Venturing GBI-NREB into Carbon Credit: a sustainable framework for

Malaysian “Green Property” and “Green Economy”

Mariati Bagdad Dr. Mohammad Fadhil
PhD. Student Mohammad
Department of Head of Postgraduate
Postgraduate Studies, Studies,
Faculty of Architecture, Faculty of Architecture,
Planning and Planning and
Surveying, UiTM, Surveying, UiTM,
Malaysia. Malaysia.
mariati.bagdad@gmail. [email protected]
com

Summary
The Copenhagen Climate Change Summit 2009 (COPI5) has seen that Malaysia is aiming
for a voluntary reduction of its emissions intensity of GDP by the year 2020. Therefore, the
building sectors are also motivated to play a part through the Green Building Index (GBI)
scheme; the sustainable tool that is potential in resolving this global environmental issue. It is
expected that GBI offers promising outcome to stakeholders against the issues on the fees and
construction cost to gain the GBI certificate. This paper is a partial section from the main
research area focusing on the value of money and sense towards promoting the GBI-NREB
certification which taking into account the existing purpose-built building in Malaysia. This
paper measure the quantifiable value of obtaining certified GBI scheme that can be materialized
through the study on the variables upfront cost of GBI scheme, the government incentives, and
last but not least the promising operational cost saving on merely energy efficiency; in order to
compute the return on investment (ROI). The research method is based upon the literature
reviews and case studies; the scholars’ comparative studies thus hypothesize the outcome
through the simulation model of green building model in Malaysia. The result shown
that operational cost saving based on energy efficiency is approximately 84% (equivalent to
RM232, 558) a year, green building return on investment (ROI) is 5.8 years, and also an
incremental yearly revenue of 21% as compared to conventional building. The anticipated
outcomes from this paper is that, the profound effect of the investment in attaining GBI-NREB
certification which eventually aimed at property sustainable value and operational cost saving.
Keywords:GBI-NREB, purpose-built building, upfront cost, government incentives, operational
cost-saving.

1. Introduction
Malaysia today is facing two of the world’s most pressing issues, namely climate change and
energy security which in due course causes an incretion to world’s carbon emissions [7]. The data
has been accumulative from the United Nations Millennium Development Goal indicators (2006)
thus listed Malaysia’s carbon emissions in 2006 at 187 million tones which is approximately 7.2
tones per person a year in Malaysia. According to Malaysian Green Building Confederation (MGBC)
study, in current risk exposure indicators (likelihood and magnitude) to energy and climate change
trends by its urban city; Kuala Lumpur itself exposed to medium state based on its energy
insecurity, energy import dependency, physical exposure and city vulnerability towards the climate
change [8]. According to the study, it has been estimated that over seventy percent of the average
city's GHG emissions come from existing and old buildings, while about eighty percent of Malaysia
building stocks contribute significantly to green house gas emissions [8]. For that reason, the
Copenhagen Climate Change Summit 2009 (COP15) has seen that Malaysia pledge to voluntarily
reduce up to 40% in terms of emissions intensity of its Gross Development Product (GDP) by the
year 2020 compared to 2005 levels.
In facing up to the greenhouse gasses (GHGs) emission challenges, the Government and the
Malaysian Construction Professionals are now very committed to contribute a sustainable
approach hence fetching the ultimate reasons of ‘Going Green’ concept become a government
policy. This is evident when the Ministry of Energy, Green Technology, and Water (MEGTW) in
2009 comprehend the paces towards this Green vision thus announce the national green policy
namely Green Technology. Further to the inspiration of the government ‘Green’ vision, the building
sectors are also motivated to play a part through the Green Building Index (GBI) scheme [8]. As a
result, aiming at Green property development is currently in vogue. Launched in April 2009, the
Malaysia green building rating system; the Green Building Index is promising an environmental-
friendly building that would taking into account the carbon footprint in Malaysia’s urban cities.

