A joint commitment to cut carbon
The Carbon Reduction Commitment Energy Efficiency Scheme (CRCEES) is a carbon cap and trade scheme that is designed for non-intensive energy users in the public and private sectors. It is a complex piece of legislation that exposes a number of potential conflicts. Making it work will depend on input from facilities management specialists, such as the collection of data and energy efficiency advice and implementation.
The aim of CRCEES is to cut CO2 emissions by 3.2 million tonnes by 2020, and forms part of the Government’s target of an 80% reduction in emissions by 2050 from a baseline set at 1990 levels. It will have both a financial and a reputational impact on affected organisations. The scheme’s introductory phase will start in April 2010 when all those organisations which have to participate must register and begin monitoring their energy usage for compiling their carbon footprint. After the first year, which is a compliance year only, participants will need to purchase carbon allowances, set at a price of £12 per tonne of CO2, for the year ahead.
The scheme is revenue neutral with revenue from allowances recycled to participants based on a performance league table of their relative energy efficiency improvements. Organisations at the top will receive a bonus while those at the bottom will pay a penalty. From April 2013 the carbon allowances will be capped and sold via auction annually.
CRCEES is a ‘polluter pays’ scheme designed to address energy efficiency. Under the scheme the landlord is responsible for their own energy usage so tenants are not greatly affected, other than where recovery for common parts energy usage is necessary. Thus, perhaps disappointingly, there is no onus on tenants to improve efficiency.
The CRCEES has thrown a spotlight on the landlord/tenant relationship where the landlord is responsible for a building’s total energy bill, which is then recoverable from the tenant under the service charge. Here the landlord will not have direct operational control over the source of emissions. In addition the landlord will have a potentially heavy financial burden to purchase credits up front before he can recover them from the tenant. This may be several months later. Where this is the case, because traditional lease structures are not able to influence tenants’ energy consumption, it is hoped that landlords and tenants will cooperate to improve energy efficiency. Many large property portfolio holders are reporting that tenants, who are not obliged by the legislation, are accepting CRCEES and working with landlords.
However, some tenants do not feel obligated and are relying upon the terms of the existing lease, which do not provide for CRCEES or energy efficiency, and where these entrenched situations occur there is little possibility of action to boost building energy efficiency.
The introduction of green leases between landlords and tenants could offer a solution where new leases are created by adopting environmental clauses into them that address sustainability during the life of the building’s occupancy. But it is essential that both parties work together in drafting a green lease to help avoid future conflicts.
Examples of clauses within green leases include:
- The ability for the landlord to carry out repairs and modifications to the building to improve energy efficiency.
- An ability for the landlord to adjust service charge contributions between tenants to reflect the success or otherwise of individual tenants in meeting specified energy efficiency targets.
- A commitment to regular exchange of information between the landlord and the tenant of the building to ensure effective management of the environmental policy.
The Centre for Research in the Built Environment has developed advice and guidance on the topic, including sample lease clauses.
It is not only the landlord/tenant relationship where the responsible party faces challenges because it does not have direct operational control of an affiliate organisation. Paul Stepan, CRC knowledge leader at Camco, a leading climate change and sustainability consultancy, has highlighted other examples: “In the case of franchises, under the scheme emissions of franchise operations would be aggregated to the franchisor. But the franchisor does not directly run the franchisee sites, which creates management difficulties. While for local authorities, around 60% of its carbon footprint arises from schools. The legislation will demand that the authority are responsible for emissions arising from energy use and hence will be required to drive efficiency measures within its schools.”
He has also identified other issues: “The scheme could be criticised for being slightly unambitious when compared to the administrative burden. Overall the carbon reduction targets are fairly small with a reduction of 3.2 million tonnes (mt) of carbon emissions on annual emissions of 53.2 mt by 2020 or 6%. Is this enough?
“Is the public sector much better positioned than the private sector? The private sector aims to grow while the public sector is looking to remain static or reduce its scale of operations, making cutting emissions for the private sector far more challenging to achieve.
“Finally the practical implications of the scheme’s later mechanisms, such as sealed bid auctions for carbon allowances, are not yet widely understood. We are however working with forward-thinking clients to address this uncertainty.”
CRC on the ground
At the sharp end of reducing carbon emissions from buildings, facilities management specialists are helping their clients get ready for complying with CRCEES. One such company is Norland Managed Services, which has the British Museum and the Aviva portfolio among its customers. Gary Perry, Norland’s Director of Sustainable Energy Projects, said: “The CRC legislation has put the issue of energy management firmly on the executive radar. However, one of the most important drivers in improving efficiency is the realisation of how much energy costs, through service charges, and its impact on the bottom line. Around 65% of chief financial officers consider energy cost as the least controllable, but it ranks as the third largest cost.”
Norland is rolling out to customers its Active Energy Management Service. This is particularly suitable for delivering the incremental improvements in energy efficiency demanded by CRCEES legislation. It involves setting up the monitoring and benchmarking systems necessary to identify ways of improving energy efficiency, proposing and implementing actions, and measuring the outcomes.
Compliance with the legislation means that systems must be in place to accurately measure and report emissions for the financial year starting April 2010. Automatic meter reading should cover at least 90 per cent of the purchased fuel and energy, excluding fuel for vehicles. Norland monitors at clients’ sites using half-hourly meters for gas and electricity, as well as water, providing a daily review of consumption. This data is automatically collated and analysed the next day through specialist monitoring and targeting software. The information is used as part of a dynamic review process by its energy engineers and project managers to identify opportunities for energy savings.
“We can set up an alarm for when energy consumption exceeds normal parameters,” continued Garry Perry. “This can be used to identify specific incidents when energy is wasted, such as if cooling and heating systems are operating simultaneously, allowing the situation to be corrected. Monthly reports can also be used to highlight results of simple, low or no cost savings initiatives. For example, reducing the voltage supplied to the building, which may be at an input level of around 236 volts, down to 220 volts can reduce
energy costs by as much as 15%.”
Make it work
Despite weaknesses of the CRCEES, particularly the issue of directly fulfilling the ‘polluter pays’ principle, it is to the advantage of tenants and landlords to co-operate and prepare for its implementation. In the future, energy costs are likely to increase sharply to pay for replacing the UK’s redundant generating capacity and for boosting the proportion generated by renewable sources. This will lead to increases in annual energy costs so that energy efficiency investments now will translate to more significant cost savings later. There is also the reputation benefit among stakeholders of organisations associated with a good CRCEES league table performance.