Paving the way to net zero

Tarnya Mason and Richard Smith recap the timeline of policies through which the government is driving the UK property sector towards net zero carbon. The chief executive of the UK Green Building Council, Julie Hirigoyen, describes climate change as “undoubtedly the greatest challenge of our times”. With 39% of global energy-related carbon emissions coming from buildings, the property industry faces a ramping up of regulatory requirements to achieve net zero carbon. Below is a timeline of some key developments. Net zero carbon regulatory timeline Key date Initiative Summary 1 April 2019 Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 came into force Introduced the Streamlined Energy and Carbon Reporting regime requiring around 11,900 UK companies to disclose their energy and carbon emissions. Enhanced mandatory disclosures are likely to increase. In September 2019 the governor of the Bank of England called for mandatory corporate climate change disclosure. The government’s expectation is that, by 2022, all listed companies and owners of large assets will need to disclose in line with the Task Force on Climate-related Financial Disclosure recommendations. 1 April 2019 The Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2019 came into force Strengthened existing domestic energy performance certificate (EPC) regulations. Landlords must now contribute up to £3,500 towards improving their property’s EPC rating to E before letting it. If this sum is insufficient to bring the property up to an E rating, landlords can let the property but must register an exemption. 2 May 2019 Committee on Climate Change (CCC) report Net Zero – The UK’s contribution to stopping global warming issued Recommendations include the following government actions: Upgrade to EPC band C as many privately-rented and socially-rented homes as possible by 2030 and as many other homes as possible by 2035 Stop the installation of gas heating in new homes from 2025 Possible legislative reform to address the so-called “split incentive” (where the landlord makes the capital investment to improve the building but the tenant is the sole beneficiary of reduced operating expenses). 26 June 2019 The Climate Change Act 2008 (2050 Target Amendment) Order 2019 came into force Amends the targets set out in the Climate Change Act 2008. The UK is now legally committed to cut net greenhouse gas emissions to zero by 2050 (although these targets will be reviewed in 2024). It is predicted that policy announcements tackling climate change will accelerate in the next five years. Businesses would be well advised to plan ahead by assessing the risks and opportunities associated with climate related policy change. Some of the UK’s leading commercial property owners are already taking action by signing the Better Buildings Partnership’s Climate Change Commitment to deliver net zero carbon real estate portfolios by 2050. 15 July 2019 Electric vehicle (EV) chargepoints in residential and non-residential buildings – consultation published Proposes requirements to provide: EV charging points in new residential and non-residential buildings or those undergoing major renovations At least one charge point in existing non-residential buildings with more than 20 car parking spaces from 2025. The consultation closed on 7 October 2019, with changes expected to come into force in the first half of 2020. Developers, landowners and occupiers should consider: the impact of the proposals; what their future needs for electricity and EV charging points are; and what contractual arrangements should be put in place when a property is let. 2 October 2019 The Future Homes Standard: changes to Part L and Part F of the Building Regulations for new dwellings – consultation published Proposes changes to building regulations Parts L and F to achieve a new “Future Homes Standard” requiring new-build homes to be “future-proofed” with low-carbon heating and high levels of energy efficiency. The standard will be introduced by 2025 (although there could be an “achievable uplift” to energy efficiency standards from 2020). The consultation closes on 10 January 2020. Details can be found at: www.gov.uk/government/consultations/the-future-homes-standard-changes-to-part-l-and-part-f-of-the-building-regulations-for-new-dwellings The government will launch a further consultation (expected late 2019) on low-carbon and energy efficiency measures for both existing dwellings and new and existing non-domestic buildings. 15 October 2019 Leading on Clean Growth: government response to the Committee on Climate Change 2019 progress report to parliament – reducing UK emissions published Includes government plans for future measures. Note that the government: Proposes consulting on how lenders can incorporate energy efficiency into their lending decisions and requirements for lenders to support homeowner’s energy efficiency improvements (expected late 2019/2020) Is exploring potential actions on compliance and enforcement of energy performance. 15 October 2019 Non-domestic private rented sector minimum energy efficiency standards: future trajectory to 2030 consultation published Sets out proposals for a future trajectory for non-domestic Minimum Energy Efficiency Standards (MEES). The government proposes to raise the minimum EPC level to B by 1 April 2030 (although EPC level C is a suggested alternative). Landlords and tenants must be alive to the fact that property which is not currently affected by the MEES statutory letting prohibition may well be caught in the future. The consultation closes on 7 January 2020. Details can be found at: www.gov.uk/government/consultations/non-domestic-private-rented-sector-minimum-energy-efficiency-standards-future-trajectory-to-2030 The government will also consult in 2020 on the introduction of mandatory “in-use” energy performance ratings for non-domestic buildings. We could see display energy certificates being extended to all non-domestic buildings. Questions around who will pay for the net zero project remain unanswered (with government estimates being around £1tn). However, the recent spate of policy announcements evidence the government’s commitment to a net zero future. Is it now time to see the transition to net zero carbon less as a compliance issue and more as a way of obtaining value and a competitive advantage? In the words of Bank of England governor Mark Carney: “Firms that align their business models to the transition to a net zero world will be rewarded handsomely. Those that fail to adapt will cease to exist.” Tarnya Mason is an associate director (knowledge and real estate division) and Richard Smith is a partner and head of the environmental and planning law practice at Penningtons Manches Cooper