The role of carbon markets in preventing dangerous climate change - Environmental Audit Committee Contents

Memorandum submitted by the Land Securities Group Plc


  Land Securities PLC is the largest quoted property company in the UK and one of the world's largest Real Estate Investment Trusts. We are not only a developer of commercial and residential property but also act as our own managing agents for a range of occupied offices, shopping centres and retail parks.

We are the only company in the sector certified to ISO:14001 for an Environmental Management System that covers all of our development and property management activities and also recently achieved the new Carbon Trust Standard for energy management. We were the only property company to take part in the voluntary UK Emissions Trading Scheme with a full portfolio of managed offices and saved over 11,000 tonnes of CO2 via this scheme between 2001 and 2006. We have held many discussions with DEFRA and DECC over the implementation of the new Carbon Reduction Commitment. We are not covered by the EU trading scheme.

As a general principle, we are in favour of tradable permit mechanisms as the most cost-effective instruments for reducing overall emissions. However, we feel strongly that such mechanisms should only be introduced where they will result in carbon savings beyond what could be achieved through less onerous means. We believe that the CRC in its present form places too much emphasis on the commercial office sector (responsible for under 2% of UK CO2 emissions) and is unnecessarily complex and will be too costly for the savings it will generate. Crucially, it bypasses the "Polluter Pays" principle in relation to much of the commercial property market and, in our view, for many companies within the sector will not result in emissions reductions beyond those anticipated from a "business as usual" scenario.


  1.  As a general principle, we are in favour of tradable permit mechanisms as the most cost-effective instruments for reducing overall emissions.

2.  We believe that the current approach of the mandatory EU scheme only covering the most energy-intense sectors is correct but we understand the need to tackle the many other sectors whose energy use is less intense but who, in aggregate, account for a significant proportion of the UK's total emissions.

  3.  In terms of the Carbon Reduction Commitment, we do not believe that the scheme, as it stands, will achieve the level of savings being suggested and, furthermore, we believe that the scheme has potentially fatal flaws in relation to multi-occupancy buildings.

    A. The scheme captures the counterparty to the energy supply contracts, where that organisation at its highest level uses more then 6,000 MWH of electricity per annum. This, for example, will capture many property companies and hence all of the properties that they manage. However, many of the occupiers within these buildings will be small, perhaps the only premises of a very small, single-location company. The reduction levels required to meet CRC targets will apply to these occupiers just as much as to the blue-chip occupiers.

    B. The view that it would be the duty of the landlord to fund improvements for the benefit of all tenants is hard to justify.

(i)Such improvements would not be recoverable via the service charge if a single tenant in any one building vetoes the idea.

(ii)The operational cost benefits of improved energy efficiency would accrue direct to the occupiers and not the landlord.

(iii)Despite widespread claims to the contrary, there is no evidence that a "greener" building attracts higher levels of rent or increased asset value. So, the landlord would pay for improvements without seeing any direct financial benefit.

    C. Unless the costs and benefits of participation in the scheme are carried through to the occupiers, then the CRC overlooks the fundamental principle of "polluter pays".

    D. Currently legal advice to the property sector suggests that some leases do not allow the costs of participation in a trading mechanism to be passed through to tenants. This failure would only amplify the absence of the polluter pays principle.

  4.  We believe that comparable savings could be achieved for a much reduced cost by making it mandatory for all quoted companies to report fully on the carbon emissions on an annual basis. No CEO will want to see emissions rise, as shareholders would take this as an indicator of poor management and be likely to extend this conclusion to the company's wider governance, potentially leading to a fall in share price. In addition there are already mechanisms in place that apply to the sector, such as The Building Regulations and Energy Performance Certificates. Many owners also voluntarily follow the BREEAM protocol for sustainable buildings and many may opt to produce Display Energy Certificates even though these are only currently mandatory for public-access buildings. Voluntary approaches such as the Better Buildings Partnership in London are also aimed at driving down carbon emissions from existing and future buildings and the industry was proactive in forming the UK Green Building Council.

  5.  If a trading mechanism is to apply to the property sector, then it would be much simpler to implement and administer if it could copy the format of the voluntary UKETS, which only covered emissions from the landlord's service, and not electricity used by occupiers for lighting and small power in their demised premises.

March 2009

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