Buildings, Brexit and the Business Energy Tax Reform Patrick Brown Buildings, BREXIT and the Business Energy Tax Reform
Summary • Energy efficiency and property ownership • How the Government has sought to set incentives and penalties to encourage energy efficiency in non-domestic properties • BREXIT, the General Election and Policy Change: Incrementalism or Critical Juncture Buildings, BREXIT and the Business Energy Tax Reform
Buildings, Owners and Energy Buildings, BREXIT and the Business Energy Tax Reform
What incentives are there for property owners and occupiers to prize energy efficiency? • Does the market demand environmental performance? • Where do commercial and environmental imperatives intersect? Buildings, BREXIT and the Business Energy Tax Reform
Traditional Notions of what buildings should be • Three things are to be looked to in a building: that it stand on the right spot; that it be securely founded; that it be successfully executed. Goethe, Elective Affinities 1809 • Well building hath three conditions: firmness, commodity, and delight. Vitruvius (c. 80BC – 15BC, 1624 translation) • A house is a machine for living in Le Corbusier, 1923 Buildings, BREXIT and the Business Energy Tax Reform
Expectations of buildings have changed though... • "[In the 20th century] ... we built a really inefficient environment with the greatest efficiency ever known to man" Andy Karsner • Rate of commercial replacement of 1-2 per cent per year. Over 80 per cent of the buildings built today will still be standing in 2050, meaning the decisions we made in construction persist • Approx 66 per cent of non-domestic space rented – landlord/tenant issues Buildings, BREXIT and the Business Energy Tax Reform
Evidence for Associated Benefits of More Sustainable Buildings Buildings, BREXIT and the Business Energy Tax Reform
Green Premium? Brown Discount? Buildings, BREXIT and the Business Energy Tax Reform
Government Incentives and Penalties Buildings, BREXIT and the Business Energy Tax Reform
Public Policy, Uncertainty and Learning “Politics finds its sources not only in power but also in uncertainty – men [and women] collectively wondering what to do… Governments not only ‘ power ’… they also ‘ puzzle ’. Policy making is a form of collective puzzlement on society’s behalf; it entails both deciding and knowing… Much political interaction has constituted a process of social learning expressed through policy.” ( Heclo, 1974, 305-6) Buildings, BREXIT and the Business Energy Tax Reform
How has Government responded? Incrementally, Iteratively • • European Union Whitehall and Westminster – Energy Performance of Buildings Directive – Carbon Reduction Commitment Energy Energy Performance Certificates Efficiency Scheme » Display Energy Certificates – Climate Change Levy » Air Conditioning Inspections – » Minimum Energy Efficiency Standards to Nearly zero energy buildings ban new lettings of buildings with sub-standard » Thermal performance requirements for new energy ratings from 2018, and fines for » buildings and existing buildings tenancies of sub-standard properties from • Energy Efficiency Directive 2023 where a valid exemption has not been registered Energy Audits for non-SMEs » – Heat metering requirements Enhanced capital allowances and capital » allowances Energy efficient public procurement » (including central government buildings) – GHG Reporting for listed companies • Renewable Energy Directive – Renewable Heat Incentive 20 per cent of EU energy to be delivered by » – Feed-in Tariff renewable sources by 2020 – Zero carbon buildings Buildings, BREXIT and the Business Energy Tax Reform
How has Government responded? Recent Reforms • European Union • Whitehall and Westminster – Energy Performance of Buildings Directive – Carbon Reduction Commitment Energy Energy Performance Certificates » Efficiency Scheme – withdrawn from 2019 Display Energy Certificates » – Climate Change Levy - tax on end users of Air Conditioning Inspections » energy, which will be enhanced from 2019 Nearly zero energy buildings » – Thermal performance requirements for new Minimum Energy Efficiency Standards - » buildings and existing buildings likely to stay, despite contingency on EPC • Energy Efficiency Directive definitions Energy Audits for non-SMEs » – Enhanced capital allowances and capital Heat metering requirements » allowances Energy efficient public procurement (including » central government buildings) – GHG Reporting for listed companies – under • Renewable Energy Directive review 20 per cent of EU energy to be delivered by » – Renewable Heat Incentive – Levels of cover renewable sources by 2020 • reduced All currently under review but path dependence suggests enhancement/tweaking – Feed-in Tariff – Levels of cover reduced rather than dramatic change – Zero carbon buildings - withdrawn Buildings, BREXIT and the Business Energy Tax Reform
The Business Energy Tax Reform: An Attempt at Coherence The government said in 2015 it would consider reforms that: - are consistent with fiscal consolidation plans - simplify and reduce compliance and administrative costs and the policy landscape for energy efficiency overall - support productivity through improving incentives for energy efficiency and carbon reduction -protect energy intensive businesses at risk of carbon leakage Consultation received 356 formal responses. Government responded in 2016, with a further consultation to come. Buildings, BREXIT and the Business Energy Tax Reform
Outcome • Primarily concerns two policies: • Carbon Reduction Commitment Energy Efficiency Scheme – applies to large non- intensive energy purchasers with annual consumption over 6000 MWh • Climate Change Levy paid by most occupiers on electricity and gas supplies • CRCEES to be abolished at the end of the 2018-2019 compliance year Last CRCEES Report due July 2019 and last pre-defined allowance surrender date will be October 2019 • CRCEES will continue to operate normally and all participants in the Scheme are required to comply with the requirements until it ends • CCL to adopt the fiscal element of the CRCEES from 2019 • So cost of energy taxation more evenly distributed – winners are those within the CRCEES already, losers those who currently only pay CCL. Overall, energy costs increase = cost more material • Still waiting for implementing legislation Buildings, BREXIT and the Business Energy Tax Reform
Reporting Element of Business Energy Tax Reform DELAYED, ETA UNKNOWN • Consultation on a new carbon and energy reporting framework was due in summer 2016 for introduction by April 2019 (further indicators on other environmental impacts?) - Focus on removal of overlapping systems and duplicatory requirements -Consultation will propose mandatory reporting for: -All organisations within its scope (seemingly those who already report is starting point) -Senior level sign-off -Streamlined data collection and reporting requirements (e.g. via limiting the number of times organisations have to report their emissions and aligning data collection and reporting deadines) - New reporting framework will replace the obligation for some organisations to report their energy consumption under the CRCEES -Cited support in summary of responses to outcomes of FSB work on Climate-Related Finance Disclosures and for continued Mandatory GHG Reporting for listed companies -Focus on integration of reporting frameworks for CCAs, EU Emissions Trading System, ESOS (and existing CRCEES) with new reporting framework -De minimis arrangements to protect smaller businesses Buildings, BREXIT and the Business Energy Tax Reform
Incentivisation - Consultation highlights that responses on the matter of incentivisation were ‘mixed’ and that it is not minded to introduce incentives at this stage since it believes that the CCL sends a robust price signal - OBR revised downward growth estimates. Chote (OBR) on record in press saying that from 2018 onwards, a possible £56bn hole in public finances - SDLT changes for commercial properties and accelerated introduction of OECD BEPS interest deductibility changes were revenue earners for HM Treasury. The policy impact of the decision to transfer the fiscal element of the CRCEES to the CCL is net revenue positive for HM Treasury - As new CCL will be revenue positive (and there are plans for it to ratchet over time), budgetary constraints are unlikely to lead to abandonment of the policy intent. However, arguments on incentivisation would need to be very well-supported by modelling to have a chance of success Buildings, BREXIT and the Business Energy Tax Reform
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