2. The National Green Building Rating Tools: Introduction of Green

Building Index Malaysia
2.1 GBI description

The Green Building Index (GBI) is a green rating tool to guide architects, designers, government
bodies, building owners, and developers in constructing environmentally responsible buildings. It
was initiated and will be managed by Pertubuhan Akitek Malaysia (PAM) newly formed
Sustainability Committee. In addition, Green Building Index Sdn Bhd was incorporated in February
2009, a wholly-owned subsidiary of PAM and the Association of Consulting Engineers Malaysia
(ACEM), to administer GBI accreditation and training of GBI Facilitators and Certifiers. GBI
accreditation for buildings is separated into three tiers. At the highest level is the GBI Accreditation
Panel, the independent regulatory body for GBI accreditation. At the intermediate level are the GBI
Certifiers, consisting of experienced professionals that conduct the assessment and accreditation
of project submissions. On the front-line level are the GBI Facilitators, professionals who together
with clients and the design team enhance their projects to meet or exceed GBI rating system
requirements. The GBI rating tool provides an opportunity for developers and building owners to
design and construct green with - sustainable buildings that can provide energy savings, water
savings, a healthier indoor environment, better connectivity to public transport and the adoption of
recycling and greenery for their projects and reduce our impact on the environment [8]. GBI is
developed specifically for the Malaysian-tropical climate, the environmental and developmental
context, cultural and social needs.

2.2 GBI certification guaranteed a government incentives

GBI has become an important initiative that promises a significant outcome to the certified green
building movement in Malaysia [3; 8]. However, the community is still hesitant about embracing the
‘green’ concept due to misgivings about the quality standard of this ‘green’ model whether it would
benefit building and its economies. The benefits of green building need to be clearly modelled in
feasibility study [1; 8; 12]. Therefore, to encourage its implementation, the GBI supported by the
Malaysia government; has subsidized the Malaysian new framework and will guarantee the
reimbursement to the investor with government incentives as shown in Table 1.

It is expected that the newly developed green building will also operate with less energy
consumption, less water, and generates less waste which in turn provides operational cost saving
as much of 9 percent yet increase building values by ± 7.5 percent higher than a conventional
building [8]. In contrast, IEN Consultants (2010) studied the potential of Low Energy Office (LEO)
building subsequent performance and this indicates that, adapting to a sustainable building
approach would only cost about 5 percent additional outlay but provide 50 percent operational cost
savings [5]. The comparative data of green building potentials is tabulated in Table 2. Moreover the
pay back period for such a green adapted building is estimated to be around five years based on
operational savings alone.
Table 1: Incentives for Renewable Energy, Energy Efficient, and Green Buildings in Malaysia
(Green Building Index Certificate for buildings from 24 October 2009 until 31 December 2014)

GOVERNMENT INCENTIVES FOR BUILDINGS OBTAINING GREEN BUILDING INDEX

CERTIFICATE
Eligibility for GBI Incentives Types of Incentives for obtaining GBI Certificate

Buildings that have been Tax Exemption: The qualifying expenditure (QE) to obtain GBI
awarded the GBI certificate of certification for a building used for his Business qualifies for tax
any grade are eligible to be exemption which is equivalent to 100% of the amount of QE and is
considered for GBI allowed to be set-off against 100% of the statutory income for each year
incentives. The criteria are; of assessment.
Energy Efficiency (38%),
Indoor Environmental Quality, Qualifying expenditure means an additional expenditure incurred in
Sustainable site Planning and relation to construction of a building, alteration, renovation, extension or
Management, Material and improvement of an existing building. Any unutilized QE can be carried
Resources (9%), Water forward to subsequent years of assessment until the amount is fully
Efficiency, and Innovation exempted. This tax exemption is given only once for buildings awarded
(9%). GBI certificate from 24 October 2009 until 31 December 2014.

Stamp Duty Exemption: Buyers of buildings and residential properties

awarded GBI certificates acquired from property developers are eligible
for stamp duty exemption on instruments of transfer of ownership of such
buildings. The amount of exemption is on the additional cost incurred to
obtain the GBI certificate.
Source: KETTHA Handbook- pg. 13, 2010

3. Green Building: The Concern and Issues

Although Malaysia has undergone rapid economic and social prospect over the last fifty years,
business and the property industry have been slow to react to environmental change even though
there has been awareness of the growing environmental consequences due to earlier development
actions [10; 12]. In the built environment, about eighty percent of the Malaysian building stocks
contribute significantly to green house gas emissions [8]. Conversely, Jones Lang LaSalle (2005)
noted that many owners have opted for minor refurbishments to existing building to lower their own
capital expenditure and avoid access problem due to its excessive supply of new building stock.
This scenario occurs due to the fact that the market outlook on the environmental sustainability
aspect in Malaysia is still new and vulnerable for green building. More to the point, the financial
dilemma facing all Malaysian developers are, as always, the total development cost, fragmented
fees, risk, and return [1; 3; 8]. These issues (as the following shows) are mostly are related to
green buildings as they present new challenges for developers that are; performance is often
driven by the criteria and context of the development, limited size of the market, and difficulties in
identifying any change in value aspects (tangible benefit) that can be directly attributed to
sustainable and green building [1; 12].

