G20 Energy Efficiency Investment Toolkit

AcknowledgementsAcknowledgementsThe work of the G20 Energy Efficiency Finance Task Group has been a collaborative effort with thefundamental support and committed engagement from its 15 participating country members (Australia,Argentina, Brazil, Canada, China, European Union, France, Germany, India, Mexico, South Africa, SouthKorea, Russia, United States and UK) under the leadership of its co-chairs France and Mexico. As a keywork stream under the G20 Energy Efficiency Action Plan (2014), and with renewed support from theG20 Energy Efficiency Leading programme (2016), EEFTG has benefitted from the visionary direction ofits co-chairs France and Mexico and the strong support of the highly committed and resourceful teamsat IPEEC, led by Benoît Lebot, and at IEA, led by Brian Motherway.The daily operation of EEFTG and its technical activities are managed, on behalf of the Co-chairs andthe Steering Group, by a small secretariat formed of key individuals selected for their specific technicalinput and relevant networks that they brought to EEFTG. The members of the EEFTG Secretariat are: MrSantiago Creuheras Díaz (Ministry of Energy, Mexico), Ms Rocio Palacios Espinosa (Ministry of Energy,Mexico); Ms Clementine Renevier (Ministry of Ecology, Sustainable Development and Energy, France);Ms Ailin Huang (IPEEC); Ms. Annie Degen-Neuville (UNEP FI); and - in the role of EEFTG rapporteur andcontent lead - Mr Peter Sweatman (Climate Strategy & Partners). Special mention is reserved for TylerBryant and Sam Thomas (IEA), Sarah Challe and Martin Schoenberg (UNEP FI), Tatiana Bosteels (forIIGCC) and Mauricio Yrivarren (Climate Strategy), in addition to the EEFTG Secretariat, for their diligentsupport of various aspects of the co-ordination, organisation and drafting of this Toolkit.The structure of this Toolkit was presented for comments to the G20 Energy Sustainability WorkingGroup (ESWG) in Berlin and G20 countries were offered an opportunity to review and comment on itscontents. Drafting was coordinated by the EEFTG Secretariat and co-delivered by the IEA, UNEP FI andthe IPEEC with crucial support, direct inputs and comments from very many International Organizationsand collaborators. These entities performed a variety of roles including content provision and review,expert support, convening and hosting EEFTG meetings, workshop coordination, identifying experts,resourcing and networking on EEFTG’s behalf. In 2017, EEFTG particularly thanks:Page 2Alliance to Save Energy, French Agency for Environment and Energy Management (ADEME), ), BaselAgency for Sustainable Energy (BASE), Bloomberg New Energy Finance (BNEF), CDP (Carbon DisclosureProject), CERES Investor Network on Climate Risk (INCR), China Quality Certification Centre (CQC),Clean Energy Ministerial/ Clean Energy Solution Center (CEM/ CESC), ClimateWorks Foundation,Climate Advisors, International Energy Charter, Energy Efficiency Finance Institutions Group (EEFIG),Energy Foundation China, European Bank for Reconstruction and Development (EBRD), EuropeanMortgage Federation / European Covered Bond Council (EMF/ECBC), Global Investor Coalition (GIC),International Energy Agency (IEA), Institute for Energy Efficiency in Production (EEP) InternationalEnergy Forum (IEF), International Institute for Sustainable Development (IISD), Institutional InvestorsGroup on Climate Change (IIGCC), International Partnership for Energy Efficiency Cooperation(IPEEC), Investor Group on Climate Change (IGCC) National Development and Reform Commission(NDRC), Latin American Energy Association (OLADE), Organisation for Economic Cooperation andDevelopment (OECD), Principles for Responsible Investment (PRI), Sustainable Energy For All (SE4All),UN Environment, United Nations Environment Finance Initiative (UNEP FI), UNEP FI Principles forSustainable Insurance (PSI), UN Environment Inquiry into the Design of a Sustainable Financial System,and the World Bank Group.EEFTG wishes to acknowledge all of the hard work and dedication from many individuals and institutionswho have helped to deliver this Toolkit and key G20 energy efficiency investment outcomes.

