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Germany: The Coalition Agreement and the Real Estate Industry – From Climate-Neutral Heating to Mandatory Rooftop-Solar and Embodied Carbon

The upcoming traffic light coalition has published its coalition agreement and defined its priorities for the 20th legislative period in it. For the German real estate industry, there are some exciting announcements that will further accelerate the dynamic development.

One of the most striking and very concrete planned changes concerns the Building Energy Act (“Gebäudeenergiegesetz”, GEG). From 2025, every newly installed heating system is to be powered by 65% renewable energy. From 2024, the replaced parts of buildings must meet at least efficiency house standard 70 in the case of significant renovation works, conversions and extensions to existing buildings. The standard for new buildings will be KfW Efficiency House 40 from 2025. The level of ambition for the planning of calculated energy requirements will therefore be raised further. At the same time, the transformation of the national heating infrastructure will be driven forward.

Beyond that, there are a number of concrete measures to be found in the agreement:

  • Suitable roof areas are to be used for solar energy. For new commercial buildings, there will even be an obligation to install rooftop solar installations.
  • In data centers, waste heat is to be recovered. New data centers are to be operated in a climate-neutral manner from 2027.
  • The CO2 price should not fall below €60 per ton in the long term.
  • At several points in the contract, reference is made to the importance of neighbourhood solutions for the sustainable provision of heat. Heat networks are to be further expanded and 50% of heat is to be generated in a climate-neutral manner by 2030. The primary energy factors of many heat networks will benefit from this.
  • Tenants can also look forward with anticipation to the new legislative period. The construction of 400,000 new housing units, 100,000 of which are to be publicly subsidised, is to contribute to further easing the situation on the housing market. There are also concrete targets for the distribution of the additional burden of heating costs due to the additional CO2 price to be paid: The traffic light coalition wants to introduce a model that defines how the additional costs are shared between tenant and landlord according to the building energy performance certificates by June 1, 2022. The worse the EPC of the building, the higher the share of the CO2 price that the landlord has to pay. If no agreement is reached on the concrete design of this EPC-dependent model, the CO2 price is to be split 50% each between tenant and landlord from June 2022. 

Other measures announced have not yet been described in concrete terms, but they show the direction in which the coalition partners would like to steer the industry.

  • The legal and financial structuring of tenant electricity and neighbourhood concepts is to be simplified.
  • A so-called “construction, housing costs and climate check” is to be introduced. It remains to be seen what exactly is meant by this.
  • Serial construction and refurbishment are to be simplified – especially with regard to approval processes.
  • Grey energy (“embodied carbon”) and life cycle costs are to be considered more closely and stored in a digital building resource passport. This is intended to stimulate the circular economy in the construction industry. The keywords timber construction, lightweight construction and strategies for securing raw materials also come up here.
  • Renovation roadmaps are to be “widely and systematically used” and even become free of charge for condominium owners’ associations when they purchase a building.
  • The building energy certificate is to be improved and digitised. The creation of a digital building energy register is being examined.
  • ESG ratings are to be included in the credit ratings of the major rating agencies on a mandatory basis. The EU’s Corporate Sustainability Reporting Directive (CSRD) is supported and is to be supplemented by European minimum requirements.

And then the traffic light coalition has a surprisingly concrete opinion on one of the big trend topics since the start of the Covid-19 pandemic: the home office. Here, employees are to be given a so-called right to discussion (“Erörterungsanspruch“) about mobile working and home office in the future. The employer should only be allowed to object to the employee’s wish for mobile working if there are operational reasons for doing so. Mobile working should then be “possible without any problems” throughout the EU. So it appears that German offices in the future must evolve if they want to remain an attractive and productive place that attracts employees.

In some places, the coalition agreement is very precise with regard to the real estate sector and also wants to quickly follow up words with deeds. Instead of describing target values for the coming decades, some of the implementation deadlines are only a few years long. If the announced measures are actually implemented, this will provide a strong tailwind for the transformation of the real estate industry and the decarbonization of our buildings. We at EVORA very much welcome this.

