Until now the government's efforts to reduce carbon emissions from buildings have focused exclusively on a building's energy efficiency, but a recent consultation paper has proposed a new measure targeted specifically on the associated issue of energy consumption.

What is the new proposal?

It involves a performance-based framework for assessing and rating energy use and carbon emissions in commercial and industrial buildings above 1000m². The building owner or single tenant of such buildings will be required to provide the rating annually and disclose it publicly, both in the building and online.

The proposal is based closely on the very successful National Australian Built Environment Rating System (NABERS), which has achieved energy use reductions of 34% per m² over the last decade.

Why is there a need to focus on energy use as well as energy efficiency?

The energy efficiency of a building is currently measured by reference to its EPC band, which is determined by an assessment of its physical fabric and services, and by modelling how the building should perform based on the behaviour of a typical occupant. However, the level of carbon a building emits depends on actual energy use, which is determined not only by its energy efficiency but also by the behaviour of the actual occupant (i.e. a good building will still perform badly if used inefficiently).

Why will the scheme only cover buildings over 1000m²?

While buildings over 1000m² represent only 7% of the non-domestic building stock, the government estimates that they use over 53% of the total energy use in non-domestic buildings. The energy improvements seen in these buildings over the last decade are not on a trajectory to meet UK carbon budgets and net-zero, so further action is required.

Will the scheme apply to all commercial and industrial buildings over 1000m²?

Initially it will apply only to office buildings. The target date for "onboarding" these is 2022/3.

The government has divided the non-domestic building stock into eight categories, of which offices is the first. The other categories will be brought into the scheme in two further phases, in accordance with criteria set out in the consultation.

What is the scheme's aim?

The aim is primarily to encourage good behaviour in relation to energy consumption. The Australian experience is that NABERS has achieved strong buy-in from industry, and that the reputational benefits of good performance and the reputational risks of bad performance have driven significant improvements.

The idea is to work with industry rather than impose regulation on it. So this scheme will take a very different approach from the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (MEES Regulations) but operate alongside them.

How will the scheme work?

There will be "base ratings" and "whole building ratings", to ensure that landlords and businesses are only rated on the parts of the building for which they are responsible. An owner-occupier or single tenant of a whole building would be required to provide a whole building rating. In contrast, a landlord responsible for the common areas of a multi-let building would only be required to provide a base rating for the common areas.

Will the scheme inter-relate with the MEES Regulations or operate independently?

The government has asked for views on whether owners of buildings above 1000m² should be:

  • able to use their annual performance-based rating to satisfy their obligation to provide an EPC on a sale or letting, thus streamlining regulatory requirements
  • required to produce an EPC on a sale or letting, recognising that an EPC and a performance-based rating assess different things and can together provide a better level of information than either rating would in isolation
  • allowed to agree with the scheme administrator the set of cost-effective measures they would need to install under the MEES Regulations on providing the first annual performance-based rating. To demonstrate compliance with the MEES Regulations they would then:
    • provide the performance-based rating annually and comply with the public disclosure requirement
    • by 2030, provide proof of installation of the set of measures agreed when the building was onboarded.

Who will the performance-rated scheme affect?

It will affect the owners and single tenants of buildings above 1000m². In short, investors and large occupiers will be affected, so both would be well advised to consider the proposals in detail and consider submitting a response.

Responses must be submitted by 23:45 on 9 June 2021 and the consultation can be found here.

On the same date as this consultation, the government issued a separate consultation on proposed changes to the MEES Regulations to help achieve EPC band B by 2030.You can read our earlier article on this here.

This article is for general information only and reflects the position at the date of publication. It does not constitute legal advice.