Table of contentsTable of contentsExecutive Summary1Acknowledgements2G20 Energy Efficiency Investment Toolkit4Summary for Policymakers6I. Energy Efficiency Investments: Assessment by Sector and Region15II. G20 Energy Efficiency Investment Policy Framework22III. G20 Energy Efficiency Investment Toolkit:Engaging with Banks, Institutional Investors and Insurers311.2.3.Role of Private Sector Banks: Commitments to ActionsRole of Institutional Investors: Building on the G20 EnergyEfficiency Investor StatementRole of Insurance Companies: Catalysing energy efficiency solutions andenabling market development through new insurance products and services344151IV. Role of Public Finance in G20 Energy Efficiency Investment60Annexes67Voluntary Energy Efficiency Investment Principles for G20 ParticipatingCountries – Implementation, good practice cases and voluntary optionsEEFTG BackgroundAcronyms and abbreviationsBibliography68767881Page 3

G20 Energy Efficiency investent ToolkitG20 Energy Efficiency Investment ToolkitEnergy efficiency is a long-term priority for the G20 Leadership from the world’s 20 leading economiesis critical to double the global rate of improvement in energy efficiency1 and to better understand andhelp fill the annual energy efficiency investment gap. Increased G20 collaboration on energy efficiencycan drive economic activity, growth and productivity gains, strengthen energy security and improveenvironmental outcomes. Moreover, since its founding the G20 has offered a strong platform formembers to share their accumulated experiences and good practices to accelerate energy efficiencyimprovements globally.In July 2016 in Beijing, China, G20 Energy Ministers welcomed the G20 Energy Efficiency LeadingProgramme (EELP), the G20’s first long-term framework for energy efficiency. The EELP builds on thesuccess of the G20 Energy Efficiency Action Plan endorsed by G20 Leaders in November 2014.G20 EELP calls for enhanced capital flows into energy efficiency investments As the world’s major economies, the economically attractive opportunity to invest in energyefficiency creates market demand for finance in G20 members that requires enhanced capitalflows into energy efficiency investments. Like all programmes, energy efficiency needs to be adequately resourced by dedicated human,institutional and financial resources, to allow its deployment at all levels of national and localeconomies. Support is needed to: i) create an enabling national policy environment; and ii)generate direct investments by public and/or private stakeholders into energy efficiencysolutions, systems and technologies. G20 members will work to significantly improve energy-efficient technologies and equipmentcoverage, as well as effectively work to enhance capacity building and the policy and regulatoryenvironment for energy efficiency investments, taking into account different national realities,capabilities and levels of development within countries, and respecting national policies andpriorities.In September 2016, G20 Leaders encouraged members to significantly improve energy efficiency,based on their specific needs and national circumstances, and G20 Energy Ministers recognised theparticular opportunity provided by voluntary collaboration to scale-up energy efficiency investment,since financing institutions within the G20 represent the majority of the global financial system. Thisheightened interest in increasing the rate of deployment of energy efficiency can enhance productivity,improve energy security and enable low carbon growth. While this will require new core energyefficiency policies, it also requires a review of existing energy architecture to better integrate energyefficiency considerations and a market transformation that supports and facilitates energy efficiencyinvestments and expands financing toward energy efficiency-backed products.Page 4The structure of this Toolkit was presented for comments to the G20 Energy Sustainability WorkingGroup (ESWG) in Berlin and G20 countries were subsequently offered an opportunity to review andcomment on its contents. Drafting was coordinated by the EEFTG and co-delivered by the InternationalEnergy Agency (IEA), United Nations Environment Programme - Finance Initiative (UNEP FI) and IPEECwith direct inputs and comments from other IOs and other G20 work streams, where relevant. Thevoluntary options presented in this Toolkit comprise tools, actions and case studies, that togetherpresent an integrated and sustainable approach towards enhancing capital flows to energy efficiency,and can be taken up by G20 countries voluntarily and in accordance with their national circumstancesand priorities and is divided to four sections:1One of the three pillars defined by SEforAll to deliver UN SDG #7, SEforALL. (2015). SEforALL provides “strong globalframework” for energy SDG – Ban Ki-moon. Retrieved from http://www.se4all.org/2015 09 17 sdg-ban-ki-moonSEforALL. (2015). Our Value Added. Retrieved from http://www.se4all.org/our-vision our-value-added

