This article is intended to serve as a discussion on how Hong Kong can transform its aged buildings to reach its carbon neutrality goal. In particular, a number of ways to overcome the cost obstacle are described, and a new methodology to certify zero-carbon-ready buildings is introduced.

 

Measuring green performance 

 

There is a famous saying: You can’t manage what you don’t measure. In Hong Kong, the most popular tool to measure the green performance of buildings is BEAM Plus – a rating scheme run by the Hong Kong Green Building Council (HKGBC) in collaboration with BEAM Society Ltd. While the scheme is highly popular in the new construction sector, there is significant resistance when it comes to promoting it to existing buildings, mainly because there is no incentive as strong as that present in the new building sector, which is the Buildings Department’s gross floor area (GFA) concessions. For new buildings, around 50% - 60% of private sector projects now join BEAM Plus every year. However, for existing buildings, BEAM Plus Existing Buildings—the equivalent scheme—only attracted a single-digit number of applications every year from 2012 to 2015. Table 1 below shows the enrolment statistics of BEAM Plus throughout the past 12 years.

 

Table 1: BEAM Plus enrolment statistics

 

Making the change

 

In 2016, the rating scheme BEAM Plus Existing Buildings was revised to enable ‘selective’ participation. In the past, it was mandatory to carry out assessments in all aspects, including management, site infrastructure, materials and waste, energy use, water use as well as indoor environmental quality (called‘Comprehensive Scheme’). Since 2016, participation in only one of the aspects have been allowed (called ‘Selective Scheme’). This successfully removed part of the barrier to participation, and the number of building intakes per year increased to more than 30 in both 2016 and 2017, as indicated in Table 1.

 

Scaling up the efforts

 

Nevertheless, the number of building intakes under BEAM Plus Existing Buildings fell again in 2018, with the number dropping to 15 that year. Realising that multi-ownership of residential buildings is a major barrier to participation, the HKGBC began turning to property management companies as the promotion target. By launching a new arrangement called ‘Volume Certification’, the HKGBC allows property management companies to submit their estates portfolios collectively for assessment. This is based on the premise that estates managed by the same property management company usually share the same management policy, methodology and practices. Therefore, they can be assessed as a whole under the Volume Certification arrangement of BEAM Plus. 

 

Initially, this arrangement was only applicable to the ‘Management’ aspect of the BEAM Plus assessment scope because it was more straightforward to apply the portfolio assessment method to property management. Later, with the discovery that the energy management practices of a portfolio of properties also exhibited similarities, the arrangement was extended to ‘Energy Use’. As a result of these efforts, the number of building intakes increased to more than 100 in 2019. From 2019 to 2022, the average number of building intakes per year was maintained at above 100, as can be calculated from Table 1, mainly because the Volume Certification arrangement has been well-received by the property management industry (see Figure 1).

 

Figure 1: Major developers committed large numbers of properties to the Volume Certification programme during the BEAM Plus Certification Ceremony 2019

 

A study about BEAM Plus Existing Buildings

 

In 2021, a group of scholars from Lingnan University, The Hong Kong Polytechnic University and Delft University of Technology in the Netherlands analysed the database of BEAM Plus-certified existing buildings and compiled a paper¹ titled ‘Transaction Cost and Agency Perspectives on Eco-certification of Existing Buildings: A Study of Hong Kong’. The present author has studied this paper and would like to summarise the study findings as follows:

 

• 80% of the BEAM Plus Existing Buildings (EB) certificates were obtained via the Selective Scheme.
• 89% of Selective Scheme buildings opted for the ‘Management’ aspect.
• ‘Materials and Waste’ as well as ‘Indoor Environmental Quality’ were the two most unpopular aspects of the Selective Scheme.
• 85% of BEAM Plus Existing Buildings certificates were at the Top Grade as far as the Normal route (non-Volume Certification) was concerned.
• If Volume Certification route was chosen, 93% were at the 3rd Grade (‘Good’).
• Private sector buildings tended to receive lower grades than public buildings.
• 73% of certified existing buildings were single-owned.
• 70% of them were commercial properties. 15% were residential.
• 53% of them were commercial properties aged 21-40 years.
• 39% of certified existing buildings properties were from Sun Hung Kai & Co. Ltd via the Volume Certification route.
• 26% were from Link REIT via the Volume Certification route.
• 7% were from Swire Properties via the Normal route.
• Swire Properties, Hongkong Land and the HKSAR Government were the three major players of the Comprehensive (namely, no-selective) Scheme under BEAM Plus Existing Buildings.

