Is the UK on Course for Creating an Energy Efficient Property Sector?

Cutting CO2 in commercial properties

There’s less than a decade to go before the UK’s target for all new commercial buildings to be zero carbon begins to bite. Is the industry prepared? Listening to Francis Salway, chief executive of Land Securities and chair of the British Property Federation’s sustainability committee, at this week’s Ecobuild conference, it seems not.

“It just isn’t doable at the moment and there have been very few times in my career where I’ve been given a challenge which isn’t doable,” says the outgoing head of Britain's biggest commercial property developer.

The aspiration for zero carbon new buildings is a key plank in the government’s plans to cut UK emissions by 80% by 2050. However, proposals for how this target can be met have been sparse, leaving developers without a clear understanding of what is required of them – a slight problem when the lead time for a new building can be five years or longer. In response, the British Property Federation (BPF), the membership body for the property industry, has published a manifestocalling on government to take action.

Delivering zero carbon commercial buildings will require a combination of energy efficient building fabric and services; on or near-site renewables; and a range of further off-site ‘allowable solutions’ - where developers provide funds towards off-site low carbon renewable energy projects.

“I think meeting the standard will come a lot through allowable solutions,” added Salway. “But that will need extensive involvement of local authorities and that dialogue hasn’t started yet”.

The manifesto urges the government to engage with the industry on the detail of the standard – which will come into force in 2018 on public buildings and 2019 for all other non-domestic properties - and provide clear timelines and objectives.

However, with only 1-2% of the building stock replaced each year, the much bigger challenge is around existing buildings. Provisions are in place that by 2018 landlords of commercial properties won’t be able to let buildings with an Energy Performance Certificate of F or G. While this will force improvement of the worst performing buildings, it is unlikely to encourage the upgrading of buildings to the highest standards. For that, some form of incentive is required.

In the absence of a green rental premium for better performing buildings, the BPF is investigating the potential of fiscal incentive schemesto encourage occupiers to favour green buildings – something which has been shown to work in the US. This could take the form of lower business rates, which could be fiscally neutral to HM Treasury, and drive a step change in energy efficient retrofit.

The BPF is also calling for policy makers to pay more attention to overcoming split incentives – where the landlord has to pay for building improvements to reduce energy usage while it is the tenant who benefits from lower energy bills. According to the manifesto, policy makers tend to pay insufficient regard to this issue, and come up with ideas and schemes that are difficult to implement because of the differing impacts across the landlord and tenant divide.

One further thing the BPF wants is a simplified approach towards taxation of the emissions associated with energy use in buildings. It believes that the Carbon Reduction Commitment Energy Efficiency Scheme, having become a revenue raising instrument, is overly complex and its reporting via a league table flawed.

On this last point it won’t have to wait long. In his Budget speech this week the Chancellor announced that the government will consult on simplifying the CRC Energy Efficiency Scheme and, should very significant administrative savings not be deliverable, it will bring forward proposals in the autumn to replace revenues from the scheme withan alternative environmental tax. It’s a step in the right direction, but there’s still a long way to go.

You can download a copy of the British Property Federation's manifesto for exisitng builidngs here and new buildings here.