Author: Fan, Ke
Title: Economic incentives of green buildings : focus study on the gross floor area concession scheme
Degree: Ph.D.
Year: 2018
Subject: Hong Kong Polytechnic University -- Dissertations
Sustainable development -- Economic aspects
Sustainable buildings
Pages: xx, 180 pages : color illustrations
Language: English
Abstract: Improving building energy efficiency has become an increasing priority for policy makers in many countries and regions. The involvement of the government in such initiative is recognized as an effective way to promote green buildings (GBs). Economic incentives, such as grants, the Gross Floor Area (GFA) Concession Scheme, and expedited permitting, are commonly used to address the significant barriers to GB development by increasing its associated monetary benefits and reducing its time costs. However, recent studies reveal some issues in the effectiveness and efficiency of these incentives. Some of these studies ask whether these economic incentives can benefit stakeholders, why some stakeholders participate in the incentive schemes, and why others refuse to participate in such schemes. Economic incentives are offered by the government and may be considered as contracts between the government and the stakeholders in the private sector. The costs and benefits for the stakeholders must be fully considered in order to make the economic incentives more effective and efficient. This study aims to analyze the costs and benefits, including the hidden ones (i.e., transaction costs or TCs), borne by the different stakeholders of GB economic incentives to further understand the mechanisms of these incentives and to explore how they can be better designed. The objectives of this study are as follows: - To review the economic incentives, (with particular focus on costs and benefits, including hidden transaction costs), for promoting green buildings; - To develop a cost-benefit analysis framework and establish an associated theoretical basis to explain the effectiveness of the GFA Concession scheme in Hong Kong; - To evaluate to what extent the costs and benefits for different stakeholders have been considered by the policy makers by measuring the costs and benefits associated with the mechanism of the GFA Concession Scheme; - To offer recommendations on how to better design economic incentives, specifically the GFA Concession Scheme. This study examines the GFA Concession Scheme, a popular economic incentive implemented in Hong Kong, as a case study. Expert interviews, analytical hierarchy process, and computational fluid dynamics simulation were used to collect and analyze data. A focus group forum was also organized to validate the data analysis results.
Three significant findings are obtained from the results. First, with regard to cost, the construction cost remains the major concern of the private sector and the actual costs are more important than the transaction costs. Among the actual benefits, energy savings and enhanced value of GBs are valued most by the participants of the GFA Concession Scheme. In terms of hidden benefits, the environmental benefits by following the Sustainable Building Design Guidelines reveal that building separations and setbacks can effectively remove pollutants and reduce the health risks for pedestrians. Second, TC is a significant cost component that affects the efficiency of the incentive scheme and must therefore not be ignored. Professionals bear much TC yet receive few benefits from the scheme. The findings indicate that: 1) additional knowledge, information, and practical experience that can be transferred across projects may help reduce the information searching cost and research/learning cost; and 2) the over-qualitative GB assessment method and incomplete government documents can increase the negotiation and approval cost. Third, the incentive scheme is offered by the government and may be regarded as the contract between the government and the stakeholders in the private sector. The government did not fully consider the costs and benefits for the stakeholders when designing the contract. The findings indicate that: 1) the incompleteness of the incentive scheme apparently affects the TCs and actual costs of stakeholders; 2) the residual rights of control belonging to the government make the developers minimize their ex ante investment, which reduces the efficiency of economic incentives and affects the promotion of GBs; and 3) for incentive schemes with many deficiencies, the short-term scheme is ideal for renegotiations yet discourages specific investments. A long-term incentive scheme must be implemented and regularly reviewed, and the stakeholders must be informed regarding the review time to reduce their investment risks. With regard to the current incentive level, 10% GFA concession is too much for GB promotion and increases the land value. Developers will only face losses when the scheme is terminated or when the incentive level is lowered. This finding supports the theory of the transitional gains trap. This study expands the framework of the traditional CBA by taking TCs and hidden benefits into account. This study also provides a new lens—the incomplete contract—to look at government incentives. An incomplete contract turns out to be an effective instrument for evaluating incentive schemes and provides policy makers with a novel perspective toward the incentive design. The findings also support the theory of transitional gains trap, which is usually ignored by policy makers. Three analytical frameworks, namely, TC theory, the incomplete contract theory, and the transitional gains trap, explain how the identified costs and benefits can change along with the mechanism of economic incentives, which in turn helps policy makers improve the incentive scheme and predict its corresponding impacts on the stakeholders in the private sector. This study not only fills the theoretical gap in analyzing the effectiveness and efficiency of economic incentives but also contributes to the analytical techniques of policy evaluation.
Access: open access

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Please use this identifier to cite or link to this item: https://theses.lib.polyu.edu.hk/handle/200/9385