Investors and developers are therefore well advised to incorporate meaningful and ambitious sustainability KPIs and ESG targets into all decisions already today. We are happy to support you!

Embodied Carbon and its Role in Achieving Net Zero Carbon

  • Embodied Carbon accounts for the total greenhouse gas emissions released to the air as a result of constructing a building
  • Commitments have been made to achieve Net Zero Carbon by 2050, Embodied Carbon must be considered and reduced to achieve this
  • Climate change poses a number of financial risks
  • Embodied Carbon studies can increase climate resilience and therefore reduce risk and increase return

What is Embodied Carbon?

Have you ever walked past a building site and wondered where all the materials have come from? Whether the timber began life as a tree in the UK or abroad? While I was on work experience on one of my Father’s building sites, I found the idea that materials from potentially all around the world have come together to make something new, fascinating. I wondered about the work and energy that went into getting them onto the building site; first the raw materials are extracted, then transported to an industrial site where they are processed into a product, then transported again to the construction site and finally put into place. At each of these stages, energy is consumed and therefore emissions of greenhouse gases are released to the air (measured as emissions of CO2 equivalent, in this article, ‘carbon’). As such, each individual building material has a certain amount of carbon associated with it – the emissions released as a result of that product’s life. These emissions are the embodied carbon of the product, and as a wise person once said, ‘One brick does not a house make’, so the total emissions from all of the products and processes that go into making a building, form the total embodied carbon of that building.

The embodied carbon during construction, along with the operational carbon during the building’s life, such as energy used for HVAC, in addition to the end of life activities such as demolition or deconstruction – depending on where the system boundary is considered – all sum to the total carbon that is released as a result of the building’s life. Accounting for and reducing total carbon emissions has never been more important as the effects of anthropologic climate change continue to devastate parts of the world.

Why is Embodied Carbon becoming more important?

Following the Paris Agreement in 2015, governments around the world agreed that climate change must be limited to ‘well below 2⁰C’, and in our industry a figure of 1.5⁰C has been widely adopted as the target maximum [1]. This can only be achieved by countries and industries achieving a balance between carbon emissions and carbon sinks, resulting in the amount of carbon released to the atmosphere totalling ‘Net Zero’, by 2050 [2]. These commitments are binding, and increasingly severe fines will be issued to those who emit excessive carbon. To be successful, is it vital that governments and companies alike create pathways to Net Zero, to plan the transition to a decarbonised future and ensure that this future aligns with a 1.5⁰C trajectory (see figure 1). It is also important to consider both the total volume of emissions and the rate at which they are released, therefore change must happen in the short term, as sudden reductions in 2040 for example, will not be as successful in limiting the impact of climate change [3].

Figure 1: Global Warming Projections [12]

In commercial real estate, 23 of the leading commercial property owners have committed to becoming Net Zero by just 2030, under the Better Building Partnership Climate Change Commitment [4]. Under this agreement, scope 3, or all other greenhouse gas emissions that occur due to its activities, but which it has no direct ownership or control over, are also included, which covers embodied carbon. With current technology, generating embodied carbon through construction is unavoidable, therefore the only options to balance embodied carbon are to reduce it as much as possible, then offset the rest.

What are some of the risks posed by climate change?

The EU Emissions Trading Scheme operates under a ‘cap and trade’ principle, meaning although offsets can be brought, they will be capped and reduced over time and eventually there is a risk that offsets will no longer be available, or the prices be too high to be economically viable [5]. Similarly, in the voluntary offsetting market, there are a finite number of projects delivering offset ‘credits’, and over time, the low hanging fruit will be depleted so that financing projects becomes ever more expensive. This could lead to the more significant risk of fines being imposed for excessive emissions, along with a carbon tax on the remaining embodied carbon. Furthermore, although industry leaders have placed more responsibility on themselves to improve climate resilience and reduce emissions, there is a transitional risk that regulation will change in the future, leaving some assets stranded. For example, regulation could restrict the use of inefficient technologies or improve carbon accounting and bring more sources of emissions into scope. Should companies refuse to act now and continue with business as usual, they risk being caught out later and be forced to make sudden adjustments to align with new regulations, which could prove extremely costly. Such regulations include the draft new London Plan policy GG6: Increasing efficiency and resilience [6], this policy requires those involved in planning and development to improve energy efficiency and support the move to a low carbon circular economy. As such, planning permission could be refused to developers who do not align to this policy.

