Energy efficiency: building towards net zero Contents

7Commercial Buildings

Progress within the commercial sector

141.The Clean Growth Strategy recognised that improved business energy efficiency could deliver £6 billion in cost savings by 2030 and generate one of the single largest carbon-saving measures in the entire Strategy.354 Better fabric, Heating, Ventilation and Air Conditioning (HVAC) equipment, and energy management, is key to achieving these savings. But there is currently no detailed set of indicators to monitor the energy efficiency of commercial buildings.355 The piecemeal evidence that is available reveals scant sign of progress, with progress slower than in the residential sector.356 In the absence of policy interventions, the commercial sector is unlikely to invest in energy efficiency, even if investments are cost effective. The barriers to uptake are well documented: a lack of information; a lack of access to capital; high upfront costs and long payback periods; misaligned incentives between tenants and landlords; disruption to normal business activities; and competing investment demands within companies resulting in other business growth investments taking precedence.357

142.Over the years, a range of fiscal policies have been implemented by policy makers to stimulate energy efficient behaviour within the commercial sector, such as the Climate Change Levy, Climate Change Agreements, the Carbon Price Support, EU Emissions Trading Scheme and Enhanced Capital Allowances (scrapped in the 2018 budget).358 Whilst they all intend to encourage energy efficiency, stakeholders argued that the Government needs to rethink its approach as uptake is not reaching the pace required.359 We therefore welcome the Government’s consultation on a new energy efficiency scheme for small or medium-sized enterprise (SMEs) which comprise 99 per cent of businesses in the UK.360 The call for evidence sets out a number of policy options, including the:

That said, the most popular fiscal incentive suggested by witnesses to drive demand for energy efficiency in the commercial sector (linking business rates to the energy performance of the property) was not mentioned in the consultation.361

143.In the intervening time, there are insufficient policy instruments in place to deliver the Government’s target for a 20 per cent increase in business energy productivity by 2030.362 The evidence submitted to our inquiry implies that the majority of businesses are not aware of the target, and those that are do not think it will be met.363 The Government’s failure to raise the salience of energy efficiency among businesses is particularly concerning given that we were simultaneously told that the 20 per cent target is not ambitious enough and will not place businesses on trajectory to deliver the carbon savings necessary to achieve the UK’s 2050 climate obligations.364 Witnesses called on the Government to aim for a 30 per cent reduction target by 2030, leading up to 40 per cent by 2035 and decarbonisation by 2050.365 The Confederation of British Industry (CBI) cautioned that the Government needs to create awareness of the current target, before assessing whether it is tough enough.366

144.Npower told us that they offered small business customers numerous ways to be more energy efficient, including incentives through their sales channels.367 But the response rate was low. In July 2018, the majority of SMEs that Npower consulted advised that energy saving devices were either a “nice to have” or “irrelevant”.368 This leads to the view that support to raise the energy efficiency of buildings occupied by SMEs will have limited success, unless underpinned by suitable regulations.

Regulatory framework

145.Currently, the main regulatory mechanism in place to drive energy efficiency improvements in the commercial sector is the Minimum Energy Efficiency Standards (MEES) for rented commercial buildings (60 per cent of commercial properties)—currently at EPC Band E.369 From April 2018, regulations were enforced upon the granting of a new lease, and from April 2023, will be extended to cover all leases.370

146.We heard from Tom Thackray, Director of Infrastructure and Energy, CBI, that this standard is “quite easily achievable” for commercial property owners and is “not stretching them hard enough”.371 Thus, progressively higher minimum energy efficiency standards in the commercial private rented sector, coupled with adequately resourced enforcement, and a well-publicised regulatory trajectory are key to driving energy efficiency in the business sector.372 This is also the view of the Green Finance Taskforce who recommended that the Government set a minimum energy standard of EPC B by 2035.373 Despite the importance of a clear trajectory to allow businesses to plan and make relevant investment decisions, there is currently no roadmap for the sector. We were also warned that issues concerning the implementation and enforcement of the commercial MEES are “as concerning as they are in the residential sector”, exacerbated by low awareness of the regulations among smaller businesses.374 In their written evidence, BEIS stated that it will publish a consultation on a future non-domestic trajectory in early 2019.375 A consultation has still not been published.

147.It is also important to note that the MEES regulations only apply to rented commercial properties. Once the Government has put in place incentives and finance options to support businesses which operate within their own premises to make energy efficiency upgrades, backstop regulations should be implemented, extending the minimum standards to non-rented commercial properties at the point of sale.376

148.The market is not delivering change at the pace needed within the commercial sector and neither is the current regulatory framework. The Government should act swiftly to agree a trajectory for the ratcheting up of the Minimum Energy Efficiency Standards for commercial buildings. We recommend that the Government assesses the viability in raising the Minimum Energy Efficiency Standards for rented commercial properties to EPC Band B by 2035, with milestones of D and C in the lead up time.