 

The findings reveal that only large and well-organised developers can make it through the rigorous assessment of the Comprehensive Scheme under BEAM Plus Existing Buildings. Besides, it was found that building age appeared NOT to be a major barrier to the attainment of BEAM Plus certification. Instead, the true barrier is multi-ownership of certain types of buildings. In Hong Kong, these would mean most of the residential buildings as well as some of the commercial/industrial buildings. This is due to the difficulties owners have in reaching consensus about whether to participate in green building rating. As mentioned above, to overcome this obstacle, it would be necessary for property management companies (not the multiple owners) to take the lead in making such a move. The success of the Volume Certification arrangement attests to the above.

 

 

To overcome the obstacle of multi-ownership, it is necessary for property management companies to take the lead in making a move on the green transformation of existing buildings.

 

 

Utilising private companies to overcome cost obstacle

 

With property management companies taking the lead, the previous multi-ownership problem of residential buildings appears to have been solved at least partly. Nevertheless, there still remains a cost problem, namely, how to obtain initial funding to enable the green retrofits to kick off. Figures 2 and 3 below show two examples of retrofit items, both requiring substantial expenditure. 

 

Figure 2: Green roof retrofit can mitigate urban heat island

 

Figure 3: Lighting upgrade is highly popular as it has a short payback period

 

In one of our project cases, the property management company overcame this difficulty by extending the programme of retrofit so that the amount of expenditure per year could be lowered. The company slightly raised the management fee some years ago to create a sinking fund. When the fund size reached a sufficient level, the green retrofit programme could begin. Once part of the equipment had been replaced, savings in electricity bills began to be realised. The owners’ corporation utilised the savings in electricity to pay the costs of retrofit in subsequent years. This was essentially a gainsharing arrangement with the property management company. In this way, a multi-year retrofit programme could be completed with minimal capital investment.

 

In another case, the owner of a private commercial building initiated a chiller plant replacement project using the buildoperate-transfer (BOT) model. It partnered with an energy performance contracting (EPC) company that was willing to fund the capital expenditures of replacing the chiller plant. Upon replacement, the contracting company would own and operate the plant for a definite number of years while the building owner would pay monthly fees to the company to enjoy the air-conditioning service. This is another way to overcome the initial cost barrier. In addition, the building owner was willing to procure Renewable Energy Certificates from the power company to offset the residual carbon emissions from the improved plant. As a result, the plant would become virtually net zero carbon upon replacement.

 

 

Building owners have started to implement innovative funding models such as gainsharing, energy performance contracting and build-operate-transfer to minimise the need to incur large amounts of capital expenditure for green retrofits.

 

 

Riding on public subsidies

 

Besides the funding methods above, the two power companies in Hong Kong have subsidy programmes, namely CLP Eco Building Fund and HK Electric Smart Power Building Fund, to help fund part of the expenses for upgrading building services equipment to a higher energy standard. They also run the Feed-in Tariff Scheme to encourage the private sector to invest in the retrofit of renewable energy installations (see Figure 4) as the power generated can be sold to power companies at a rate higher than the normal electricity tariff to help recover the cost of investment.

 

Figure 4: Feed-in tariff enables photovoltaic (PV) panel retrofits on high-rise buildings

 

It should be noted that with the presence of Feed-in Tariff arrangement, a large number of solar panel contractors have been established in Hong Kong. Some of these contractors are willing to offer supply-and-installation services on a zero-initial-cost basis. This is because they allow the building owners to commit to a gainsharing arrangement—that is to say, the owners will use the proceeds from selling the electricity to fund the monthly instalments to pay back the contractor. As a result, building owners can procure solar panel systems virtually free of charge.

 

Separately, the Environmental Protection Department (EPD) is running the EV-charging at Home Subsidy Scheme to subsidise the installation of electric vehicle (EV) charging-enabling infrastructure (see Figure 5) in car parks of existing private residential buildings. As transport is an important source of carbon emissions in Hong Kong, this subsidy scheme also helps to upgrade the building stock of Hong Kong to make them zero-carbon ready.