The requirements around disclosing climate resilience and environmental performance is becoming more commonplace, the Taskforce for Climate-Related Financial Disclosure (TCFD) is increasing transparency in this area by requesting organisations disclosure their climate-related financial risk publicly [7]. While currently voluntary, emerging Sustainable Financial Disclosure Regulations mean that this is unlikely to stay this way long term. There is therefore a reputational risk that stigmatisation of poor climate resilience could grow, and negative stakeholder feedback could arise. This in turn could prove material should a company lose out on investors because of this, who will be aware of the various financial risks climate change poses and view these as investment risks.

The physical risks of climate change will also be material for any entity with physical assets, which includes real estate, property could be damaged, for example by increased rainfall or flooding, or induce additional operating costs, for example higher temperatures leading to increased use of HVAC equipment, thus requiring additional maintenance. Therefore, it is in the best interest of the industry to limit the physical effects of climate change by sticking to a 1.5⁰C trajectory, where is it widely reported that these risks will be more significant at 2⁰C and above [3].

It must be noted that there is risk in adopting new technology, as it is unknown how that technology will perform in the long term and could have unforeseen consequences, for example new HVAC equipment could cause a building to overheat in certain conditions, potentially contributing to the urban heat island effect. However, new technology and innovations will be required if climate change commitments are to be met, which is why it is important that there is collaboration across the industry to develop and trial new technology and share best practise, which is already evident in companies with robust Net Zero Carbon Pathways, such as Derwent [8]. Considering the challenge of reducing scope 3 emissions, such as during tenant fit out, since developers do not control this activity directly but are still responsible for the carbon, collaboration and stakeholder engagement will be of great importance.

Where does embodied carbon fit into the bigger picture, and how can it increase climate resilience?

Embodied carbon studies can help to increase climate resilience in a number of ways, for example, as such studies become more widespread, increased accountability for developers will help reduce redundant building and encourage developers to think critically about their projects, potentially leading to increased major refurbishment works in preference to new construction. Furthermore, embodied carbon studies can encourage leaner and lighter building, as the simplest way to reduce embodied carbon is to use fewer materials, through identifying and removing redundant building elements. Material hotspots with high carbon intensity can also be identified, and alternatives with lower embodied carbon, such as recycled and reused materials, are promoted which also helps to progress towards a circular economy as highlighted in the European Green Deal [9]. Moreover, by considering embodied carbon during the design phase, strategies can be put in place to reduce it, such as designing for deconstruction, allowing building elements to be disassembled and reused or recycled more easily at the end of life.

Best practice dictates that accounting for embodied carbon emissions falls both with the initial developer and first-time purchaser of buildings [10], because both can have an influence over the design and construction which takes place. Whilst later purchasers of that building will not assume liability for the embodied carbon, it does present an increasing transition risk to developers and purchasers of new buildings, because over time, embodied carbon will contribute an increased proportion of the overall building lifecycle carbon as operational emissions fall. As a financial value is assigned to this risk, the incentive to minimise embodied carbon in future will become ever more critical in investment decision making.

Fortunately, years of varying approaches to measuring and managing embodied carbon have now given way to increased industry consensus, through the publication of key guidance, such as the RICS Whole Life Carbon Assessment for the Built Environment [11]. Several tools now also exist to enable efficient construction of embodied carbon models and identification of best practice enhancements. EVORA utilise One Click LCA for this purpose, saving clients precious time and resource in fast moving design processes.

