Incentivizing green building technology: A financial perspective on sustainable development in India

1.1 Research motivation

This research review on green building incentive in India. A life cycle cost method results from the long-term advantages of green building over conventional construction. A flexible design, such incremental tax rebates, can motivate stakeholders to construct and run environmentally friendly businesses. This method lowers the initial cost of green building projects and promotes sustainable habits more successfully. The study focuses on existing green financial incentive given by central government and state government separately. The policymakers can make an analysis in terms of cost, environmental clearance, and easy access for the construction of green buildings. The study explores the long-term benefits for consumers of the adoption of green building projects. As abovementioned, the objectives of the study are as follows:

4.1 Financial incentive for green innovative building in India

It is predicted that between 2010 and 2020, global energy consumption will increase by 106 billion Btu. This indicates a strong 56% increase in energy use over the following 30 years. As economic expansion is the goal, emerging nations will see 85% of this gain. Increasing the energy efficiency of the building sector has several advantages including improved internal and external air quality. One of the best methods to improve a nation’s energy supply security and reduce carbon emissions is to increase building energy efficiency.^23,24 Italian towns have been essential participants in the adoption of building energy regulating rules (BERC) in order to decrease the environmental effect of newly built and refurbished structures.²⁵ The journals used for this research are listed in Table 1.

Green building incentives are crucial for the advancement of green construction. However, there has not yet been a thorough examination of the subject’s body of knowledge. Through a systematic study, this research seeks to identify recurring patterns in studies on incentives for green construction. Additionally, it reveals the necessity for the government to change its strategy to encourage owners to undertake green-building development.²⁸ It is generally acknowledged that the building sector has negative effects on the economy, society, and the environment. Green buildings have been recognized as an effective substitute for traditional buildings to reduce or completely eliminate the harmful effects of construction operations. The adoption of green building technology (GBTs) has several important sustainability advantages. The adoption of GBTs is not free of obstacles or difficulties. Extensive research has been conducted on obstacles to the adoption of GBTs and practices. Meanwhile, few studies have examined these in emerging nations.¹³ Different types of technology and advanced equipment in computers are used to represent green product innovation, which is a method of production that prioritizes sustainability. Because depending solely on market forces makes it impossible to accomplish quick development, proper laws and rules are required that can be effective for green projects. This study examined the impact of tax incentives for R&D and environmental legislation on the development of green products. The creation of items that are simple to recycle, use, and regenerate after use is known as “green product innovation.” The technology used for information and communication (ICT) is a classic example of green product innovation. Technology can assist different fields by increasing their effectiveness. Research and innovation are important factors for green-building projects that can find grey areas that can be improved. Government agencies have been obliged to impose restrictions on polluters through legislation and environmental regulations because of the ongoing degradation of the environment since the 1970s. The “blue sky defense battle” is a three-year action plan that was released by the Chinese State Council in June 2018 to encourage energy efficiency and emission reduction in significant industries. Environmental legislation has a considerable positive impact on businesses’ “green” conscience. Innovation in green products begins with R&D, and the product is launched into the market. This involves several closely related activities with high tax sensitivity. Environmental regulation is the most prevalent type of punishment. With its rapid economic expansion, low per capita income, lax legal system, and ineffective tax structure, China is an emerging nation. Table 1 showing different types of financial incentive for green building. This study focuses on the analysis of the effects of environmental legislation and R&D tax policies on the development of green products, which is of major innovation relevance.²⁹

4.1.1 Subsidies

The impact on the environment is receiving more attention as there is a growing need for the discovery and exploitation of natural resources. Regulating this through governmental organizations and legal standards is one approach. Several environmental and green building rating methods have recently been developed to aid in the design of green buildings.²⁴ Various levels of government worldwide are focusing on the growth of green buildings. Local governments offer two primary types of incentives to promote green buildings. The impact of property tax assessment incentive models on local examples of green buildings has not been studied thoroughly.³⁰ Green finance is defined as the provision of funding for a range of environmentally beneficial initiatives including waste management, recycling, alternative energy, energy efficiency, renewable energy, and the growth of green industries. The European Commission defines green finance in financial services as an investment choice that considers governance and social and environmental factors. A broad spectrum of policy tools are referred to as “market-based environmental policy instruments” (MBIs). Their shared traits are the use of market power and rivalry to accomplish environmental goals. The categories of market-based instruments for green buildings in India are listed in Table 2.

