Brexit, buildings and climate change policy

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Despite the recent flurry of decisions and announcements from the courts and the Government, the impact of Brexit on the built environment remains, like so much else, uncertain. In particular, there was no mention whatsoever of climate change policy in the Prime Minister’s “12 objectives” speech. Now we have the Brexit White Paper. However, in 75 pages of text, the word “climate” appears in just two places:

“The UK’s climate action will continue to be underpinned by our climate targets as set out in the Climate Change Act 2008 and through our system of five-yearly carbon budgets, which in turn support our international work to drive climate ambition.”

and

“We will continue to be a leading actor, working with European and other international partners, in global efforts to tackle major challenges, including climate change.”

What, then, can the real estate industry expect and how should it plan?

There are some things we do know. Domestic law will remain unchanged by Brexit and EU-derived law will, at least in the short-term, be grandfathered “wherever practical and appropriate”. We also know that the targets for emissions reduction set by the Climate Change Act 2008 (which is domestic law) remain in effect, with no sign that the Government intends to back-track. The Fifth Carbon Budget was accepted by the Government only days after the referendum result and the UK ratified the Paris Agreement on 18 November 2016. We also know that, even before the Brexit vote, the Government was reviewing a number of climate change and energy policies, the most eye-catching announcement being the abolition of the CRC Energy Efficiency Scheme (CRC). So there is no reason to expect that Brexit will radically change the direction of travel.

It may, however, affect the speed of travel. First, there is the resourcing issue. Whitehall will be stretched to the limit dealing with the multi-faceted implications of leaving the EU. It’s unlikely that there will be much appetite for inventing and implementing new sustainability policies, especially given the less than stellar track record of past initiatives (Green Deal, anyone?). Secondly, this area is simply not that high a priority – the Department for Energy and Climate Change was subsumed into the Department for Business, Energy & Industrial Strategy shortly after the referendum. Thirdly, the Government has expressly stated in the White Paper that it regards Brexit as an opportunity for reflection:

“We want to take this opportunity to develop over time a comprehensive approach to improving our environment in a way that is fit for our specific needs.”

With this background, let’s look at some of the key climate change policy instruments which affect the real estate market and deliver our verdict on the likely impact of Brexit:

• CRC – this is UK legislation for which no one can blame the EU. As mentioned above, CRC’s days are numbered. It is being abolished anyway after the end of the 2018/2019 compliance year. However, don’t be lulled into a false sense of security. If the CRC scheme applies, property owners must still comply. It was recently announced that Transport for London has been fined £20,000 for failing to buy sufficient allowances for its carbon emissions during 2013/14. Brexit effect? – none.

• Minimum Energy Efficiency Standards (MEES) – the domestic legislation is already in place, with first key date being April 2018. In October 2016, in its written response to the Committee on Climate Change’s report on the Fifth Carbon Budget, the Government re-affirmed its commitment to implementing MEES. It would therefore be very unwise to stop preparing for MEES. Keep focusing on those F and G rated buildings. Brexit effect? – none.

• Energy Performance Certificates (EPCs) – the EPCs legislation arose out of the EU’s Energy Performance of Buildings Directive 2010. EPCs and their associated “recommendations reports” have a bit of a credibility issue in the market. But does that mean they might be at risk after Article 50 is triggered? Highly unlikely. Without EPCs, there can be no MEES. Brexit effect? – none.

• Air-conditioning inspections and reports – these also derive from EU’s Energy Performance of Buildings Directive 2010. However, the domestic regulations are not regarded as particularly burdensome and there is no great clamour to abolish them. For building owners, it is probably more useful than not to find out how efficiently your plant is operating. Brexit effect? – none.

• Heat network and metering regulations – the Heat Network (Metering and Billing) Regulations 2014 derive from the Energy Efficiency Directive 2012. The regulations require landlords to provide details of all qualifying communal heating systems, to install meters, heat cost allocators and thermostatic radiator valves and to issue bills based on actual consumption. The regulations have been criticised for being difficult to understand and more difficult still to apply. Brexit effect? – a good opportunity to review this measure.

• Energy Savings Opportunity Scheme (ESOS) – again, the domestic law derives from the EU’s Energy Efficiency Directive 2012. The law requires large organisations to carry our energy assessments every four years. Business’ main concern is that the reporting criteria for ESOS to some extent duplicate or are inconsistent with other carbon and emissions reporting requirements such as those under CRC or mandatory greenhouse gas reporting under the Companies Act 2006 (Strategic and Directors’ Report) Regulations 2013. However, the Government is already alive to the issue of conflicting carbon reporting standards. In the Treasury’s March 2016 response to the consultation “Reforming the business energy efficiency tax landscape”, it promised to “consult later in 2016 on a simplified energy and carbon reporting framework for introduction by April 2019.” Brexit effect? – no direct effect. However, the promised consultation has not appeared yet, suggesting that other priorities at Westminster may delay the proposed simplification.

Overall verdict? Even if the physical climate continues to change, our view is that, for building owners, climate change policies and legislation are likely to remain settled in spite of Brexit.