Cutting down for a better future

John Gotley outlines the details of legislation regarding businesses' carbon footprints, examining how it will be implemented and the impact it will have on the commercial property industry

Climate change is set to be one the biggest challenges facing mankind in the twenty first century and a major contributor to this problem is the emission of greenhouse gases from commercial buildings. To address this, the Carbon Reduction Commitment (CRC) energy scheme has been launched to encourage managers of commercial property to help reduce the UK’s carbon emissions by 80 percent by the year 2050.

Legislation is already in place and is being further developed at national, EU and global levels to reduce carbon emissions from commercial property. At the same time, sustainable energy sources are being developed and carbon
offsetting schemes are increasing in order to mitigate the environmental impact.

According to The Carbon Trust, the biggest contributor of a business’s emissions come from its building but argue that cutting emissions will also cut costs for individual businesses. To incentivise companies, the CRC scheme  provides large companies a six month window to register and start reducing their emissions. It is anticipated that the scheme will apply to over 20,000 commercial properties in the UK.

Understanding your carbon footprint
Port@l recently commissioned an independent white paper on the latest carbon footprint legislation and its impact for commercial property. As well as explaining what exactly a carbon footprint is, the white paper also points to the repercussions of businesses not acting.

For example, the Stern report, the Treasury’s comprehensive analysis of the economics of climate change, estimates that not taking action could cost from five to 20 percent of global GDP every year, now and in the future. In comparison, reducing emissions could cost around one percent of global GDP each year.  

Businesses and individuals can offset carbon emissions through various means, such as investing in re-forestation projects and in renewable energy sources. Supporters of offsetting claim it has increased the rate of investment in renewable energy sources and accelerated research and development. However, its critics claim that it avoids tackling the emissions of greenhouse gases.

Whilst Copenhagen failed to produce the global agreements that many had called for, Government and the EU are continuing to develop policies to reduce carbon emissions. The CRC scheme provides financial incentives for organisations to be energy efficient by offering bonuses to those reducing energy consumption and penalties for those which do not. Corporate reputations will also be put on the line, as firms’ carbon reduction performance will be rated in a public league table.

Complying with the CRC
The scheme applies to organisations that used more than 6,000MWh of electricity in 2008 - equating roughly to a £500,000 spend on energy. For businesses which must comply there are two distinct groups; those required to participate fully in the scheme and those required to make a disclosure about their energy use. For the purposes of the scheme, these are termed “participants” and “information declarers.”

For participants, the highest parent organisation will be legally responsible for participating in the scheme and reporting the energy use of all its subsidiaries.  

Subsidiaries with 25 percent of their emissions covered by a Climate Change Agreement are temporarily exempt from the scheme.

If, after exemptions, the remaining organisation consumes less than 1,000MWh then the entire organisation is exempt.
A company is required to be an information declarer if an organisation consumed less than 6,000MWh of electricity during 2008 through all half-hourly meters, it is required to submit an information disclosure to the Environment Agency, detailing total electricity consumption. Failure to do so would incur a fixed fine of £1,000.

Incentives and implications
The Climate Change Levy came into effect in 2001 and is a charge on energy usage for business and the public sector. To help energy-intensive organisations, the Government has negotiated Climate Change Agreements (CCAs) in some sectors. These agreements give organisations an 80 percent discount from the Climate Change Levy, as long as they reach additional CO2 reduction targets.

Investing in energy efficient new plant and machinery could qualify for an enhanced capital allowance. The Allowance (also called a 100 percent first-year allowance) allows a business to obtain tax relief on the whole cost of the purchase in the tax year it was made.  

If a business is energy intensive, it can receive an 80 percent reduction on the Climate Change Levy by signing a CCA. It then has to agree to meet set energy efficiency targets. In addition, businesses that practise green policies may be eligible for certain tax breaks or a loan.

Having a policy to reduce carbon footprint can differentiate companies from the competition, as increasing numbers of businesses are looking for a declared interest in this issue. Leading a sector or supply chain with lower carbon products and services can enhance a business’ reputation. In turn, increasing numbers of clients/consumers are making choices based on a company’s environmental credentials.

A recent CBI member survey also showed that 84 percent of respondents had adopted emissions reduction measures over and above regulatory requirements, because there was a solid business case to do so.

The path to compliance
Specialist companies are available to audit usage and make recommendations upon changing consumption, reducing consumption and offsetting your corporate carbon footprint. Accurate data about energy use is useful to help property owners identify the areas where properties can be improved.

Businesses can initially turn to The Carbon Trust for advice on how to cut carbon emissions too. It offers a building design service to develop low carbon solutions. The Trust offers free or subsidised consultancy throughout a project – depending on its size and potential carbon saving. For major building and renovation projects, the Trust can also provide strategic advice including: site selection, energy strategy, including sharing energy with neighbours and the use of renewables, architectural design, including building orientation, passive design and material selection.
More than half of the emissions that need to be saved are through energy efficiency. These measures are also cost-effective, saving businesses and households money in the long-run in terms of reduced energy costs and the increased value of buildings. In conjunction with further legislation, higher energy prices and greater consumer awareness, this creates a powerful case for more businesses to make considerable energy savings in the future and cut emissions.  

The Government suggests that positive returns can be made when commercial properties are developed or refurbished with carbon management as a key target within the design. The future will bring further legislation and it is predicted that increasingly occupiers will actively seek “green” properties, at the expense of non-compliant buildings.