Memorandum submitted by the Land Securities
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
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
(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.