Green Mortgages and This is your house (GM and TIYH)

Mexico’s population is expected to grow up to 130 million by 2050 (INEGI, 2010). The number of households (up to 54 million (INEGI, 2010)), as well as of residential homes (up to 11 million new houses until 2030, (SENER 2011b)) will also increase significantly.
In 2009, 16.7% of Mexico’s final energy demand (SENER, 2009) and 26.7% (26.1% in 2010) of the electricity demand (CFE, 2011) came from the residential sector. Electricity tariffs, as well as LPG, are heavily subsidized, in particular at the lower end of the consumption scale.

The programme ‘TIYH’ supports households with low (although permanent) income levels in building/buying/renovating a house or apartment through a direct grant, thus helping those families in getting a decent and also their own property. The grant for buying a new house requires that it complies with certain sustainability criteria, including energy efficiency standards, therefore reducing operational costs and avoiding negative environmental and social impacts.
Funding through TIYH is only available to employees registered in the social security system (or having at least a banking track record and regular payment capability) with a maximum monthly income of about €500 (five times the minimum salary); for public or private sector employees who have made payments into a housing trust fund, the maximum income level to be eligible for a grant is about €260 per month.
TIYH grants for new housing are fixed at € 3,450 and contribute about 20-25% to the costs for a low-income home with a maximum value of €13,400 (a single-family house) or €16,500 (an apartment in a multi-family apartment house).
The GM scheme is available for all employees of the private sector who have paid savings to INFONAVIT. The GM is a special loan (mortgage) dedicated to adding energy-efficient technologies to the house. The maximum GM amount that is paid in addition to the conventional loan ranges from €1,050 up to about €2,100, dependent on the income level. Since the beginning of 2011, the GM gives flexibility to the housing developers to choose from a range of predefined eco-technologies that in total comply with the minimum monthly cost savings required (about € 12 – 23, depending on the income level). The supported eco-technologies include Solar Water Heaters (SWHs), CFLs, water saving faucets, thermal insulation, among others. The cost savings have been pre-determined for different residential home sizes and climate zones, and are independent from the actual savings.
For low-income households, with a saving account at INFONAVIT, both measures (grant and loan) are being combined.

It is a national measure applied through regional agencies of the National Workers’ Housing Trust Fund (INFONAVIT) and (for TIYH) designed and operated together with the National Housing Commission (CONAVI).

Relevant sectors

• Residential: Residential sector focussing on low- and middle-income social housing

The focus is on the application of certain improvements on the building envelope and the installation of energy- and water-saving equipment. The technologies addressed include thermal insulation, reflective coatings for walls and roof, solar water heaters (SWH), CFLs, refrigerators, water saving faucets, etc. and have to comply with minimum energy efficiency standards.

The action targets building new houses - that otherwise would be built and equipped with less energy-efficient devices and components - with increased energy efficiency and environmental standards. This includes: improved thermal insulation, CFLs, A/C units, refrigerators, SWHs, instant gas heaters, water saving faucets/closets and potable water filters. In some cases the appliances have to meet the labelling requirements of FIDE (Trust for Electricity Savings) that are slightly more stringent than the official minimum energy performance standards.
The TIYH grant and the GM loan are de facto introducing component-related energy efficiency requirements for a majority of houses in Mexico that are built through construction companies (so-called formal constructions).

Relevant target groups

• Property development company The target group are property developers and construction companies that are obliged to comply with the requirements of the TIYH and the GM.
• Construction company
• User Home owners and users are another target group.

Direct beneficiaries

• User

  Low- and middle-income households benefit directly through reduced monthly bills for electricity, water and gas. They also benefit from increased thermal comfort and living conditions. In 2010, INFONAVIT financed around 475,000 homes, of which about 164,000 also received a GM loan. Almost 96,000 homes financed by INFONAVIT got a subsidy through the TIYH scheme and around 60,000 homes received a GM loan and a subsidy.

