomecompaniesarealreadyinvestinginthecostsandimplementationchallengeshavesofarproductionoflow-carboncementwithbiomassandimpededeffortstopilottheuseofgreenhydrogenforreusedmaterialsinemergingmarkets.Forinstance,heatingcementkilnsinemergingmarkets.Sococim,asubsidiaryofFrenchcementmakerVicatS.A,willreplacepartofitsclinkerlinesinitsSenegalSomecompaniesinemergingmarketsarenonethelessplantwithmorefuel-efficientfacilities,utilizingupalreadypilotingthistechnology,whileothershaveto70percentalternativefuels(biomassandrecycledannouncedplanstodeployitsoon.In2021,Compañíatires).TheprojectwillreducegreenhouseemissionsSiderúrgicaHuachipato,forinstance,launchedinChileby312,000tonsofCO2equivalentperyearby2030,apilotofagreenhydrogenmillthatisexpectedtobeenablingittoproduceoneofthelowest-emissioncompletedby2023.160Chile’ssolarandwindresourcescementsintheworld.IFCissupportingtheprojectcanproducegreenhydrogenwiththelowestcostsinwithitsfirstgreenloanformaterialsinAfrica.theworld.161Greenhydrogenforheatingcementkilns.CEMEXannouncedin2021thatitwillextendtheuseofgreenhydrogenfromitsplantsinEuropeInthemid-to-longterm,greenhydrogenoffersatoitsoperationsinAfrica,Asia,theCaribbean,promisingabatementsolution(500–1,000tonsofCentralAmerica,Mexico,SouthAmerica,andthecarbondioxideequivalentby2050)butitisexpectedUnitedStates.Forinstance,thecompanyisalready157IFC(2017).158IEA(2023).159MPA(2021).160SeeCAPS.A.:https://www.capacero.cl/cap_acero/noticias/ejecutivos-de-cap-presentan-a-ministerio-de-energia-proyecto-de/2021-11-03/115628.html161SeeWorldBank:https://worldbankgroup.sharepoint.com/sites/news/pages/Betting-on-Green-Hydrogen-for-Sustainable-Growth--17072023-120542.aspxPage81Chapter3:TechnologicalSolutionsforDecarbonizingConstructionMaterialsimplementinghydrogentechnologyatitsSanPedrodetraded.TheseconditionsarenotprevalentinmanyMacoriscementplantintheDominicanRepublic.162emergingmarkets,whichalsolacktheregulatoryandimplementationcapacityandthegreenfinanceCarboncapture,utilization,andstorageneededtopilotthishigh-risktechnologywithstilltechnologies.uncertainbenefits.Onthehorizonby2050arecarboncapture,utilization,Recyclingconstructionanddemolitionandstoragetechnologies,whichcaptureCO2fromwaste.industrialemissionsandeitherrecycleitforfurtherindustrialuseorstoreitsafelyunderground.OnceOnewaytointroducecircularityintothecementcaptured,awidevarietyofpotentialusesforCO2valuechainisbyrecyclingconstructionanddemolitioncouldbepossible,suchasintheproductionofplastics,wastetoproduceconcrete.IntheUnitedKingdom,minerals,orsyntheticfuels.Carboncaptureisstillforinstance,recycledmaterialfromconstructionexpensiveat$50–$100/tonofCO2anditisexpectedtoanddemolitionwasteisincreasinglybeingusedtoremainsoby2035andbeyond,butitoffersthelargestreplaceaggregatesinconcrete.Somecompaniesareabatementpotentialamongthedecarbonizationalsoengagingintheproductionofrecycledconcrete.leversforcementproduction(Exhibit18).Forinstance,HolcimoperatestheGeocycleRecyclingCenterinRetznei,Austria,whichprocesses130,000Thereareseveralcarbon-capturepilotsunderwaybytonsofconstructionanddemolitionwasteperyear.largecementplayers,althoughstillwithhighcostsAbout35percentofthiswasteisco-processedintheandoftenamplegovernmentassistance.Forinstance,company’scement,while35percentisusedasrecycledAnhuiConchCementdevelopedin2017acementaggregatesbyconstructioncompanies.TheremainingwithcarboncaptureplantinWuhu,China.InIndia,unrecyclable30percentisusedasbackfillingmaterialDalmiaCementLimitedandCarbonCleanSolutionsforthecementplantquarry.164aredevelopingthelargestcementplantwithcarboncaptureinthecementglobalindustry.TheplantisOthersolutionsincludeintroducingnewmaterialsexpectedtocapture500,000tonsofCO2peryear.163thatcanbeeasilydeconstructedandreusedinotherbuildingsoncetheoriginalbuildingistorndownandTheprogressofextensivedecarbonizationwillexpandingtheuseofcarboncalculatorssuchasEC3dependontheeconomicviabilityofthiscarbonorthird-partyauditorsorenvironmental,social,andcapturetechnology,aswellastheavailabilityofCO2governance(ESG)ratingagenciestogivevisibilitymarketplacesthroughwhichthecapturedCO2canbetotheembodiedcarbonemissionsinaconstruction162SeeCEMEX:https://www.cemex.com/-/cemex-successfully-deploys-hydrogen-based-ground-breaking-technology163GlobalCCSInstitute(2019).164SeeHolcim:https://www.holcim.com/who-we-are/our-stories/building-again-construction-and-demolition-wasteBUILDINGGREENPage82EXHIBIT19UseofAlternativeFuelsforCementProductionisLimitedinLow-IncomeRegionsBiomassutilizationincementfuelconsumptionaspercentageoftotalconsumption02550Alternativefuelsutilizationincementfuelconsumptionaspercentageoftotalconsumption02468Source:IFCstaffcalculationsbasedonGCCA(2022).Page83Chapter3:TechnologicalSolutionsforDecarbonizingConstructionMaterialsprojectatthedesignandprocurementphases.165qualityscrap,makingtheuseofotherabatementThiswouldallowbuildingowners,greenbuildingtechnologiesamust.Increasingdemandforhigh-certificationprograms,andpolicymakerstoassessqualityscrapwillalsoleadtoextracostfortheelectricsupplychaindatatoestablishrequirementsandsetarcfurnace-basedsteelproduction.embodiedcarbonlimitsattheprojectstage.Improvingfurnaceefficiency.Steel.FurnacesthatusethistechnologyproduceironInsteelmaking,thedecarbonizationoptionsthatarefromironore,andthenabasicoxygenconverteralreadycommerciallyavailableincludeenhancingturnsiron,withsomeadditionsofscrap,intosteelenergyandthermalefficiency,increasingtheuse(Box5).Productionreliesonachemicalprocesscalledofscraptosubstituteiron,steel’smaininput,andreductiontoseparateironfromoxygen.Carboninsubstitutingcoalandheavyfueloilswithbiomasstheformofcoalisneeded,asareducingagent.Inthefuels.Likeinthecementindustry,adoptionofprocess,thecarboncombineswiththeoxygenandinnovativetechnologiessuchascarboncaptureandformscarbondioxide.ThisuseofcarbonmakesCO2greenhydrogen,amongothers,holdthepromiseofemissionsunavoidableinthisprocess.netzerosteelmakingbuttheseleversareexpectedtoremainnon-economicallyviableby2035andbeyond.DecarbonizationoptionsincludeoptimizingtheblastAswithcement,weanalyzethespecificapplicationoffurnaceburdenmixbymaximizingtheironcontentsomeofthesetechnologiesforthesteelindustry.166,167inrawmaterialstodecreasetheusageofcoalasareductant,usingcokeovengasinthefurnaceasanIncreasingtheshareofscrap-basedenergysource,andincreasingtheuseoffuelinjectionelectricarcfurnacesteelmaking.through,forexample,pulverizedcoalinjection,naturalgas,plastics,orbiomass.PulverizedcoalinjectionThemainfeedstockforelectricarcfurnaceisaprocessthatinvolvesblowinglargevolumessteelmakingissteelscrap,butitcanalsosmeltoffinecoalgranulesintotheblastfurnace.Thissolidifiedironorspongeiron.Theheatnecessaryprovidesasupplementalcarbonsourcetospeedupformeltingthemetalcomesfromanelectricarctheproductionofmetalliciron,reducingtheneedforthatariseswhentheelectrodescontactthemetalcokeproduction.TheseoptionshelpdecreaseCO2(Box5).Thistechnologicaloptionseekstomaximizeemissions,yetdonotofferfullycarbon-neutralsteelsecondaryflowsandrecyclingbymeltingmorescrapproduction.Nearpureoxygencanalsobeinjectedinelectricarcfurnaces.However,thislevercanbeintoexistingblastfurnacestoimproveefficiencyandlimitedinregionswithaninadequatesupplyofhigh-165TheEmbodiedCarboninConstructionCalculator(EC3)toolisatoolthatallowsbenchmarking,assessment,andreductionsinembodiedcarbon,focusedontheupfrontsupplychainemissionsofconstructionmaterials.Seehttps://carbonleadershipforum.org/ec3-tool/166IFC(2023)analyzesotheremergingtechnologiesforsteeldecarbonizationandprovidesfurtherdetailontheeconomiccostsandpotentialabatementpotentialofsteeldecarbonizationlevers.167Loreaetal(2023)providesatentativemappingofgreensteelprojectsannouncedworldwide.BUILDINGGREENPage84loweroverallemissionsintensitybyapproximatelyeucalyptuscharcoal,replacingtraditionalcokingcoal.15-20percent.168Thecompanyhas50,000hectaresofeucalyptusplantedforsustainablecharcoalandcaptivepigironUseofbiomassinintegratedsteelmaking.production.171BiomasscanbeusedinintegratedsteelmakingasaHydrogen-basedsteelmaking.sourceoffuelorreductant,substitutingcoalorotherfuelsinthesinteringprocess,asablendcomponentTherearegenerallytwowaystousegreenhydrogenintheproductionofcoke,asadirectreplacementforinsteelmaking:asalternativeinjectionmaterialcokeorasaninjectanttoreplaceinjectedpulverizedtopulverizedcoaltoimprovetheperformanceofcoalintheblastfurnace,andasasourceofcarboninconventionalblastfurnaces,whichcanreducecarbonthesteelmakingprocess(Box5).Whensourcedfromemissionsbyupto20percent;172andasanalternativerenewableresources,biomasshasthepotentialtoreductanttoproducedirectreducedironthatcanreduceemissionsintensitybyasmuchas50percentbefurtherprocessedintosteelusinganelectricarcacrosstheintegratedsteelmakingprocess.169However,furnace.173Basedontheuseofgreenhydrogenaswellbiomassmaynotbecomeawidespreadabatementasrenewableelectricityfromwind,solar,orwater,leverduetoalackofavailabilityofsustainablesourcesthistechnologycanenablenearlycarbon-neutralofbiomassinsomeregions170andcompetingdemandsteelmaking.174fromotherindustries.However,themainchallengesanduncertaintiesforDespitethesechallenges,someproducersarealreadythescalablecommercialadoptionofthistechnologyconductingsteelmakingtrialsusingbiomassinarerelatedtothecostsofhydrogengenerationandemergingmarkets.AçoVerdedoBrasil(GreenSteelrunningtheelectricarcfurnaceonaffordablesourcesofBrazil),forinstance,ispilotingtheproductionofrenewableenergy.Today,thecostsofgreenof600,000tonsperyearoflowcarbonsteelinhydrogenarestillhigh($50–$100/tonofCO2),despiteitsmillinthenorthernMaranhãostateofBrazil.itslargeabatementpotential(Exhibit18).ThetrialemployshotmetalproductionbasedonSomeglobalsteelmakersareexploringthistechnology168BHP(2020).169BHP(2020).170SeeExhibit19fordataonbiomassavailabilityforthecementindustry.171SeeAVB’sannouncement:https://avb.com.br/en/brazils-avb-receives-carbon-neutral-steel-certificate/172McKinsey&Company(2020).173Directreducedironisironoreintheformoflumps,finesorpelletsthathavehadtheoxygenremovedbyusinghydrogenandcarbonmonoxide.Typicalsourcesofcarbonmonoxidearenaturalgas,coalgas,andcoal.Otherenergyinputsintotheproductionprocessoftenincludeoilandelectricity.174McKinsey&Company(2020).Page85Chapter3:TechnologicalSolutionsforDecarbonizingConstructionMaterialsinemergingmarkets.InSouthAfrica,forinstance,GreenhydrogenandcarboncapturetechnologiesSasolandArcerlorMittalin2022launchedajointinsteelmakingaretodayupto30percentmoreventurethatwillassesstheuseofgreenhydrogentoexpensivethantheircommerciallyavailableconvertcapturedcarbonfromArcelorMittalSouthcounterpartsintheabsenceofcarbonpricingAfrica’sVanderbijlparksteelplantintosustainablefuelsprograms.178Gas-baseddirectreducedironwithandchemicals.175carboncaptureandhydrogen-baseddirectreducedironarehighlysensitivetothecostofnaturalgasandCarboncapture,utilization,andstorage.electricityandthepolicyenvironment.179However,itisexpectedthatcarboncaptureandgreenhydrogenwillCarboncapture,utilization,andstoragecanbeprovidecompetitiveoptionsforsteelmakersby2040-integratedinexistingsteelmakingplantsbut2050globally.180requirescarbontransportandstorageinfrastructure.Dependingontheconfiguration,carboncapturehas3.5.Opportunitiesandchallengesforthepotentialtoreduceemissionsintensityoftheinvestmentsingreencementandsteel.integratedsteelmakingprocessbyupto60percent.176ThefirstcommercialsteelcarboncaptureprojecthasTheprospectsforgreeningcementandsteelbeenlaunchedbyAlReyadahandEmiratesSteelatproductioninemergingmarketshingeontheagas-based,directreducedironplantinAbuDhabi,availabilityandcarboncontentofalternativefuelsUnitedArabEmirates.andrawmaterials,theaveragecapacityofplants,andpolicyandregulatoryreadiness.Here,webrieflyInIndia,TataSteelhascommissioneda5ton-per-examinesomeoftheregionalandcountryinvestmentdaycarboncaptureplantatitsJamshedpurWorks.opportunitiesandchallenges,withafocusonThecarboncapturetechnologyextractscarboncommerciallyavailabletechnologies.181dioxidedirectlyfromblastfurnacegasforonsitereuse.ThecompanyplanstoscaleupthistechnologyWithinemergingmarkets,ChinaandIndiaofferinotherfacilities.177Aswithcement,carboncapturethelargestpotentialforcleanercementandsteeltechnologiesfornowarenoteconomicallyviableproduction.InChina,severalfactorscouldencourage(Exhibit18).investmentinlow-emissionscementandsteeloverthenextdecade.Theseincludetherecentdeployment175SeeSasol’sannouncement:https://www.sasol.com/media-centre/media-releases/sasol-arcelormittal-south-africa-partner-decarbonise-and-reindustrialise-vaal-saldanha-through176BHP(2020).177IFC(2023).178IFC(2023).179IEA(2020).180McKinsey&Company(2021).181Chapter4analyzesindetailthepolicyframeworkandfinancingrequiredfordecarbonizingconstruction,includingcementandsteel.BUILDINGGREENPage86ofcarbon-tradingprogramsattheprovinciallevel,viabilityofoneofthereadiestdecarbonizationleversandtheirplannedscaleupnationwide,tighterincement.186environmentalregulations,andthelargescaleofthecementandsteelplants,whichcanmoreeasilybearBesidesChinaandIndia,BrazilofferssignificantthehighercostsofgreentechnologiesrelativetoinvestmentopportunitiesingreensteelinLatinconventionalalternatives.182TheChinesegovernment,AmericaandtheCaribbean.Ithasthelargestsupplyforinstance,hasrecentlyannouncedplanstoputaofrenewableenergyinLatinAmericaandampleironpriceoncementemissions.183orereserves.ItistheonlycountryinSouthAmericawithcarbonstoragefacilities(twooutofthreeareInIndia,recentpolicymeasures,likethePerformanceinoperation).ThereisalsoonegreenhydrogenplantAchieveandTradeScheme,theSteelScrapRecyclingunderconstructionandfourotherswillbereadyPolicy,andDraftNationalResourcePolicy,willby2030.187HalfofthecementusedinBrazilisstillincentivizedecarbonizationincementandsteel.184hand-mixed,pointingtotheneedforinvestmentsBlastfurnace-basicoxygenfurnaces,whichcouldinspeedingupthetransitiontobulkcementandpotentiallyswitchtolow-carbontechnologies,concrete-readymixes.188Substantialinvestmentcontribute65percentofIndia’ssteelcapacity.TheopportunitiesforgreencementandsteelalsoexistcountryhasavailableironorereservesandmassiveinTürkiyeandSouthAfrica.189Otheremergingpotentialforrenewableenergysources.India’smarkets,someinSub-SaharanAfrica,presentthegovernment,forinstance,requiresthermalpowerpotentialforinvestinginnewzero-emissionssteelandplantstobe5-10percentco-firingwithbiomass.cementplantstorespondtoincreasingconstructionIndiaisalsothesecondlargestcementmarketindemand.190theworld,anditsproductionisexpectedtomorethandoubleinthenextdecade.185Thisoffersanopportunityforinvestingingreeningexistingcementplantsandinvestinginnewnet-zerofacilities.Yet,restrictiveregulationsimpedetheuseoflow-carbonnon-clinkeredmaterials,hinderingthecommercial182IFCstaffanalysis,IFC(2023)andIEA(2022c).183IEA(2022c).184IFC(2023a)andIEA(2018).185IFCbasedonGlobalTradeAnalysisProjectandWEF(2022).186IFC(2023b).187IFC(2023a)andIEA(2018).188IFC(2017b).189IFC(2023a)andIFCstaffanalysis.190IFCstaffanalysisandMcKinsey&Company(2022).CHAPTER4:FinancingtheGreenConstructionTransitioninEmergingMarketsBUILDINGGREENPage884.1.Summaryinstruments,likegreensustainabilitybondsandloans,havebeengrowingatafasterpace(Exhibit20).191EmergingmarketsthatputadequatepoliciesinplaceEquityinstrumentsarelesscommonlyusedforsuchcouldrepresentamajorinvestmentopportunityfinancing,thoughRealEstateInvestmentTrustsforbuildinggreen.Emergingmarkets,however,(REITS)holdthepotentialtoscalefinancingofgreenissuedonly10percentofthe$230billonindomesticbuildingconstructionandoperations.Otherinnovativeandforeigngreenprivatedebtfinanceforbuildinggreenfinancetools,suchastransitionbondsorcarbongreenin2021.Thischapterexaminesapproachesretirementportfolios,arealmostnon-existentintodirectingagreatervolumeofprivatefinancetoemergingmarkets.192buildinggreeninemergingmarkets,includinggreencodes,regulationsandstandards;mandatoryandEmergingmarketsaremostlymissingoutonvoluntarycarbonmarkets;andfinancialtoolsincludingtheseincreasingflowsofprivategreenfinanceforsustainability-linkedfinanceandventurecapitalfunds,decarbonizingconstruction.Since2017,theyhaveamongothers.Someoftheseinstrumentsrepresentissuedjust10percentoftotalglobalgreendebtaninvestmentopportunityfordomesticandforeignfinancing,andChinaaccountedforabout60percentinvestors.Thecapabilitytofosterandadopttheseofthat.Relativetototalgreendebtprivatefinance,fortoolswillvaryacrossemergingmarketsdependingonallpurposes,debtfinancefornet-zerobuildingsandeacheconomy’sincomelevel,technologicalandpolicymaterialsamountedtoonly20percentinemergingreadiness,anddependenceonfossilfuels.markets,comparedwithabout30percentinhigh-incomecountries.1934.2.EmergingmarketsarenotmobilizingenoughgreenprivatefinancetoYet,thereissomepromise:privategreendebtfinancedecarbonizetheirconstructionvalueforbuildinggreenhasbeengrowingfasterinotherchains.emergingmarkets,includingSub-SaharanAfrica,althoughsuchfinanceremainsatextremelylowDomesticandforeignprivatefinanceisincreasinglylevels(Exhibit21).Inaddition,about90percentofflowingintogreeningconstructionglobally.Inthelastthisfinancingin2021globallywenttogreenbuildingsfouryears,greendebtfinancingincreasedtwentyfold,ratherthantohard-to-abateconstructionmaterialsfromabout$10billionin2017toarecordhighofaboutsuchassteelandcement,whichaccountforabout$230billionin2021.Greenbondsaccountedforabout19percentofglobalcarbonemissions.19470percentofthatfinancing,butsomeemergingdebt191Calculationsonlyconsidergreen,sustainability,sustainability-linked,andtransitionbondsandloanswithgreenbuildingsintheuseofproceedsorissuedbyconstructionmaterialsectorsandusedfordecarbonization.SeeAnnex3formoredetailsonthemethodology.192Section4.5analyzesindetaileachoftheseinstruments,andtheiruseingreeningconstructioninemergingmarkets.193IFCstaffcalculationsbasedonEnvironmentalFinanceandBloomberg.Totalgreendebtfinanceincludessustainability,sustainability-linked,andtransitiondebtissuedin2021forallpurposes,includinggreenbuildingsandmaterials.194IFCstaffcalculationsbasedonEnvironmentalFinance,BloombergandGlobalTradeAnalysisProject.Page89Chapter4:FinancingtheGreenConstructionTransitioninEmergingMarketsOfthetotalprivategreendebtfinanceforbuildingexplainedbymarketfailuresingreenfinanceandgreenissuedinemergingmarketsoutsideChina,aboutconstructionvaluechains.Thesemarketfailuresare54percentofdomesticandforeigndebtwasissuedinoftenmorepronouncedandpervasiveinemergingLatinAmericaandtheCaribbean,followedbyEastAsiaeconomies,especiallyinlow-incomecountries.andthePacific(19percent),andEuropeandCentralAsia(12percent).TheMiddleEastandNorthAfrica,Forinstance,thefragmentedstructureofconstructionSouthAsia,andSub-SaharanAfricatogetherissuedvaluechains,highlylocalizedregulations,thepresenceabout15percentoftotalgreendebtfinancingforofinformationalasymmetriesbetweenthesegmentsbuildinggreen(Exhibit22).WithinSub-SaharanAfrica,ofthevaluechainsandpolicymakers,andtheSouthAfricaaccountsformostoftheprivategreenprevalenceofsmallandmedium-sizedconstructiondebtfinancingissuedforconstructiondecarbonizationcompaniesrestrictsfinanceforbuildinggreen.(75percent).195Financialdecisionsofteninvolvemultiplestakeholders,includinginvestors,developersandowners,architectsLookingattheuseofclimatefinanceinstrumentsandotherprofessionals,andmaterialsproducers,byregion,about90percentofgreenbondsandwithsplitincentives(Box1).Investorscannotloansfordecarbonizingconstructionwereissuedalsoeasilyidentifyinvestmentopportunitiesinbyhigh-incomecountriesandChinabetween2017greenconstructionintheabsenceofgreencodes,and2021.Sustainabilitybondswereissuedmainlyinregulations,andstandards.Smallandmedium-sizedthoseeconomies,butSub-SaharanAfricaandotherdevelopers,especiallyineconomieswithhighlevelsofemergingmarketsalsousesomeofthosefinancialinformality,alsofacefinancialrestrictionsforbuildinginstruments,accountingforabout7percentofthegreen.Thelackofskilledworkersinsustainabletotal(Exhibit23).constructiontechniquesfurtherlimitsthepotentialofinvestmentsingreenbuildingsormaterials.Sustainability-linkedgreendebtinstrumentsexhibitthehighestusebyemergingmarketsofgreenGreenconstructionalternativesalsoappearmoreconstructionfinancialinstruments,with20percentexpensivethantheyoughttobebecausetoday’softhetotalbondsand10percentofthetotalloansmarketpricesdonotreflectthesocialcostsimposed(Exhibit23).byemissionsfrombrownbuildingsandmaterials,reducingexpectedreturnsforgreenconstruction4.3.Marketfailureslargelyexplaintheprojects.Consumersandinvestorscanbeunwillingorpaucityofgreenfinanceforconstructionunabletopayanup-frontpremiumforgreenbuildingsinemergingmarkets.ofabout1–5percentrelativetobrownalternatives,especiallyinaffordablehousingtargetedatlower-Thelowlevelsofdomesticandforeignprivatecapitalincomehouseholds.Thisismorechallenginginlow-forbuildinggreeninemergingeconomiesarepartlyincomeandfragilecountries,wheretherearefew195IFCstaffcalculationsbasedonEnvironmentalFinanceandBloomberg(2022).BUILDINGGREENPage90commerciallyviablegreenbuildinginvestments.bythelackoflegalframeworksandinstitutionalcapabilities.CarbonpricingcanalsoincreaseconsumerLimitedinformationaboutdefaultratesandthepricesofbrownconstructionmaterialsandbuildings,monetarybenefitsofgreenbuildinginvestmentlimitingtheappetiteforthesesystems,especiallyinportfoliosalsoreducesinvestmentingreenlow-incomecountries.202Restrictionsoninternationalconstruction.Climaterisk,relatedtoissuessuchastradingofcarbonpermitsalsolimitchannelingcapitaleconomiclossesarisingfromclimatehazards,tendstofromcarbonmarketsindevelopedcountriestogreenbeunderpricedbyfinancialmarkets.196Forexample,constructionprojectsinemergingmarkets.203residentialpropertyvaluesoftendonotfullyreflecttherisksofextremeclimateevents,evenwhensuchPrivateinvestorscanfacehighcostsformeasuringinformationispublic.197Thisincreasesthecapitalcostsandmonitoringenvironmentalperformanceinforgreenandresilientbuildingsrelativetotraditionalgreenconstructionprojects,especiallyinhard-to-alternatives.Thisproblemcanbemoresevereinabatematerialslikecementandsteel.Thesecostsemergingmarketsexposedtofrequentcatastrophicareespeciallyhighinemergingmarketsbecauseofeventsandlackingwell-developedfinancialandpoorgovernanceanddisclosurestandards,lowerinsurancemarkets.198transparency,weakerregulations,andlimitedtechnicalcapabilitiesforissuingandregulatinggreenCarbonmarketscan,inprinciple,mitigatesomeoffinancialinstruments.204thesedifferencesinmarketpricesbetweengreenandbrownbuildingsandmaterials.199,200However,Emergingmarketsmayalsofacesupplyconstraints.thesemarketsremainunderdeveloped,especiallyinThereareoftenfewercommerciallyviablegreenemergingmarkets.Forinstance,onlythreeemergingprojectsinconstructionvaluechainstofinanceineconomieshavelaunchedcarbonmarkets:China,thesemarkets.205ThismaybeduetotheabsenceKazakhstan,andMexico.201Thisispartlyexplainedofinnovation,limitedgreentechnicalcapacityfor196Hongetal.(2019);Hino&Burke(2021).197Ibid.198SeeChapter3foradiscussiononresilientgreenbuildingsinemergingmarkets.199Notethatcarbontaxescanachieveasimilareffectbyimposingacostoncarbon,forcingfirmstointernalizethesocialcostsgeneratedduetoemissions.Taxesalsofacesimilarconcernsofpotentiallyhigherconsumerpricesanderosionofcompetitiveness,thoughimplementationcapacityissuesarelessofaproblem.Theprimarydifferenceisinthesettingofthecarbonprice:itisdeterminedbymarketforcesincarbonmarketsandbythegovernmentinthecaseoftaxes.Hencefortheformer,theremaybesomeuncertaintyaroundcostsforfirms,anditispossiblethatthecostofabatementexceedstheestimatedbenefits(Frank,2014).However,carbontaxesaresubjecttouncertaintyaroundtheimpactontotallevelofemissions(relativetocarbonmarketswherecapscanbeset).(Frank2022).200IFC(2019b).201WorldBank(2022).202IFC(2019b).203WorldBank(2021a).204IFCandAmundi(2019).205WorldEconomicForum(2022a).Page91Chapter4:FinancingtheGreenConstructionTransitioninEmergingMarketsEXHIBIT20GlobalPrivateGreenDebtFinancetoBuildGreenIncreasedTwentyfold,andAbout70PercentFlowedintoGreenBondsCompoundAnnualGrowth250RateSustainability-Otherlinkedbonds221%Sustainability200bonds192%150$billions100Greenbonds93%50Sustainability-313%linkedloans70%02017201820192020Greenloans2021Notes:Calculationsonlyconsidergreen,sustainability,sustainability-linked,andtransitionbondsandloanswith"greenbuildings"intheuseofproceedsorissuedbyconstructionmaterialsectorsandusedfordecarbonization.SeeAnnex3formoredetailsonthemethodology.‘Other’includestransitionbondsandsustainabilityloans.SeeAnnex3formoredetailsonthemethodology.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCbasedonEnvironmentalFinanceandBloomberg(2022)BUILDINGGREENPage92EXHIBIT21EmergingMarketsIssuedOnly10PercentofGlobalDomesticandForeignPrivateGreenDebtFinanceforConstructionDecarbonizationCompoundAnnualGrowth250RateOtheremergingmarkets146%Sub-SaharanAfrica138%China86%200150$billions100Highincome109%50020172018201920202021Notes:Calculationsonlyconsidergreen,sustainability,sustainability-linked,andtransitionbondsandloanswith“greenbuildings”intheuseofproceedsorissuedbyconstructionmaterialsectorsandusedfordecarbonization.Incomeandregionvolumesarebasedonthelocationofheadquartersand/orcountryofrisk(determinedbythefirm’sgeographicalexposuretooperations)oftheissuingentity.Compoundannualgrowthratesarecalculatedusingthefirstyearofissuanceasbaseyear:2018forSub-SaharanAfricaandotheremergingmarkets,and2017forhighincomecountries.SeeAnnex3formoredetailsonthemethodology.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCbasedonEnvironmentalFinanceandBloomberg.Page93Chapter4:FinancingtheGreenConstructionTransitioninEmergingMarketsimplementation,lackofeconomiesEXHIBIT22ofscale,andlimitedconcessionalfinanceresources.206Regulatory,LatinAmericaandtheCaribbeanAccountsformacroeconomic,currency,andMoreThan50PercentofPrivateGreenDebtpoliticalrisksandvolatilitycanIssuanceforConstructionDecarbonizationalsoincreasecosts,makinggreeninEmergingMarketsOutsideChinaconstructioninvestmentslessprofitable.PercentofemergingmarketsexcludingChinabyregion,2017–20214.4.Concertedaction1%MiddleEast&NorthAfricabyprivateinvestorsand5%SouthAsiapolicymakerswillbe9%Sub-SaharanAfricarequiredtoovercomemarketfailuresand12%Europe&CentralAsiareduceemissionsfromconstructionvaluechains.19%EastAsia&PacificArangeofsolutionsthatalready54%LatinAmerica&CaribbeanexistorareemergingcanaddresssomeofthesechallengesforNotes:Calculationsonlyconsidergreen,sustainability,sustainability-linked,andtransitionfinancinggreenconstructioninbondsandloanswith"greenbuildings"intheuseofproceedsorissuedbyconstructionemergingmarketsindomesticmaterialsectorsandusedfordecarbonization.Incomeandregionbreakoutsarebasedonandinternationalcapitalmarkets.thelocationofheadquartersand/orcountryofrisk(determinedbythefirm’sgeographicalSomesolutionsarepurelyfinancial,exposuretooperations)oftheissuingentity.SouthAsiacomprisessolelyIndia(nootherwhileothersarebasedoncarbon-countryrecordedanyissuances).MiddleEast&NorthAfricaincludesEgypt(63percent)andtradingandpricingsystems,orLebanon(38percent).LatinAmericaandtheCaribbeancomprisesMexico(66percent),Brazilgovernmentregulations.Someof(8percent),CostaRica(7percent)andGuatemala(7percent),amongothers.EuropeandthesefinancialtoolsarealreadyCentralAsiaincludesTürkiye(88percent),Russia(10percent)andArmenia(2percent).Eastavailable,likesustainability-linkedAsiaandPacificincludesPhilippines(41percent),Malaysia(26percent)andIndonesia(25financeandequityfunds;otherspercent),amongothers.Figuresinthetextmightnotbeidenticalduetorounding.arestillnascentandrequirefurtherSource:IFCstaffcalculationsbasedonEnvironmentalFinanceandBloomberg(2022).support,likegreenmortgages,transitionbonds,andcarbonretirementportfolios.206ChattertonandDeVautibault(2021);Loukoianovaetal.(2022).BUILDINGGREENPage94EXHIBIT23EmergingMarketsAreIncreasinglyUsingSustainability-LinkedInstrumentsforGreenConstructionFinancingAccumulatedsustainabilityfinancebyregion.Percentoftotal,2017–2021Sustainability-LinkedBondsHighIncomeSustainability-LinkedLoansChinaSub-SaharanAfricaSustainabilityBondsOtheremergingmarketsGreenBondsGreenLoans20%40%60%80%100%0%Percentoftotal,2017-2021Notes:Calculationsonlyconsidergreen,sustainability,sustainability-linked,andtransitionbondsandloanswith"greenbuildings"intheuseofproceedsorissuedbyconstructionmaterialsectorsandusedfordecarbonization.Incomeandregionalbreakoutsarebasedonlocationofheadquartersand/orcountryofrisk(determinedbythefirm’sgeographicalexposuretooperations)oftheissuingentity.‘Otheremergingmarkets’sustainability-linkedbondsarecomposedsolelyofissuancesfromIndia.