As was brilliantly laid out by John Kerry and Mark Carney at the Net-Zero Delivery Summit on the 11th and 12th of May, the state of the climate crisis is disappointing to say the least. The world is simply not progressing fast enough to keep carbon emissions down and stop temperatures from rising. The commercial real estate sector, in particular, has been asleep at the wheel for far too long.
The CRE sector’s lazy attitude towards climate change has led to climbing emissions and buildings crippled by low occupancy rates. The industry, along with its buildings, is at risk of significant financial losses, as governments become stricter about sustainability regulations.
Governments across the world are implementing new legislation to significantly cut the carbon emissions of the building industry. There are also plenty of tax incentives to get building owners and investors motivated to make the changes that the CRE sector needs to see.
In this article, we’ll be highlighting countries that are putting regulations in place to motivate change.
UK companies and developers can currently apply for something called Climate Change Agreements (CCAs). Here, developers agree to stick to sustainability targets and, in return, receive discounts on their Climate Change Levy (CCL), a tax paid by non-domestic buildings to encourage reduced carbon emissions.
Currently, developments can receive a 90% CCL reduction for electricity, and a further 65% reduction for gas. Tax reductions of these percentages offer great incentive for companies to introduce energy efficiency to see their environmental taxes cut substantially.
In July 2021, China launched its new Emissions Trading System (ETS) to incentivise companies into reducing their carbon emissions. China is the biggest carbon emitter in the world, and now their carbon market is also following suit, being three times the size of the EU’s ETS.
Initially started to regulate power plant emissions, China’s ETS has grown from the 2,200 energy producers they started with to a range of other industries like steel and cement production. There are also plans in place to introduce an industry wide cap on emissions, for the country to stay on track to reach complete carbon neutrality by 2060.
Australia’s population recently voted overwhelmingly for change, with Anthony Albanese announced as the new PM on Sunday. Australia released 528.7 megatonnes in 2020, and is responsible for around 1.1% of global emissions. Therefore, the country has been pushing hard on their sustainability efforts. One of these is the Emissions Reductions Fund (ERF), a voluntary scheme where companies can claim incentives in the form of Australian Carbon Credit Units (ACCUs) by reducing their emissions.
Carbon credits can be bought as a permit to allow companies to emit carbon emissions up to a certain point. These credits can then be traded to other companies if they aren’t being used. Carbon credits decrease over time, meaning that companies that continue to operate with high emissions risk financial obstacles.
Australia’s carbon credit market has seen an unprecedented boom in recent years, with the price rising 180% over 2021. The price of ACCUs shot up to $57 per tonne in January 2022, a 21% increase from their value in 2021.
After a Trump presidency that called climate change ‘nonexistent’, President Biden, who lives in the real world, has pledged $320 billion for green building tax credits and incentives.
One of these, Section 179D, pledges a $1.88 per square foot deduction if a 50% reduction in energy usage can be shown. There are further plans to increase this deduction by nearly three times, to $2.50 – $5 per square foot.
The US is the second largest carbon emitter, producing 14% of global CO2, but has the no.1 slot for emissions per head by 71%. But ignorance still remains. Establishing tax incentives for companies and developers is the carrot or stick approach that is needed to keep emissions down.
We’re Still Too Complacent
The tax incentives highlighted in this article are a fantastic first step to reducing emissions and making the CRE sector smarter and greener. However, without a stronger approach from governments and an acceptance from those in the CRE sector, there’s little hope that these schemes will have concrete results in reducing carbon emissions.
In the US, there are calls for larger reductions to be offered to developers, up to $15 dollars per square foot. Australia’s carbon credits face scrutiny about whether they actually benefit the environment, and China’s ETS scheme is having difficulty persuading companies. The UK, too, has been criticised for not providing enough support for small-to-midsize companies looking to increase their sustainability efforts.
If global temperatures are to be kept from rising more than 1.5 degrees, we need to do more. Speaking at The Net Zero Delivery Summit, John Kerry put it best, stating that the world needs to achieve a 45% reduction in emissions by 2030 to have any hope of reaching net-zero by 2050.
Despite a dramatic rise in energy costs and growing pressure from governments to go green, CRE is a sector that is still stuck in its old ways. Monetary incentives may be the most efficient way to get through to a sector so used to digging its heels in when it comes to sustainability.
In a world where some of the leading figures in sustainability are screaming about how close we are to the point of no return, the complacency that CRE is so well known for is no longer acceptable. The time to be proactive is now. If this ignorance continues, there will be dire consequences for the CRE sector and the planet.