Sustainability Legislation for the Real Estate Sector - October 2011

Making sure that we keep you up to date on major energy, carbon and related sustainability legislation in the major markets, below are the latest changes that may impact the office space you are managing or the real estate investments you are holding.

Global / United Nations

Durban Climate Summit: Developing countries to join global climate action by 2020

The Durban climate summit may seem just another global climate change meeting that follows its predecessors in Copenhagen and Cancun by resulting in very little tangible decisions. However, the 194 nations working on this major global challenge, reached two results that made it more significant than the two previous meetings:

1. The Kyoto Protocol was prolonged for a second period and;
2. From 2020 onwards all countries in the World will be covered by carbon reduction targets, including some of the largest carbon emitters, China, India and the USA.

In summary, the results of the climate summit in Durban cover the following:

Kyoto Protocol prolongation: Establishment of a second carbon reduction commitment period, after 2012, for industrialised countries and the continuation of major policy implementation tools to help developing countries

Global legal agreement: Governments decided to adopt an “agreed outcome with legal force” (in order to accommodate countries that were not going to sign up for a stricter “legally binding” agreement) on climate change as soon as possible, but not later than 2015

Durban Platform for Enhanced Action: In order to get to this common global framework by 2015, a roadmap has been established that will define negotiations amongst the participating countries

Green Climate Fund: Confirmation of the launch of the fund in 2012 to help developing countries adapt to negative effects of climate change.

The impact of the Durban meeting will not be felt immediately by the major players. For example the European Union’s commitment to cutting its carbon emissions is already contained in the Climate and Energy Package, agreed by the EU in 2008, intending to cut greenhouse gas emissions by 20% by 2020. The USA has still not ratified the Kyoto Protocol and may only join the other major CO2 emitters, China and India, from 2020 in the joint action.

The consequences for the global real estate sector reflect this: EU carbon and energy legislation remains on track demanding increased energy efficiency and reduced carbon emissions from new and existing buildings by 2020 and beyond. In the other major greenhouse gas emitting economies legislation for real estate will need to introduce measures and objectives step by step in order to prepare the ground for the implementation of concrete agreements that countries will have defined by 2015, according to the Durban Summit decisions.

Furthermore, what it does provide global real estate players with is more certainty. Investors and occupiers alike can now commit capital and internal resources to sustainable upgrades of their portfolios, knowing that the legislative drivers for the built environment are here to stay in 194 countries worldwide.

The result of the Durban Climate Summit may be summed up in the words of the UNFCC executive secretary, Christiana Figueres: “… countries, citizens and businesses who have been behind the rising global wave of climate action can now push ahead confidently, knowing that Durban has lit up a broader highway to a low-emission, climate resilient future.”

UN press release: Durban conference delivers breakthrough in international community’s response to climate change View

UK

Introduced in March 2011, the UK Energy Bill aims to encourage investment in energy efficiency measures for homes and commercial real estate. This September, the Bill went through the Report stage and Third Reading in the House of Commons and in October it will go through the consideration of amendments in the House of Lords prior to receiving Royal Ascent. The June amendment - supported by a number of organisations such as the UK Green Building Council and the British Property Federation - to require Display Energy Certificates (DECs) for commercial buildings was not retained by the UK Government during the September session.

The question therefore remains if the UK government will put into practice the Carbon Plan, a UK government-wide plan of action on climate change that sets out initiatives and deadlines for the next five years, its commitment to extend DECs to commercial buildings by October 2012, and what the next step will be to boost the uptake of commercial green buildings.

The UK government also intends to launch a number of consultations this autumn on energy performance certificates as well as building regulation changes.

France

A continuing stream of decrees is being published as part of the French 'Grenelle' Environment Laws. Here are the main updates since our last Global Sustainability Perspective edition.

A decree on what to report in greenhouse gas inventories requires companies with over 500 employees to report greenhouse gases from direct and indirect emissions (electricity and district heating etc.). The law also applies to public institutions with headcounts over 250, to municipalities with over 50,000 residents and to central government. The report needs to include reduction measures and goals for a three-year planning period.

The urban planning law will contain a new requirement to further the use of eco-friendly materials and products in building construction. The new decree will no longer allow urban planning laws to prohibit the use of eco-friendly construction materials or installations, such as photovoltaic installations on building roofs.

The building code receives a new obligation for building owners to install electric vehicle charging stations in new and existing buildings. Electric charging stations must be installed and cover at least 10% of a building's car parking capacity, for new buildings from 2012 and existing buildings from 2015. A similar obligation applies for bicycle storage installations.

China

China is studying how to enforce a total cap on energy consumption by setting targets for local governments, a government report stated in August. The proposed total energy gap is intended to slow emissions growth and fuel consumption by setting quotas, and some details of how China could enforce the cap have been disclosed by the National Development and Reform Commission (NDRC). Any proposed projects that have not passed an energy saving assessment will not be approved for construction, it added. However, the cap would still allow for a 26% increase in total energy consumption by 2015.

As an advisor to developers of large construction projects, we expect the central government to ramp up efforts to control energy intensity. Though new construction has slowed somewhat in the more developed Eastern regions of the country, the volume of new projects in these areas is still extremely high by any Western country's measure. In the less developed Western cities and central tier 2 cities, new construction growth is accelerating, following the path of leading cities like Shanghai and Beijing. With so much new property and the consequential energy demands pulling from an already pressured electricity grid, energy efficiency has become the urgent need of a nation which requires fast growth (8% to match population growth) with strained domestic energy supplies.

However, it is also important to bear in mind China's typical process for introducing new regulations as demonstrated by the recent tax overhauls. Before introducing sweeping reforms which add cost to companies, government traditionally pilots a variety of different execution strategies in select cities such as Shenzhen, starting with initial standards which align with existing best practice before tweaking the regulations and increasing the standards. Should China move forward with firm caps, it can be expected that implementation will be conveyed well in advance and the impact to developers of the highest quality properties will be marginal.

On the renewable energy front, there has been an important change with the introduction of feed-in tariffs for solar power. Since August, project developers can now sell solar-generated electricity to utilities at a price of about $0.15 per kilowatt hour. And in some cases, depending on the timing and location of solar projects, the price is slightly higher.

Analysts attribute the birth of this long-awaited scheme to two urgent needs: keeping the nation's promise to use non-fossil fuels amid nuclear development setbacks, and feeding its hungry solar manufacturers for whom overseas markets are no longer sufficient. Up to now, China has lacked efficient financial incentives to nurture its own solar energy use. In many cases, analysts say, project developers here could barely break even, let alone get a decent investment return.

Australia

On 1 November 2011 the Australian property industry will be subject to the full disclosure requirements of the Commercial Building Disclosure (CBD) program that started in the summer of last year and is designed to improve the energy efficiency of Australia's large office buildings. The program was operating in a transitional capacity from 1 November 2010 with only a NABERS Energy rating required at transaction. From 1 November 2011 a full Building Energy Efficiency Certificate (BEEC) will be required during eligible property transactions. The BEEC needs to be provided during the sale, lease or sub-lease of commercial office space greater than 2,000 sq m with only limited exceptions (for example new buildings with an occupancy certificate less than two years old). Each BEEC will be a publicly available document that can be downloaded from www.cbd.gov.au.

The Building Energy Efficiency Certificate (BEEC) comprises the following