Figure 4 shows the market-based instrument, which is divided into three parts: quantity-based, market friction-based, and price-based. Quantity-based instruments include banking incentives, offsets, and schemes related to quantity. Market friction instruments include debt, leverage, differentials, and products. Price-based instruments include taxes, loans, grants, and quotas.

Figure 4. Market based instrument.

4.1.2 Loan

Buildings have a significant impact on climate change; however, they can help planners and environmentalists by decreasing greenhouse gas emissions. However, several barriers have made it difficult to switch to green buildings. Energy saving is a significant challenge for society. The government provides incentives based on energy savings and reduction in greenhouse gas emissions.³¹ Both the natural monopoly and appropriability failure components result in a two-fold market failure. The shortcomings of public sector banks cause financial market difficulties. All PPPs must internalize the risk of interest rate changes according to the policy. To prevent the state from being forced to bear the consequences, it must restrict the parameters under which renegotiation is conceivable.³² The loan facilities for green buildings in India are listed in Table 3.

4.1.3 Tax incentive

In green buildings, these resources are conserved while being used as efficiently as possible. Actors who spend money and investors receive distinct benefits; hence, there are split incentives in this industry. Quantifying the value of investments in green buildings can be difficult local governments in India have granted a 50% building tax discount and there is rebate in property tax for projects that receive (Indian Green Building Council) IGBC greenhouse certification. India has promised to reduce its carbon emissions by 80% by the year 2050 from 2005 levels, a reduction of 35% from those levels by 2030. Building energy efficiency has the highest potential for energy saving at the lowest cost. This study examines current energy usage patterns in India’s home construction industry. It provides a general overview of the numerous obstacles and difficulties that arise when implementing energy efficiency programs in homes.³¹

4.1.4 IGBC

Green building rating systems are frameworks that have been developed to assess and certify the environmental performance of buildings. These rating systems evaluate various aspects of a building’s design, construction, operation, and maintenance to promote sustainable and environment-friendly practices. They provide a standardized approach for measuring and recognizing the green attributes of buildings. These rating systems provide guidelines, benchmarks, and certifications to encourage sustainable building practices, reduce environmental impacts, and enhance occupant well-being. They play a crucial role in driving the adoption of green building practices, and are often used as benchmarks for sustainable construction projects.³³

“To make the built environment sustainable for everyone and to be a global leader in sustainable building by 2025,” reads the organization’s mission statement. The organization’s signature yearly event focused on environment-friendly structures is the Green Building Congress. An integrated method called “green building rating” considers the effects of the resources consumed across life cycles. It employs traditional architectural techniques along with cutting-edge technical advancements in design inspired by the five elements of nature (Panchabhutas). The IGBC rating program is now available for all five climatic regions of India and is National by Choice, as well as Global by Performance.³⁴ Various state government schemes for green-building projects in India are listed in Table 4.

4.1.5 Rating system under IGBC

The IGBC is a leading organization in India that promotes sustainable practices in the built environment. IGBC has developed several rating systems to assess and certify green buildings. The major rating systems offered by the IGBC are as follows:

The construction industry has several negative environmental effects. People have become aware of the negative impacts of construction operations by nonprofit organizations. Figure 5 showing rating parameters. The two green building rating systems for existing buildings in India were compared in this study in terms of their water and energy usage.³⁵

Figure 5. IGBC rating system parameter.

4.1.6 Central government and state government FIs for green building project

Incentives are based on a rating system. However, state governments provide different incentives for different projects. Table 6 describes the different ministries that have given invtives for green projects. environment ministry provides fat-track GBs clearance. Urban departments incur additional costs. The municipal department provides 15 countries, and the Confederation of Indian Industry supports IGBC, which adheres to LEED global standards. Meanwhile, GRIHA is being specifically developed in accordance with Indian conditions with the Ministry of New and Renewable Energy funding. A national green building rating system for structures in India is called Green Rating for Integrated Habitat Assessment (GRIHA). It was created by TERI (The Energy and Resources Institute) with assistance from the Ministry of New and Renewable Energy of India. The five “R”s of sustainable development—Refuse, Reduce, Recycling, Reuse, Recycle, and Reinvent—are adopted by GRIHA.³⁶ The financial incentives provided by different governments are given in Table 5.

