Sustainability experts at International Property Consultants King Sturge welcome the introduction of the Carbon Reduction Commitment (CRC) initiative but warn that it could be a blow to those already cash-strapped businesses.
In the current economic climate cash flow has been a major concern for many businesses. In January 2009 the Government announced a £20 billion fund aimed at supporting those businesses in difficulty. In a statement released by Government on January 14 Lord Mandelson said: ‘’we know that some companies are struggling to secure the finance they need…due to tougher credit conditions”. However, with the introduction of the CRC initiative UK businesses are set to struggle further for short-term working capital.
In April 2011, organisations participating in the CRC scheme will have to part with a six figure sum in order to purchase carbon credits. The ‘recycling’ of this payment back to participants will not take place until October 2011, removing a significant sum of money from UK businesses each year for a period of 6 months.
King Sturge has calculated that the CRC has the potential to raise over £240 million(1) annually for the Treasury and some may ask whether this has been designed to help the Government with its own cash flow. To download the CRC briefing note from King Sturge, click here.
Under the complex scheme which starts in April 2010 (but is based upon energy use in 2008) around 5,000 companies will have to buy and trade carbon credits to cover their carbon emissions. An annual table will be published to highlight the best and worst performers with regards to percentage change in carbon emissions and participants will receive either a monetary reward or penalty, depending on their position in the league table.
King Sturge is advising landlords and tenants in the run-up to the scheme and has published a report detailing how organisations can prepare for the CRC and the costs involved. The firm’s experts fear many organisations are largely unprepared and could run the risk of financial penalties. However, there are a number of landlords who have already taken steps to improve their property assets and seen considerable benefits in doing so.
King Sturge has delivered significant carbon savings on a number of schemes including a 26% carbon reduction and BREEAM Excellent rating following the refurbishment of Unit 4, Cambridge Business Park last year for The Crown Estate. The specification of this 1990′s, 20,000 ft2 industrial unit included upgraded thermally efficient cladding, rainwater harvesting and sub-floor metering.
King Sturge supports the principle of the scheme to which there are many benefits; these include:
· Providing a powerful incentive to improve energy and carbon management of the existing building stock,
· Focus the attention of senior management on the issues,
· Improve transparency of company energy performance.
Although the Carbon Reduction Commitment was intended to be revenue neutral for the Government, the introduction of the scheme will cost UK businesses over £12 million in administration fees alone. In addition the Government will receive revenue from the sale of carbon credits on the secondary market.
Antoinette Tyler from King Sturge’s Building Consultancy comments: “the introduction of the CRC signals the beginning of a unified approach to reducing energy consumption and CO2 emissions in the built environment. The impact of EPCs, DECs, BREEAM, Green Leases together with the CRC(2) will be to allocate responsibility with regards to energy performance and improvement. It is likely to have a real impact on rents, yields and property transactions. However businesses need to be made aware of the cash flow implications and budget for them now”.
(1) The volume of CO2 which may be captured by the CRC was based on 5,000 organisations purchasing carbon credits at £12 /tCO2 for the qualification threshold of 6,000MWh. Tonnes of CO 2 were calculated using the emissions factor of 0.537 given in the current Draft Order to Implement the Carbon Reduction Commitment.
(2) Energy Performance Certificate (EPC) needed when buildings are bought or sold: Display Energy Certificate (DEC) used to show how much energy public buildings use; Building Research Establishment Environmental Assessment Method (BREEAM) is the most widely used environmental assessment method for buildings.
