Decarbonising the built environment: the path to net zero 2050

6 April, 2021

Amidst our efforts to achieve net zero by 2050 (2045 for Scotland), the recent announcement of the scrapping of the Green Homes Grant voucher scheme does not breed confidence that enough urgent action is being taken if we are to hit that target.

The residential sector, with around 65% of properties being owner occupied, is ripe for change if supported by an effective incentive scheme.  It is one of the initiatives mentioned in a recent House of Commons enquiry by the Environmental Audit Committee which considered progress with energy efficiency for existing homes.  Worryingly, the conclusion to the Committee’s report, published on 22 March 2021, states that “The Government’s current targets for domestic energy efficiency are set for an 80 per cent reduction in emissions by 2050 and not the net zero target established in law.  Yet the Government is not on track to meet event this.

One of the measures mentioned was the Green Homes Grant, which was criticised for being poorly implemented and rushed.  Perhaps no huge surprise that it has been scrapped then and although the Department for Business, Energy and Industrial Strategy confirmed that some of the funding will be available to low income households through local authorities, the scheme’s failure represents a missed opportunity to encourage much needed energy efficiency changes.

The real estate sector has a major role to play as we work towards net zero because the built environment contributes around 40% of the UK’s total carbon footprint*1.  A recent talk given to the IPF (Investment Property Forum) by Chris Stark, CEO at the Climate Change Committee*2 (CCC) highlighted some of the investment requirements and policy challenges ahead of us as we strive to achieve the net zero target.  Chris highlighted the decarbonisation of existing buildings as a key priority.  That process presents the challenge of how to fund the huge initial investment needed to decarbonise existing buildings and poses the question of what Government policies are needed for the necessary changes to happen.  There is already a financial ‘carrot’ for owners in the form of future savings through improved efficiency but that alone is not enough.  Finding a way to balance capital expenditure with operational savings will be critical.  Measures such as the Green Homes Grant, if properly implemented, might have helped with that.

The commercial property sector presents other challenges, particularly with the CapEx/OpEx balance not sitting well with short term investment ownership or the landlord/tenant relationship.  The growing importance of corporate ESG commitments, for both owners and occupiers, may well support change in that sector as it starts to impact values but Government policy will also need to support that change, and it needs to happen quickly.

Energy Performance Certificates (EPCs) also come in for criticism from the Environmental Audit Committee with their biggest flaw being described as “their inability to reflect real-world energy performance“.  The report recommends the EPC methodology is fundamentally overhauled.  While the EPC methodology might be improved it seems inevitable that the use of a ‘stick’ at the point of sale or letting by requiring certain energy efficient criteria to be met will continue and those criteria will continue to tighten.  These policies are the subject of current Government consultations, including on the implementation of the B rating target by 2030 for privately rented non-domestic buildings in England and Wales and also a new rating framework for large commercial buildings (above 1,000m2).

The message from the CCC is clear; urgent action needed if we are going to hit the net zero target.

*1: as reported by the UK Green Building Council

*2: The CCC is an independent, statutory body established under the Climate Change Act 2008 and their purpose is to advise the UK and devolved governments on emissions targets and to report to Parliament on progress made in reducing greenhouse gas emissions and preparing for and adapting to the impacts of climate change.