Indirect beneficiaries

• System supplier

  Industry, suppliers and installation companies benefit indirectly through increased demand for eco-technologies that are being progressively and massively implemented within Mexico.

Relevant barriers

• Knowledge and information barriers: Low-income population gets information about sustainable housing through INFONAVIT’s communication means (comics, announcements, telephone surveys).
• Economic and financial barriers: Without access to TIYH subsidies, the very-low income sector could not afford to buy a new house “off the shelf”, but would have to rely on self-construction. Without the GM, the low- and medium-income sector could not afford to purchase a house equipped with eco-technologies which require higher initial investment costs.

Relevant incentives

• Saved energy costs: The reduced energy bills make a significant difference to the home owners.
• Contribution to protection of the environment:

Norms and standards
The P&Ms are complemented with Mexican minimum energy performance standards relevant for new residential buildings, however there is still a low level of enforcement:

• Residential Building Envelope Standard, NOM-020-ENER-2011
• Lighting Systems Standard, NOM-007-ENER-2004
• Value “R” for Housing Envelopes for thermal zones in Mexico, NMX-C-460-ONCCEE-2009

INFONAVIT’s qualification system
INFONAVIT is currently developing a qualification (grading) system with assistance from the German International Cooperation (GIZ) and the British Embassy to rate the energy efficiency and water saving performance of the GM houses. This instrument will help to raise the energy efficiency standard by creating market competition and will inform the house owners about the level of environmental performance of the house they are buying.

CONAVI’s Housing Guideline
In 2011, CONAVI published the 2nd version of the “Código de Edificación de Vivienda” (CEV, Guideline for Housing Construction) in order to promote best practices in housing construction (including energy efficiency standards). The CEV is a reference building guideline that is intended to help local authorities in adapting the municipalities’ building code.

CDM Programme of Activities and National Appropriate Mitigation Action (NAMA) for the housing sector
CONAVI is preparing a CDM Programme of Activities for the housing sector and has received approval by the CDM Executive Board for its methodology on Monitoring, Reporting and Verification (MRV). The NAMA Design Concept (CONAVI, 2010; CONAVI, 2011) is aimed at enhancing GHG emission reductions through the GM and similar financing measures by:

• Increased penetration of eco-technologies (more houses covered during the same time) and/or 
• Technology up-scaling (more ambitious energy efficiency standards or inclusion of technologies that were not covered in the past).

Pilot Projects
In 2010 several pilot projects for net zero energy homes were realised in warmer climate zones. Those pilot homes realised stricter energy-efficiency measures and then covered their remaining electricity needs by on-site solar panels.
The Interamerican Development Bank (IDB) and the German Development Bank KfW are currently preparing a larger pilot programme for the housing construction of five developers that will follow a similar approach to the GM.

Grants for Solar Thermal Systems
With support from the German International Climate Initiative, Solar Thermal Systems, credited by Infonavit, are subsidized for low-income households. The programme runs from 2010 to 2012 and covers a total of 25,000 systems with a budget of € 2.5 million.

Sustainable and Integrated Urban Development (DUIS)
In 2010, the Mexican Government started a new approach by not concentrating only on individual homes or a housing complex, but applying sustainability criteria on new urban developments. So far 6 projects have been certified, while 17 are in revision. If realized at full scale, a total of 800,000 new homes would be constructed.

The GM is an innovative financing scheme that has allowed a reduction in energy consumption and an increase in thermal comfort in the low-income housing sector of an emerging economy.
The combination of TIYH and GM provides the chance for even low-cost housing to be equipped with energy and water-saving technologies.

