With the government’s new mandatory Carbon Reduction Commitment Energy Efficiency Scheme, the ChandlerKBS partner looks at the implications for developers and their customers

In terms of the implications of this scheme for the construction industry, the most obvious will be increased pressure on developers to design and build more energy and carbon efficient buildings as tenants seek to avoid the cost of high energy bills or the need to purchase allowances through the CRC scheme.

Dylan Davies

Developers will need to employ the service of a reputable consultant to help quantify and manage carbon emissions when designing assets and to ensure that the right carbon monitoring mechanisms are in place to record emissions annually - both of which need to be built into a project’s investment plans.

When considering CRC compliance, with regard to companies liable to corporation tax, there is also a synergy with the additional tax relief opportunities provided by the Enhanced Capital Allowance scheme (ECA) which offer enhanced tax relief on investment in energy saving equipment and technologies.

Claimed as part of a firm’s annual income or corporation tax return, ECAs provide 100% tax relief in the year the expenditure is incurred.

Therefore the full cost of an investment on designated energy saving or water conservation equipment is written off against the taxable profits during the period in which the investment was made.

In many instances, these additional tax savings can run into the millions. The tax benefit is relevant regardless of the size of the project.

The CRC scheme is strong evidence of the growing appetite within government to legislate for action to tackle climate change in the UK in order to achieve its target carbon reduction of 80% from 1990 levels by the year 2050.

Appetite for additional green investment in the current economy, compounded by uncertainty around the financial and political fall out from the impending general election may well prevail. But one thing is certain, sustainable building design and the political green agenda are here to stay.

And prudent developers and organisations that act quickly on carbon management will benefit from the biggest paybacks in the long term.

Postscript

The new CRC scheme is a mandatory carbon emissions trading scheme introduced by the government as part of its ongoing strategy to actively address climate change by improving the energy efficiency of new and existing buildings. In force from April 2010, it targets all UK emissions not currently covered by the EU Emissions Trading Scheme or Climate Change Agreements.

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