48 P. JIANG ET AL.
When market failure occurs, the government can intervene with certain
policies and regulations. In particular, externality policies are designed to
address this form of failure and are normally divided into mandatory poli-
cies and economic incentive policies. Typically, mandatory policy enforce-
ment can occur via laws and regulations that help achieve specific goals.
However, the negative results of mandatory policies may limit flexibility
or lead to further market failure. Economic incentive policies can also be
divided into tax policies (e.g., a tax (e.g., Pigouvian tax^3 ) on non-green
building developers and subsidies for green building developers). Current
central and local government subsidies designed to promote green build-
ing development in China are a common type of economic incentive pol-
icy, which is the focus of this study. The analysis subsequently assesses
subsidy schemes and incremental costs of green buildings at both the
national and local levels and then compares the subsidies and incremental
costs of elected green buildings for the two case studies.
3.3.2 Subsidies and Incremental Costs of Green BuildingsTo promote energy conservation and green building development, the
Ministry of Finance and the Ministry of Housing and Urban–Rural
Development issued a policy entitled the “Action of Accelerating the
Development of Green Building in China” in 2012 (Wang 2013 ), which
provides subsidies for two- and three-star green buildings in the Chinese
building sector. The following subsidy scheme is employed: 45 yuan/m^2
for two-star green buildings and 80 yuan/m^2 for three-star green build-
ings (MOHURD 2013 ).
Using Eq. (3.1) and data for the 104 sample buildings, the average
incremental costs for green public and residential buildings are presented
in Table 3.6.
According to the Action, average national subsides for green buildings
are established as follows: 45 yuan/m^2 for two-star green buildings and 80
yuan/m^2 for three-star green buildings. Based on the study results, actual
incremental costs in China are 93 yuan/m^2 for two-star green buildings
and 224 yuan/m^2 for three-star green buildings. Clearly, central govern-
ment subsidies (i.e., Ministry of Finance and the Ministry of Housing
(^3) A Pigouvian tax is applied to a market activity that is generating negative externalities and
is intended to correct inefficient market outcomes by being set to equal the negative
externalities.