• In 2008, CONAVI launched the “Criterios e indicadores para desarrollos habitacionales sustentables” (Criteria and indicators for sustainable housing developments), which were intended to set out the sustainability criteria for TIYH subsidies (CONAVI, 2008). Nevertheless, the standards were too stringent to be complied with. 
• In 2009, CONAVI launched the “Características del paquete básico de subsidios” (Characteristics of the basic package for subsidies, CONAVI, 2009) where a less stringent set of standards were associated to the subsidies. A new set of criteria is currently being developed and planned to be launched in 2012. 
• In 2007, the pilot GM launched its rules of operation where a minimum set of eco-technologies were offered to three climate zones in Mexico (water saving faucets, CFLs, instant gas heater). 
• In 2010, the GM added further measures to the minimum set of eco-technologies: SWHs (initially only for temperate and colder climates), thermal insulation and efficient A/C units.
• In 2011, the list of eco-technologies was expanded to a total of 22 measures, applied either to the house itself or to a housing group. The selection of eco-technologies is now the choice of the housing developer, regardless of the climatic zone. The selected set of measures only needs to fulfil certain minimum financial saving requirements.

The TIYH subsidy and the GM criteria are still not homologated and each programme has its own rules of operation.
The new set of criteria for the TIYH subsidy will be launched in 2012 and a new standard (NOM-020-ENER) setting maximum levels for solar thermal gains of residential buildings came into force in December 2011.
In 2012 INFONAVIT expects to introduce a grading system to rate the houses’ environmental performance, including energy demand. It has been discussed that future incentives could be related to the scale of performance, including energy efficiency.

The policy can be enhanced and energy efficiency further improved. It is potentially attractive for carbon credit financing, such as CDM Program of Activities, or supported NAMA (Nationally Appropriate Mitigation Actions).

This shall be achieved through enhancing the existing GM and TIYH programmes and complement them with new and stricter building codes, improved educational training, capacity building and awareness raising programmes.
Additionally, CONAVI and INFONAVIT are currently in the design stage of a supported NAMA for the Mexican housing sector, where it is intended to relate INFONAVIT’s grading system to a number of scenarios (energy saving goals) so that, with support of foreign investment, the current TIYH subsidies and GM can be expanded both quantitatively and qualitatively.

Mexico has a growing population and an increasing demand for new housing that has accumulated over the last 30 years. This deficit for new housing has created particular conditions.
INFONAVIT is a unique housing fund that has managed to grant over 6 million credits since 1972.
Another housing fund institution (FOVISSSTE) is expected to launch a similar product to the GM. This institution already channels TIYH subsidies to its clients. The affiliates to FOVISSSTE are employees from the federal sector that pay monthly contributions.
The TIYH and GM combined are directly assigned through INFONAVIT, which avoids third party agents; thus facilitating the implementation.
In principle it can be easy to transfer the P&M if similar situations to the Mexican conditions exist (both demand for new housing and existing implementation actors).

Agencies or other actors responsible for implementation
CONAVI and its regional agencies; INFONAVIT and its regional agencies; several other financing institutions.

Funding
The federal TIYH grant is necessary to support the low-income population in acquiring decent homes. However, INFONAVIT has expanded the GM to the total of loans they grant each year (covering all income sectors).
It is expected to up-scale the technology and efficiency standards through the carbon market (CDM Programme of Activities) and supported NAMA from Annex I countries (2012 – 2020).

Test procedures
One important pre-condition for implementing the policy is the development of criteria and indicators for Sustainable Housing urban developments (minimum sustainability criteria) in order to allocate TIYH subsidies.
GM field evaluations are done every year. The monthly savings estimated are verified through field testing, including on-site measurements, interviews and data collection. Therefore, the know-how, procedures and resources necessary for that need to be established.

Other

• Mexico’s Energy Efficiency Agency (CONUEE), responsible for the creation of MEPS. 
• Organisations for Standards in the Construction Sector (ONNCCE), responsible for creation of voluntary building component standards.
• FIDE, responsible for energy efficiency labels for electric appliances and building components.

