Do the government's green initiatives sound like so much hot air to you? In fact, the climate change levy, due in April, looks set to make a big difference to the whole of the construction market.
How much will the Climate Change Levy cost your business? Lulled into a false sense of security by the government's assurances of a "revenue neutral" tax, most companies have dismissed the levy as an example of government greenwash. But four months from the deadline for its introduction, business is starting to wake up to the true cost of the measures.

"Any company with a low ratio of staff to energy consumption will see a significant rise in their energy costs," warns Guy Battle, a director at consultant Battle McCarthy. For some companies the cost of this tax will be significant: electricity-dependent companies could find their tax bill goes up as much as £250 000.

The levy is due to take effect from April 2001, and will apply to all UK businesses and the public sector. It is expected to be £0.43/kWh for electricity and £0.15/kWh for gas and coal, paid as part of energy bills, and it could result in cost increases for construction materials produced using energy intensive processes. "It will add an extra 10-15% to the cost of energy," says Battle. With the environment high on the government's agenda, this figure is likely to increase.

The levy, which is intended to help the UK meet its Kyoto target on the reduction of greenhouse gas emissions, is expected to raise £1bn in its first year. However, the chancellor, Gordon Brown, has made it clear that the Treasury will not benefit from this additional income. Instead the revenue will be recycled through a 0.3% reduction in employers' National Insurance contributions and £150m additional support for energy efficiency measures (see box below). However, companies using large amounts of energy with a small number of employees stand to lose out.

"It's going to affect the telecommunications industry, and in particular switch centres because they use a phenomenal amount of power," says Battle. But it is not just telecoms that will be affected by the levy. "Retail is going to be badly hit," says Hannah Rough, BREEAM manager at consultants ECD Energy and Environment.

Not all companies will have to pay the tax. The government has been involved in negotiations with some energy intensive industry sectors, such as cement and steel manufacturers, through their trade associations. An 80% reduction in the levy will be granted for some of these sectors, but only in return for signing up to an agreement to set an energy or emissions target and agreeing to be monitored to ensure compliance.

But it is not all bad news; any firm that makes a significant cut in their energy consumption will have an edge on their competitors. Studies by the government's Energy Efficiency Best Practice Programme over the past 10 years have demonstrated that most businesses are able to save at least 10-20% on their energy bills at little or no extra cost, simply by adding thermal insulation and using low-energy lighting.

The levy will also increase the demand for greener buildings as occupiers look to reduce their tax bill. "Tenants will start to demand energy-efficient buildings," says Paul Hinkin, regional director at architects Chetwood Associates. "Some people in the industry are thinking about its implications – it's the reason Sainsbury went down the Greenwich route," he says, referring to the low energy supermarket his practice designed on the Greenwich Peninsula. "It's an insurance against the future."

And, for the few companies that have already invested in new forms of renewable energy or "good quality" combined heat and power installations, the news is even better – they will be completely exempt from the tax. "What the climate change levy is starting to do is to bring together groups of people to change their behaviour toward energy consumption," says Conaghan.

Far from suffering, Battle says proactive companies will actually be able to benefit financially from the tax. "Rather than pay the tax," he explains, "companies could invest the money they would have spent on the levy in a combined heat and power system. It will reduce their energy bills, and the energy it produces is exempt from the levy."

The biggest winners will be companies that sign up for the government's emissions trading scheme at the same time as they introduce energy efficiency measures. This will have a threefold benefit, Battle says. "Companies will save money on energy costs, they will save money by being exempt from the climate change levy, and they will make money by selling carbon permits for beating their pollution target." The icing on the cake for Battle is that companies can even get a 100% capital allowance from the government for buying the combined heat and power plant.

The government's drive for energy efficiency has even started to spawn new businesses for consultants: Battle McCarthy has put together a team of specialists in energy efficiency, tax, environmental law and economics to investigate business opportunities in this area.

Green gauges
For this special green issue, Building asked industry leaders how sustainability will change building design and the industry.

The importance of sustainability has become ever more widely recognised. Construction must be aware that to be profitable and successful nowadays requires an environmentally responsible and socially aware outlook. The government itself, as the largest client of the industry, is committed to showing the way.
Nick Raynsford, minister for construction

The Environment Agency has identified the construction industry as being one of the sectors with room for improvement. This is particularly in relation to water pollution incidents and infringements of waste legislation. Companies are recognising PR and marketing opportunities and responding to increasing client demand and cost efficiency savings.
Martin Hunt, manager of Construction Industry Environmental Forum

The future for sustainable construction is in investment. The productivity of the person is the key to understanding this. Let's take the initial cost of the building as one, the operational cost as 20, and the value of people doing things in the building as 200. Improving the operational efficiency of the people working there by just a few percent could have an enormous effect. People in future buildings with low environmental impacts will be more productive, happier and more loyal.
George Martin, business affairs director of sustainability thinktank Forum for the Future

Tax allowances for green building technology

From April, the government is providing tax incentives for green technology through capital allowances, giving clients a powerful incentive to encourage design teams to reduce energy use and greenhouse gas emissions. This could be significant for the industry, as astute clients will query the specification of non-green products. QSs may be required to make comparative cost studies with conventional technology. They will also have to consider the life-cycle costing comparisons and calculate how different capital allowances will affect cash flow. Full details of the enhanced capital allowances legislation will not be available until the finance bill, expected in April. This will create a period of uncertainty as the list of products will be published four months earlier, in December. A lesser hurdle is that, as state aid, the allowances will have to comply with European Union rules on competition. Equipment eligible for the allowance includes combined heat and power facilities, boilers, motors, variable speed drives, lighting, refrigeration, pipe insulation materials and thermal screens, provided they meet relevant energy efficiency criteria. An Energy Technology Product List will be published shortly on the joint DETR and Inland Revenue website ( and a helpline is already available on 0800-585794. The onus is on product manufacturers to gain DETR approval. John Lovell is a director of Lovell Consulting, which specialises in capital allowances.