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The first report date for the new Streamline Energy and Carbon Reporting (SERC) legislation, applicable across the UK, is barely 6 months away on 1st April 2020.

This will bring Mandatory Greenhouse Gas Reporting to an estimated 12,000 businesses, an increase from 1,200 businesses reporting under previous legislation. Reporting of carbon emissions is the future for your businesses and you will need to get used to it.

With pressure on to evidence decarbonisation at a business level, the focus is falling squarely on the performance of existing buildings.

There are approximately 200,000 nondomestic buildings in Scotland, but the diverse nature of non-domestic buildings means we know relatively little about their actual energy and carbon performance.

The current legislation using Energy Performance Certificates (EPCs) to identify energy and carbon performance is flawed as it uses modelled, predicted data. It is only through actual performance data that true carbon emissions can be reported. Indeed, it can only be a matter of time before legislation in the UK adopts  performance-based approach similar to the ironically named NABERS legislation in Australia.

The Real Estate Environmental Benchmark (REEB) is a publicly available operational benchmark of environmental performance for commercial property in the UK.

According to REEB the energy intensity of a typical office building in Edinburgh is 258kWh/ m2 (electricity equivalent), best practice is 189kWh/m2.

Do you know how much energy the building you occupy uses and how does it compare to this benchmark?

The UKGBC define net zero operational carbon for existing buildings as taking all possible energy efficiency and carbon emission reduction steps in the first instance. Next is to provide renewable energy on site where possible. The final step is to offset all remaining energy to cover the balance of carbon emissions.

In order to meet the Scottish Government zero emissions targets by 2040, our typical office will need to reduce the 258kWh/m2 to virtually zero in 20 years. Therefore, a critical time for reducing emissions comes when existing buildings are refurbished. How many times in these 20 years will there be an opportunity to carry out a deep refurbishment? If a tenant is signing up to a 10 year lease, there may only be one or two opportunities.

If we assume that from the current carbon performance levels of our building (258kWh/ m2) to zero in 2040 is a straight line it gives a clear decarbonisation pathway. For example at the half way point, in 10 years, emission levels will need to be half of 258kWh/ m2, or 129kWh/ m2, this figure is well below current levels of best practice as mentioned above. It is fair to assume that legislation at this point in 2030 will reflect a performance level of 129kWh/ m2 or better and will limit  carbon emissions accordingly. In addition to legislation, our market expectations for better performing premises will also have moved, so informed tenants taking  pace in 2030 will likely have far more stringent carbon performance requirements than they do now. Tenants will not want to take on the burden of poor carbon performance because of legislative reporting requirements such as SERC.

As market expectations and legislative efficiency standards are forced into change, buildings that sit on the wrong side of the decarbonisation pathway are likely to become ‘stranded’. These are properties that will be increasingly exposed to the risk of early economic obsolescence. For landlords this is a significant risk that must be managed.

To do this, landlords need to consider developing clear benchmarking roadmaps for individual properties, identifying retrofit opportunities to avoid stranding of the asset. Relying on electric grid decarbonisation is not a solution, more a last resort, and efficiency and renewables opportunities must be fully explored first.

For tenants, reporting and reducing carbon emissions will be an integral part of doing business going forward. Taking on a 10 year lease in a building within which it is difficult to reduce carbon emissions, means that these emissions are locked in to the business reporting schedule all that time. Far better to rent a building that has been refurbished to minimise emissions and save having to tell your customers about all those carbon emissions over the 10 year lease.

There is sufficient common ground here for landlords and tenants to work together. This may be considered solely a landlord problem but it is clear there is benefit for both parties and this should open the door for some dialogue about the sharing of costs.

If you want to future proof your building or your business, now is the time to be clear about how much carbon and energy it is using.

As featured in the October / November issue of Business Comment Magazine – page 33.