G20 Energy Efficiency investent Toolkit1234An assessment of current energy efficiency investment by sector and region Global investment in energy efficiency was estimated to be USD 221 billion in 2015, an annualincrease of 6%, with over half of this investment occurring in the buildings sector. Section 1 of the Toolkit considers energy intensity improvement trends and geographicalcontexts to frame incremental energy efficiency investment needs and make the case foradditional attention from G20 policy makers and markets.Showcase of good practice exchanges on (i) enabling national policy framework design and (ii)implementation of the voluntary Energy Efficiency Investment Principles for G20 participatingcountries An enabling national policy framework is critical to mobilise and effectively channel finance toenergy efficiency investments. The Voluntary Energy Efficiency Investment Principles (VEEIP) forG20 participating countries offer a guiding framework for designing and implementing policiesthat stimulate both the demand for and supply of energy efficiency investments and finance. Section 2 of the Toolkit identifies gaps and bottlenecks for energy efficiency investment growth,and provides relevant experiences and case studies to address these through an extensivereview of existing policies and policy databases through the lens of the VEEIP.Report on “best in class” instruments and approaches to encourage and increase energy efficiencyinvestments among different types of private sector financial institutions (banks, long-terminvestors and insurance companies) Private sector banks, long-term investors and insurance companies are gradually making energyefficiency investments a focus area. This is demonstrated by the energy efficiency declarationsand commitments made by 122 banks from 42 countries and the managers of more thanUSD 4 trillion of long-term investment funds, and the collaboration under the Principles forSustainable Insurance (PSI). Insurance companies also have a unique facilitating role throughtargeted energy efficiency insurance products and services improving the risk profiles ofinvestments. Section 3 of the Toolkit presents existing financial instruments and approaches that can beapplied by different types of private financial institutions to scale up affordable energy efficiencyfinancing across different sectors and regions. The financial instruments and approachesselected have been identified as “best in class” based on results from a survey of banks andthe work of UNEP FI, Principles for Responsible Investment (PRI), the Global Investor Coalition(GIC) and PSI.Facilitate consensus building among public banks and development institutions around “best inclass” instruments and approaches to scaling-up their energy efficiency activities International financial institutions, public banks and multilateral development banks areprincipals in the promotion of energy efficiency finance best practices, energy efficiencyinvestments and new instruments that can crowd-in other sources and help fill the energyefficiency investment gap.Section 4 of the Toolkit presents a joint G20 statement endorsed by leading public financialinstitutions identifying key areas and collaborative activities that they will undertake to scaleup energy efficiency. These include the deployment of technical and project developmentassistance, alongside targeted energy efficiency credit lines, as well as opportunities to leverretail distribution channels and build capacity and investment activities among local partnerfinancial institutions, taking into consideration countries’ national circumstances and priorities.Page 5

Summary for policy makersSummary for Policy MakersThe G20 Energy Efficiency Investment Toolkitframes the critical challenge of scaling-up energyefficiency investments in a way that is helpfulto policy makers by sorting and simplifyingthese otherwise complex issues into insightsand actionable voluntary options for policymakers drawing on the experiences of privateand public financial institutions. This G20Toolkit recognises that joint actions are requiredfrom multiple stakeholders (policy makers,regulators, banks, long-term investors, insurancecompanies and public financial institutions). TheToolkit also recognises that to deliver multiplebenefits of energy efficiency to G20 economies,energy efficiency investment needs to increase(independent of source), and energy efficiencyfinancing is a mechanism (means to an end) that,if adequately deployed, can rapidly acceleratethe growth of energy efficient business modelsand therefore enable the scaling-up of energyefficiency investments in buildings, transport andindustry where hosts do not have easy access tothe necessary investment capital.Page 6A pattern that emerges independently in eachsection of this Toolkit is the division of investmentsand policies into three clusters: “core”, “integrated”and “inefficient” (or hidden). Energy efficiency is“core” to certain pure energy efficiency investors,ESCOs, specific energy efficiency standards,programmes or policies, targeted bank lendingfacilities and energy savings insurance products.Yet energy efficiency is also “integrated” andembedded in green real estate, sustainableinvestments, green and climate policies, investorESG or SRI commitments and bank safeguardprocedures. However, there are large clustersof on-going incremental investments and policyarenas where energy efficiency is not a primaryconsideration, but which have implications forenergy efficiency outcomes: For example thelock-in of “inefficiency” through non-compliantbuildings, plant and vehicles, energy pricesubsidies, finance instruments and asset designswhich do not consider energy performance.While there is no precise indicator of currenttrends across multiple sectors in multiplecountries, “core” energy efficiency investmentsappear to represent “single digit” percentagesof total investments (e.g. ESCO markets arejust 10% of total energy efficiency investments,nearly zero-energy buildings a small % of totalglobal building investment), whereas incrementalenergy efficiency investment is integrated orembedded in around 30% of assets (dependingon region and sector). However, by far the largestproportion of assets (60%) are either inefficientor do not visibly consider energy efficiency. Thisprovides a strong potential to deliver improvedeconomic, social and environmental outcomes.This Toolkit uniquely draws together learningsfrom multiple stakeholders engaged in energyefficiency investment, financing and policymaking to provide a single framework ofreference for G20 policy makers and marketparticipants to help deliver the multiple benefitsavailable through the scaling-up of energyefficiency investments. In broad terms, theresults from “core” energy efficiency policies andinvestments provide the necessary evidence andtools for countries to strengthen their energyefficiency policy framework and to mainstream“integrated” and “inefficient” segments, and forfinancial institutions to accelerate the mainstreamintegration of explicit energy efficiency criteriathrough a combination of standards, regulations,tools and requirements. The evidence from“core” energy efficiency policies and investmentsalso offers a strong economic rationale to extendpolicy compliance and implementation resourcesto ensure that the majority of global infrastructureand asset investments are energy efficient.Each section of this Toolkit provides insights andanalysis from the best available data on energyefficiency investments and policies. Through thisanalysis, the Toolkit identifies common threads,best practices and delivery tools for G20 policymakers and financial institutions. A selection ofover 30 best-practice case studies is provided in aseparate annex to this Toolkit.Conclusion: The collaborative framework provided by this G20 Energy Efficiency Investment Toolkitoffers the right flexible and voluntary architecture to continue the joint development and sharing ofG20 energy efficiency policy, investment and financing tools and best practices to enhance capitalflows to and scale-up energy efficiency investments. Work in the framework of this Toolkit willstrengthen G20 collaboration and provide periodic updates for country input and review.