3.1 Green Building performance driven by the criteria and context of development

According to a study by Bertrand (2010), he points out that in addition to rapidly evolving
accreditation criteria [8] to harvest the benefits of green buildings while reducing the risks and cost,
GBI scheme requires an integrated approach [1]. Too often a pure criterion by criterion approach
leads to a collection of costly independent green features. Moreover, according to the Khamidi
(2010) a survey on the level of importance of criteria in the Green Building Index Malaysia, 80% of
respondents agreed that innovation is significant but costly. Besides, the highly variable additional
costs depends on the types of sustainable development to be opted such as Non-Residential,
Residential, New Construction, Existing Building, Industrial, and others as described by GBI (2011).
The scheme also assess different scale in relation to the building’s standard of area (SOA) thus
the range of potential operating cost savings as certified by the GBI also make it difficult to identify
specific value elements within individual buildings [1; 11].

3.2 Green Building has limited size of market

Lorenz et al., (2007) identified the causes and the lack of a clear financial benefit to sustainable
development on the absence of a hard market to encourage developers who are keen to provide
buildings and embrace sustainable development [6]. These developers are less likely to add green
features if it does not add value in terms of money on an asset. Warren (2009) also spotted that
the market does not value the extra costs and risk associated with building a sustainable property
[12]. It is expected that when risks and cost can be controlled more effectively, this could support
the bottom line. Also, the experience in more established and mature markets demonstrates that
marketing the benefits of green is significant to portrude the full potential of green buildings value
[1].

3.3 Green Building has difficulties in identifying any change in value aspects

Von (2010) and Tan (2009) argued that having a certified green building provides a low
construction operational cost, increases the property’s selling points, improves operational cost
saving up to thirty percent on the energy consumption, and guarantees the government incentives.
However, Real Estate and Housing Developer’s Association (REHDA) (2009) believes that such
incentives would allow a monopoly to exist; while Chen (2010) agreed that majority of the local
developers are likely opt for ‘green washing’ to chase the green points so that their projects are
perceived as following the current trend and thus qualify for the Tenth Malaysia Plan (10 MP)
incentive scheme [3]. As a result, the sustainability objectives of green building has been a
particular challenge for the development industry, resulting a lack of a business case for
responding to sustainable development objectives [4],Therefore, steps are needed to promote
wider acceptance in considering sustainability goal.

3.4 Green Building potential and risk

Many scholars believed that the global construction is responsible for contributing thirty five to forty
five percent of CO2 emissions throughout the world [10]. Studies conducted by the United Nations
Environment Programme in early 2007 indicated that by 2020, major parts of CO2 emissions will
come from the developing countries. In order to mitigate the financial concern and vulnerable
position in the marketplace for green buildings, this paper attempts to identify the economic value
based on the potential and risk associated with green building, as the key indicators for moving
towards building a sustainable development. Therefore, the summary of variable issues and
potential of green building is tabulated in Table 2 as shown below.

Table 2: Summary of potential and risk on economical value of building ‘Green’ property

Variables
Potential Risk
i. Low construction operational cost (% varies) i. High Development Cost (% varies)
ii. Property Selling point (+ 7.5%) ii. Costly additional components and material
(+5%)
iii. Government incentives on qualified iii. Costly Innovation (-100%)
expenditure
(+100%)
iv. Market value (±10.4 %)- ASIA base (2008) iv. Low market appreciation value (% varies)
v. Operational Cost Saving (50%) v. High recurrent Maintenance (% varies)
4. Case Studies on ‘Green’ Development
4.1 The Certified (GBI and BEI) BIPV technology of GEO building, Malaysia
The 4000square metres of Malaysian Green Technology Corporation office; The Green Energy
Office (GEO) building serves as a green pilot project that provides a platform for proof of the green
concept in driving forward the goals of the Malaysian building industry (developers, consultants,
architects, local professionals and academia at large) in the subject of sustainable building design.
At a low cost of approximately RM20 million, the conceptual budgets are estimated to incorporate
the GEO building with the Building Integrated Photovoltaic (BIPV) system and also achieved the
GBI (certified) for Non-Residential Building. GEO building proved the sustainability achievement
through its energy efficiency strategy by producing electricity about 1,200 kWh/kWp/year but only
consume energy about 65kWh/m2/year (without PV contribution) as measured in Building Energy
Index (BEI). Compared to conventional building that would consume energy up to 220
kWph/m2/year, GEO building is likely demonstrate sustainability more than seventy percent in
terms of energy efficiency [5; 9]. It is forecasted that the GEO building could achieve BEI
35kWph/m2/year indicator as shown in Figure 1; therefore, the GEO building in turn contributes to
only 23kgCO2/m2/year [8]. The study that has been conducted by the IEN Consultant (2010) and it
also shows that, as compared to the conventional office building, the GEO building yields a 50
percent reduction on energy consumption and about 80 percent reduction on CO2 emission
intensity per annum (Figure 2).

