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IFC on 'The cost of building green in emerging markets'

IFC on 'The cost of building green in emerging markets'

International Finance Corporation (IFC)—a sister organization of the World Bank and member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets

International Finance Corporation, IFC, Investment, Cost, Green buildings, Market

The cost of building green varies across locations, driven by climatic conditions, cost, and availability of building materials as well as energy- and water -efficient equipment, and availability of technical expertise in green construction, among other factors. It is, therefore, difficult to definitively say what it costs to build green across emerging markets. The EDGE software is calibrated to take local conditions into account, including climate and local industry costs and practice. The software allows its users to apply different green systems, solutions, and design techniques and estimate the associated incremental capital costs and the projected payback periods. The examples below from three continents provide anecdotal evidence that building green in emerging markets can be affordable even for low-income housing.

In South Africa, IFC client International Housing Solutions (IHS), a low-income housing developer, reports the additional cost to build in accordance with the EDGE standard to be about $270 per housing unit. This represents less than 1 percent of the construction cost, yielding an internal rate of return between 20 percent and 30 percent. IHS green homes demonstrated annual utility savings equal to one month’s rent compared to IHS non-green development and gave the company a competitive advantage in the market. Having seen that the business benefits outweigh the additional cost of building green, IHS exceeded its original target for green construction by 21 percent and has registered or certified close to 7,000 units with EDGE. Other examples of low-income housing developers in Africa that have embraced the business case for green construction include EchoStone in Nigeria.

In Mexico, IFC client Vinte builds affordable communities that include hospitals and health clinics, parks, and schools. Vinte’s homes, with a starting price equivalent to $20,000, feature solar panels, modern induction stoves, smart meters, and other green features. The cost of adding green technologies and EDGE certification is about $300 per home. Thousands of EDGE-certified homes by Vinte will enter the market in early 2020. Vinte’s commitment to sustainability has placed the company on Fortune Magazine’s 2019 list of companies that change the world. In Indonesia, the EDGE-certified development Citra Maja Raya reported the additional cost of green measures to be 4.7 percent, with a payback period of 1.8 years. The green measures included optimum window sizing, external shading, insulation of roof and external walls, natural ventilation, and energy- and waterefficient systems. The utility savings per year amount to 30 percent. Some residents reported that their monthly utility bill decreased from an equivalent of $55 in previous non-green housing to $14.

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