5.1 Time evaluation

With regard to ex ante, age, hedonic characteristics, rent-free periods, renovation, and amenities of a building are projected to have a large and beneficial impact on prices, with younger, taller, and taller structures commanding higher rental rates. Buildings that have been in the market for a longer time may likewise command higher prices, which would indicate greater rental stability and less fluctuation in the tenant’s credit rating. The location and type of investors (principals, agents, or institutional investors) – private developers, REITs, real estate investment managers, and municipal government investors – impact the value of a green building in central London. To calculate the average locational value of buildings in a neighborhood, we used postcodes and transportation networks. Using data mining and decision tree techniques, this study aimed to identify useful models and trends. Four HSEE management fields (health, safety, environment, and energy), as well as four structural, architectural, mechanical, and electrical installations were used as variables. From the viewpoint of safe green buildings, construction competency was treated as a dependent binary variable.³⁹ For ex-ante, two variable selections, forecasting and back casting (Table 5).

5.2 User perspective

Energy efficiency is a term used to define several requirements that must be met in green construction. This includes utilizing energy-efficient machinery, climate-appropriate materials, and services and facilities that are necessary for the building’s intended purpose. In addition, the energy embodied in building construction and demolition should be considered. The social, Environmental, and Economic (SE2) dimensions are three key factors that should be considered when developing green buildings. The GBRS aids in assessing the performance of the criteria in buildings that have an impact on society, such as waste output, energy consumption, and indoor air quality. The establishment of standards for the creation of rating systems and issues with the evaluation and validation of such systems are the primary focus of research on green building rating systems. In this study, rather than using exact quantitative analysis, a fuzzy inference system with decision-making rules was employed to mimic the qualitative components of human knowledge and reasoning.⁴⁰ The term “green” refers to a perspective that is acceptable and resourceful while discussing economic and environmental concerns. Natural resources and environmental services can be included in national revenue and wealth accounting, thanks to green infrastructure. This might cause the traditional infrastructure’s single-profit purpose to change into a multi-profit one as a dynamic social system. The focus of attention on the planet is on infrastructure and how it affects sustainability, social cohesion, and economic development. By considering the network linkages between the GI and GE indicators, this study classified and rated GI criteria. Analyses were performed to determine how the GI-ranked criteria affected GE implementation. The goal of this research was to examine how GI criteria and GE enactment in an SD scenario interact.⁴¹ As of January 31, 2006, the total installed capacity of electric power-generating facilities operated by utilities in India was reported to be 123,901 MW. Between April 2005 and January 2006, the country’s peak electricity demand (10,556 MW) and energy supply (41,630 million kWh) were approximately 11.6% and 8.0%, respectively. The Indian government planned to electrify all homes in 2012 and the final villages by 2007. The lowest levelized unit cost of electricity (LUCE) of all user options was provided by biomass gasifier-based power plants (BGPP). The annual amount of electricity delivered and the project’s total annualized cost directly affect the LUCE provided by BGPP.⁴²

5.3 Potential perspectives

Buildings account for 40% of all energy usage and have substantial environmental, social, and economic impacts on the sector. Additionally, buildings produce greenhouse gases, with 43% of their waste going to landfill. Assessment methods have been developed to support the construction of green buildings, and the World Green Building Council has coordinated these efforts on a worldwide scale. These resources provide credit for several sustainability topics. Many countries are providing incentives for green-building projects. This is not only good for a sustainable nature but also cost effective.

5.3.1 Consumer perspective

Green buildings are among the best ways to promote environmental sustainability. People believe that green buildings’ greater price premiums are justified by their environmental advantages. We created a framework based on the Howard-Sheth model of customer behavior. The next step was to create a pricing model to estimate the price premiums of green buildings using an artificial neural network. Green construction of home items has become increasingly popular. However, will customers accept the product? Are they prepared to spend (WTP) more money? Do consumers’ perceptions, attitudes, intentions to buy, and WTP remain stable over time?³⁵

5.4 Problems and solutions

The building and construction sector has had a tremendous negative impact on the environment, society, economy, and human health. 30% of the world’s greenhouse gas emissions and 40%–50% of water pollution are produced by the building industry. Table 7 showing problems and solutions. Green building (GB) construction aims to address these problems by increasing the energy efficiency and reducing the negative effects of construction. The development of GB in the US is hindered by three key issues. Some individuals believe that GBs have fallen short of their promises, such as the realization of energy conservation. It is quite difficult to convince people to obtain GB at a higher cost. It is crucial to increase the knowledge of the meaning of GBs among architects and designers. The accomplishment of these objectives is accompanied by significant hurdles. One of the biggest problems is that the laws governing the actual building process and the NZEB, CNB, and GBs are not well understood. However, widespread adoption may have issues. Instilling a feeling of accountability is crucial to sustainable development.