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCbasedonEnvironmentalFinanceandBloombergTheseinstrumentswouldopena$1.5trillionbusinessTheappropriatemixoffinancialandpolicyopportunityforbothdomesticandinternationalinstrumentsforbuildinggreenwillvaryacrossinvestorsinelectrifiedbrownbuildingswithcleaneremergingmarkets,dependingonthecountry’senergiesandlower-emissionnewbuildingsandincomelevel,thesizeanddepthofthedomesticmaterialsthanconventionalalternativesinemergingfinancialsystem,andthepublicsector’sregulatoryandmarketsinthenextdecade(SeeChapter1).Theenforcementcapabilities.Relianceonfossilfuelsinthesourcesoffunding—domestic,foreignand/orlocaleconomyandcarbon-andenergy-intensityofmultilateral—aswellasthetypeofprovider—private,theconstructionsectorwillalsoaffecttheprospectspublic,and/ormultilateral—andthepotentialfinancialandthespeedofadoptionofsomeofthesetools.instrumentsforfinancingthesedecarbonizationlevers,includingoff-balancesheet,debt,equity,andventureArangeofprivategreenfinancingcapital,amongothers,alongwithsomeexamplesofinstrumentsisavailableoremergingrecentinvestmentsinemergingmarketsarediscussedtosupportinvestmentsingreeninghereanddetailedinTable2.4inAnnex2.constructionvaluechains.Page95Chapter4:FinancingtheGreenConstructionTransitioninEmergingMarketsBuildinggreeninemergingmarketswillrequireaIn2021,thecompanyissuedasustainability-linkedcombinationofexistingandnovelgreenfinancialbondthatraised$400millionindomesticandinstruments,dependingonthetypeofinvestmentandinternationalcapitalmarkets.Thebond’srateislinkedcountryconditions.Someofthesetoolswillbemainlytocompliancewiththecompany’sself-determinedprovidedbylocalfinancialinstitutions,especiallyintargetofreducingitscarbonemissionsby22percentresidentialrealestate.Internationalanddomesticby2030.Ifthetargetismissed,theinterestratewillinvestorscancontributewithotherdebtandequityriseby75basispoints.207instruments,suchasgreenbondsandloansorREITs.Off-balancesheetfinancingcanalsobesuppliedIn2021,sustainability-linkedfinanceforgreeningbylocalenergy-serviceproviders,viaperformanceconstructionregisteredarecordhighofaboutcontractsorleasing.Voluntarycarbonmarketscan,$27billionglobally,andabout70percentofthatinturn,helptochanneldomesticandinternationalwenttodecarbonizationofconstructionmaterials.capitalintogreenconstruction.Here,weanalyzesomeCementandsteeleachreceivedabouthalfoftotalofthesetools.sustainability-linkedfinanceforconstructionmaterialsglobally,buttheshareofsteelhasbeengrowingUsingsustainability-linkeddebtformorerapidlysince2019.Loansarethemostpopulardecarbonizinghard-to-abateconstructionlinkedinstrumentforfinancingthedecarbonizationmaterials.ofconstructionmaterials,accountingforabout86percentoftotalfinancing,butbondissuanceByreducingscreeningandmonitoringcostsforincreasedseven-foldin2019–2021.208(Exhibit24).lenders,sustainability-linkedfinance—thatis,loansandbondsinwhichcompliancewithasetofpre-Drivingdemandforgreenconstructiondeterminedsustainabilitytargetstriggersreductionswithgreenmortgages.infinancingcosts—can,atleastinprinciple,contributetoaligningincentivesofinvestorsandbrownAswithtraditionalmortgages,domesticfinancialconstructioncompaniestoreducecarbonemissions.institutionsaretheprimaryproviderofgreenTobeeffectiveinreducingemissions,sustainability-mortgagesinmostcountries.Thistypeofdebtlinkedfinancerequireswell-developedregulatory,instrumentdemandslong-termfinanceinlocalprudential,andsustainabilityframeworks,andcurrencynotcommonlyoffereddirectlytoborrowersdomesticfinancialmarkets.byinternationalbanksorotherinvestors.209However,debtandequityissuancesinglobalcapitalmarkets,ThecaseofIndia’slargestcementproducer,UltraalongwithconventionalandconcessionalfinanceTech,illustratesthepotentialofthisinstrument.fromdevelopmentfinanceinstitutions,arebecoming207SeeUltraTechCement’sannouncement:https://www.ultratechcement.com/about-us/media/features/ultratech-cement-raises-usdollar-400-million-through-india-s-first-sustainability-linked-bonds208IFCstaffcalculationsbasedonEnvironmentalFinanceandBloomberg.209IEA(2021).BUILDINGGREENPage96animportantsourceoffinanceforthisassetclassforframeworks,deeplocalfinancialmarketsandthrivingmortgageprovidersinmiddle-incomeeconomies.demandfromsustainability-orientedownersandinvestors.WithfinancialandtechnicalsupportfromAgainstthisbackdrop,greenmortgagesofferdevelopmentfinanceinstitutions,thesefinancialconsumerspreferentialconditions,suchaslowerinstrumentsarethereforemorelikelytoblossominterestratesand/orlongerduration,topurchaseinmiddle-incomeeconomiesthaninlow-incomepropertieswithlowerenergyconsumptionandcarboncountries.emissions.GreenmortgagesmayhavelowerdownpaymentsthanconventionalalternativesbecauseEnergy-performancecontractsandleasinggreenbuildingsconsumelessenergy,andthushaveforbuildinggreen.lowerutilitybills,whichmaycountasborrower’sincome.Off-balancesheetfinancecanbeaneffectivetooltoincentivizeandfundinvestmentsinnewandOutsidetheEuropeanUnionandUnitedStates,useretrofittednet-zerobuildingsandmaterials.Throughofgreenmortgageshasbeenlimitedbyhighdueperformancecontractsandleasing,energy-servicediligencecostsforgreenbuildingsandthelackofproviderscanofferfinancingforenergy-efficiencyinformationondefaultratesoftheseinstrumentsinvestmentsthatcanberepaidthroughenergysavingsforlocalfinancialinstitutions.210Thatisnottheovertime.Off-balancesheetenergy-performancecaseeverywhere,however.In2016,Bancolombia,contractscanalsobeusedtofinancewasteheatColombia’slargestcommercialbank,issueda$400recoveryincementplants,213andcouldbeusedtofundmilliongreenbondinthreetranches.Thisfinancingenergy-efficiencyupgradesinsteelplants.wasusedtobuildapipelineofgreenconstructionprojectsandoffergreenmortgagesinlocalcurrencyAccordingtotheIEA,about25percentofglobalwithadiscountrateof65basispoints.211InPeru,IFCcleanenergyinvestments(e.g.,energy-efficiencyissupportingBBVA,oneofthelargestlocalfinancialimprovements,carboncapture,andalternativelow-institutions,tofinancehomebuyers’greenmortgagesemissionfuels)intheindustrialsector,includingalsoissuedindomesticcurrency,andisprovidingcementandsteel,isfinancedtodaythroughadvisoryandcertificationservicesthroughEDGE,IFC’sperformancecontractsorleasing.Combinedwithgreenbuildingcertificationprogram.212equityanddebtfinancing,off-balancesheetfinancemightbecomeanevenmoreimportantsourceAsinthecaseofsustainability-linkedfinance,ofcapitalforconstructiondecarbonization.Itisgreenmortgagesrequiredemandingregulatoryestimated,forinstance,thatabout20percentofandprudentialcapabilities,adequatesustainability210IFC(2019a).211Ibid.212IFC(2022).213IFC(2014).Page97Chapter4:FinancingtheGreenConstructionTransitioninEmergingMarketsEXHIBIT24Sustainability-LinkedFinanceCanHelpDecarbonizeHard-to-AbateConstructionMaterialsCompoundAnnualPercentofTotalGrowthRate2019–202120Other100%Other5%15Steel371%80%Steel47%$billionsPercentoftotal60%1040%5Cement368%Cement48%20%00%2019202020212019-2021Notes:‘Other’comprisessustainability-linkedbondissuancesfromaproviderofwood-basedsolutionsforconstructionandsustainability-linkedloanissuancesfromaproviderofsustainablefacades.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCstaffcalculationsbasedonEnvironmentalFinanceandBloomberg.financingforgreenbuildingswilloccurthroughChannelingequityfinanceintogreenenergy-performancecontractsorleasinginthenextbuildingsinemergingmarketswithgreendecade.214GivenitsrelativelylowregulatorydemandsfundsandREITs.comparedtosustainability-linkedfinanceandgreenmortgages,offbalancesheetcontractscouldbecomeGreenREITsinjectequityfinanceintonet-zeroapowerfultooltopromotebuildingdecarbonizationconstructionthroughinvestmentsingreenrealnotonlyinmiddle-incomeeconomies,butalsoestateandmortgages.Thisinstrumentraisedaboutinsomelow-incomecountrieswithadequate$28billionin2021globallythroughbondsandloanregulationsintheenergysectorandfinancialandissuance,upfrom$0.7billionin2017(Exhibit25).Theretechnicalsupportfromtheinternationalcommunity.isnodetailedinformationonemergingmarkets,butgreenREITsshowpotentialtofinancebuildinggreen214IEA(2021).BUILDINGGREENPage98bydiversifyinginvestors’riskinaportfolioofbrownemergingmarkets.219Recentevidencesuggeststhatandcarbon-neutralproperties.activelymanagedgreenequityfundscanidentifygreenfirmswithpotentiallyhigh-riskadjustedresults,Forexample,KimcoRealty,thelargestoperatorofreducingscreeningandmonitoringcostsforinvestorsopen-airshoppingcentersinNorthAmerica,usedrelativetogreenequitypassivefunds.220$365millionfromagreenbondissuedin2020tofinancetheacquisitionofgreenresidentialandGreenequitycouldbecomeapowerfulinstrumentcommercialbuildingsandinvestinenergy-efficiencytofosterconstructiondecarbonizationinemergingupgradesin123ofitsexistingproperties.Thismarketsintheyearstocome.Thisassetclass,transactionenabled7,200tonsofcarbondioxidehowever,remainsnascenteveninmosthigh-incomeequivalentsavingsingreenhousegasemissionsfortheeconomiesandrequiresrelativelysophisticatedpolicycompany.215andoversightcapabilitiesinthepublicsector.GreenconstructionequityfundsarethereforemoresuitableLikegreenREITs,greenequityfundscaninvestformiddle-incomeeconomieswithsubstantialpolicyincompaniesthatdesign,build,manage,andcapabilities.Inlow-incomecountries,developmentoperategreenbuildings.Somefundsalsoinvestinfinanceinstitutionscouldsupportsomeequity-decarbonizationofcementandsteelcompanies.216basedconstruction-relatedinvestment,possiblywithGreenequityfundsareamongtheprominentoptionsblendedfinance,withtheaimofsowingtheseedsforforinvestorstoinvestinsustainablecompaniesingreenequitymarketsintheyearstocome.emergingmarkets,217thoughtheyaremostlydomiciledinadvancedeconomies.218Financinginnovativetechnologieswithventurecapital.Greenfundsarerelativelynew.Forinstance,thefirstExchangeTradedFundforgreenbuildingswasVenturecapitalmarketscanhelpfinancegame-launchedin2021.ThispassivefundtrackstheMSCIchangingtechnologiesforconstructionmaterialGlobalGreenBuildingIndex,whichfocusesonthedecarbonizationandenergy,aswellasresource-entireglobalconstructionvaluechain,including215BusinessWire(2022).216Naqvietal.(2021).217Naqvietal.(2021).218IMF(2021).219Johnson(2021).220Revelli&Viviani(2014).Page99Chapter4:FinancingtheGreenConstructionTransitioninEmergingMarketsefficientbuildingsandinfrastructures.TheycanalsoThesemarketsallowinvestorstotradecarbonbecriticalinbuildingapipelineofcommerciallyviablepermitsagainstinvestmentsingreenprojectswithoutgreenconstructiontechnologyinvestments.However,governmentoversightorregulation.Fornow,theysince2013,only4percentof$88billioninvestedbyhavefinancedgreenconstructionprojectsinonly10venturecapitalfundsingreentechnologiesgloballyemergingeconomiessince2006,andmainlyingreenwenttogreenbuildingsandmaterials.221Moreover,buildingsratherthaninhard-to-abateconstructionventurecapitalinvestinginemergingmarketsismaterials.Low-incomecountrieshavereceivedlimitedbecauseofweakprotectionsforintellectualinvestmentsingreenbuildings,whilemiddle-andpropertyrights,alackoflong-terminvestors,andhigh-incomecountrieshaveinvestedinenergythedearthofexitoptionsbecauseofunderdevelopedefficiencyretrofitsandwasteheatrecoveryincementcapitalmarkets.222andsteelplants.223High-incomeeconomiescouldsupportconstructiondecarbonizationinemergingVenturecapitalholdspromiseforpromotingeconomiesbyfosteringthedevelopmentofvoluntarynovelmitigationandadaptationtechnologiesforcarbonmarketsspecializedintradingcarbonpermitsconstructiondecarbonizationincountrieswithagainstgreenconstructionprojectsinthosecountries.relativelysophisticateddomesticfinancialmarketsDevelopmentfinanceinstitutionscouldprovideandventurecapitalinvestorsoperatinginotherfinancialandtechnicalsupportandblendedfinanceforsectors,likeBrazil,India,orSouthAfrica.Realizingsucheffortsinlower-middleincomeandlow-incomethispotentialwillrequire,however,strengtheningeconomies.financialregulationsandsupportfromdevelopmentfinanceinstitutions.Inlow-incomeeconomies,theCarbontransitionbondsandcarboninternationalcommunitycancollaboratetoleverretirementportfoliosfordecarbonizingorventurecapitalinvestmentsintosmallinnovativeretiringbrownconstructionassets.greenconstructionprojectsthroughblendedfinanceandotherconcessionaltoolsaswellastechnicalThesebondsdonotrequireborrowerstobesupport.completelygreenbuttobecomegreenerovertime,therebyreducingnegativescreeningbyinvestorsofFundingbuildinggreeninemerginghard-to-abateandcarbon-intensivesteel,cement,marketsthroughvoluntarycarbonandglasscompanies.224Thistoolisrelativelynew,markets.withonlyabout$4billionissuedtodateforthe221Johnson(2021).222Grohetal.(2016).223IFCstaffcalculationsbasedonBerkeleyVoluntaryRegistryOffsetsDatabase(July2022).224Negativescreeningreferstotheprocessoffindingandexcludingstocksofcompanies,whoseoperationsareseenas“unsustainable”fromanenvironmental,socialoragovernance(ESG)standpoint.BUILDINGGREENPage100constructionsector.TransitionbondshavenotyetEXHIBIT25beenissuedinemergingmarkets.225ThefirsttransitionbondissuedbyasteelmakerFundraisingbyGreenREITsgloballyillustratesthepotentialofthisinstrument.IncreasedMoreThanFortyfoldIn2022,JFEHoldings,Japan’slargeststeelmakingintheLastFourYearscompany,issueda$230milliontransitionbond.Proceedshavebeenusedforinvestmentsinresearch$Billionanddevelopment(R&D)ofinnovativetechnologies,3028.3includingcarbonrecyclingblastfurnaces,hydrogen-basedsteelmaking,carboncapture,storage,andutilizationtechnology,andelectricarcfurnaces.Thefundshavealsobeenusedtoincreasetheuseof2018.1renewableenergiesandscrapmetalinthesteelmaking14$billionprocess.Inthefuture,carbonretirementportfolioscouldalso105.2201920202021contributetodecarbonizingcementandsteel.These2018portfolios,whicharenotyetcommerciallyviable,0.7mightenableinvestmentstophasedownoutdatedplantsandtodecarbonizeplantsstillinoperation,0diversifyingandreducinginvestors’risks.2262017DevelopmentfinanceinstitutionscouldprovideNotes:Fundraisingreferstodebtissuancesonly.Figuresinthetechnicalandfinancialsupporttothedevelopmentoftextmightnotbeidenticalduetorounding.thesenovelfinancialinstrumentsinemergingmarkets.Source:IFCstaffcalculationsbasedonEnvironmentalFinanceGiventhehighcostofdecommissioningorretrofittingbrownsteelandcementplantsandbuildings,andthePolicymakers’actionisrequiredtoneedforfiscalsupport,theseeffortsshouldbefocusedsupportthegrowthofgreenconstructiononcountrieswithrelativelylargecementandsteelfinancialmarkets.sectorsanddevelopeddomesticfinancialmarkets.TheseeffortscouldbeorientedtowardssomepilotPolicymakerscanusearangeoftoolstomobilizeprojectstocontributetopavingthewayforfurtherdomesticandinternationalgreenfinanceinemergingdecarbonizationinthelongerterm.markets.Thesemeasuresincludestrengtheninglocal225IFCstaffcalculationsbasedonEnvironmentalFinanceandBloomberg.226WorldEconomicForum(2021).Page101Chapter4:FinancingtheGreenConstructionTransitioninEmergingMarketsfinancialmarkets,carbontaxesandmarkets,fiscalpreviouslycameundernoregulation.227incentives,buildingcodesandregulations,aswellasconcessionalandblendedfinance,amongothers.GovernmentscanalsoincreaseinvestorappetiteTodate,themostpopulartoolusedinemergingandspurinnovationbyrequiringallpublicly-ownedcountrieshasbeenregulation,especiallyminimumbuildingstomeetcertaingreenstandards.Thisenergyperformancestandards,comparedwithhighhasaknock-oneffectintermsofdevelopingskillsincomecountriesthatmainlyresorttofiscaltoolsamongdesigners,engineers,andworkers—ensuringsuchascarbontaxesandincentives(Annex2).Here,agrowingtechnicalcapacitywhichcanspilloverintoweanalyzehowthesepolicyinstrumentscanbetheprivatesector.228However,todayonlyabout80usedtochannelmoreinvestmentsinbuildinggreencountrieshavemandatoryorvoluntarybuildingenergyinemergingmarkets,consideringdifferencesinfiscalcodesatthenationalorsubnationallevel,ofwhichjustresources,governmentcapabilities,relianceonfossiloverhalf,43countries,havemandatorycodesatthefuels,andcarbonintensityofmaterials,construction,nationallevelforbothresidentialandnon-residentialandoperationofbuildings.buildings.229GreenbuildingcodesandstandardsandCodescanincentivizeprivateinvestmentbyincreasingotherregulationsasatoolforenticingtheriskofstrandedassetsinportfoliosthatholddomesticandinternationalprivatefinanceconventionalbuildings(makinginvestmentsingreenintogreenconstruction.buildingsmoreattractivebycomparison).230LargefinesforbuildingsthatdonotmeetregulatorycriteriaCodesandenergy-efficiencystandardsformaterialscanlessenunderpricingofclimaterisk,reducingtheandbuildingscanbeeffectivemechanismsforrisk-returnportfolioofstandardbuildings.Otherattractingmoregreenfundingforconstructionvalueregulatorybenefitsforgreenbuilding,likedensitychains.Buildingcodesandstandardsforcedevelopersbonuses(additionalheightallowancesforeligibleandotherparticipantstomeetcertainstandardsfromgreenbuildings)andexpeditedpermitting,canalsotheget-go,applyingthemtothedesign,construction,makegreenbuildinginvestmentsmoreattractive.use,andmaintenanceofbuiltstructures.Minimumenergy-efficiencystandardsincludemandatoryAgainstthisbackdrop,emergingmarketstendtolabelingand/orcertificationofenergyperformancerelymoreonregulatorytoolsthanfiscaltoolstoforbuildingsandappliances.Universalgreenbuildingfosterdecarbonizationinconstruction.Duetolimitedcodescanreducetheincrementalcostsofgreenfiscalspace,regulationisapopulartoolamongbuildingprojectsrelativetostandardbuildingswhichthesegovernments(SeeTable2.4inAnnex2formoredetails).However,inemergingmarketswhere227IFC(2019a).228SteuerandTroger(2022).229IEA(2021).230IFC(2019a).BUILDINGGREENPage102regulationssuchasbuildingcodesdoexist,theyAdoptingpoliciesgearedtowardimprovingthemaynotbecomprehensiveorfullyenforced.Weakefficiency,transparency,anddepthoflocalcapitalinstitutionalandenforcementcapabilities,combinedmarkets,throughimprovedmacroeconomicwithhighriskofcorruption,maylimittheeffectivenessconditions,prudentialregulations,andothermeasures,ofthesetoolsandincreasetheriskofgreenwashing.isthusnecessarytounlockthecapitalrequiredforbuildinggreen,especiallyinthepoorestandmoreStrengtheningdomesticcapitalandunstabledevelopingcountries.235financialmarketsforbuildinggreen.Improvingenvironmental,social,andAllovertheworld,privateinvestmentsinconstruction,governance(ESG)disclosureregulations.especiallyresidentialhousing,aremainlyfundedbydomesticfinancialinstitutionsinlocalcurrency.231Inadditiontostrengtheninglocalcapitalmarkets,Volatilemacroeconomicandpoliticalconditions,governmentscanincreaseESGreportingrequirements,combinedwithweakregulatoryandimplementationwhichcanfacilitatefinancinggreenconstruction.capabilities,hampertheexpansionanddeepeningofRegulationsonenvironmentaldisclosurecanfinancialmarketsinmanyemergingeconomies.improvetransparencyinthemarketforsustainablefinancinginstruments,servingtoreduceinformationalInlow-incomecountries,forinstance,domesticcreditasymmetries.Currently,highscreeningcostsduetototheprivatesectoronlyamountstoabout13percentgreenwashingconcernscandiscourageinvestorsandofGDPcomparedtoabout160percentinhigh-incomeleadtoinefficientallocationofcapital,especiallyforcountries.232Similarly,stockmarketcapitalizationcarbon-intensivecompaniessuchasconcreteandhoversaround80percentofGDPinlow-andmiddle-steelproducers.incomecountries,whileitisabout170percentinhigh-incomeeconomiesonaverage.233PublicfinancingMorestandardizedandcomparabledisclosureorco-financingforconstructionalsofacesstiffregulationcanservetoimprovethequalityofESGrestrictionsinemergingmarkets.GovernmentgrossinformationthatisreportedandreducescreeningdebttoGDP,forinstance,onlyamountstoabout64costsforinvestors.ThiswouldallowfinancierstopercentofGDPinlow-incomecountriescomparedtobetternavigatearoundfirmswithsubstantialclimatemorethan100percentinadvancedeconomies.234risk(forbothfinancialandnon-financialreasons),andinsteadallocatemorecapitaltogreenerfirmsthat231IFC(2019).232AggregatefiguressourcedfromtheWorldBankOpenDataportal.233AggregatefiguressourcedfromtheWorldBankOpenDataportal.234GovernmentgrossdebtfiguressourcedfromWorldEconomicOutlookdataportal.235SeeWorldBank(2020)foradetailedpolicydiscussiononcapitalmarketdevelopment.Page103Chapter4:FinancingtheGreenConstructionTransitioninEmergingMarketswillthriveinanincreasinglysustainability-focusedMostofthecementandsteeldecarbonizationeconomiccontext.236projectsoriginatedinChinaandIndia.238Outsidethosecountries,developmentfinanceinstitutionsandImprovingtheseregulationsshouldbecomeagovernmentagenciesfromhigh-incomecountriespriorityinallemergingmarkets.Tofostertheuseshouldcontributetobroadentheuseofcarboncreditsofnovelandsophisticatedfinancialinstrumentsforfordecarbonizationprojectsinemergingmarketsconstructiondecarbonizationlikesustainability-linkedthroughfiscalsupport-taxincentivesorsubsidies-,finance,greenequityfunds,andmoreinthefuture,blendedfinance,andtechnicalassistance,especiallyincarbonretirementportfoliosandtransitionbonds,lowermiddle-andlow-incomeeconomies.middle-incomeaswellaslow-incomeeconomiesshouldstrengthenandexpandthereachoftheirESGEmissionstradingsystemscangenerategovernmentdisclosureregulations.revenuesthatcanco-financepilotingtechnologiesforgreeningconstructionvaluechainsthatmightbetooEmissionsTradingSystems(ETS).riskyforprivateinvestors.Forinstance,ArcelorMittal,theworld’slargeststeelmaker,isusingacombinationThesesystemscanhelpmobilizedomesticandofcarbonoffsets,fundingfromtheEUGreenDeal,andforeignprivatecapitaltoinvestingreenbuildingsgrantsfromtheEUETSInnovationFundtofinanceandnet-zerocarbonmaterialsinemergingcountries.investmentsingreentechnologies.239SimilarprogramsEmissionstradingsystemsprovideincentivestoinvestcouldbeusedtofosterpilotingnewtechnologiesiningreenalternativesbypricingthesocialcostsofemergingmarketswithsupportfromdevelopmentemissionsfrombrownconstructionactivities.237Thefinanceinstitutions,developmentgovernmentUnitedNations-runCleanDevelopmentMechanismagenciesofhigh-incomeeconomiesortheEU.(CDM)isasystemthatcertifiesandregulatescarboncreditsgeneratedinemergingcountries.ThesecreditsThepotentialtoimplementemissionstradingsystemsarethenallowedtobesoldtohigh-incomecountriesinemergingmarketsremainsconstrainedbyweakandfirmsthatareregulatedbyemissionscaps.Thelegalframeworksandimplementationcapabilities.CDMhascertifiedmorethan12millioncreditsinCarbonpricingcanincreaseconsumerpricesandgreenbuildings,23millioninnet-zerocarboncement,impairthecompetitivenessofdomesticproducers,54millioninsteelandiron,andabout40,000inglass.whichfurtherreducestheappetiteforthistoolinemergingeconomies.240Somesolutionsformaking236SteuerandTroger(2022).237McKinsey&Company(2022).238IFCstaffcalculationsbasedonCDMdatafrom2006–2022.Figuresincludeallprojectsintherespective‘cement’,‘steel&iron’,and‘glass’categoriesasclassifiedbytheCDMUNFCCdatabase,notonlythosespecifictobuildings.Seemethodologyfordetailedexplanation.239TheEUInnovationFundraisesrevenuethroughtheEUETSandhasbeencommissionedtoprovidefundingtohighlyinnovativelow-carbontechnologies(GreenovateEurope,2019).TheEUGreenDealisaneconomicplanaimedtohelptheEUreachcarbonneutralityby2050andwillbefinancedviatheEU’sseven-yearbudgetandtheNextGenerationEURecoveryPlan(EuropeanCommission,2019).240IFC(2019b).BUILDINGGREENPage104EXHIBIT26CarbonTaxesHaveBeenIntroducedinOnlyaFewEmergingMarketsNationalandregionalcarbontaxsystemsSubnationalcarbontaxsystemsunderconsiderationunderconsiderationimplementedorscheduledforimplementationimplementedorscheduledforimplementationSource:WorldBankGroupCarbonPricingDashboard.AccessedJuly2022.carbonmarketsmoreattractivetopolicymakershaveimplementedemissionstradingsystemstodatemayincludeusingrevenuesforpro-poorpolicies.241(Exhibit27).DevelopmentfinanceinstitutionsshouldhelptomitigatethesepotentiallyadversedistributionaleffectsUsingcarbontaxestopromotegreenthroughprovisionoffinancialandtechnicalsupport.construction.242Becauseofthesehurdles,onlyafewemergingmarketsCarbontaxescancontributetointernalizingthesocial241IFC(2019b).242Theanalysisofpotentialriskofleakagesofcarbonpricingprogramsinsteelgivenitshighinternationaltradabilityisbeyondthescopeofthisreport.Yet,availableevidencefromtheEuropeanUnionTradingSystemsuggeststherearenosignificantleakagesstemmingfromtheseprograms(Branger,Quirion,andChevallier2017).Page105Chapter4:FinancingtheGreenConstructionTransitioninEmergingMarketsEXHIBIT27Regional,National,andSubnationalEmissionsTradingSystem(ETS)InitiativesImplementedNationalandregionalETSinitiativesSubnationalETSinitiativesSizeofthecirclerepresentsthecarbonemissionscovered.Source:WorldBankGroupCarbonPricingDashboard.AccessedJuly2022.costsofbrownconstructioninmanufacturersandmiddle-incomecountries.However,settingtherightdevelopers’prices,increasingthedemandforgreenerpriceiscriticaltomaximizeeffectivenessandmayalternatives.Oneofthekeybenefitsofcarbontaxesrequirecomplexanalysis.Anotherbenefitofcarbonisthattheygeneraterevenuesthatcanbeusedtotaxesisthattheycanbeincreasedgraduallyovertime,compensatefortheirpotentialdistributionaleffects.allowingcompaniestoadjusttheircoststructuresCarbontaxesareeasiertoimplementthanmarket-gradually.basedcarbonpricingsystemsandprovideaclearerpricesignaltoconsumersandproducers.TheseCarbontaxescanalsobeappliedtodifferentsegmentscharacteristicsmaymakethembettersuitedforofconstructionvaluechains,fromfossilfuelsproviderstobuildersandconsumers,toencouragegreenBUILDINGGREENPage106BOX7WhatIsConcessionalandBlendedFinance?Concessionalfinancefromdevelopmentfinanceguarantor,withfeeschargedatbelow-marketratesinstitutionscanprovidearangeofbelow-market-rate(e.g.,first-lossguarantees,partialcreditguarantees).financialproductstothegreenbuildingandgreenWhilethistooldoesnotsolvetheliquidityconstraintsofconstructionmaterialsectors,correctingforsomegreenbuildingdevelopersandcommercialbanklenders,marketfailures.Concessionalfinancecanincludeitcandirectlyaddresstheunderlyingportfoliorisksandsubsidizedloansandgrants,aswellasguaranteesanduncertaintiesaroundthefuturevalueofgreenprojects,equity.Whilegrantsareusuallyone-timetransfersofparticularlyinnovativeones,andhencehelptounlockmoneywithnoexpectationofrepayment,subsidizedprivatecapital.Additionally,itcanalsoaddresstheissueloansareloansofferedtofirmsatbelow-market-rateofcurrencyriskforlocalcurrencyfinancinginemerginginterestrates.markets.ConcessionalequityisanownershipstakeinacompanyBlendedfinanceutilizeslimitedpoolsofconcessionalwithreturnexpectationsbelowthemarketrate.Thisfundstomobilizelargersumsofprivatesectorfinancingequitytoolcanbeadvantageousasitmayprovidetowarddevelopmentgoals,oftenwithclimate-relatedcredit-constrainedbuildingsandbuildingmaterialfirmsobjectives.Theconcessionalcomponentcanbeusedwithupfrontfundinganddoesnotrequirerecipientstoincreasethecommercialviabilityofprojectsviarisktomakeloanpayments.Thismaybehelpfulforcash-mitigationandimprovementoftherisk-returnprofileofstrappedfirmsinlow-profitmargin,capital-intensivecutting-edgeinvestments.Thedonorelementsofthesesectorslikesteelandcement,whichrequiresubstantialtransactionstendtobestructuredasco-investmentscapitalupgradestoreduceemissions.Thisformof(primarilyasdebt,butalsoasequity,risk-sharing,orfinancingcanalsomitigateriskassociatedwithseniorguaranteeproducts)withexpectationofreflowsfordebt–borrowedmoneythatacompanymustrepayfirstfutureinvestmentsorotheruses.Blendedfinancecanifitgoesoutofbusiness–byimprovingcoverageratiosprovidemoreimpactperdollarthanpureconcessionaland,unlikeconcessionalseniordebt,itdoesnotcrowdfinancing,asarelativelysmallamountofconcessionaloutprivatebankparticipation.fundscanunlocksubstantialamountsofprivatecapital.ThisalsomeansthereislessriskofmisallocationofConcessionalguaranteesandrisk-sharingfacilitiescapitalcomparedtostandardgrantsandsubsidies.transferallorpartofthefinancialriskofaloantotheconstruction.243Inprinciple,carbontaxesshouldbebuildinguse-relatedactivitiesinthenextdecadestargetingthosesegmentswiththehighestabatementasthepowerindustrydecarbonizesandbuildingspotential.Forinstance,taxingconstructionmaterialsincreasinglyrelyonelectricityintheiroperations.244couldbecomerelativelymoreimportantthantaxingTaxingconsumersorproducerswoulddepend,in243IFC(2019).244IFC(2019).Page107Chapter4:FinancingtheGreenConstructionTransitioninEmergingMarketsturn,onthepotentialdistributionalimplicationsandinwhichrevenuesfromemissionstradingsystemspoliticalfeasibility,especiallyinlowermiddle-andsurpassedthosefromcarbontaxes.245low-incomecountries.FiscalsupportfordecarbonizingandAlternatively,carbontaxescouldbeappliedtothedecommissioningmaterialsplantsandentiretyofconstructionprojectstospreadouttheirfundinglow-incomegreenresidentialcostsovertheentirevaluechaininsteadofonahousing.particularsetofstakeholders.CarbontaxesaremainlyusedtodayfortherawmaterialsandmanufacturingSubsidies(e.g.,grants,below-market-rateloans,andofbuildingproductsaswellastherepair,replacementdirecttransfers)andtaxincentives(e.g.,taxbreaks)andrefurbishmentofbuildings,andoperationalstages.arecommonlyusedpoliciestofinanceconstructiondecarbonization,especiallyindevelopedeconomiesTheresultsofthesimulationsemployingthemodel(Annex3).GiventherisksassociatedwithsuchdescribedinBox2presentedinSection1.3.suggest,measures,forexamplesubsidieswherethedesiredhowever,thatdirecttaxationofbrownbuildingsandresultisnoteffectivelymonitoredorwouldhavematerialsnowcouldhavesignificantnegativeimpactsoccurredintheabsenceofsupport,thereisaneedoneconomicgrowthintheshort-to-medium-term,formoreempiricalevidenceontheeffectivenessandespeciallyinemergingmarkets,atleastuntiltheefficiencyofsuchtools,particularlyincomparisontotechnologieswiththehighestabatementpotentialregulatoryapproaches.becomecommerciallyavailableby2035.Yet,followingtheexampleoftheUnitedStatesandAsof2022,therewere36carbonpricinginitiativestheEuropeanUnionwithcarbon-poweredfacilities,246implemented,covering28nationaljurisdictions,andfiscalsupportwilllikelybeneededtodecommissionorregulatingapproximately6percentoftotalglobaldecarbonizebrowncementandsteelplants.Giventhegreenhousegasemissions.Theseincludenotonlyhighcostsofdecommissioningorretrofittingstrandednationalprograms,butalsoeightsubnationalsystemsmaterialplants,thisleverwillmostlikelyremaina(whicharemostlylocatedinNorthAmerica).Anlonger-termpriorityformostemergingmarkets.additionaleightcarbontaxinitiativesareunderway,FiscalincentiveswillalsoberequiredtoincentivizeinemergingmarketssuchasBotswana,Indonesia,constructionofgreenresidentialhousingtargetedtoMorocco,andSenegal(Exhibit26).Whilecarbontaxlow-incomehouseholdsthatmightnotbeavailableinprogramsappeartobeextendingtonewregions,fiscallyconstrainedeconomieswithoutinternationaltheyarebecomingarelativelysmallerpieceofthesupport.equationasothercarbon-pricingmechanismsgaininpopularity.Forexample,2021wasthefirstyear245WorldBank(2022).246SeeIEA(2021).BUILDINGGREENPage108GreenBanks.BOX8GreenbankscanplayaroleinmobilizingdomesticIFCExperienceinPromotingGreenandinternationalfinanceforsmall-scalegreenBuildingsUsingConcessionalandbuildingprojects.Thesetypesofbanks,oftenfundedBlendedFinancebynationalorsubnationalgovernments,specializeinprovidingmission-drivengreenfinancialproductsthatSince2018,IFChasfundedgreenconstructionmaynototherwisebewidelyavailableonthemarket.projectsinLatinAmerica,Sub-SaharanAfrica,MiddleProductsincludegreenconstructionloans,mortgages,EastandNorthAfrica,SouthAsia,andEastAsiaandfirstlossguarantees.However,two-thirdsoffor$15.4millionusingconcessionalandblendedgreenbanksareinhigh-incomecountries.ExpansionfinancethroughtheMarketAcceleratorforGreenofgreenbanksinemergingmarketsislimitedbytheConstruction(MAGC)program.Co-fundedwiththeavailabilityoffinance,technicalcapacity,andpoliticalUnitedKingdom’sDepartmentforBusiness,Energy&andregulatoryfactors.41Nonetheless,theseentitiesIndustrialStrategy(BEIS),MAGCseekstoboostthearebecomingmorepopularandcurrentlyexistinuptakeofgreenerpracticesandtechnologiesfocusedIndia,Malaysia,andSouthAfrica.ondevelopingcountries’constructionmarketsthroughfourmaincomponents:(a)firm-levelDevelopmentfinanceinstitutions.technicalassistanceandblendedfinancetofinancialinstitutions;(b)country-levelcapacitybuilding;(c)DevelopmentfinanceinstitutionscanplayacriticalIFC’sEDGEcertificationplatform,maintenance,roleinmobilizinglocalandinternationalprivatecapitaloperationsandimprovements;and(d)Greenbuildingtowardgreenconstruction,servingasananchorperformancereportanddissemination.investor,providingmarket-rateandconcessionalfinancing,andoperationalizingsupranationalAbout60percentofMAGC’sfundshasgoneclimatefunds.Forgreenbuildingsspecifically,IFCtodeveloperstoaffordtheextracostsofgreeninvestedandmobilizednearly$4.4billionfrom2014buildings,andtheremainingfinancingtosupportto2019.247AccordingtoIFCclientsurveydata,loangreenmortgagesthroughprivatefinancialdisbursementsforgreenbuildingprojectshaveinstitutions.Forinstance,IFCprovidedblendedgrownfromonly$226,000in2015toreachahighoffinanceandtechnicalsupporttohelpopenthegreenapproximately$495millionin2019.248homemarketinSouthAfricain2017.IFCinvested$21millionina$300millionfundmanagedbyalargeConcessionalandblendedfinancecanbeparticularlyequityinvestorinSouthAfrica’saffordablehousingeffectiveinchannelingfundingtofinancialsector,calledHIS.Ofthetotal$21millioninvestment,$10millionwasfunneledtotheHISthrougha247FigureisreferencedfromIFCEDGE‘CreatingMarkets:IFC’sGreenBuildingsMarketconcessionalequityinvestmentusingdonorfundsTransformationProgram’.fromtheGlobalEnvironmentalFund.248IFCcalculationbasedonIFCClimateAssessmentforFinancialInstitutionsDatabase.Coverageislimitedasclientsurveyresponserateisapproximately70percent.SeeAnnex3formoredetails.Page109Chapter4:FinancingtheGreenConstructionTransitioninEmergingMarketsinstitutionslookingtoexpandtheirgreenbuildingandEXHIBIT28constructionmaterials’portfolio,addressingliquidityconstraintsandfundingbottlenecks.TheconcessionalLatinAmericaandtheCaribbeancomponentofblendedfinanceisoftensupportedandSub-SaharanAfricaReceivebybilateralormultilateralclimatefunds.Similarly,AboutHalfofConcessionalandbilateral,andmultilateralfundscouldsupportblendedBlendedFinanceandconcessionalfinancetosupportconstructiondecarbonizationinlow-incomeandfragilecountries.1%OtherBox7explainswhatconcessionalandblended4%MiddleEastandNorthAfricafinanceis.11%CentralAsiaandEasternEuropeConcessionalandblendedfundshavebecomean11%EastAsiaandthePacificimportantsourceofclimatefinanceforemergingmarkets.In2020,multilateralclimatefundsissued14%SouthAsia$1.79billioningrantsand$1.39billioninlow-costprojectdebtforclimatefinance,includinggreen23%Sub-SaharanAfricabuildings.DevelopmentFinanceInstitutionsprovided$3.06billioningrantsand$16.81billioninlow-cost35%LatinAmericaandtheCarribeanprojectfinance.Box8illustratestherecentexperienceofIFCinfosteringgreenconstructioninemergingNotes:‘DFIs’includemultilateral,bilateral,andnationalDFIs.marketsthroughconcessionalandblendedfinance.‘Other’(1percent)includesTransregionalandWesternEurope.WesternEuropedebtiscomposedsolelyofnationalDFIissuance.BilateralandmultilateralinstitutionsarealsoNodetaileddataonconcessionalandblendedfundsforgreenkeycontributorsoflow-costprojectdebt,whilebuildingsisavailable.Figuresinthetextmightnotbeidenticalduegovernmentsprovidesubstantialclimatefinancetorounding.throughgrants.Thebulkoflow-costfundsissuedbySource:ClimatePolicyInitiative,GlobalLandscapeofClimatedevelopmentfinanceinstitutionsusingconcessionalFinance2021.andblendedfinancewenttoLatinAmericaandtheCaribbean,andSub-SaharanAfrica(Exhibit28).Moreco-financingwiththeprivatesectorwillbeneededfromdevelopmentfinanceinstitutionsinthenextdecadetoreducecarbonemissionsinconstructionvaluechains,especiallyinhard-to-abateandcarbon-intensiveconstructionmaterials.Since2017,developmentfinanceinstitutionsforinstance,haveraisedabout$16billionforgreenbuildingsinBUILDINGGREENPage110EXHIBIT29emergingmarketsthroughsustainabilitybonds(Exhibit29).MultilateralDevelopmentBanksRaisedAbout$16BillioninBondsBlendedfinancewillalsoberequiredtosupportSupportingBuildingGreenongoingeffortsforthedevelopmentofnovelinEmergingMarketsin2017–2022technologieswithhighabatementpotentiallikegreenhydrogen.TheWorldBank,forinstance,recently6$Billionapproveda$150millionloanthatestablishesablendedfinancefundandriskmitigationinstruments5.0toaccelerategreenhydrogenprojectsinChile.Theprojectwillalsoprovidetechnicalassistance,4.0includingcapacitybuilding—regulations,certificationprocessingandenablingenvironment—andboosting4localdemand.IFCisalsocurrentlysupportingthepre-investmentstagesofgreenhydrogenprojects.IFC3.2projectsthesecouldmobilizemorethan$2billioninprivateinvestmentsinChile.249$billion21.71.7020182019202020212017Notes:Includesallgreen,sustainability-linked,andsustainabilitybondsusedforgreenbuildingissuedbythefollowingmultilateraldevelopmentbanks:ADB,EBRD,EuropeanInvestmentBank,IADB,IBRD,IFC,NordicInvestmentBank,WestAfricanDevelopmentBank.SeeAnnex3.Figuresinthetextmightnotbeidenticalduetorounding.Source:IFCstaffcalculationsbasedonEnvironmentalFinance(2022).249SeeWorldBank:https://worldbankgroup.sharepoint.com/sites/news/pages/Betting-on-Green-Hydrogen-for-Sustainable-Growth--17072023-120542.aspxCHAPTER5:WaysForwardBUILDINGGREENPage112Thefindingsofthisreportindicatethatinformationalasymmetries,lackofspecializedskills,limitingtheglobalriseintemperaturesresources,andscale,andfragmentedandrigidtowellbelow2degreesCelsius,andthusregulationsofconstructionvaluechainsinemergingavoidingtheworsteffectsofclimatechange,markets.AbsentorweaklyenforcedgreencodesandascommittedintheParisAgreement,willnotstandardsandinsufficientpublicawarenesseffortsbepossiblewithoutasubstantialreductioninreducetheincentivesofenvironmentallymindedemissionsfromtheconstructionsectorinthehouseholdsandcompaniesforbuyingorrentingnextdecade.greenbuildings.ThelackofregulationsandstandardscertifyingthecarboncontentofconstructionmaterialsAchievingthatgoalwillrequiretheintegrationofalsohamperstheuseofnetzeromaterialsinnewexistingandnovelabatementtechnologiesintobuildingsbydevelopers.Rigidconstructionregulationsconstructionvaluechains.Someofthecriticalalsolimittheuseofalternativematerialsandnon-technologiesforreducingconstructionemissionsarefossilfuelstoproducecementandsteelwithlowercommerciallyfeasibletoday,whileothersarelikelyemissions.Constructionservicesarealsooftentocomeonstreamoverthenextfewyears.Butthedominatedbysmallandmedium-sizedcompanieschallengeofgreeningconstructionvaluechainsgoeswithlimitedresourcesandadequatelyskilledworkerswellbeyondtheavailabilityoftechnologies.toadoptenvironmentallyfriendlymaterialsandsustainableconstructiontechniquesandpractices,Inthelongterm,themajorissueisthatthefinancialespeciallyinlow-incomecountriesbutalsoinsomereturnongreenactivitiesistoolow,becauseitdoesfastgrowthmiddle-incomeeconomies.notreflectthebenefitstosocietyofprovidingaproductorservicewithloweremissions.AsgreenAchievingtheneededreductioninemissionsfromproductiontechnologiestendtobemoreexpensiveconstructionvaluechainswillthereforerequirethanbrownalternatives(intheabsenceofcarbonurgenteffortsbypolicymakerstoaddressthesepricesortheirequivalents),companieswishingtomarketfailuresinconstructionvaluechainsandgreenbuildgreenmayfinditdifficulttocompetewithfinancialmarkets.Atleastindevelopingcountrieswithcompaniesthatarelessconcernedwiththeircarbonadequatecapabilities,governmentswillalsoneedtofootprint.Theymayalsofacedifficultiesinattractingensurethatconstructioncompaniesandmaterialsinvestors.Giventhehighermarketpricesofgreenproducersabsorbthesocialcostoftheiroperationsgoodsandservices,consumersalsolackincentivesandcanearnanadequatereturnbychoosinggreen,forsubstitutingbrownproductswithgreenproducts.andthatconsumersswitchconsumptionfrombrownOthermarketfailuresrelatedtotheavailabilityoftogreenconstructionproductsandservices.information,aswellasscreeningandmonitoringcosts,furtherrestrictdomesticandinternationalprivateThefindingsofthisreportemphasizetheneedfinanceforgreenconstructioninvestments.forpolicymakerstotakedecisivestepstowardestablishingtheappropriatebusiness,policy,andThesemarketfailurescompoundtheproblemsregulatoryframeworksthatwillfacilitatethestemmingfromthedecentralizedmarketstructure,Page113Chapter5:WaysForwardgreenconstructiontransition.Thisframeworkwillandtimehorizons.Electrificationofbrownbuildingsbepivotaltomobilizedomesticandinternationalwithrenewableenergieswillrequireinvestmentsininvestmentstowardnet-zerobuildingsandmaterialsnewtransmissionlines,energystorage,andenergyinemergingmarketsinthenextdecade.Thereportefficientcooking,heating,andcoolingappliances,alsoemphasizestheneedtofocuspolicyeffortsandsystems.Newbuildingswithimprovedenergyonpromotingtheadoptionofreadilyavailableandthermalefficiencyandpoweredwithcleanertechnologieswithmoderateeconomiccostsuntiltheenergies,ornetzerobuildings,willalsorequiretechnologieswiththehighestabatementpotential,similarinvestmentsandthegradualdecarbonizationbutprohibitivecoststoday,likegreenhydrogenandofmaterialsandconstructionservices.Deployingcarbonstorage,becomeavailableby2035andbeyond.biomass-derivedfuelsmeasureswillalsointeractwiththedeploymentofnon-commerciallyavailableThereportalsostressestheneedforanintegraltechnologiestoday,likecarbonstorageandcapture.strategytodecarbonizingconstructionvaluechainsthatconsiderstheinteractionbetweenthesegmentsThisreportsuggestsawiderangeofpoliciesthatofthevaluechain,othersectors,andtechnologicalgovernmentsinemergingmarketscanundertakechanges,andthatseekstominimizecoststotoencouragegreenconstruction.Theseincludeeconomicoutput.Thisstrategywillalsorequirecarefulregulatorypolicies,namelygreencodesandstandardssequencingofmitigationandadaptationactionsandthatrequirecompaniestoadoptpracticesthattechnologies,adaptedtothespecificconditionsoflimittheircarbonemissions.Theyalsoincludeeachcountry,andfromalong-termperspective.measurestopromotecontributionstogreenconstructionactivitiesfromthefinancialmarkets,Undersupportivepolicyframeworks,earlyactioncanreducingmarketfailuresthatlimitprivatedomesticbetakenatrelativelylowcostsandwithsignificantandinternationalinvestmentandestablishingthereductionsinconstructionemissionsbydeployingappropriatefinancinginfrastructuretoencouragereadilyavailabletechnologiesforelectrifyingbrowngreenfinancialinstruments.Otherpoliciesoutlinedinbuildings,improvingtheenergyefficiencyofnewthereportincludepromotionbygovernmentsofgreenandexistingbuildingsandplants,andintegratingconstructionthroughtheirownbuildingoperationscleanerenergiesandrawmaterials.Supportingtheandfiscalsupportforthedecommissioningofstrandeddevelopmentandpilotingofnewtechnologieswithbrownmaterialsplantsaswellastheconstructionofhighabatementpotential,likegreenhydrogenandgreenresidentialhousingforlow-incomehouseholds.carbonstorage,isalsofeasibleinthenextdecadebutThereportalsohighlightstheestablishmentofwithfiscalsupportthatitisunlikelytobeattainableframeworksthatimposequantitativelimitson,orformostemergingmarkets.Thegradualdeploymentincreasetaxeson,firms'emissions.ofcarbonpricingprogramsshouldalsopavethewayfornetzeroconstructionby2050.Howandwhenpolicymakersdeploythesemeasureswillvarydependingoncountryconditions,availableThisintegralstrategyshouldalsocontemplatethefiscalandfinancialresources,andtechnologicalandinteractionbetweentechnologieswithdifferingcostsBUILDINGGREENPage114policyreadiness.Formostmiddle-incomecountries,moderateeconomiccostsandpolicyeffortsthroughthefocusoverthenextdecadeislikelytobeonthesepolicytools.actionswithmoderateeconomiccostsandpolicyefforts,likegreencodesandstandards,greenpublicGovernmentscanadoptgreenbuildingcodesthatbuildings,andgreenconstructionprocurement,andgovernthedesign,construction,use,andmaintenanceonmobilizinggreenprivatefinanceintonetzeroofbuiltstructures.Minimumenergy-efficiencybuildingsandmaterials.High-incomeeconomiesstandardscanbeimposed,supportedbymandatoryandpossiblysomeupper-middle-incomecountrieslabelingand/orcertificationofenergyperformance.withsufficientfiscalspaceandadequateregulatoryAdditionalheightallowancesandexpeditedpermittingcapacitymaybeabletomovefaster,deployingforeligiblegreenbuildingscanreduceincrementalrelativelycostlierpolicieslikecarbonpricingprograms,capitalcostsforprivatebuildersatminimalorzerostringentenvironmentalregulations,andprovidingfiscalcosts.fiscalsupporttotechnologieswithhighabatementpotentialbutthatarenon-commerciallyavailableEffectivegreenbuildingcodes,enforcedbytoday,likegreenhydrogenandcarbonstorage.substantialfinesfornoncompliance,canimprovetheLow-incomecountriescouldbeginwalkingthepathcompetitivenessofgreenconstruction.Regulations,towardsgreenconstructionnowwithinternationalparticularlyminimumenergyperformancefinancialandtechnicalsupport.standards,aremorecommonlyusedinemergingmarketstosupportgreenconstructionthanfiscalDevelopmentfinanceinstitutionscanplayantoolsare.However,manyemergingmarketswithimportantrolebyprovidingresources,particularlysuchregulatorypracticesneedtostrengthentheiratconcessionaltermswithfocusonlow-incomeinstitutionalandenforcementcapabilitiestoensureeconomies.Theycouldalsomobilizegreaterprivatetheeffectivenessofsuchstandards.sectorinvestmentbypromotingtheadoptionofinnovativegreenfinancialtoolsandadequateOtherregulationscanbemodifiedtoincreasetheregulations,especiallyinmiddle-incomecountrieswithfeasibilityofgreenconstruction.Forexample,easingwell-developeddomesticfinancialmarkets.Here,westringentlocalcementregulations,whileensuringsummarizethemainrecommendationsofthereport.consumers’safety,couldencouragepilotingandadoptingnaturalandindustrialclinkersubstitutes,RegulationandStandards.especiallyinmiddle-incomecountries.AndregulationofthewastemanagementvaluechaincanpromoteSupportingandstrengtheninggreenconstructiontheuseofwasteasanenergysource.Thesemeasuresregulationsandstandardswouldbetheoptionofhavenegligiblefiscalcostsandthereforecouldbechoiceformostemergingmarkets.Withadequatewidelyadoptedinmanyemergingmarketswithtechnicalandfinancialsupport,middle-incomeandfinancialandtechnicalsupportfromdevelopmentsomelow-incomecountriescouldacceleratethepacefinanceinstitutions.ofgreenconstructioninthenextdecadewithPage115Chapter5:WaysForwardFinancialMarkets.publiclyownedbuildingsmeetcertaingreenstandardswoulddirectlyreduceemissions;encourageinnovationFinancialinnovationisimportanttochanneltheingreenconstruction;increasetheeconomy-widefinancialresourcesneededforthemassiveinvestmentssupplyofdesigners,engineers,andcraftsmenwithingreenconstructionrequiredoverthenextdecades.knowledgeofgreenbuildingtechniques;and(ifdoneParticularlyinthepoorestcountries,improvingthewell)provideexamplesthatcouldencourageimitationefficiency,transparency,andcomplexityoflocalbyprivatesectorfirms.Greeningpublicprocurementfinancialmarketsthroughimprovedmacroeconomicinconstructioncanalsohelpfosterthedemandforconditionsandprudentialregulationsiscriticalforgreenbuildingsandmaterialsfromprivatecompaniesanexpansionoffinanceforgreenconstruction.andconsumers.EstablishingmorereliableandstandardizedenvironmentaldisclosureregulationscouldreducetheCarbonTaxesandEmissionsCaps.highscreeningcostsofgreenbuildingsandmaterialsprojects,particularlyinemergingmarkets,thatmakeTaxingcarbonemissionssothatpricesfullyreflectitdifficulttoattractinvestmentingreenconstruction.theirenvironmentalcosts,orimposinglimitsonfirms’Thus,effortstostrengthengovernanceandregulatoryorregions’carbonemissions(inconjunctionwithframeworks,particularlyenvironmental,social,andprogramstoallowthetradingofemissionsrights)governancedisclosurebyprivatefirms,andtoimproveprovideaneconomicincentivetocompaniestogreentechnicalcapabilitiesforissuingandregulatinggreentheirproductionandinduceconsumerstoswitchfromfinancialinstrumentswouldhelpchannelgreaterbrowntogreenproducts.However,whilethebulkfinancingtogreenconstruction.ofemissionsoverthenextdecadeareexpectedtobegeneratedbyemergingmarkets,onlysevenhaveThefinancialindustrycanalsoplayaroleinimplementedcarbonpricinginitiatives,withadditionalimprovingstandards,forexamplethroughpublishingcarbontaxinitiativesunderwayineightemerginggreenfinanceguidelines,providingthird-partymarkets.Onlythreeemergingmarketgovernmentsenvironmentalaudits,suggestingharmonizedhaveestablishedmandatoryemissionstradingenvironmentalframeworks,andpromotingtheuseofsystems.ESGratingproviders.SuchinformationcanencouragegreenconstructionandhelpmobilizefinancebyThepotentialtoimplementemissionstradingenhancingtransparency,reporting,andmonitoringsystemsinemergingmarketscouldbeimprovedofsustainabilityimpactsinlinkedfinance,transitionbystrengtheninglegalframeworksthatarenotbonds,andcarbonretirementportfolios.adequatetoestablishreliablecarbonmarkets,andbyimprovingtheimplementationcapabilitiesofGovernmentBuildingsandProcurement.thegovernmentagenciesinvolved.ThereisalsoaconcernthatimposinghigherenergypriceswouldGovernmentshavealargecarbonfootprint,andimpairthecompetitivenessofdomesticproducerschangesintheirownoperationscanmakeasignificantinindustriesexposedtointernationalcompetition.contributiontogreenconstruction.RequiringthatallThisissueunderlinestheimportanceofinternationalBUILDINGGREENPage116coordinationofcarbonpricingandemissionscaps.examplesubsidieswherethedesiredresultisnoteffectivelymonitoredorwouldhaveoccurredintheCarbontaxescanbeausefulalternativetoemissionsabsenceofsupport,thereisaneedformoreempiricaltrading,particularlyinlow-andmiddle-incomeevidenceontheeffectivenessandefficiencyofsuchcountries,becausetheygeneraterevenuesthattools,particularlyincomparisontoregulatoryorcanbeusedtocompensatefortheirpotentialcarbonpricingapproaches.distributionaleffects,areeasiertoimplementthanmarket-basedcarbonpricing,provideaclearerpriceDevelopmentFinanceInstitutions.signaltoconsumersandproducers,andcanbeincreasedgraduallyovertimetoallowfirmstimetoDevelopmentfinanceinstitutionscanalsomakeadjust.However,settingtherighttaxrateiscriticalanimportantcontributiontomobilizinglocalandtomaximizeeffectivenessandmayrequirecomplexinternationalprivatecapitalforgreenconstruction.analysis.CarbontaxescouldbetargetedtosegmentsTheirpotentialrolesincludeservingasananchorofthevaluechainwiththehighestabatementinvestor,providingmarket-rateandconcessionalpotential(forexample,increasingrelianceontaxationfinancing,andoperationalizingsupranationalclimateofconstructionmaterialsastheirimportanceinfunds.Concessionalandblendedfinancecanbeusedemissionsincreasesrelativetobuildingoperationsovertoincreasefundingforfinancialinstitutionslookingtothenextdecade).expandtheirgreenbuildingandconstructionmaterialsportfolio,addressingliquidityconstraintsandfundingFiscalSupport.bottlenecks.Subsidies(e.g.,grants,below-market-rateloans,andOtherareaswheredevelopmentfinanceinstitutiondirecttransfers)andtaxincentivesarecommonlysupportcouldbeparticularlyusefulincludetheusedpoliciestofinanceconstructiondecarbonization,constructionofaffordablegreenhousing,theespeciallyindevelopedcountries,andsomelargeretrofittingofbuildings,newandretrofittedlow-developingeconomies.Followingtheexampleoftheemissioncementandsteelplants,andpilotingUnitedStatesandEuropeancountrieswithcarbon-newdecarbonizationtechnologies.Increasingthepoweredfacilities,fiscalsupportwillbeneededtoavailabilityoffinancefortheseactivitiescouldencouragedecommissioningofstrandedbrownencouragegreaterinvestmentsbyventurecapitalplants,andconstructionofgreenresidentialhousingfundsintechnologicalinnovationsforgreeningtargetedtolow-incomehouseholds.Alongwiththeseconstructionvaluechains.Carbonretirementincentives,policymakerswillalsoneedtoencourageportfoliosmayalsorequireincentivestobecomethedevelopmentandadoptionofinnovativefinancialoperational.Finally,co-financingwithprivate-sectorinstruments,suchascarbontransitionbondsandfinancierswillbeanessentialtooloverthenextcarbonretirementportfolios,fordecarbonizingordecadetoreduceemissionsinconstructionvaluedecommissioningbrownplants.chains,especiallyinhard-to-abateandcarbon-intensiveconstructionmaterials.Giventheriskofineffectivefiscalprograms,forANNEXESBUILDINGGREENPage118Annex1:TheGeneralEquilibrium—CircularEconomy(CGE-CE)ModelIFChaspartneredwithGlobalTradeAnalysisProjectmaterialbycountry.InformationfromIFCprojects(GTAP)-PurdueUniversitywhodevelopedforthisondetailedcoststructuresofabatementcostsforreportacomputablegeneralequilibrium–circularcementandothermaterialsaswellasincrementaleconomy(CGE-CE)model.CGE-CEaggregatescapitalcostsofgreenbuildingsrelativetoconventionalinformationonnationalaccounts,balanceofalternativeswasalsoincluded.payments,andinput-outputmatricesinaconsistentrepresentationofthedynamicinter-dependenciesThedatabasewascoupledwiththeglobalrecursive-acrosssectors,agents,andmarkets.dynamicCGEmodelENVISAGEforthe2022–2035period.ThemodelnestsenergydemandintheToanalyzetheeffectsofeconomicandpopulationsimulations,assumingenergypreferencesareagent-growthandalternativemitigationpoliciesonspecificandprovidingarepresentationofalternativeemissionsandotherenvironmentalindicators,thegenerationtechnologies.ThemodelalsoassumesCGE-CEmodelincorporatesanexplicitrepresentationpreferenceshiftsandtechnologicalchangesovertimeofproductiontechnologies(e.g.primary,secondary,relatingtodecreasingcostofrenewables;increasingandrecyclingactivities)andmaterials(e.g.steel,preferencestowardrenewableenergy;increasingcement,glass,fossilfuels,minerals,amongothers).electrificationrates;increasingshareofservices;Bycapturingchangesinbothsupplyanddemand,energyefficiencyimprovements;andincreasingenergythemodelsimulatesadjustmentsintheeconomyefficiencyofnewgreenbuildings.Finally,themodelfollowingtheimplementationofapolicyshock.incorporatesthefollowingdynamics:exogenouslaborgrowth;capitalgrowth(asafunctionofsavings);Forthereport,anewdatabasewasdevelopedandexogenousland,energy,andtradeproductivity.covering141countriesand98sectors.ThedatabaseThemodelalsoassumestrajectoriesforcarbonpricesalsoincorporatesdetailedinformationonthesharevaryingbycountryandregion(Table1.2.).ofgreenbuildingsandproductionoflow-emissionPage119AnnexesTABLE1.1DetailstheNewSectorsThatWereDevelopedfortheReportGTAPNewsectorDescriptionNon-metallicmineralsmining1oxtnmnMiningofironoresMiningofaluminumores2mioMiningofcopperoresMiningofotherores3maoRubberproductsPlasticproducts–primary4mcoPlasticproducts–secondaryRecycling-plastics5mooCementconventionalCement‘green’6rpprbrOthermineralproductsIronandsteel–primary7plpIronandsteel–secondaryRecycling-ironandsteel8plsIronandsteelcastingAluminum–primary9plrAluminum–secondaryRecycling-aluminum10nmmcmcCopper–primaryCopper–secondary11cmgRecycling-copperOthermetals–primary12nmxOthermetals–secondaryRecycling-othermetals13i_sispNon-ferrousmetalscastingConstructionconventional14issConstruction‘green’15ris16isc17nfmapp18aps19ral20cpp21cps22rcp23mpp24mps25rom26nfc27cnscnc28cngSource:IFCstaffcalculationsbasedonGlobalTradeAnalysisProjectBUILDINGGREENPage120TheCGE-modelsimulatedfourscenarios:a)noandmaterialsinthenomitigationscenarioandthenetmitigation,whichassumescontinuationofthezero-alignedscenario.currentclimatepolicieswithoutadditionalmitigationmeasures;b)NDC,whichassumescountriescomplyTheglobalscenariossimulatedforthisreportalignwiththeirNationallyDeterminedContributionswiththeClimateActionTracker(CAT)pathways,(NDCs);c)energyefficiency,thatincludescompliancethemainreferenceforclimate-relatedsimulationswiththeNDCs,andelectrificationofbrownbuildingsusingsimilarCGEmodelstoENVISAGEemployedwithcleanerenergiesanddecarbonizationofhere.250CATquantifiesandevaluatesclimateconstructionmaterialsandnewbuildingswithnon-changemitigationtargets,policies,andactions.Itfossilfuelsandimprovedenergyefficiency;andd)‘net-alsoaggregatescountryactiontothegloballevel,zero-aligned’,thatincludescompliancewithNDCs,determininglikelytemperatureincreasesduringtheanddirecttaxationofbrownbuildingsandmaterials21stcenturyusingtheMAGICCclimatemodel.andsubsidiestogreenalternatives.ThisglobalpathwayofCATisthenusedasinputtoTwoadditionalpolicyscenariossimulatingalternativeareduced-complexitycarbon-cycle/climatemodelrevenuerecyclingprogramscarbontaxeswerecarried(MAGICC7)whichiscalibratedagainstdatafromoutasasensitivitycheckwithoutsignificantchangescomplexgeneralcirculationmodels(GCMs),includingrelativetothemainscenarios(b)and(b)andthereforeclimatesensitivityandcarboncycleinformation.thosescenariosarenotreported:reducinglaborTheMAGICCemulationsreflectthecomplexmodeltaxesandboostinginvestmentingreenconstructionresponserangesfortheassessedscenariosintheactivities.calibrationdatasets,inparticulartheRepresentativeConcentrationPathways(RCPs).MAGICC7isrunInvestmentneedswerecalculatedasthedifferencemultipletimestoobtainaprobabilitydistributionbetweentheinvestmentinelectrificationwithnon-ofoutcomessuchasglobalmeantemperature,fossilfuelsandimprovementsinenergyefficiencyCO2concentration,andtotalgreenhousegasinexistingandnewbuildingsinthenomitigationconcentration.Thesedistributionsareusedforderivingscenarioandtheenergyefficiencyscenario.thecentralmedianestimateofe.g.theglobalmeanInvestmentneedsweresimilarlycalculatedasthewarmingin2100andcorrespondingtemperaturedifferencebetweeninvestmentinnewgreenbuildingsexceedancelikelihoodsoverthe21stcentury.250FormoreinformationonCAT,see:https://climateactiontracker.org/Page121AnnexesTABLE1.2AssumedCarbonPrices,$/TonofCO2Country/region2023202420252026202720282029203020312032203320342035EU-27+EFTA698295107120132145157162167172177182RestofOECD23.228.633.939.344.75055.460.763.766.970.373.877.5High-incomeAsia3.99.214.519.72530.736.542.244.346.548.951.353.9Japan3.99.214.519.72530.736.542.244.346.548.951.353.9China9.510.511.612.914.315.817.519.320.321.322.323.524.6MiddleEastandNorth3.15.68.110.51315.117.119.220.221.222.223.324.5AfricaUnitedStates2.24.46.68.710.91315.117.218.11919.920.922Brazil1.93.75.57.49.210.912.614.31515.816.617.418.3RestofLatinAmericaand1.93.75.57.49.210.912.614.31515.816.617.418.3CaribbeanEuropeandCentralAsia1.32.74.15.56.98.39.711.111.712.212.813.514.2India1.42.43.44.55.56.47.38.28.699.51010.5Indonesia1.42.43.44.55.56.47.38.28.699.51010.5Low-incomeAsiaandthe1.42.43.44.55.56.47.38.28.699.51010.5AmericasRestofSoutheastAsiaand1.42.43.44.55.56.47.38.28.699.51010.5PacificSub-SaharanAfrica0.61.11.622.52.93.33.73.94.14.34.54.7Source:IFCstaffcalculationsbasedonGlobalTradeAnalysisProjectBUILDINGGREENPage122Annex2:SupplementaryTablesandFiguresTABLE2.1CementOutputbyCountryandRegion,2022PercentofTotalGlobalOutputRegionalOutputChinaChina61%100%EU-27+EFTA4.9%42.3%UnitedStates2%17.5%HighIncomeJapan1.8%15.5%High-incomeAsia1.7%14.7%RestofOECD1.1%10%India6.9%26.7%MiddleEastandNorthAfrica4.8%18.6%RestofSoutheastAsiaandPacific3.8%14.5%OtherEmergingMarketsEuropeandCentralAsia3.6%14%RestofLatinAmerica&Caribbean3.1%11.8%Indonesia1.4%5.5%Brazil1.5%5.8%Low-incomeAsiaandtheAmericas0.8%3.2%Ethiopia0.5%32.5%Sub-SaharanAfricaNigeria0.3%20.6%RestofSub-SaharanAfrica0.4%26%SouthAfrica0.3%21%Source:IFCbasedonGlobalTradeAnalysisProject,GCCA,IEAandothersources.OnlythelargestcountriesmeasuredbyGDParereportedforeachregion.Page123AnnexesTABLE2.2SteelOutputbyCountryandRegion,2022PercentofTotalGlobalOutputRegionalOutputChinaChina54%100%EU-27+EFTA9.3%28.1%UnitedStates5.1%15.4%HighIncomeHigh-incomeAsia6.4%19.3%Japan10%30.2%RestofOECD2.3%6.9%MiddleEastandNorthAfrica1.6%13%India2.7%22.2%EuropeandCentralAsia3.6%29.5%OtherEmergingMarketsRestofLatinAmericaandtheCaribbean1.3%10.3%RestofSoutheastAsiaandPacific0.8%6.8%Brazil1.7%13.8%Indonesia0.3%2.1%Low-incomeAsiaandtheAmericas0.3%2.4%Ethiopia0.3%38.4%Sub-SaharanAfricaNigeria0.1%11.7%RestofSub-SaharanAfrica0.2%28.4%SouthAfrica0.2%21.48%Source:IFCbasedonGlobalTradeAnalysisProject,GCCA,IEAandothersources.OnlythelargestcountriesmeasuredbyGDParereportedforeachregion.BUILDINGGREENPage124TABLE2.3SimulatedTrajectoryofConstruction-RelatedEmissionsbyCountryandRegionintheNo-MitigationScenarioMillionsofCO2EquivalentTonsChina20222023202420252026202720282029203020312032203320342035China6,0696,2406,4116,4676,5246,6126,7016,7386,7756,7626,7486,7406,7316,735EU-27+EFTA936903871849826808789773757752747742738734High-incomeAsia427434442452462471480490499508517527536545HighIncomeJapan491491491493495497499500502503504505506507UnitedStates2,2622,2842,3052,3302,3562,3862,4162,4462,4762,5042,5322,5582,5842,611RestofOECD547548550555561567573580586593601609617626Brazil111112113117122123125127128130131133134136EuropeandCentral1,0581,0601,0611,0661,0701,0831,0951,1051,1141,1231,1311,1381,1451,150AsiaIndonesia218224230231232235239242245248250254257260India9279671,0081,0151,0211,0371,0531,0651,0771,0881,0991,1091,1191,129OtherEmergingMarketsLow-incomeAsiaand117121125126128130131133134135136137138139theAmericasMiddleEastandNorth8618698778909039209379539709849991,0121,0261,039AfricaRestofLatinAmerica349352356371386395403412421431441451460468andtheCaribbeanRestofSoutheastAsia404415427430434439444448451454457460463467andthePacificSub-SaharanAfricaSub-SaharanAfrica244250255270284294305317328341354368382396Source:IFCbasedonGlobalTradeAnalysisProject,GCCA,IEAandothersources.OnlythelargestcountriesmeasuredbyGDParereportedforeachregion.Page125AnnexesTABLE2.4ConstructionDecarbonizationandPotentialFinanceProvidersandInstrumentsEnergyEfficiencySegmentofConstructionBuildingsMaterialsValueChainTypeofTechnologiesandEnergyefficientlightingandairWasteheatrecoverysystems,improvingExamplesconditioning,reflectivepaint,airsealing,furnace-basicoxygenfurnace(BF-BOF)buildingenvelopedesignefficiency,optimizingthermalefficiencyinTypeofProviderscementkilnsTypeofInstrumentsPrivatecapital,DFIs,publicfinancePrivatecapital,DFIs,publicfinance251OriginofFinancialProviderDebt(e.g.,greenmortgages,greenbondsDebt(e.g.,greenbondsandloans,ExamplesofPotentialandloans,sustainability-linkedbondssustainability-linkedbondsandloans,Providersandloans,transitionbonds)252andequitytransitionbonds)andequity,off-balance(e.g.,greenREITS),off-balancesheet(viasheetfinancing(viaenergyservicecontractsExamplesofProjectsenergyservicecontractsorleasing),taxorleasing254),taxandsubsidy-basedincentives253incentives,grantsPrimarilydomesticU.K.