Zero Carbon or Carbon Tax: meeting the new GLA targets
The final version of the GLA’s Housing SPG was published in March this year, setting out the approach to London’s housing supply, quality and choice (amongst other things). Alongside this came updates to the London Plan (MALP) and GLA’s Guidance on Energy Statements.
Once again, flying in the face of convention and contradicting the prevailing winds from Westminster, the GLA’s approach to new residential development seems determined to set the standard for low carbon homes. The latest policy wording now states:
“‘Zero carbon’ homes are homes forming part of major development applications where the residential element of the application achieves at least a 35 per cent reduction in regulated carbon dioxide emissions (beyond Part L 2013) on-site. The remaining regulated carbon dioxide emissions, to 100 per cent, are to be off-set through a cash in lieu contribution to the relevant borough to be ring fenced to secure delivery of carbon dioxide savings elsewhere (in line with policy 5.2E).
…the ‘zero carbon’ target as defined above will be implemented for Stage 1 schemes received by the Mayor on or after the 1st October 2016.”
So what does this actually mean in real terms?
Well, simply put, any new major residential development from the 1st of October 2016 will need to make a payment to offset their Regulated CO2 emissions in order to be ‘zero carbon’ on paper. This payment is currently fixed (in most boroughs) at £60/tonne of CO2 per year for 30 years, based on the cost of retrofitting measures in existing properties as identified by Zero Carbon Hub.
There is also a risk that some developments that have been submitted to the Local Authority before October but not referred to the GLA for their Stage 1 review until after the 1st may have to make the payment too.
Current policy has most developments achieving circa 35% reduction in Regulated CO2 emissions on-site; the exceptions being Tower Hamlets (45% Regulated) and Islington (100% Total emissions), although we’ll omit them here for simplicity’s sake. This on-site reduction is typically achieved through a combination of efficient design, efficient systems and, more often than not, the judicious and liberal application of photovoltaic panels. I.e. the Lean, Clean, Green approach (© London Plan). The remaining shortfall will henceforth be mitigated through the proposed “off-set cash in lieu contribution” that is intended to support the delivery of the remaining CO2 emissions reduction off-site.
This effectively places a carbon tax on new residential development to the tune of £1,800/tonne CO2.
We have looked at some recent developments for which we at XCO2 have carried out energy and CO2 calculations. What we find is that the average shortfall between estimated savings and “zero carbon” in new residential development is circa 870kgCO2 (£1,600) per dwelling or 11.5kgCO2 (£21) per m2. So for a typical 50-unit residential development the “zero-carbon” offset payment will be around £80,000, which isn’t far off the build cost of a unit in some cases.
Now this is not necessarily a ‘project-stopping’ significant amount, but it is an additional cost and it will affect spend in other areas. In the worst case scenario there is a potential risk to amenity provisions and other additions in the realms of social sustainability, environmental quality and wellbeing. All of which are often seen as nice to haves and could be first on the chopping block when the carbon tax revolution comes.
Beyond this, there are also a few questions still outstanding:
- At what point in the design process is the payment agreed and made, will it be conditioned through planning or occur at handover based on the final dwelling EPCs?
The majority of Boroughs are looking to condition payment through the Section 106 mechanism based on the planning stage calculations. Payments will be due at commencement or upon completion depending on Borough preference, which may result in cash flow impacts for some developers.
- How are savings from LZC technologies going to be considered in mixed-use developments? Will we start to see many schemes where the electricity generated by CHP and PV are notionally allocated to the residential elements of the scheme to bolster savings and reduce offset costs?
- How soon before everyone latches on to the fact the offset payments are cheaper than PV (on a £ spend/tCO2 saved basis) and start to argue the threshold for on-site/off-site considerations? And how militant will local authorities be about the first 35% reduction being achieved on-site?
- The target is to be “implemented for Stage 1 schemes received by the Mayor” so will this result in simplification on some scheme to reduce height (<30m) or unit count (<150units) to avoid GLA referral?
Most Boroughs are adopting the standard for major developments (>10units) so this becomes less of an issue. However, Hackney are a notable exception to this approach currently and it will be interesting to see how that affects new development proposals across the borough.
- How will refurbishment or change of use in existing buildings be treated?
Current reporting mechanisms split out the carbon reductions between domestic and non-domestic, new build and refurbishment – this would suggest the ability to identify only the residual carbon emissions associated with the new build residential components and apply the offset payment to that element only.
- What is going to happen to all the money? Local Authorities have been tasked with setting up mechanisms to process carbon-offset payments and deliver retrofit measures, very few have actually set these up and even fewer are actively doing any retrofit work.
The flip-side to this is the opportunity for developers to implement measures themselves, which may result in some significant impacts, but given the complexity of demonstrating equivalency, I doubt much of this will actually take place.
- How fixed are the offset payment rates? As more of the easy-win savings are delivered, will the offset payments rise to reflect the increasing complexity of delivering savings through existing building retrofit? Will we start to see a change in the payment rates borough by borough, as is the case with LA schemes already in place Islington, Milton Keynes and on the Olympic Park?
- What happens if the additional cost makes the scheme unviable for developers? Will there be room for negotiation on payments in a similar manner to affordable housing provisions and other S106 payments?
The feeling at the moment is that this is a non-negotiable payment. However, there is the implication that if this has to be paid then compromises may be made elsewhere, such as in affordable housing provisions, in order to ensure that schemes remain “financially viable” from the developer’s perspective.
- What will the impact be on house prices? Will developers pass the cost burden on to potential house buyers?
Given the relatively low cost per dwelling (noted above) then it is unlikely that we’ll see significant house price changes as a result of ‘Zero Carbon’ requirements.
If you have any thoughts or additional questions on this, we would welcome them in the comments below.
In the mean time we will be continuing our discussions with the GLA and Local Authorities to find out more about how they see this being implemented. The following map and table collate the feedback we have received to date and will be kept up to date as more responses come in and Borough level approaches become finalised.
|Local Authority||When is an Offset payment required?||Offset cost per tonne CO2||Offset Payment Point|
|Brent||10 dwellings or more||1,800||Upon completion|
|Bromley||10 dwellings or more||1,800||Not finalised|
|Camden||10 dwellings or more||1,800||Upon commencement|
|City of London||10 dwellings or more||1,800||Upon completion|
|Croydon||10 dwellings or more||1,380||Upon completion|
|Hackney||GLA referable only||1,800||Upon commencement|
|Haringey||10 dwellings or more||2,700||Upon commencement|
|Hounslow||Not finalised||1,800||50/50 commencement / completion|
|Islington*||All developments||920||Upon commencement|
|Kingston||10 dwellings or more||1,800||Not finalised|
|Lewisham||10 dwellings or more||3,120||Upon commencement|
|Richmond||10 dwellings or more||1,800||Not finalised|
|Tower Hamlets||10 dwellings or more||1,800||Upon commencement|
|Wandsworth||10 dwellings or more||1,800||Not finalised|
|Westminster||GLA referable only||1,800||Part of a negotiation|
*Islington: this is current policy, unclear whether this will change after 1st October 2016
 London Plan Sustainable Design & Construction Supplementary Planning Guidance, April 2014, para2.5.8