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Business Energy Tax Reform

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By Patrick Brown, Assistant Director (Sustainability and Construction) at the British Property Federation

Policy failure, they say, should break your heart.  Embodied in the Business Energy Tax Reform was a recognition that the policy framework with regard to energy use in buildings (and implicitly the associated greenhouse gas emissions) were overly complex and would benefit from rationalisation.

I agree.  On the one hand, it has got to the point that some of our members have to take a mini-sabbatical each summer in order to respond to the GRESB survey, and that is over and above compliance with prevailing regulation.  However, it is also clear that climate change and energy security are pressing concerns, and ones that will persist over timelines outside the political cycle; on the other hand, buildings are long-lived assets and the process for their planning and execution operates over a considerable timelag.  Moreover, decisions made at the design stage can create lock-in effects where some options and not others are open to property owners seeking to improve existing buildings.  Finally, there are comparatively few measures that seek to encourage occupiers to favour more energy efficient and low carbon buildings (and to some extent what sources of information would they trust to arbitrate between options?).  A coherent, long-term, complementary policy framework is vital to tackling these issues, since the market is unlikely to do so unaided.

The Business Energy Tax Reform concluded at the Budget 2016 in March that the fiscal element of the much-maligned Carbon Reduction Commitment Energy Efficiency Scheme would be merged with the Climate Change Levy.  The distributional effect of this decision will be that the majority of tenants will pay higher energy bills, which could have the effect of encouraging tenants to favour more energy efficient buildings, although it is not yet known from 2019 how much the Climate Change Levy will ratchet over time.  A number of industry bodies, ourselves included, were in favour of a trajectory being set for the Climate Change Levy as this would provide some help to both owners and occupiers in calculating marginal cost abatement curves when considering energy efficiency measures.

The Business Energy Tax Reform is not yet concluded, however.  A further consultation is expected over the summer on how several energy and carbon measurement and reporting frameworks could be rationalised.  My understanding is that the Energy Savings Opportunity Scheme is a favourite to form the lynchpin of a revised framework.  However, it is wise to underscore that not all measurement and reporting frameworks are created equal and they perform slightly different functions.  There is as much value in the introspective, thoughtfulness of organisational and supply chain reporting, offered by Mandatory Greenhouse Gas Reporting, as there is in a forensic energy audit that calculates paybacks and gives advice to organisations as to where and how they should invest in energy efficiency measures.  However, there is considerable potential to pursue agreed metrics as to how we measure energy consumption and normalise it *across* policies in order to avoid the nugatory costs that accompany the measurement and reporting of the same impacts in multiple ways.

Further, I was part of a group of organisations in 2014 that commissioned a report from Deloitte ( link to report )  that examined the energy and climate policy framework in buildings and concluded that there were a number of qualities of such a policy framework that the current policy array lacked.  These included:

  • bundling of policies that set performance metrics, targets and/or penalties and incentives, as well as trajectories of performance, and by extension, greater convergence on carbon and energy performance metrics across policies
  • over the course of the building lifecycle, interventions concerning building acquisition and disposal were under-represented compared to, say, those around new construction or major renovation
  • there was a need for a greater focus on embedded carbon and energy, as well as the current focus on operational carbon and energy

The above conclusions remain true, but there is something else: putting aside the Referendum on 23rd June, much energy and carbon-related legislation is determined by the European Union's institutions. Currently, the directives that have given us: thermal performance requirements in the Building Regulations; Energy Performance Certificates; Display Energy Certificates; Air Conditioning Inspections; Heat Metering; fiscal incentives for energy efficiency measures and headline renewable and energy efficiency targets are all under review.  There is a great need for dialogue between Government and civil society, including building owners and occupiers, as to what the EU framework for building energy and carbon policy should look like, in order to provide a compass to national governments when negotiating in the Council.  While the Government may be seeking to set and preserve a policy framework for building energy and climate policy in aspic, the European Commission considers it very much a moving target.  Such an approach would help to create a long-term, credible policy framework that has buy-in from industry.

Don’t miss your chance to hear from Patrick, along with other speakers at our April event. 

  • Anna Carolina Menezes, International Energy Manager at Tesco PLC
  • Gary Shanahan, Head of Business Energy Tax and Reporting at DECC