Figure 1: Buildings are responsible for one-third of energy related GHG emissions.
Source: IEN Consultants, 2010.

- 60%
- 70%
- 80%

Figure 2: Green building demonstrates high CO2 emission savings.

Source: IEN Consultants, 2010.
4.2 Summary of case study data (based on GEO Building and BIPV technology)
The summary of case study applicable data (as also mentioned earlier in item 4.1) will assist to
simulate the expected outcome of the green building in terms of value of money and is tabulated in
Table 3 as shown below. The GEO building consists of Energy Efficiency (EE) quality as certified
by the GBI scheme. The MGTC (2009) stated that almost 18% additional construction cost is
incurred to adopt EE features while overall additional construction cost for adopting EE and RE
features will take up about 33%. The EE performance alone is designed to cater the energy use of
the building system such as the air conditioning and space heating, lighting, power, and process.
The common index for comparing energy use in buildings is known as the Building Energy Use
Index (BEI). This is usually expressed as kWh/m2/year which measures the total energy used in a
building for one year in kilowatts hours divided by the gross floor area of the building in square
meters [2]. Moreover, Chan (2009) believed that in order to comply with MS 1525 requirements for
non-residential buildings with air conditioned areas larger than 4000 square, the use of Renewable
Energy (RE) out of Building Integrated Photovoltaic system (BIPV) is adopted to achieve the
thermal efficiency of the building that should not exceed 50 W/m2 [9]. This strategy is expected to
contribute more energy saving on the use of air conditioning system that is normally take up 64
percent of overall energy consumption [2; 9]. According to the MGTC (2010) study, the yearly
energy saving of GEO building based on RE and EE (587,375 kWh/year) is translated into nearly
RM232, 558 based on the Tariff B (Low Voltage Commercial Tariff), whereby for all kWh of energy
usage is equivalent to RM0.397 per kWh. Meanwhile, the CO2 reduction is calculated based on
the 0.614 kg of CO2 emitted to the atmosphere for each 1 kWh of electricity generated by power
plant (Peninsular Malaysia).

Table 3: Summary of the case study on GEO building and BIPV technology.
Buildin Buildin Overall Additional Energy Energy Energy CO2
g / RE g Floor budget / Constructio generation Use saving (kWh reduction
project Area cost nCost for (kWh/year) BEI /year) = (kg/year)
(sqm) (RM) EE / RE (kWh/m2/y RM 232,558
ear)
GEO 4152 20 million 18% (overall NIL 65 492,125 X
Building 33%) 0.397 =
(EE) RM 195,374 (587,375 X
0.614)=
BIPV 766 3.million 15% 1,200 35 95,250 X 360,648
project (extracted (equivalent 0.397 =
(RE) from to 95,250 RM 37,184
20mil) energy
saving)
Source: (MGTC, 2010)