-IFCMarketAcceleratorforGreenDomesticandinternationalConstruction,BancolombiaGreenMortgageProgram,InfonavitGreenMortgageTheEBRD’sGreenTransitionBondsProgram,KimcoRealty(greenREIT)(allocatedthroughitsGreenTransitionTheInfonavitGreenMortgageProgramPortfolio),U.K.DepartmentofBusiness,inMexicoprovideshouseholdsseekingEnergy&IndustrialStrategy(BEIS)255mortgagesforgreenhomesanadditionalcreditontopoftheirstandardmortgage,In2019,IFCprovidedbothdebtandequitywhichcanbeusedtocoverthecostofinvestmentstoNCCL,Kenya’slargesteco-friendlytechnologyupgrades(i.e.,cementproducer.Theseinvestmentsroofinsulation,energy-savinglamps,solarhavehelpedNCCLtoincreaseitsenergywaterheaters).Sixtypercentofmortgageefficiencythroughutilizingalowerclinker-customersarelow-income256to-cementproductionratioandawasteheatrecoveryplant—thefirstofitskindinEastAfrica.In2019,theEBRDissuedatransitionbondandallocatedfundstowarditsGreenTransitionPortfolio,whichincludesefficiencyincementandsteelmanufacturingandbuildingsrenovation251Forexample,theUKDepartmentofBusiness,Energy&IndustrialStrategy(BEIS)announcedupto18millionpoundsofgrantfundingtosupportindustrialheatrecoveryprojects.252In2019,theEBRDissuedatransitionbond,allocatingfundstowardsits‘GreenTransitionPortfolio’,whichincludesbuildingsrenovation(IEA,2021).253Forexample,theU.S.governmentprovidesfederalincometaxcreditsforenergy-efficientnewhomes,aswellashomeandcommercialbuildingupgrades.254IEA(2021).255BEIS(2020).256WordHabitatAwards,Mexico2012Winner.BUILDINGGREENPage126AlternativeFuelsSegmentofConstructionBuildingsMaterialsValueChainTypeofTechnologiesandSubstitutionofclinkerincement-Useofbiomassinintegratedsteelmaking,Examplesmaking(i.e.,clinkerfreecement),useofuseofalternativefuelsforheatingcementconstruction&demolitionwastetoreplacekilnsTypeofProvidersaggregatesinconcrete,scrapbasedEAFTypeofInstrumentssteelmakingPrivatecapital,DFIs,publicfinancePrivatecapital,DFIs,publicfinance•Debt(e.g.,greenbondsandloans,OriginofFinancialProviderDebt(e.g.,greenbondsandloans,257ExamplesofPotentialsustainability-linkedbondsandloans,sustainability-linkedbondsandloans,Providerstransitionbonds),equity,carboncredits,258transitionbonds),equity,ExamplesofProjectsoff-balancesheetfinance259•off-balancesheetfinanceDomesticandinternationalDomesticandinternationalGovernmentofFranceU.K.DepartmentofBusiness,Energy&IndustrialStrategy(BEIS)HoffmanGreenCement,theworld’sfirstHeidelbergCementhasoperatedacementproducerofclinker-freecement,waskilnonanetzerofuelmixcomposedofinitiallyfundedwithhelpfromtheFrenchtanker-deliveredhydrogenandbiomassgovernment(unclearifviadebtorequity).components(i.e.,‘greyhydrogen’)asaThecompanylaterraised€75millionondemonstrationtrial.ThetrialreceivedgrantEuronextmarket(inequity).260ItalsosellsfundingfromBEISaspartofitsIndustrialcarboncreditstootherfirmslookingtoFuelSwitchingCompetition261offsettheiremissions257Forexample,expenditurestowardthesubstitutionofclinkerislistedasaneligibleprojectinCEMEX’sgreenfinancingframework(CEMEX,2022).258Forexample,HoffmanGreenCement,theworld’sfirstproducerofclinker-freecement,sellscarboncredits.259IEA(2021).260HoffmanCementwebpage,accessed(2023).261HeidelbergCement(2021).Page127AnnexesSegmentofConstructionValueCarbonCapture,Utilization,andStorageChainTypeofTechnologiesandExamplesMaterialsTypeofProvidersUsedinboththecement(e.g.,capturingandstoringCO2emissionsforexhaustTypeofInstrumentscasesproducedduringlimeproduction)262andsteelindustries(e.g.,capturingandstoringCO2emissionsformtheblastfurnaceprocess).OriginofFinancialProviderPrivatecapital,DFIs,publicfinanceExamplesofPotentialProviders•Primarilybalancesheetandequityfinanceinitially,withlikelyagrowingExamplesofProjectsrolefordebt(e.g.,greenbondsandloans,263sustainability-linkedbondsandloans,transitionbonds)andprojectfinanceastechnologiesdevelopatrackrecord264.•Otherinstrumentsincludespecialpurposevehiclesandjointventures,state-ownedenterpriseinvestments,publicgrants,265andtaxincentives.266Primarilydomestic•ClimateFunds(GreenClimateFund,GlobalEnvironmentFacility)•EUEmissionsTradingSystemInnovationFund•CCUSTrustFunds(ADB,WorldBank)•Norwegiangovernment267ThefirstcommercialsteelCCUSprojectwaslaunchedbyAlReyadahandEmiratesSteelatagas-based,directreducedironplantinAbuDhabi,UnitedArabEmirates.Thecapitalinvestmentof$15billionwasprovidedbytheAbuDhabigovernment.268262EuropeanCommission(2022).263TheseinstrumentsmaynotbeavailabletoallCCUSprojectsgiventhehigh-emissionnatureoftheindustry(IEA,2021).264IEA(2021).265SPV/JV,SOEinvestments,andpublicgrantsallcommonlyusedinstrumentsforfinancingCCUS(IEA,2021).266Forexample,theU.S.-based45QtaxcreditforCO2storage,computedpermetrictonofqualifiedcarbonoxidesequestered.267Reuters(2023).268ScottishCarbonCapture&Storage(2023).BUILDINGGREENPage128TypeofTechnologiesandGreenHydrogenExamplesTypeofProvidersCanbeusedinthecementindustry(e.g.,tofuelcementkilns269)andthesteelindustryTypeofInstruments(i.e.,asanalternativereductanttoproducedirectreducedironthatisprocessedintosteel).Privatecapital,DFIs,270publicfinance271OriginofFinancialProviderExamplesofPotential•Primarilybalancesheetandequityfinanceinitially,withlikelyagrowingrolefordebtProviders(e.g.,greenbondsandloans,272sustainability-linkedbondsandloans,transitionbonds)ExamplesofProjectsandprojectfinanceastechnologiesdevelopatrackrecord.•Otherinstrumentsincludespecialpurposevehiclesandjointventures,state-ownedenterpriseinvestments,publicgrants,andtaxIncentives.Domesticandinternational•SDGNamibiaOneFund273•TheWorldBankHydrogenforDevelopmentPartnership(H4D)274InSouthAfrica,forinstance,SasolandArcerlorMittallaunchedin2022ajointventurethatwillassesstheuseofgreenhydrogentoconvertcapturedcarbonfromArcelorMittalSouthAfrica’sVanderbijlpark’ssteelplantintosustainablefuelsandchemicals.269Greenhydrogeninthiscontextisnotyetimplementedasitiscurrentlynotcost-effective.270Forexample,theEBRDhascommittedtoprovidinga$80millionloantoEgyptGreentofundthenation’sfirstgreenhydrogenplant.271Publicfinancewillhaveakeyroleinthebeginning,especiallyasamechanismforcreditenhancement(e.g.,viaguarantees)(IEA,2021).272TheseinstrumentsmaynotbeavailabletoallCCUSprojectsgiventhehigh-emissionnatureoftheindustry(IEA,2021).273TheSDGNamibiaOneFundisablendedfinanceplatformusedtoacceleratethegreenhydrogensectorinNamibia.274WorldBankH4Disapartnershipintendedtoraiseandutilizelow-carbonhydrogenproductionindevelopingcountries.Page129AnnexesTABLE2.5NumberofCountriesUsingPublicSectorDecarbonizationToolsToolsHigh-IncomeCountriesEmergingMarketsCarbonTaxes245132TaxBreaks(credits,rebates,otherpolicieswithatax-basedcomponent)3343944Grants2537Regulation2210MinimumEnergyPerformanceStandards6BuildingCodesandStandards3CarbonTrading:ETSNotes:Carbontaxfiguresdonotincludesubnationalcarbontaxes:threesubnationalcarbontaxsystemsexistinMexico,whileallothersubnationalcarbontaxsystemsareinadvancedcountries.ETSfiguresdonotincludesubnationalsystems(JapanandtheUnitedStatesbothhavesubnationalETSsystemsbutnotnationalsystems,andhencearenotcountedinfigures).FiguresdoincludetheregionalEUETS,whichiscountedasanadvancedcountry.Dataforvoluntarymarketsisnotincluded,ascross-bordermarketsmakeitdifficulttoassociatemarketstospecificcountries.Source:CarbontaxesandETSdatacomesfromWorldBankGroupCarbonPricingDashboard.AllotherdataareIFCcalculationsbasedonIEAPAMSdatabase.TABLE2.6TotalCertifiedEmissionReduction(CER)CreditsIssuedforCDMGreenBuildingandCement,Glass,SteelProjects2006–2022FirstIssuanceGreenBuildingCementGlassSteel&IronOtherBuildingYearofProject12,139,10723,910,70441,08754,302,943MaterialsTotal,2006–2022731,907Notes:CERsaregeneratedbyclimate-friendlyprojects,witheachCERrepresentingonemetrictonofCO2reduced.CERsarethensoldtoinvestorsandcompaniesindevelopedeconomiesregulatedbyemissioncaps.Source:IFCstaffcalculationsbasedonCDMandUNFCCCBUILDINGGREENPage130Annex3:MethodologyforGreenBuildingFinanceandPolicyToolsThegreenbuildinglabelwasintroducedbytherelativelysmallsegmentofthetotalsustainabledebtInternationalCapitalMarketAssociationGreenBondmarket.Principlesin2017—hencealldataondebtmarketsisreportedfrom2017onwards.AlldatausesWorldBankGreenbondsarelikeconventional,fixed-incomebondsregionandincomedefinitionsforregionalandincomeexceptfundsraisedareintendedtobeusedtofinancebreakouts.specificgreenprojects.Recentresearchhasshownthatgreenbondscommandan‘issuerpremium’,Allfinancingvolumes(exceptthosefromBloomberg)meaningborrowersmaybenefitfromacompetitivepresentedaregeographicallyassignedbydomicileadvantageintheformoflowerinterestrateswhenoffirmheadquarters.Notethatactualexpenditureissuinggreenbondsversusconventionalbonds.offundsmaybedifferentinpractice,especiallyforSustainabilitybondsaresimilartogreenbondsexceptmultinationalfirms;however,itisnotpossibletotrackfundscanalsobeallocatedtowardsocialobjectives.thesegivendatalimitations.ForBloombergfigures,volumesareassignedbycountryofrisk,whichisWhilegreenandsustainabilityloansarering-fenceddeterminedbygeographicalexposureofoperations.forspecificprojectsandtypicallyfundtheunderlyinggreenasset,sustainability-linkedfinanceisusedGreenloansareaformofdebtfinancingthattoimprovetheborrower’soverallsustainabilityenablesborrowers,suchasrealestatedevelopers,profile.Sustainability-linkedfinanceconsistsoftofundprojectswhichhaveasignificantpositiveloansandbondsinwhichcompliancewithasetenvironmentalimpact.Theseproductsaretypicallyofpre-determinedsustainabilitytargetstriggersfinancedbycommercialbanks,butalsosometimesreductionsininterestrates.Byreducingscreeninginstitutionalinvestors,andcanbeearmarkedforgreenandmonitoringcostsforlenders,theseproductscan,buildingprojectssuchastheconstructionofenergy-atleastinprinciple,contributetoaligningincentivesefficientbuildingsandenergy-efficientretrofitsofofinvestorsandbrownconstructioncompaniesexistingbuildings.Greenloanscanalsobeissuedbyforreducingcarbonemissions.Furthermore,theconstructionmaterialproducerslookingtoimplementabilitytouseproceedsforgeneralbusinesspurposesdecarbonizationorothergreeneligibleprojects.providesadditionalflexibilitytosuchborrowerswhereSimilartogreenloansindesign,sustainabilityloansgreenprojectsmaynotbecurrentlyorconcretelyareusedtofinanceprojectswithacombinationofidentifiable.environmentalandsocialobjectives,suchasaffordableenergy-efficienthomebuilding.However,theseproductsarelessfrequentlyusedandconstituteaPage131AnnexesBondsinstitutionsweremanuallyreclassifiedtoincludecentralstatebanksandstate-ownedfinancialEnvironmentalFinanceinstitutionsinthegovernmentfigures(andlikewisetoexcludethesefromtheprivatesectorfigures).EnvironmentalFinance(EF)collectsdataonsocial,However,financialinstitutionswithminorityorgreen,sustainability,sustainability-linked,andmajority(butnotwhole)stateownership(e.g.,transitionbonds.AllsocialbondswereexcludedfromBankofChina)areincludedinprivatesectorfigures.thedataanalysis,aswereallbondsissuedoutside‘Corporates’includebothprivateandstate-ownedofthe2017–2021range.TheEFdatabaseincludesenterprises,asmanualreclassificationwasnotinformationonheadofficeoftheissuer(foreachbondpossiblebecauseofthevolumeofissuances.Assuch,andloanissuance).Thisvariableisusedtoprovideallcorporates(includingalltypesofstate-ownedregionalandcountry-levelcategorizationsinbondenterprises)havebeenincludedintheprivatesectorfiguresshowninthedraft.figuresasopposedtothepublicsectorfigures.EFusesin-houseanalysistoidentifyuseofproceedsGovernmentfiguresingraphsincludemunicipals,andkeyperformanceindicator(KPI)informationforpublicfinancialinstitutions,sovereigns,theEUeachbondissuancelistedintheirdatabase.However,(originallyclassifiedwithinthe‘supranational’therearesomeinstancesofmissinginformation.Notcategory),aswellassomeagencies(includingU.S.-allbondshad‘useofproceeds’orKPIdataavailablebasedFannieMae).Amongthe‘agency’category,(15percentmissing).Forbondswithbothvariableslocaldevelopmentfinanceinstitutionswhichprimarilymissing,correlationswereusedfromavailabledatatoinvestdomesticallywereincludedingovernmentextrapolategreenbuildingissuanceintherealestatefigures,whilebilateralinstitutionsthatinvestabroadsector,addressing10percentofmissingdata.wereexcludedfromgovernmentfigures.MultilateraldevelopmentbankfiguresarecomposedofallissuersMostgreen,sustainability,andtransitiondebtinthe‘supranational’category,apartfromtheEU.instrumentshavemultipleusesofproceeds,andmostsustainability-linkeddebtinstrumentshaveEFdoesnothaveloanissuertypecategories(akinmultipleKPIs.Asmallpercentageofsustainability-tothebondissuertypecategoriesusedtoseparatelinkedproductshaveuseofproceedsinformationpublicandprivateentities).Instead,manualanalysisinsteadofKPIs,andasmallpercentageofgreenandof213greenbuildingloanswasconducted,combinedsustainabilityproductshaveKPIinformationinsteadofwithassumptionsmadeusingtheavailableborrowertheuseofproceeds(or,haveboth).Inallcases,bondssectorinformation.Forexample,allREITsareassumedwereincludedinrelevantgreenbuildingfiguresiftheytobeprivate,whereasfirmscategorizedasfinancial,hadgreenbuildingslistedineithertheuseofproceedsenergy,industrialmachineryandengineering,orKPIcategories.healthcare,logistics,publictransportation,andrealestatedevelopmentandmanagementweremanuallyEFprovidesclassificationbyissuertype,includinginvestigated.Onlysixloanissuanceswere‘corporate’,‘financialinstitution’,‘agency’,‘municipal’,determinedtobepublicsector.‘sovereign’,and‘supranational’.BondsearmarkedforgreenbuildingthatwereissuedbyfinancialBUILDINGGREENPage132Forthedecarbonizationanalysis,theEFdatabaseLoansincludesissuersector(aswellastheuseofproceedsandKPIinformation),whichwereused,alongsideEnvironmentalFinancemanualidentification,todeterminebondsissuedbytheglass,steel,andcementfirmstofundEFcollectsdataonsocial,green,sustainability,anddecarbonizationefforts.Cementandglassfirmssustainability-linkedloans.Allsocialloanswerewereidentifiedamongthe‘realestate–constructionexcludedfromthedataanalysis,aswereloansissuedandconstructionmaterials’sector,whilesteeloutsideofthe2017–2021range.Asmallsubsetofloansfirmswereidentifiedamongthe‘mining/metals’wasclassifiedbyEFasboth‘green’and‘sustainability-and“manufacturing–other’categories.Otherlinked’–thesearecategorizedassustainability-linkedbuildingmaterialfirmsoutsidethesethreespecificloansinallfigures.industrieswereidentifiedamongboththe‘realestate–constructionandconstructionmaterials’TheEFdatabaseincludesinformationonheadofficeand‘manufacturing–other’sectors.Todetermineoftheissuer(foreachbondandloanissuance).Thisiffundingwasgoingtodecarbonizationeffortsvariableisusedtoprovideregionalandcountry-levelspecifically,acombinationoftheuse-of-proceedscategorizationsinthegreenbuildingloanfiguresinformation,KPIinformation,andbondtypeshowninthedraft.However,thebuildingmaterialinformationwasused.Ofthesixteenrelevantbonds,decarbonizationfiguresaresourcedfromBloomberg,sixweresustainability-linkedbonds,ofwhichfivehadwhere‘countryofrisk’wasprovidedinstead.