Figure 5: EPD’s subsidy facilitates EV charger retrofit at private car parks

 

For non-profit making organisations such as NGOs and schools, they may also tap into a number of charities and trusts such as the one run by the Hong Kong Jockey Club (HKJC), to upgrade their buildings to a higher environmental standard. For example, with funding support from HKJC, from 2018 to 2019, the HKGBC helped four NGOs explore the potentials of upgrading six of their aged buildings to meet the BEAM Plus standard; whereas from 2020 to 2023, under a similar funding arrangement, the HKGBC together with Business Environment Council and BEAM Society Ltd are helping more than 120 existing primary and secondary schools to implement school improvement works with a view to obtaining at least the basic ‘Green’ grade under the BEAM Plus Existing Schools scheme.

 

Opportunities from property management contract renewal

 

Besides relying on public subsidies, owners of multi-owned properties may make use of the opportunities presented by the renewal of property management contracts. The duration of these contracts may range from two to five years and at the end of such a period, tenders would be invited from the open market or from a selected group of qualified property service providers. Owing to the competitive nature of the bidding exercise, many of these service providers are willing to include in their tenders a wide range of value-added services, which are usually free of charge. Environmental improvements are definitely one of the value-added services to be provided. Examples include:

 

• Energy audit services;
• Carbon audit services;
• Waste audit services;
• Building inspection services to identify environmental improvement opportunities;
• Helping the Incorporated Owners (IOs) to apply for various types of subsidies related to energy-saving or equipment retrofit, such as the Eco Building Fund, HK Electric Smart Power Building Fund and EPD’s EV Charging at Home subsidy;
• Compiling technical proposals for the IOs to apply for feed-in tariff from the power companies;
• Helping the IOs to make application to the EPD to obtain designated waste collection bags free of charge.

 

Riding on green finance

 

In the commercial sector, large developers or building owners often ride on green finance to obtain the necessary funding to upgrade their buildings. Such green finance can be in the form of project-specific green loans, general sustainability-linked loans, or green bonds placed on the open market for institutional investors to buy. In particular, sustainability-linked loans are loans where a portion of the interest rate is tied to the borrower's ability to meet sustainability targets. A sustainability-linked loan incentivises companies to achieve environmental targets so that they can secure a lower interest rate.

To increase transparency and enable consistent policy making on green finance, Hong Kong’s Green and Sustainable Finance Cross-Agency Steering Group is examining the possibility of developing a green classification framework for adoption in the local market, which will facilitate easy navigation between Chinese and European taxonomies. The Hong Kong Monetary Authority (HKMA) commissioned an external consultant to develop a prototype framework that would demonstrate their approach and facilitate stakeholders’ discussion. In late May 2023, the HKMA released a discussion paper² titled ‘Prototype of a Green Classification Framework for Hong Kong’ to outline their current proposal on local green classification framework and to gather feedback from stakeholders on its development and applications. Building owners who are regular users of green finance should pay attention to the development of this particular instrument as such a taxonomy would define what types of building upgrading projects are eligible for classification as ‘green’. It is expected that minor building upgrades without significant energy saving achievements would unlikely be eligible for green finance.

 

Measuring progress

 

With the cost obstacles overcome and investment underway for building retrofits, it is necessary to carry out recognised measurements to know whether one has achieved meaningful progress in terms of carbon neutrality. Although energy is part of the evaluation aspect within BEAM Plus, to pin-point progress towards carbon neutrality, the HKGBC has launched the Zero-Carbon-Ready Building Certification Scheme to enable building owners to benchmark their carbon reduction achievements. To truly reflect the efforts in reducing energy consumption in a building, EUI will be used as a performance indicator in the scheme. Initially, the scheme focuses more on commercial buildings as their energy use is one of the major causes of Hong Kong’s carbon emissions.

 

The HKGBC’s energy performance calculator rates a building on four levels, namely ‘Low’, ‘Extra Low’, ‘Super Low’ and ‘Zero-Carbon-Ready’ level, or Level 1 to Level 4 Improvement. Figure 6 below indicates the EUI of the four performance levels for commercial buildings. When a building achieves the highest rating, it can be designated as a Zero-Carbon-Ready building.

 

Figure 6: Suggested trajectory for commercial buildings to achieve the Zero-Carbon-Ready rating by 2050

 

Building owners are encouraged to set target towards being ‘Zero-Carbon-Ready’. By using the HKGBC’s energy performance calculator, a building’s energy efficiency can be rated at one of the four ratings. Based on that, a pathway can be set towards ‘Zero-Carbon-Ready’ by 2050 or earlier.