4.3 Comparative study on conventional and certified GBI with BIPV of an average of
4000sqm Office Building
Based on the case study of GEO building, the researcher has attempted to work out a comparison
of the conventional building against the green building using the common value in terms of
financial analysis (money). Hypothetically, it is expected that the result could change the risk on
financial concern for the green building, yet it offers a feasible and viable investment. The working
simulation on the financial analysis as estimated in Table 4 is solely based on the data applicable
as shown in Table 2 and Table 3. The conventional building is assumed to have the same area
(4000 sqm / 43,055 sqft) but has a reduction of at least 33 percent (RM6.6 million) in construction
cost against the sample budget (RM20 million). This is because the additional EE and RE features
as applied to GEO building are assumed not integrated in the conventional building. Consequently,
this study considers the incentives yield for GBI certified building is the tax exemption on 100
percent statutory income. It is estimated that the qualifying expenditure (QE) on the components
and materials of green building is assumed as 5 percent from the additional construction cost
(RM6.6 million), which is equivalent to RM 330,000. Hence the building construction cost is
estimated based on the value per square feet by dividing the overall budget (for each type of
building) with the building area (43, 055 sqft). Since the GEO building has adopted the BIPV
system for energy efficiency goal, this simulation study is also considering the BIPV result as the
crucial data of the operational cost saving strategy. This is because the BIPV system for RE
generation is forecasted to yield more energy saving of approximately 35 kWh/m2/year (MGTC,
2010). The study also attempted to evaluate the profitable value out of green building based on the
average rental of Class A building (RM 6.00/sqft) in an urban city such as Kuala Lumpur that is
highly marketable but also exposed to the risk of CO2 emission intensity (MGBC, 2010). The
estimated rented area is based on the air-conditioning area whereby it usually covering 80 percent
(in this case study is 3,175 sqm or 34,444 sqft) of the gross floor area (GFA) of a building [2; 8; 9].
Hypothetically, it is expected that the green building is cost-effective to commercial building that
generate revenue based on the encouraging performance of the green building features.

Table 4: Simulation study on financial analysis of Conventional Building versus Certified Green
Building of an average of 4000sqm / 43, 055sqft Office Building

No. Building description Conventional Building Certified Green Building

1. Overall budget / cost (RM) RM13.4 mil. RM20 million

(Say: RM20 million
– 33 % or RM6.6 million)
Building cost per square feet
2. ± RM310 / sqft ± RM465 / sqft
(RM/sqft)
3. Operational cost saving / year 0 RM 232,558
(Solely on EE and RE performance=
BEI 35kWh/m2/year)
4. Incentives yield on tax exemption 0 (RM 330,000)
(100 % from additional QE on (RM 6.6 million – 5%
components and materials) additional cost)
5. Rental Market (Purpose Built Office (6 X 34,444) (6 + *1 X 34,444)=
in Klang Valley) at RM 6.00 /sqft = RM206, 664.00/month (RM 241,108 /month X 12)
(NAPIC, 2010). (+ zero EE saving) + (RM232,558 energy
Say 80% of GFA= 34,444 sqft, so that equivalent to saving)
[( RM6.00/sqft + market value RM 2, 479, 968 /year equivalent to
percentage X 34,444sqft X 12 months) RM 3, 125, 854 /year
+ operational cost saving / year] = *Green Building market
revenue / year (RM) value at ±10.4% or ±RM 1
6. Payback period 5.4 years 5.8 years
(based on rental, operational cost
saving on electricity, and incentives
yield
Notes: The feasibility study shown regardless of actual operation expenses, maintenance expenses, and
other related utility saving.

5. Conclusion
The simulation analysis results from the summary of case study data shown above are that
operational cost saving of EE and RE performance alone (regardless of water saving) can be
achieved from certified green building with BIPV technology at least RM232,558 a year. As
opposed to the conventional building, it is expected that business operation could recover the
expenditure on green buildings approximately 5.8 years of operation (rental collection, cost saving
on energy efficiency, and tax exemption). The study also hypothesise the green building rental
collection is 10.4% based on the Asia market of Green Building (2008), however, the simulation
shown an additional yearly revenue of 21% (difference of RM645,886) as compared to
conventional building. Although, the investment on green building seems to have a difference 0.4
years (approximately 5 months), the simulation study as shown above discounted the cost saving
potentials that are derived from the water saving, and waste management. That is to say, this
study only highlighted the EE and RE potential. Study need to be carried out using extensive data
on financial records (especially on operational expenses). The green incentives scheme certainly
contributes towards green building and seems to make a significant financial difference (RM330,
000) by cutting back the incurred tax on statutory income based on the full qualifying expenditure
on installing green features. The main conclusion is that, since the GEO building is a non-profit
(generating) building therefore, this simulation needs to be applied to another case study (green
building) in the commercial sector where a market rate for the green building could be derived. The
conceptual framework of the green initiative needs to justify that building ‘green’ can be a ‘low
cost’ or a good investment but it can also be profitable if the business strategy based on the green
economy using the green design of the property is structured sensibly.

Acknowledgement
The authors are thankful to the MGTC and MGBC officer in providing necessary assistance for
completion of this paper. The authors wish to compliments to the Ministry of Higher Education
Malaysia (MOHE) in providing the fundamental research grant scheme (FRGS) to facilitate the
research process described in this paper.

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