Operational ratings

149.As discussed in Chapter 6, the current regulatory framework for buildings focuses on how they are modelled to perform, rather than how they really perform ‘in operation’. The MEES regulations only focus on the design of a building and do not assess how a building performs in use which can be demonstrably worse than compliance with Building Regulations would imply.377 We are concerned that the continued strengthening of the MEES regulations, if in isolation, will not bring about the full energy efficiency potential available for commercial buildings.378 Rather, it risks perpetuating a “design-for-compliance culture” where buildings are designed to meet the required compliance standard, with negligible attention paid to how the building actually performs.379

150.Witnesses called on the Government to require the public disclosure of operational energy data and the use of rating tools that focus on performance outcomes.380 There is strong evidence from the National Australian Built Environment Rating System (NABERS) scheme that mandatory operational ratings can successfully reduce energy use.381 Since the schemes mandatory introduction in 2010/11, the average energy intensity of Australian rated offices has improved by 28 per cent.382 Such an approach could supplement minimum standards by offering a review process to ensure that the design of the building performs as planned.383

151.The strengthening of design ratings will not deliver the full energy efficiency potential available for commercial buildings. There is strong evidence that mandatory operational ratings can successfully reduce energy use. We recommend that the Government moves to the public disclosure of operational energy data for the commercial sector, and the use of rating tools that focus on performance outcomes, from 2020.

Energy Saving Opportunities Scheme

152.The Energy Saving Opportunities Scheme (ESOS) is a mandatory requirement upon qualifying large organisations to carry out energy efficiency assessments once every four years.384 These assessments are audits of the energy used by their buildings, industrial processes and transport to identify cost-effective energy saving measures. But there is no legal requirement to implement the recommendations made. We are concerned that the scheme is viewed by businesses as an “administrative burden”, rather than an opening to realise energy bill savings.385 Measuring the success of ESOS has proved challenging due to a lack of public information on the scheme.386 Nonetheless, available evidence indicates that just five per cent of businesses are taking forward the audit’s recommendations in full.387 Stakeholders recommended that the Government mandates that improvements identified by the audit are installed.388

153.The Government should improve the Energy Saving Opportunities Scheme (ESOS) so that it is more obviously geared towards driving business investment in energy efficiency. We recommend that the Government requires ESOS audits to be publicly available and to mandate that businesses in scope of ESOS demonstrate that they have acted on the energy saving opportunities identified.

New Build Commercial Buildings

154.As discussed in Chapter 6, the Government recently announced a Future Homes Standard that will require homes to be built with “world-leading levels of energy efficiency” by 2025.389 We were disappointed that an equivalent 2025 standard for new commercial buildings was not also announced.390 The Government has not provided a justification for not upgrading the energy efficiency standards for new commercial buildings. It is important that the upcoming review of Building Regulations facilitates this.

155.We see no reason why the “world leading” levels of energy efficiency that will be provided by the Future Homes Standard cannot be extended to new commercial buildings. In the upcoming review of Building Regulations, we recommend the inclusion of an equivalent energy efficiency standard for the development of commercial buildings, not just homes. By 2025, no new commercial buildings should be built that will require energy efficiency retrofits.

355 Committee on Climate Change, Reducing UK emissions: 2018 Progress Report to Parliament (June 2018), p. 93

356 As above; see also: Kingspan Insulation (ENE0060)

357 Energy UK (ENE0059)

358 For discussion on the withdrawal of the Enhanced Capital Allowances scheme, see: UK Green Building Council (ENE0042)

359 Q376 [Thackray]; Q372 [Bosteels]

360 Department for Business, Energy and Industrial Strategy, Energy efficiency scheme for small and medium sized businesses: a call for evidence (March 2019)

361 For example: Energy UK (ENE0059); Rockwool Ltd (ENE0038); E.ON (ENE0027); Q379 [Thackray]; Q380 [Holland; Bosteels]

363 Q370 [Thackray]

364 Q368 [Bosteels]; Mineral Wool Insulation Manufacturers Association (MIMA) (ENE0037)

365 Q368 [Bosteels]

366 Q370 [Thackray]

367 Npower (ENE0016)

368 As above

369 Applies to England and Wales.

371 Q370 [Thackray]

372 Q371 [Holland]; Q365 [Kostense-Winterton]; UK Green Building Council (ENE0042); Mineral Wool Insulation Manufacturers Association (MIMA) (ENE0037); Npower (ENE0016)

373 Green Finance Taskforce, Accelerating Green Finance (March 2018), p.43

374 Environmental Industries Commission (ENE0071)

375 Department for Business, Energy and Industrial Strategy (ENE0069)

376 Environmental Industries Commission (ENE0071)

377 Better Buildings Partnership, Helping businesses to improve the way they use energy - call for evidence (Sept 2017); Better Buildings Partnership, A Tale of Two Buildings? (Dec 2012); UK Green Building Council, Accelerating the energy productivity of non-domestic buildings (2018)

378 CBI (ENE0013); British Property Federation (ENE0008); Better Buildings Partnership, Helping businesses to improve the way they use energy - call for evidence (Sept 2017)

379 Better Buildings Partnership, Helping businesses to improve the way they use energy - call for evidence (Sept 2017); Chartered Institution of Building Services Engineers (ENE0045); UK Green Building Council (ENE0042)

380 For example: Bosteels [Q372]; Dr Steffi Harangozo (ENE0021); Royal Institute of British Architects (ENE0070); Mineral Wool Insulation Manufacturers Association (MIMA) (ENE0037); E.ON UK (ENE0027); British Property Federation (ENE0008)

381 Chartered Institution of Building Services Engineers (ENE0045); Q373 [Holland]; UCL Energy Institute (ENE0039);

383 UK Green Building Council (ENE0042)

384 Department for Business Energy and Industrial Strategy, ESOS Guidance, Last updated Feb 2019

385 Npower (ENE0016)

387 As above

388 UK Green Building Council (ENE0042)

390 This was also the view of UK Green Building Council, Q373 [Holland]

Published: 12 July 2019