Box 3.8 Improving Energy Effi ciency, Reducing Energy Costs, and Releasing Municipal Budgets

BOX 3.8

Improving Energy Effi ciency, Reducing Energy Costs, and Releasing Municipal Budgets

With partial support from a World Bank loan in 1991–99, the cities of Gdansk, Gdynia, Krakow, and Warsaw, Poland, undertook renovations in heat supply systems distributed heating meters for buildings, and reformed heat pricing from a tariff based on square meters of serviced area to a two-part tariff calculated per building.

The government of Poland implemented energy sector reforms requiring that payment for heat gradually become the responsibility of households. Households subsequently began to use heat more effi ciently. Households or companies operating as the agents of households invested in thermostatic radiator valves, heat allocation meters, better windows, and insulation. A key result was that the costs of heating a given apartment area fell by 55 percent because of consumer-driven effi ciency improvements and technical, operational, and management improvements in the heat supply companies. This reduction helped to make the removal of subsidies less burdensome to households.

Nationwide, household heating subsidies, provided by municipal governments, were reduced from 78 percent in 1991 to zero by the end of 1997. The installation of building heat meters has been mandatory in all buildings since 1999. The use of heat allocation meters has become a popular method to allocate heat bills within buildings; 5.5 million such meters had been installed as of 1997, covering about 30 percent of dwellings nationwide. More than 10 companies have been formed and compete in the market for billing services, including allocation meter installation, meter reading, billing, and maintenance. The energy savings refl ected in customer heating bills stemming from the reform, including savings from private investments spurred by the reform, typically range from 20 to 40 percent.

Results in Four Cities

INDICATOR 1991/92 1999 CHANGE, % Household heat bill subsidy (%) 67 <5 (1994) n.a.a Heat bill charged to households, 13.7 6.2 –55 1999 (US$ per square meter) Heated fl oor area, square meter 63.8 68.6 7 (millions) Heat energy sold (gram calories 0.27 0.22 –18 per square meter) Energy savings n.a. n.a. 22

Note: n.a. = not applicable. a. Nationwide, household heat subsidies, provided by municipal governments, fell from 78 percent in 1991 to zero by the end of 1997.

Source: World Bank (2001).

ence the nature of the sustainable energy solutions adopted in the urban built environment. This is especially important in rapidly growing cities in developing countries, where inaction leads only to future energy waste. Offi cials should focus primarily on the features and functions of new buildings that aff ect energy consumption, especially heating and cooling systems. Other factors include site plans, building layouts, building envelopes, lighting fi xtures, and water heaters. Much relevant experience has been accumulated in developed countries over the past 30 years. Matured technologies and effi cient materials may be applied to create buildings with low or near zero energy use for heating and cooling (Rosenthal 2008). Implementing energy effi ciency standards requires coordination among national, regional, and city eff orts, but local enforcement is critical. China provides a good example of the success of energy effi ciency programs in rapidly urbanizing developing countries. In 1995, the fi rst mandatory energy effi ciency standard was introduced for new residential buildings in cold climates in China. Among large northern Chinese cities, the compliance rate was a meager 6 percent in 2002. Since then, the national government has increased the assistance to local governments for enforcement and inspections. The rate of compliance rose to about 40 percent in 2005 and 70 percent in 2007. Compliant buildings, on average, lose 35 percent less heat than conventional buildings. The national government will soon promulgate a revised energy effi ciency standard for new residential buildings in cold climates that will cut heat losses by an additional 30 percent. This time, many cities are ahead of the national government. For example, in 2005, Beijing and Tianjin adopted energy effi ciency standards for buildings similar to the pending revised national standards. In 2007, the provinces of Hebei and Liaoning did the same.