Current members of the ETS include blue chip companies such as British Airways, Barclays Bank, BP and Shell. And there's no doubt that the built environment has a lot to offer in terms of emissions cuts. But can the ETS work for buildings?
The current ETS requires participants to make absolute reductions in emissions against a 1998 - 2000 baseline in order to gain the government cash. The organisations have to deliver five equal annual emission reductions to qualify for their incentive payments. The scheme is equipped with penalties which are sufficienty strong to ensure efficient operation, but not didproportionate to a voluntary programme. This is known as the direct entry method to the ETS.
Speaking at a recent emissions workshop at the Institution of Civil Engineers, Neill Pennell, engineering director to Land Securities development board, described the thinking behind the organisation's entry to the ETS. There were some doubts at first: "There was a general lack of understanding in the industry of the rules of how such a scheme would work. There was also a lack of data. Furthermore, there was the perceived impact on the flexibility of use of buildings, for example a change of hours of use is difficult once you accept caps. Finally, the financial incentives are relatively small, and are largely used to fund audit fees which can be fairly high."
With all these issues, why join? Land Securities has the advantage of a large number of properties, and was able to select a portfolio of managed properties which would be capped. Pennell commented: "There was a good historical database on these buildings. The aims of capping are also in-line with our environmental policy, and this gave us further opportunities to learn about emissions trading." Land Securites also mitigated some of the costs of auditing by affiliation with the Carbon Club, established by engineering consultants Whitby Bird.
So for companies with large property portfolios, direct entry to emissions trading via capping is relatively straightforward – though by no means simple. Also, the financial rewards can be relatively small. The main driver has to be a corporate environmental policy and willingness to see the process as a way of learning about energy management and emissions trading.
At the moment, direct entry is the main method for involvement in the ETS. But once this scheme is up and running, the government intends to allow project-based entries.
This method of entry to the ETS may be attractive to clients and engineers working on sustainanble buildings, driving energy efficient projects or those who are involved in other emission-reducing work. The advantage of individual projects is that the whole organisation is not capped, so there is lower risk from that point of view. However, the potential downside is that buyers will be required for carbon credits gained from the project – the government does not intend to hand out cash sums for this method, but credits for trading.
Again, however, the financial incentives to get a project into the ETS are small. At least given the current pricing of carbon. Take the example of refurbishment project on a 5000 m2 office, taking it from 'typical' to 'good' in the environmental stakes. See table 1.
There is also a series of proposed criteria that a project will have to meet before it can be allowed to trade emissions. One of the most crucial is known as 'additionality'. Environmental additionality means that emissions cuts would not have occurred without the existence of the project. And financial addionality indicates that financial investment in the project would not take place without the incentive of carbon credits.
Buildings don't lend themselves easily to emissions trading. There are many questions which quickly arise in the minds of those involved: who gets the credits: building owner or occupier? What about changes of occupancy and patterns of use which are so common in commercial buildings? And, of course, how is monitoring of energy use carried out?
The domestic sector suffers from the same complications. The government is currently experimenting with emissions trading under the Energy Efficiency Commitment (EEC). In this scheme, which is running from April 2002 to March 2005, the government has set targets for energy suppliers (gigawatt hours per year, in terms of the number of customers). The projected total savings of the EEC are 0.4 mt/CO2/year. This compares with the ETS projected savings of 1 mt/CO2/year.
Cathy Hough, senior consultant at ESD has been working on the EEC for some time. She outlined the details of the scheme: "Under the EEC, energy suppliers are permitted to trade their targets with other suppliers, even their whole target. Plus they are allowed to trade any surplus EEC credits into the ETS. But there is no pot of money available from government for the EEC, all costs must be met from the bottom line." The Office of the Gas and Electricity Markets (OFGEM) holds the standard on each measurement, and historic data is used to predict lifetime savings which are in turn used to calculate credits awarded. The credits are awarded to suppliers ex ante – that is, they get the cash up front. There are assumed lifetimes for each measure, for example loft insulation is given a lifetime of 30 years.
This is an interesting approach to emissions trading. But it's unlikely that the method could be applied directly to the commercial sector. Which leaves us back at the first question: how can emissions trading work in the built environment?
In spite of the difficulties, the government seems determined to press on. The idea of a carbon or energy tax is not viable according to David Fisk, chief scientist at DTLR, and honorary Fellow of CIBSE. "Carbon tax doesn't work on buildings, and regulations are only a safety net. Carbon trading forces feedback on real consumption. Energy is only about 5% of an organisation's total costs, so an energy tax makes very little impact."
He went on to say: "Regulations only say what you should put into a building. They don't insist that you use it. Regulations tend to reflect the lowest 25% of buildings. A trading scheme forces the measurement of emissions and creates a feedback mechanism."
There doesn't seem to be an easy answer to how buildings fit into the emissions trading programme. It's little wonder the government hasn't tried to involve it yet.
However, this is not an issue engineers can afford to ignore. ETS is coming and if the industry doesn't make its voice heard, it may find itself lumbered with targets and methods which are unsuitable. Chairing the workshop, Mark Whitby of Whiby Bird and president of the Institution of Civil Engineers commented: "We need a strategy for the built environment. We have potentially more 'wins' to gain in our industry than many others. It is up to us to connect these wins to government."
Source
Building Sustainable Design
Postscript
The speakers were taking part in the Carbon Emissions Workshop (17 April 2002), hosted by the Institution of Civil Engineers, and chaired by ICE president Mark Whitby BSc FREng FICE FistructE Hon FRIBA. For more information on emissions trading and the UK's ETS see http://www.defra.gov.uk/environment/climatechange/trading/index.htm
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