Buildings, Brexit and the Business Energy Tax Reform Patrick Brown - - PowerPoint PPT Presentation

Buildings, BREXIT and the Business Energy Tax Reform

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

• ccupiers 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

• Whitehall and Westminster

– Carbon Reduction Commitment Energy Efficiency Scheme – Climate Change Levy – Minimum Energy Efficiency Standards to ban new lettings of buildings with sub-standard energy ratings from 2018, and fines for tenancies of sub-standard properties from 2023 where a valid exemption has not been registered – Enhanced capital allowances and capital allowances – GHG Reporting for listed companies – Renewable Heat Incentive – Feed-in Tariff – Zero carbon buildings

• European Union

– Energy Performance of Buildings Directive » Energy Performance Certificates » Display Energy Certificates » Air Conditioning Inspections » Nearly zero energy buildings » Thermal performance requirements for new buildings and existing buildings

• Energy Efficiency Directive

» Energy Audits for non-SMEs » Heat metering requirements » Energy efficient public procurement (including central government buildings)

• Renewable Energy Directive

» 20 per cent of EU energy to be delivered by renewable sources by 2020

How has Government responded? Incrementally, Iteratively

Buildings, BREXIT and the Business Energy Tax Reform

• Whitehall and Westminster

– Carbon Reduction Commitment Energy Efficiency Scheme – withdrawn from 2019 – Climate Change Levy - tax on end users of energy, which will be enhanced from 2019 – Minimum Energy Efficiency Standards - likely to stay, despite contingency on EPC definitions – Enhanced capital allowances and capital allowances – GHG Reporting for listed companies – under review – Renewable Heat Incentive – Levels of cover reduced – Feed-in Tariff – Levels of cover reduced – Zero carbon buildings - withdrawn

• European Union

– Energy Performance of Buildings Directive » Energy Performance Certificates » Display Energy Certificates » Air Conditioning Inspections » Nearly zero energy buildings » Thermal performance requirements for new buildings and existing buildings

• Energy Efficiency Directive

» Energy Audits for non-SMEs » Heat metering requirements » Energy efficient public procurement (including central government buildings)

• Renewable Energy Directive

» 20 per cent of EU energy to be delivered by renewable sources by 2020

• All currently under review but path

dependence suggests enhancement/tweaking rather than dramatic change

How has Government responded? Recent Reforms

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
• rganisations 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

• f 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

Yet

• 5th Carbon Budget Report from Committee on Climate Change – Transport and

Buildings Emissions remain flat

• Emissions Reduction Plan delayed by Election – next Government will be statutorily
• bligated to bring forward how it intends to meet the 5th Carbon Budget
• Committee on Climate Change considers that there are not sufficient underlying

policies apropos buildings to deliver the 5th Carbon Budget

• Seems likely that further interventions and tightening of existing requirements will be

necessary

• Can the Government leave the policy landscape as it is?
• Industry should take the opportunity to spell out the policy landscape that it wants to

see, and to contribute the evidence it has gathered to inform better policy making. After all, ‘To officials has fallen the task of gathering, coding, storing and interpreting policy experience.’ (Heclo, 1974, 303)

Buildings, BREXIT and the Business Energy Tax Reform

Brexit Implications

Buildings, BREXIT and the Business Energy Tax Reform

• Preserve the Union
• Immigration and Reciprocal Citizens’ Rights
• Secure the ‘freest and most frictionless trade possible in goods and services’

(likely to be subject to accusations in negotiations of ‘cherry picking’)

• Establish free trade agreements with third countries
• Pursue cooperation in security and crime cooperation
• Prepare for the future
• Seek phased processes of implementation for the transition from our

current model to the future relationship with the EU

• Adopt the existing corpus of EU law via the Great Repeal Bill and

ancillary legislation, before a longer-term review by Parliament

• Prepare contingency legislation in case needed in the event of no deal

(i.e. leaving the EU immediately without any future arrangements)

• Leaves few clues to be able to divine what the stance will be apropos the

future of energy efficiency legislation will be, beyond the short term adoption of existing EU legislation via the Great Repeal Bill

UK Government’s Brexit White Paper Priorities

Buildings, BREXIT and the Business Energy Tax Reform

• While the UK continues to be a member of the European Union, EU

legislation and obligations continue to apply

• Assuming that initial issues are settled such as:

– Reciprocal rights of other EU Member State Nationals and UK nationals in

• ther EU Member States

– ‘Divorce Bill’ contribution to EU Budget

• Discussions can only then proceed to the terms on which the UK and EU

may continue to relate to one another

• The essence of this will determine the short term and long term

arrangements – Short term: for as long as Article 50 takes to negotiate, the UK will continue to be obligated to adopt EU legislation – Long term: the nature of the UK’s trading relationship with the EU will determine whether it is obligated to remove both tariff and non-tariff barriers. The latter often dealt with via European Court of Justice Jurisprudence and EU public policy (e.g. EPBD)

Article 50 Dynamics

Buildings, BREXIT and the Business Energy Tax Reform

• Much uncertainty

– BREXIT poses medium term uncertainty since we do not yet know the outcome of the Article 50 process, and how the outcomes will be reconciled to the public policy landscape concerning energy efficiency – The Business Energy Tax Reform has reported on 50% of its intended outcomes, but the other 50% is missing. On the first 50%, we are still awaiting the implementing legislation

• But:

– UK Government cannot really afford to meet headline statutory obligations in the Climate Change Act 2008 and make drastic cuts to the buildings energy efficiency policy landscape – Politically, the Government needs to release an Emissions Reduction Plan that will set out at very least how Government intends to meet 2050 emissions reduction targets

• So:

– ‘Governments not only “power”, they also “puzzle”’ – At very least, neither stasis nor a regulatory bonfire are likely. Policy change is hard, as the Business Energy Tax Reform bears witness – BREXIT implications will take some time to process and progress – Some homegrown policy concepts are more radical (MEES) and seem set to stay

Summary