‘Country‘carbon/GHGemissionsintensity–other/unspecified’ofrisk’isaproprietaryBloombergvaluewhichislistedintheKPIs.Theremainingsustainability-drivenbyfourcorefactors:countryofdomicile,linkedbondhadmissingKPIinformation,butoutsidecountryoflisting,countryoflargestrevenue,andresearchrevealedthebondwastiedtoCO2emissionsreportingcurrency.Inthesefigures,the‘countryofintensity.Therewerethreesustainabilitybonds,risk’variableisusedforallregionalandcountry-levelwhichallhadrenewableenergyorenergyefficiencycategorizations.listedinKPIs(amongotherenvironmentalandsocialcategories).Finally,thereweresevengreenbonds,EFusesin-houseanalysistoidentifyuseofproceedsofwhichthreehad‘greenbuildings’listedinuseofandKPIinformationforeachloanissuancelistedinproceeds(onewith‘energyefficiency’listedaswell),theirdatabase.However,therearesomeinstancesofanadditionalthreehadeither‘energyefficiency’ormissinginformation.Notallloanshad‘useofproceeds’‘renewableenergy’listed,andonehad‘pollutionorKPIdataavailable(5percentmissing).Correlationspreventionandcontrol’listed.All16bondswerewereusedfromavailabledatatoextrapolategreenincludedinthefigures.buildingissuanceintherealestatesectoraddressing30percentofmissingdata.BloombergBloombergdatawereusedfortheanalysisofsustainability-linkedloanissuanceinthedecarbonizationsectorbecauseofsuperiorloanPage133AnnexescoveragecomparedtoEF.However,Bloomberg’s•Ofthethree‘ESGscore’loans,onewasclassifieddatahasnotbeenusedforthegreenbuildingloanas‘generalESGrating’andthetwoothersanalysis,inpartbecauseitsdatabasedoesnotutilizehadmissinginformation.Basedonmanualaspecific‘greenbuilding’use-of-proceedscategory,investigation,oneoftheseloanswithmissingbuta‘building&infrastructure’category.Whiletheinformationwasmanuallyreclassifiedas‘generalfirstsustainability-linkedloanwasissuedin2017,ESGrating’basedononlineresearch.ItwasnotBloombergcoverageisfrom2018onwards.AccordingpossibletoidentifymoreinformationontheothertoBloomberg’sdatabase,nogreenorsustainabilityloanwithmissinginformationissuedbyFormosaloanswereissuedforthedecarbonizationofcement,HaTinhCaymanLtd.Allthreeoftheseloansweresteel,orglassforbuildings.Hence,wehaveonlythusexcludedfromfiguresgiventhatspecificshownfiguresforsustainability-linkedloans.environmentalindicatorswerenotlistedand/orfoundonline.BloombergdataincludeissuersectorandprojectKPIcategorizationswhichwereused,alongsidemanual•Thetwoloansclassifiedas‘unknown’undertheidentification,todetermineloansissuedbyglass,‘Tier1sustainabilityperformanceindicators’hadsteel,andcementfirmstofunddecarbonizationnoadditionalusefulinformationunder‘Tier2efforts.Steelfirmswereidentifiedamongthe‘metalsmetriccategories.’Basedonoutsideresearch,the&mining’sectorclassification,whilecementandloanissuedbyWienerbergerAGwasmanuallyotherbuildingmaterialsfirmswereidentifiedamongreclassifiedas‘generalESGrating’,whilenothe‘constructionmaterialsmanufacturing’sectorotherinformationwasfoundonthe‘unknown’classification.AdditionalbuildingmaterialfirmswereloanissuedbyBEWIInvestAS.Bothloanswerealsoidentifiedwithinthe‘homeimprovement’sectorthusexcludedfromfigures,giventhatspecificclassification.Oneglass-packagingfirmwasidentifiedenvironmentalindicatorswerenotlistedand/oramongthe‘containers&packaging’category,butnofoundonline.glassfirmswereidentifiedamongthe‘constructionmaterialsmanufacturing’sector.AfteridentifyingallAmongthe31loanslistedas‘environmental’underloansissuedbyrelevantsectors,KPImetricswere‘Tier2metriccategories’,23hadGHGslistedunder‘Tieranalyzedtoisolateonlythosewhereloanfundingwas2metriccategories’–manyofwhichalsohad‘otherusedtofinancedecarbonizationefforts.E’,‘renewableenergy’,or‘energyefficiency’listedaswell.AnadditionalfourloanshadotherE’solelylistedBloombergprovidesavariablecalled‘Tier1andanadditionalloanhad‘water’solelylisted,andsustainabilityperformanceindicators’whichclassifiesthuswereexcluded.Anadditionaltwo‘environmental’theloanaseitherbeingbasedon‘metrics’(31loans)loansissuedbyCEMEXwithmissing‘Tier2metricor‘ESGscore’(3loans)or‘unknown’(2loans).‘Tiercategories’dataweremanuallyclassifiedas‘GHGs’2metriccategories’providesfurtherdetails,withallbasedonoutsideresearch(includingreferencetorelevantloansclassifiedas‘metrics’alsoclassifiedasotherCEMEXloanswithcompletedatalistedas‘environmental’underthisvariable.‘GHGs’).BUILDINGGREENPage134MultilateralDevelopmentBanks(MDBs)GovernmentpolicydataarecalculatedusinginformationfromtheIEA,whichtracksgovernmentTheEFGreen,Social,andSustainabilityBondsgreenbuildingpoliciesintwodifferentdatabases.databasewasusedtoestimatethetotalgreenbuildingbondissuanceofMDBs.InalignmentwiththeTABLE3.1privateandgovernmentdebtfigures,allbondsissuedbyMDBswith‘greenbuilding’listedineithertheuseIEAPAMSDatabase,‘Buildings’PolicyofproceedsorKPIcategorieswereincludedinfigures.CategoriesInallcases,bondswereclassifiedas‘greenbuilding’alongsideotheruseofproceedsorKPIcategories.Residential•DetachedhouseTherewerenorelevantloansintheEFdatabaseissuedAttachedhousebyMDBs,soonlyMDBbondfiguresareshown.•Apartmentinlow-risebuildingApartmentinhigh-risebuildingInadditiontobonddata,figuresarealsoshown•PublicadministrationwhichcomedirectlyfromIFCandtheEBRDpubliclyEducationpublishedsources.Forexample,accordingtoIFCdata,•Information&communicationasof2019IFChadinvestedandmobilizednearly$4.4Datacenterbillioningreenbuildingssince2014.ThisincludedServices•Warehousingandsupportfor$387millionofdirectinvestmentfromIFCin2019.transportationactivitiesTheEBRDalsoreported€24billioningreenbuilding•Healthandsocialactivitiesprojects.Accommodationandfood•servicesAdditionally,ClimateAssessmentforFinancialRestaurantsInstitutionsdata—anonymizedinternalIFCclientdata•Administrationandofficesongreenbuildingprojects—isutilized.FiguresareWholesaleandretailbasedonIFCdefinedgreenbuildingcategories.To•Foodretailnote,coverageisnotcomplete,withabout70percentPublicassemblyofIFCclientsrespondingtotherelevantsurveys.•WatersupplyDataincludesboththetotalprojectsize,andthesize•Sewerage,wasteandoftheloandisbursedbytheIFCclienttotheprojectremediationdeveloper.Dataisavailablebrokenoutbythefiscal•Repair,industrialandotheryearbasedonthedatetheprojectwascreatedand•serviceactivitiesthefiscalyearbasedonthecommitmentdate(i.e.,•whenthebankfundedtheproject).Theformermetric•maybeseveralyearsaftertheprojectwasfunded•becausethebankreportsittotheIFCex-post,thusit•isusedforyearbreakdowns.••NewbuildingsExistingbuildingsandretrofitsPage135AnnexesTheIEAPAMSdatabasecoversgovernmentpoliciesindustry’category,whichincludes224policieswithissuedsince1975toreducegreenhousegasemissions,budgetvolume.However,thereare81policiesfromimproveenergyefficiency,andincreasedevelopmentrelevantsubsectorcategoriesthatareusedintheofrenewables.However,thereisnobudgetfinalfigures,including‘efficientnewbuilds,’‘energyinformationperpolicy,thusallanalysisisbasedonefficientretrofits,’‘heatpumps,’and‘appliances.’All81frequencies.FigureslookspecificallyatthePAMSpolicieswereissuedbyhigh-incomecountries.Likethe‘buildings’sector,whichincludesthebelowcategories.PAMSdatabase,policiesintheSustainabilityRecoveryMostofthesepoliciesrelatetobuildingenergycodes,Trackermaybeclassifiedundermultiple‘policytypes’.energylabels,andbuilding-relatedincentiveprograms.CarbonTrading–ComplianceMarketsThedatabaseincludescategorizationsfor‘policytype’(i.e.,regulation,codes/standards,grants,etc.),TheUNFCCCleanDevelopmentMechanism(CDM)howeverpolicytypesarenotmutuallyexclusive,anddatabasecontainsproject-leveldataonCDM-mostpoliciesarecategorizedasmultiplepolicytypes.authorizedcarbonissuances.ThedatabaseincludesWorldBankregionandincomeclassificationdatawereinformationontheyearofthefirstissuanceforeachappendedtoproduceregionalandincomebreakouts.project,andtotalcreditsareallottedtotheprojectHowever,manypoliciesareissuedbytheEU,whichoveritslifetime.Tonote,manyprojectshavemissingdoesnothaveaspecificincomeclassification,andthusinformationunderthe‘totalCERsissued’variable.theEUisnotincludedinanyincomebreakoutfigures.Thus,figuresonlyrepresenttotalsamongprojectswithcompleteinformationatthisvariable.IEAPAMSdatalimitationsalsoincludethefactthatcoverageofemerginganddevelopingeconomies’Projecttypeandsub-projecttypeinformationwasenergypoliciesislessdetailedcomparedtoOECDleveragedtonarrowdownrelevantgreenbuildingsmembercountries–duemostlytoresourceandandbuildingmaterialsprojects.Creditsissuedbytranslationissues.IEAhasalsocaveatedthatthereprojectslistedas‘airconditioning,’‘appliances,’‘districtaredisparitiesacrosstime,thusmakinghistoricalheating,’‘EEnewbuildings,’‘EEpublicbuildings,’comparisonslessreliable.‘geothermalheating,’‘lighting,’‘lighting&insulation&solar,’‘solarlamps,’and‘solarwaterheating’wereTheIEAhasalsopublishedaSustainableRecoveryincludinginthe‘greenbuilding’figures.CreditsissuedTracker.Thistrackershowspolicy-leveldata,byprojectslistedundertheprojecttype‘buildingincludingthetotalamountcommitted,notspent,viamaterials’and‘buildingmaterialsheat’wereincludedgovernmentpoliciesincludingtotalfiscalsupportinin‘buildingmaterials’figures.CreditsissuedbyprojectsresponsetoCOVID-19,economicrecoveryspending,listedas‘clinkerreplacement,’‘cementheat,’andgovernmentspendingonsustainablerecoveryas‘cement’wereincludedinthe‘cement’figures,whilehighlightedintheIEASustainableRecoveryPlan,projectslistedunder‘iron&steelheat’or‘iron&steel’andtotalmobilizedsustainablerecovery.Detailedwereincludedin‘iron&steel’figures.Finally,projectsdefinitionsofcategoriescanbefoundhere.Thisclassifiedunderthesubtype‘glass’or‘glassheat’weredatabaseincludesan‘energy-efficientbuildingsandincludedin‘glass’figures.NotethatprojectswerenotBUILDINGGREENPage136manuallyanalyzedtoisolatesolelythoseproducingmaterialsspecificallyforbuildings.Similarly,‘iron&steel’projectswerenotanalyzedtoisolateonlysteelprojects.CarbonTrading–VoluntaryMarketsTheBerkeleyCarbonCreditDataBasecontainsallcarbonoffsetprojectslistedbythefourmajorprojectregistries(CAR,ACR,VCS,GoldStandard).Thesefourregistriesrepresentmostofthetotalvoluntarymarket(andtonote,arealsoeligibletobeusedundertheQuebecandCaliforniacapandtradecomplianceprograms).TheBerkleydatabasecontainsprojectleveldata,eachwithtotalCERissuedandinformationonthefirstyearoftheproject.Firmsectorinformationwasleveragedtonarrowdownrelevantgreenbuildingsprojects.Creditsissuedin‘advancedrefrigerants,’‘lighting,’‘solarlighting,’‘solarwaterheaters,’aswellasmanuallyidentifiedgreenbuildingsprojectswithinthe‘energyefficiency’categoryandmanuallyidentifiedsteel,cement,andglassdecarbonizationinthe‘wasteheatrecovery’category,areincludedinfigures.Tonote,cookstovesandsolarcookstoveshavenotbeenincludedinthisanalysis.Totalcreditsareallottedtotheyearrecordedunderthe‘firstyearofproject’variable.Page137ReferencesReferencesAcemoglu,D.,Aghion,P.,BursztynL.,andHemous,D..2012.“TheBerkleyPublicPolicy.2022.“VoluntaryRegistryOffsetsDatabase.”EnvironmentandDirectedTechnicalChange.”AmericanEconomicAvailableat:https://gspp.berkeley.edu/research-and-impact/Review,102(1):131-66.DOI:10.1257/aer.102.1.131.centers/cepp/projects/berkeley-carbon-trading-project/offsets-database[AccessedJuly2022].AliH.2022.“Globalcementindustry’sGHGemission.”GlobalEfficiencyIntelligence.Availableat:https://www.BHP.2020.“Pathwaystodecarbonizationepisodetwo:steelmakingglobalefficiencyintel.com/new-blog/2021/global-cement-industry-technology.”Availableat:https://www.bhp.com/news/ghg-emissions[AccessedNovember16,2022].prospects/2020/11/pathways-to-decarbonisation-episode-two-steelmaking-technology[AccessedNovember,162022].Allman,E.andWon,J.2021.“CanESGdisclosureimproveinvestmentefficiency?”[online]blogs.worldbank.org.Availableat:https://Böhringer,C.,Peterson,S.,Rutherford,T.,Schneider,J.,Winkler.blogs.worldbank.org/allaboutfinance/can-esg-disclosure-improve-M.2021.“ClimatepoliciesafterParis:Pledge,TradeandRecycle:investment-efficiency#:~:text=Taken%20together%2C%20these%20Insightsfromthe36thEnergyModelingForumStudy(EMF36).”results%20suggest[AccessedNovember28,2022].EnergyEconomics,Volume103,105471,ISSN0140-9883,https://doi.org/10.1016/j.eneco.2021.105471.(https://www.sciencedirect.com/AmericanConcreteInstitute(ACI).2022.“TechnicalQuestions.science/article/pii/S0140988321003571).ACIcommittees,membership,andstaffhaveansweredcommonquestionsonavarietyofconcreterelatedtopics.”Availableat:BP.2023.“BPEnergyOutlook2023.”Availableat:https://www.https://www.concrete.org/tools/frequentlyaskedquestions.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/aspx?faqid=697#:~:text=Q.-,What%20is%20a%20natural%20energy-economics/energy-outlook/bp-energy-outlook-2023.pdfpozzolan%3F,its%20composition%20or%20physical%20state[AccessedJuly,252023].[AccessedNovember28,2022].Branger,F.,Quiron,P.,andChevallier,J.2017.“CarbonLeakageandArcelorMittal.2020.“ArcelorMittalsets2050groupcarbonemissionsCompetitivenessofCementandSteelIndustriesundertheEUETS:targetofnetzero.”ArcelorMittal.Availableat:https://corporate.MuchAdoaboutNothing.”TheEnergyJournal37(3):109–35.arcelormittal.com/media/press-releases/arcelormittal-sets-2050-group-carbon-emissions-target-of-net-zero[AccessedNovemberBusinessWire.2022.“KimcoRealtyPublishesSecondGreenBond16,2022].Report.”www.businesswire.com.Availableat:https://www.businesswire.com/news/home/20220815005071/en/Kimco-Bastos,P.andCastro,L.Mimeo.DiffusionofGreenTechnologies.Realty%C2%AE-Publishes-Second-Green-Bond-Report[AccessedEvidencefromConstructionValueChains.WorldBankGroup.November8,2022].WashingtonDC.Mimeo.C40Cities.2019.“BuildingandInfrastructureConsumptionBEIS,U.K.2020.“IndustrialHeatRecoverySupport(IHRS)Emissions.”NewYork:C40Cities.Availableat:https://www.c40.Programme.”Availableat:https://assets.publishing.service.gov.org/wp-content/uploads/2021/11/C40-2019-Annual-Report.pdfuk/government/uploads/system/uploads/attachment_data/[AccessedNovember29,2022].file/894592/1_Programme_Guidance_Note_PV8_June2020.pdf\[AccessedNovember16,2022].BUILDINGGREENPage138Cao,Y.2021.“HowFinancialMarketDevelopmentCanEncourageChinaBaowuGroup.2020.“ChinaBaowucorporatesocialInnovationActivity.”ResearchandPolicyBrief;No.52.WorldBank,responsibilityreport.”Availableat:https://res.baowugroup.com/Malaysia.attach/2021/10/29/1a2ad022172a46f6b2f31b5377a07ea5.pdf[AccessedNovember16,2022].Caramichael,J.andRapp,A.2022.“TheGreenCorporateBondIssuancePremium.”InternationalFinanceDiscussionPaper,(1346),Chinyama,M.P.2011.“AlternativeFuelsinCementManufacturing.”pp.1–46.doi:10.17016/ifdp.2022.1346.In(Ed.),AlternativeFuel.IntechOpen.https://doi.org/10.5772/22319.Castro,L.,Chepeliev,M.andMichelena,G.Mimeo.Cl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