Policy design: GM’s programme design involved several stakeholders besides INFONAVIT through workshops and consultations: e.g. CONAVI, INE (National Institute for Ecology), CMIC (Association of Construction Companies), CANAME (Commission for Electrical Safety), CANDEVI (National Chamber of the Housing Industry) and FIDE. Most of those institutions are also closely linked to the implementation process by providing feedback and participating in capacity building or executive meetings.
Implementation works as follows: CONAVI published the minimum sustainability criteria (pre-conditions for new sustainable houses). The worker applies for the subsidy through INFONAVIT (or other financing institutions), who then grants the loan for the total cost of the house (including the TIYH subsidy and the GM percentage). INFONAVIT verifies compliance through an accredited agent who checks that the eco-technologies have been installed. The housing developer registers the GM houses on INFONAVIT’s system and if the criteria are met, the funds are released. INFONAVIT oversees the programme implementation.

Quantified target
CONAVI does have a quantified target for the current administration (2006-2012). In 2011 a budget of € 182 million could support about 75,000 homes within the INFONAVIT loan scheme (CONAVI, 2011). In total, CONAVI has provided subsidies of around € 280 million for about 160,000 homes. Approximately 50% of those subsidies went to families with an income of about € 100-200 per month (1-2 minimum salaries).
INFONAVIT has set annual targets for GM with and without TIYH subsidy. In 2010 alone, INFONAVIT’s GM granted almost 170,000 loans, exceeding the target of 150,000 loans (INFONAVIT, 2010). For 2011, the target for GM financing was set at 480,000 loans with a volume of about € 8.9 billion. In total, 614,000 GM loans had been approved by the end of November 2011 since the start of the programme.

Co-operation of countries
Technical assistance and limited financial contribution has been received from Germany, USA, Canada, and United Kingdom in specific projects, targeted at optimizing construction standards with regards to energy efficiency and optimizing the financing and selection of eco-technologies (e.g. pilot projects for zero energy homes realized in 2010). The German Government is providing grant financing for the purchase of solar water heaters within the GM scheme (25,000 roofs programme, 2010-2012).
For the future, it is expected to attract international financing and technical assistance through supported NAMAs (Nationally Appropriated Mitigation Actions) and CDM Programme of Activities, that would help to overcome currently existing financial and non-investment barriers for making houses more energy-efficient.

Actors responsible for design
TIYH has been established by CONAVI (Mexican National Housing Commission – a federal state entity for the promotion of the housing sector).
GM was established by INFONAVIT (National Workers’ Housing Trust Fund – a public-private financing institution to support housing ownership of employees in the private sector).

Actors responsible for the implementation
INFONAVIT (National Workers’ Housing Trust Fund) and other institutions that provide housing credits and hand out TIYH grants.

Monitoring
Implementation is regularly monitored by the on-site visits of certified and registered inspectors. INFONAVIT has all data available for the installed eco-technologies, related costs and pre-determined financial savings per measure.

Evaluation
A GM on-site evaluation is taking place on an annual basis, run by external consultants.
There has been no separate evaluation of TIYH subsidies taking place in the past, as it was done through INFONAVIT’s own assessment.
The necessary data for the evaluation are collected via surveys (telephone and on-site), as well as field visits:

• Maintenance of eco-technologies: SWHs, thermal insulation, etc. 
• Recorded savings on gas, electricity and water bills 
• Instant temperature recordings (seasonal)
• Identification of areas of opportunity for new technologies
• Energy consumption comparison of houses without GM 
• Home owner’s satisfaction