Summary for policy makersG20 Energy Efficiency Investment TrendsThe USD 221 billion global market of identifiableenergy efficiency investments are focused in largeG20 economies which have a combination of thenecessary policies, income levels, institutionalsupport and market sizes to stimulate and fosterthem. The U.S., E.U. and China represented nearly70% of global (core and integrated) incrementalinvestments in energy efficiency in 2015.In the EU, the buildings sector accounted for over80% of total efficiency investments (with over 90%in Germany, UK and France). In the U.S., buildingsrepresented over two-thirds of energy efficiencyinvestments and in Japan energy efficiencyinvestments in buildings was over half of the total;yet in India, buildings represented just 19% of totalinvestment, with 34% in China, and 15% in the restof the world. Emerging economies had a larger shareof efficiency investment in industry and transportsectors, with China, for instance, accounting forover 40% of global energy efficiency investment inlight-duty vehicles (LDVs).The largest source of “core” energy efficiencyinvestments is the market for energy performancecontracts (EPCs) which totalled USD 24 billion in20152. EPCs, however, accounted for just 10% ofthe larger “integrated” energy efficiency investmentmarket which, depending on the sector andregion, is ca. 30% or less of total identifiable assetinvestments.While the global energy intensity improvementof 1.8% in 2015 was three times greater than thedecadal annual average of 0.6%, between 2003and 2013, G20 energy intensity improvement mustaccelerate significantly. The IEA notes the needfor it to further increase to 2.6% immediately andcontinue improvement at this rate until 2030, whichis broadly in line with SEforAll’s call to double therate of global energy efficiency improvement. Thisimplies a considerable increase in energy efficiencyinvestments which, at a time of limited publicinvestment capacity, requires a historic mobilisationof capital from public and private sector financialinstitutions. An enabling policy framework, whichseeks to embed energy efficiency across multipleinvestment segments, is crucial to achieving this.However, absolute incremental investment levelscan follow a similar path as total investments inrenewables, where steep declines in the cost ofrenewables technologies have led to decreasinginvestment levels per MWh but greater deploymentof total renewables capacity. As energy efficiencysupply chains adjust, technological improvementwill accelerate and economies of scale will reducecosts, lowering the cost of delivery of energysavings and incremental investment needs. This isan effect that is already being observed in some keyproduct categories, such as LEDs, and was driven byenabling policies which integrate support for energyefficiency investments across target sectors.Most investments in energy efficiency occurwithout using specialised energy efficiencyfinancing mechanisms, such as the self-financingof efficient air conditioners, energy renovations,industrial retrofits or electric vehicles, and cannotbe measured by observing energy efficiency financeflows. This also means that current energy efficiencyinvestment is supported by the existing sources offinance available to investors. Yet, where energyefficiency alternatives are only attractive whenobserved over the asset’s lifetime, new tailoredlow-cost finance mechanisms, supportive policiesand business models which make them visible andaccessible to asset owners, are critical to enablethese owners to make the energy efficient choiceover the “cheap” one.Split incentives, poorly understood performancerisks and the disaggregated scale of most energyefficiency investments hamper demand for theseinvestments within the limits of hanisms that reduce transaction costs, likesmart metering, on-bill finance, energy savingsinsurance and cost reductions in the underlyingenergy efficient technologies can help overcomethese barriers.The fast growing debt market for green bondsprovides a useful example: While in 2015, greenbonds financed just USD 8.2 billion of energyefficiency investments (less than 5% of the totalenergy efficiency market), banks were able to havesignificantly improved access to this new sourceof finance if they more aggressively identified andtagged the green characteristics of the assets ontheir balance sheets. Regulations which support thegreater visibility of bank assets’ energy performancewill help

The G20 Energy Efficiency Investment Toolkit is the product of the collaborative work of 15 participating country members of the G20’s Energy Efficiency Finance Task Group, co-chaired and coordinated by France and Mexico. This toolkit is publishe