Zero tolerance

Tough on carbon, tough on the causes of carbon, was the Government's stance - as it quietly announced that all new non-domestic buildings would have to be zero-carbon rated by 2019. Mark Lupton analyses the likely impacts of the ambitious target

If you want to be sure a policy announcement gets as little attention as possible, there's no better place to reveal your intentions than in a budget statement. While the media focuses on the headline grabbing cuts in basic rates of tax or increases in duty on alcohol, fuel and cigarettes, other more interesting measures are often missed.

So it was with Chancellor Alistair Darling's announcement in his March budget that from 2019 all new non-domestic buildings should be zero carbon. The move represents a natural compliment to the government's much vaunted zero-carbon homes policy, which requires all new domestic properties to have net zero carbon emissions arising from all energy uses by 2016.

But, for those wanting detail, announcements in budgets can also be disappointing. As the chancellor races through dozens of fiscal measures in the space of an hour or so, there's less room for the minutia. This is often why the true implications of budgetary announcements don't emerge until days later. (And of course, there was also little time for anyone to question why the Treasury was making an announcement on green building policy anyway.)

We would have to wait for a consultation with industry before a timetable could be finalised and "implementation feasibility" assessed. But detail, or no detail, the plans put the government, "at the forefront of environmental legislation," it was argued.

"Achieving this goal," said Darling, "will establish Britain among the world leaders in the field and make a significant contribution toward mitigating climate change by saving about 75M tonnes of CO2 in the next 30 years."

It's a target we certainly need, argues Paul King, chief executive of the UK Green Building Council (UKGBC), whose government-commissioned report Carbon Reductions in New Non Domestic Buildings paved the way for the Chancellor's announcement.

"Of the UK's CO2 emissions, 45% of those are from the built environment, with 27% from housing and 18% from non-domestic buildings. We therefore need to make big cuts in these buildings' carbon emissions as quickly as we possibly can," he said. "The IPPC's fourth assessment report last November also said that, globally, buildings provide the biggest, lowest-hanging fruit in terms of the ability to cut carbon. That's the bigger picture."

The UKGBC's report drew evidence from a number of its members including industry giants like Marks & Spencer, Arup, Laing O'Rourke and Gazeley, as well as the BRE - the body responsible for the BREEAM standard, the commonly used assessment method for the environmental performance of buildings.

The report aimed to see if similar targets to those set out in the Code for Sustainable Homes could be achieved in the non-domestic sector. This would involve calculating the total energy use in the UK's non-domestic market, before asking how feasible it was to bring the emissions from this energy use down to zero. The organisation also set out to ask how much that would cost and how quickly it could be achieved.

It concluded that reducing carbon emissions to zero in the majority of new non-domestic buildings was possible - as long as onsite, near-site and offsite renewable energy solutions are employed. And it proposed a target date of 2020 as achievable. Allowing offsite is important as there are those who argue that true zero-carbon buildings should have to meet all their energy needs locally if they are to be worthy of such a label.

King disagrees and argues we need a hierarchy of measures to reduce emissions, starting with minimising demand before considering onsite, near-site and offsite renewable energy solutions in that order.

"Our report shows that you are going to have to allow offsite renewables to count towards achieving zero carbon," he adds. "There is a live debate on this but ultimately if you want to achieve zero-carbon on non-domestic buildings only through onsite renewables, even if you could, the cost would be so high as to make it impossible.

And in many cases you simply couldn't do it. We believe you should look at what it's feasible to achieve onsite, then you should look more remotely."

As with the target for homes, another problem facing the 2019 target is the lack of a clear definition of what we mean by zero carbon. As Sustainable Business went to press, some answers were imminent on this crucial question with a UKGBC Task Group on zero-carbon homes - chaired by Barratt's chief executive Mark Clare - due to report in May. It has made no bones about the fact it will include the delivery of off-site renewables in the definition. Its promise of clarity for the industry is most pressing for the domestic sector, but it is also expected to make recommendations applicable to the commercial market.

And what the target doesn't, of course, address is the problem of existing buildings - 60% of which will still be around in 2050. This is a criticism which has also been levelled at the zero-carbon homes policy.

Tony Defries, director of Savills' building consultancy team, says: "The 2019 target is literally years ahead of the rest of Europe in terms of targets. However, the fact that it is so focused on new buildings is a big issue. If you are going to make a difference like the government and the public want, there has to be a completely different approach. And that has to involve existing buildings.

"It's not as sexy as new build but that, coupled with changing people's behaviour - like getting people to switch off lights and computers - can make a real difference.
"The government needs to also look at how it can boost refurbishment of existing properties to make them more sustainable through things like abolishing VAT on refurb or enhanced capital allowances on improvements."

So what does all this mean for the industry? At present, interest in more sustainable buildings lies at the margins, argues Defries. Largely it's the preserve of corporate giants for whom CSR has become a major priority. By 2019, of course, zero carbon will be an unavoidable issue for anyone purchasing, leasing or building a new commercial building.