 

In particular, building owners can apply for two types of certification under the Scheme, namely Energy Performance Certification, and Target Setting and Progress Certification.

 

Energy Performance Certification is a certification that rates the energy efficiency of buildings. The HKGBC’s energy performance calculator can be used to calculate and rate the energy performance of the building under the four ratings from ‘Low’ to ‘Zero-Carbon-Ready’ as mentioned above.

 

Regarding Target Setting and Progress Certification, there are two types of certificates that one can apply. They are: (i) Target Setting Certification, and (ii) Progress Certification. Under (i), a building will be awarded a certificate if it progressively achieves the four levels of set targets in certain years. Under (ii), a building will be awarded a certificate in the year the reduction target is achieved. Figure 7 illustrates the overall concept of this recognition scheme.

 

Figure 7: Concepts of zero-carbon-ready building certification

 

Ultimate net zero achievement

 

With the advancement of renewable technologies, net zero energy buildings are becoming more feasible for certain types of buildings in Hong Kong. To recognise building owners’ efforts for net zero energy in their buildings, the HKGBC is, at the time when this article was being written, working on a certification scheme for such buildings in a local context. It is expected that buildings may be awarded a certificate if their annual on-site renewable energy generation is equal to or more than their annual energy consumption. Renewable energy may be directly used within a building, stored and used within a building, or fed back to the electricity grid.

 

It is also expected that a higher level of certificate may be obtainable in the following manner: Basically, the prerequisite is achieving the net-zero-energy status as mentioned above. In addition, EITHER no attributable carbon credits from on-site renewable energy generation are sold to the power company via feed-in tariff, OR when attributable carbon credits from on-site renewable energy generation are sold to the power company via feed-in tariff, an equivalent amount of on-site renewable energy generated shall be purchased via Renewable Energy Certificates from the power company. This arrangement avoids duplicate accounting of carbon reduction efforts on the power company’s side and the building owner’s side.

 

Further enforcement suggestions

 

A great portion of the above discussion concerns the voluntary side of the measures to help decarbonise our aged buildings. It is well understood, however, that the effect of voluntary measures would be limited. To tackle those difficult situations where owners are unwilling to upgrade their buildings despite the availability of various tools, it is recommended that at some point in the future, the current legal and administrative measures should be reviewed and revised to a higher standard. For example, the government may consider amending the land grant clauses, the deed of mutual covenant guidelines, the Building Management Ordinance and/or the Buildings Ordinance and its subsidiary regulations, to name just a few. These instruments can be used to define the owners’ responsibilities for regular maintenance and environmental upkeep of their buildings; and the owners may be required to set aside a reasonable percentage of the management fee to form the buildings’ renovation reserve funds to pay for future large-scale maintenance and environmental upgrading works. For example, when new kinds of refrigerants are available, the building owners would be obliged to upgrade their air-conditioning equipment in order to further protect the environment; or when new waste handling legislation is rolled out, the owners would be obliged to set up new waste sorting and recycling facilities to suit the new legislation. Many of these upgrades cannot be implemented without the presence of a sinking fund to support the capital expenditure.

 

 

Legal instruments can be used to define the owners’ responsibilities for regular maintenance and environmental upkeep of their buildings; and the owners may be required to set aside a percentage of management fee to form the buildings’ renovation reserve funds.

 

 

Conclusion

 

To summarise, the multi-ownership of many local buildings and the difficulties in obtaining initial funds are two major barriers to transforming existing buildings to become green. By means of the BEAM Plus Volume Certification programme that targets property management companies instead of multiple building owners, the first barrier can be partly overcome. As regards the second barrier, property management companies and building owners have started to implement innovative funding models such as gainsharing, energy performance contracting, build-operate-transfer, etc. in order to minimise the need to incur large amounts of capital expenditure for the green retrofits. To help building owners set realistic targets to decarbonise their buildings, the HKGBC has launched a zero-carbon-ready building certification programme. Building owners are encouraged to take part in it to help Hong Kong achieve its carbon neutrality target. The HKMA has also developed a prototype of a green finance taxonomy in draft form in order to help Hong Kong companies define what kinds of projects are eligible for green finance. It is believed that with the concerted efforts of building owners, property management companies, EPC companies, power companies, the HKGBC as well as the finance industry, Hong Kong would be able to find a way to decarbonise its huge stock of existing buildings.