• Dynamic market transformation and/or innovation: The P&M aims to promote a dynamic market transformation. As new building technologies are released into the Mexican housing market, the list of eco-technologies is expanded.
• Avoiding lost opportunities: The policy aims to avoid lost opportunities, by incentivizing low-income households to construct in an energy-efficient manner; the many new buildings constructed will perform better and are therefore trend-setting. This is also a spill-over effect that further helps to avoid lost opportunities outside the households directly benefitting from the programmes.
• Minimising snap-back effects: A possible snap-back effect is that at the end of the technology lifetime, the owner replaces equipment by a non-efficient one (e.g. A/C units, CFLs, Gas boiler, etc.). To avoid this, other policies must be in place, such as minimum energy performance standards and energy labels for equipment, in order to move the whole market to higher energy efficiency levels. Another snap-back effect is that some eco-technologies do not offer a satisfactory service, as there are not enough quality and performance standards for building components or eco-technologies (e.g. PV panels, SWHs, etc.).
• Minimising free-rider effects: The P&M is designed to avoid the free-rider effect because there are two main conditions: 1. The TIYH subsidy only applies once (no other combination of subsidies is allowed), and the information is collected into a database that is checked before granting the subsidy. 2. Any type of loan from INFONAVIT is granted only once in the lifetime of the worker, thus no duplication is possible. Furthermore, the programmes are targeting mainly low- to middle-income households. These are less likely to install energy-efficient equipment from their own pocket, as they are limited by financial resources. They are, therefore, unlikely to become free-riders.
• Creating Spill-over effects: There has been a maximised spill-over effect of INFONAVIT’s GM, because it now applies to all income sectors. Before this expansion, the many new buildings constructed will have performed better and therefore have been trend-setting, which leads to others following the example and, hence, spill-over effects. The TIYH federal subsidy can be applied through FOVISSSTE (National Housing Trust for Employees of the Public Sector) and other financing agencies as well, but at the moment those financing institution do not offer a GM scheme.

Co-benefits
The following co-benefits are applicable:

• Building of more sustainable housing communities (social, economic and environmental) because the TIYH subsidy has criteria for social, economic and environmental aspects as well.
• An employment market is created as there are new skills required to build more sustainable housing. 
• The increase in sales of eco-technologies (e.g. a strong SWH market).
• Monthly savings for the low-income workers on their energy bills.

• Generally limited awareness of EE improvement, incl. costs, benefits, and risks.
• Concerns about which products are energy-efficient and about actual costs/savings, quality and reliability.
• High transaction costs for the TIYH and GM programmes, compared to the relatively small amounts provided as grants or loans.
• Unclear responsibilities and incentives among building owners, developers and 
• Lack of enforcement and delayed adoption of EE norms and standards.
• Lack of incentives for small developers to apply.
• Low-income households tend to sell the newly acquired eco-technologies (e.g. the backup gas boiler, SWH systems) to get some cash.
• Some eco-technologies do not offer a satisfactory standard, as there are not enough quality and performance standards for building components or eco-technologies (e.g. PV panels, SWHs, etc.). However, INFONAVIT and different stakeholders are working to minimise this problem by launching new standards.
• As the sustainable house becomes somewhat more expensive, while the benefits are not very transparent, there is a financial disincentive for the low-income sector. 

Some action is taken to overcome these barriers to implementation, for example:The market moves faster than the creation of new standards; however, INFONAVIT is working in connection with ONNCCE (the National Bureau of Standards for Construction and Building), FIDE (Electricity-Saving Trust Fund) and CONUEE (National Commission for the Efficient Use of Energy) to create the standards needed. INFONAVIT launched a “comic cartoon” targeted at house owners in order to raise awareness of the environmental and cost benefits of having a sustainable house.

For determining the baseline, it was assumed (PRONASE, World Bank) that currently only 20% of Mexican houses are equipped with an AC system, but penetration could significantly increase in the future, as the US example demonstrates. It needs to be mentioned that exact figures are lacking, in particular with regard to installation rates of fans and AC systems in low-income homes.
PRONASE expects that with its proposed measures (to which the GM and TIYH belong), the accumulated final energy consumption in buildings (commercial and residential) could be reduced by at least 85 TWh in the period 2010-2030 against the baseline scenario. Again this estimation deems rather conservative, although any saving will be offset by a strongly growing construction sector (Rodríguez-Kuri 2011, p.12, next figure).

There is no known up-front assessment of energy savings related to GM and TIYH measures.
According to PRONASE, the National Programme for the Sustainable Use of Energy 2009-2012 (CONUEE, 2009), the projected final energy consumption in buildings (commercial and residential) in Mexico will increase to 485 TWh by 2030 in the baseline case. An estimated 12% of this consumption corresponds to HVAC, mainly AC and ventilation. The residential sector represents an assumed 81% of the total HVAC consumption in the country; therefore the domestic energy consumption for this purpose alone would be in the range of 47.1 TWh by 2030, if no saving measures are implemented.
The rather conservative scenario calculation by PRONASE assumes that the energy consumption for air conditioning within the Mexican building sector could be reduced by 16% (or roughly 10 TWh) in 2030 against the baseline scenario (Rodríguez-Kuri 2011, p.15, next figure).

In 2009, 48% of electricity and gas savings (on average) had been achieved through the P&Ms compared to houses without such measures. This represented a monthly cost saving of €16 per household (note: in addition water savings were achieved, but most homes are not equipped with individual water meters).The reported monthly savings (gas, water and electricity) are as follows (INFONAVIT, 2011):

• 2009: € 12
• 2010: € 14
• April 2011: € 12

Savings on electricity were 27% lower in 2011 compared to 2010, since the reference case energy consumption reduced more quickly than the energy-efficient buildings’ consumption. Savings on gas were 17% lower in 2011, compared to the 2010 evaluation.According to INFONAVIT (2012),

• almost 500,000 tons of annual CO₂ emissions (0.79 tons per home),
• almost 400 GWh of electric energy, and
• almost 500 GWh of LPG 

have been saved by 630,000 GM homes supported between 2009 and May 2011.

According to some rather incomplete and not fully representative surveys, carried by INFONAVIT, the average household in a hot climate zone saved 1,554 kWh/yr on electricity.

Each household in a temperate and semi-cold climate zone saved 3,114 kWh/yr on gas.
Note: Mexico is divided into 10 major climate zones.

The total number of houses financed by INFONAVIT between 2007 and May 2011 amounts to more than 2.1 million, of which 630,000 have been targeted by the GM (this includes the years of 2007/08 where the GM was not yet fully introduced, but had a pilot status). In 2010, 164,000 homes received a GM loan, while 96,000 also took advantage of the TIYH programme. With 380,000 GM loans in 2011, almost all new homes receiving mortgages from the agency INFONAVIT participated.
Within the TIYH programme, about 870,000 subsidies with a total budget of €1.3 billion have been handed out between 2007 and 2011.

With 600,000 homes expected to be financed by INFONAVIT in 2012, GM loans (eco-investments) could amount to about € 600 million (own estimate).

The actual costs for GM corresponded to 380,000 loans (until May 2011), but no financial figure was disclosed. If approximately 50% of the total available Green Mortgage had been spent (value for 2009), total investment for eco-technologies would be in the range of € 190 million (own estimate).
The TIYH subsidy financed in combination with the GM in the same period was about € 166 million (CONAVI, 2011).

For 2012, the total cost saving through reduced electricity consumption alone and avoided subsidies could amount to about € 100 million for the state budget (own estimate).

The medium repayment period for measures financed under GM in 2010 was calculated to be 4.1 years. With an assumed medium lifetime of 10 years for all measures (and no maintenance costs considered), the net benefit for the housing owner would be in the range of about € 900.
The measures also have considerable benefits for market actors within the supply industry (e.g. insulation material, solar collectors etc.), which have not yet been monetized.

No benefit/cost analysis from the perspective of the national economy is known, but it can be assumed that the measure is highly cost-effective both at the national level and for the state’s budget due to the high percentage of state subsidies (about 60%) for domestic electricity rates and the relatively low involvement of the state for providing loans at reduced interest rates to INFONAVIT.

No ex-post evaluation looking at the macro-economic effects has been undertaken so far.
At the micro-level of the households, the policy is clearly cost-effective for them, with a net benefit of around € 900 (see above).