"Most of those who are doing it at the moment are doing it for market differentiation," says Defries. "For most of the clients we are advising on relocation at present, the energy side is so low down on the radar it's almost invisible. Location is still the top of the list of priorities. That's because energy is still a small proportion of running costs - about 2-3% - even with the higher prices we have seen recently."

Defries argues that the recently introduced Energy Performance Certificates (for commercial buildings) and Display Energy Certificates (for public buildings) might begin to raise awareness of energy use. EPCs will give an energy rating - a bit like that for fridges or washing machines. Since April, these are mandatory for any new building or if a building is put on the market for sale or rent.

Ben Wielgus, a risk and sustainability advisor at KPMG, says increasing energy costs are becoming more of an issue. And this will therefore push sustainable buildings up the agenda for many companies.

"Some clients we are talking to have seen a 35% increase in energy costs in the last 12 months - where they have been on fixed-term contracts and these have expired. That requires businesses to take energy into account in investment decisions now in a way that's not been done before."

And his advice to companies is straightforward: "You've got to start considering the cost of carbon now in your long-term investment decisions because it is inevitable that this is going to become a bigger issue. Those industries in the EU Emissions Trading Scheme have been forced to take account of a cost of carbon for a number of years. But we are starting to see other industries adopting a virtual-carbon price (based on their forecasts of a future carbon costs) in their operations.

"This allows them to accurately consider long-term investment plans in advance of legislation and market forces creating a mainstream carbon price."

Wielgus sites the introduction of the Carbon Reduction Commitment, which is likely to come into force in 2010, as another reason the issue will rise up the agenda. It means any firm with an energy bill of more than 6,000MWh (about £500,000 a year) will have to buy allowances equal to the amount of carbon they emit. This will further incentivise the introduction of carbon reduction measures, either through better designed buildings, demand reduction programmes or renewable energy solutions.

"We're advising all our clients to consider future costs of carbon in their investment decisions. In terms of property and construction clients where the investments are very long term, we are recommending they ensure the stock they are developing now is not obsolete in 20 years due to market shifts towards much more efficient buildings.

It's better to take a short-term financial hit through a higher investment cost, even though the returns might not be so good now, because the cost of carbon is going to go up."

It's far from certain what the additional costs of building to zero-carbon standards to meet the 2019 target will be. The UKGBC report, mentioned above, estimated that at the top end it would amount to 30% of current baseline costs, compared with 5-10% at the lower end. That stems in part from the nature of the non-domestic market, argues King.

"There are a myriad of different types of non-domestic building," he explains. "Far more than there are types of new homes. From a policy and a regulatory point of view that makes things more complicated. Also there is huge variation in the energy use of non-domestic buildings depending on who is occupying the building. So, if you are trying to achieve zero carbon in the non-domestic sector, it will be easy in some buildings and harder in others where, say, end use of energy is much higher."

For now a huge amount of detail remains to be filled in on the 2019 target and how it will be achieved. The Department for Communities and Local Government will begin a three-month consultation with industry this month. The government's policy response to that will follow in the Autumn.

The big question is whether developers will welcome the inevitable cost increase of zero-carbon new buildings, particularly as we face a possible economic downturn. Interestingly, when the Budget announcement was made, the Royal Institute of Chartered Surveyors, warned: "It could hit the sector hard by adding significant costs to new builds at a time when the sector is facing a significant dip in demand."

King is confident, however, that developers are behind the plans. "When we produced our report, we spoke to some of the UK's biggest developers - Land Securities, Lend Lease, and Hammerson for example - and they have said they will support this policy. The report identified a timeline up to 2020 and they told us they were happy with that trajectory. Yes the 2019 target is very tough and it is challenging. But it is doable and I don't believe developers would be putting their names to it if they didn't think it was doable."

Defries says the targets set by government have to be realistic. And they have to set people short, medium, and long-term goals along the way. "Just to set a very challenging target of 2019, and that's it, and hope we can muddle our way to achieving it, is just not realistic. You have to have intermediate steps. You don't jump the high jump by starting out at the highest level - you build up to it."

Technological innovations in both architecture and renewable energy are being made all the time, he argues, which will aid delivery. And in the BREEAM environmental assessment method, the industry has a common standard all can work to. The 2016 target should also help as it will provide lessons learned, some of which will be transferable to the non-domestic market. The boost this should give to the UK's fledgling renewables industry could also help.

However, he recognises, work still needs to be done to address potential skills gaps.
"There are shortages in the built environment generally, and one of the biggest challenges the construction industry faces is finding enough people, particularly in the area of sustainability. This is work which requires a high level of innovation and creative thinking; finding new ways of doing things."

"I'm pleased to see the schools secretary Ed Balls has said that schools must go faster than the public sector on this with the target for them being 2016. Hopefully, school pupils will get to learn in zero-carbon highly efficient buildings, which will inspire them. They will be surrounded by it and will see the benefits of it. We have to inspire young people at school and college to think about getting into this area; getting them to see construction as an exciting job to go into. And as we tackle the reality of sustainable development on the ground it becomes an ever more interesting and creative area. That can only aid recruitment."

Mark Lupton is a freelance journalist

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