Embodied Carbon Studies should also be incorporated into a Net Zero Carbon Pathway, as this sends a clear market signal that the financial risks of climate change have been understood and accounted for, which in turn is likely to attract investors, improve stakeholder relations, and could even attract tenants and increase asset value as the market develops over time. However, it is important to plan out a pathway sooner rather than later, reducing the likelihood that a sudden transition is required, which in turn reduces the financial risk of climate change.


If you are interested in getting help on your Net Zero journey, you can contact our Climate Resilience team.


References

[1] Paris Agreement, United nations Framework Convention on Climate Change, 2015

https://unfccc.int/sites/default/files/english_paris_agreement.pdf

[2] World Green Building Council, 2020

https://www.worldgbc.org/advancing-net-zero/what-net-zero

[3] IPCC, Global Warming of 1.5⁰C, 2018

https://www.ipcc.ch/sr15/

[4] Better Building Partnership, Climate Change Commitment, 2019

https://www.betterbuildingspartnership.co.uk/property-owners-make-groundbreaking-climate-change-commitment

[5] European Commission, EU Emissions Trading System (EU ETS), 2020

https://ec.europa.eu/clima/policies/ets_en

[6] Mayor of London, New London Plan, 2020

https://www.london.gov.uk/what-we-do/planning/london-plan/new-london-plan

[7] TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures, 2017

https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-2017-TCFD-Report-11052018.pdf

[8] Derwent, Net Zero Carbon Pathway, 2020

https://www.derwentlondon.com/uploads/downloads/Responsibility/Derwent-London-Net-Zero-Carbon-Pathway-July-2020.pdf

[9] European Commission, A European Green Deal, 2020

https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en

[10] UKGBC, Guide to Scope 3 Reporting in Commercial Real Estate, 2019

https://www.ukgbc.org/wp-content/uploads/2019/07/Scope-3-guide-for-commercial-real-estate.pdf

[11] RICS, Whole life carbon assessment for the built environment, 2017

https://www.rics.org/globalassets/rics-website/media/news/whole-life-carbon-assessment-for-the–built-environment-november-2017.pdf

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[12] Climate Action Tracker, 2020

The true cost of design – measuring embodied carbon at Hammerson’s Orchard Park retail development

This post was originally published on CIBSE Journal.


A new database tool is helping designers assess the environmental impact of their specifications. Our EVORA EDGE Director, Andrew Cooper, looks at how Hammerson is trialling the tool to assess the CO2 impact of a retail park in Didcot.


Approximately 10% of all UK carbon emissions are associated with the manufacture and transport of construction materials. These emissions are all upfront, contributing towards global warming before the building is opened. Yet measuring embodied carbon has often been thrown in the ‘too hard’ basket because of the difficulty in obtaining transparent and comparable data, and to implement consistent and auditable frameworks and processes within a reasonable budget. There is also a lack of policy drivers to measure and control embodied emissions in building projects.

However, European developer Hammerson has measured embodied carbon to inform the design processes on a new retail development in the UK – and used a cost-effective tool to do so. Hammerson plans to add to its portfolio of 58 UK, Irish and French shopping centres and retail parks, with an extension to the Orchard Centre in Didcot, Oxfordshire. The proposed scheme is targeting a ‘very good’ Breeam assessment and has a number of sustainable design principles, including an urban drainage scheme and a green roof.

To increase its chances of achieving a ‘very good’ rating, Hammerson has – for the first time – used Impact modelling to calculate the environmental impact of the proposed development, to achieve credits under the MAT01 Life-cycle impacts assessment issue. Impact is a specification and database for software developers to incorporate into their tools, to allow consistent life-cycle assessment and costing in property. It takes quantity information from building information modelling (BIM) and multiplies this by environmental impact and/or cost ‘rates’. It is based on the BRE database on environmental impacts and, by making this more widely available, the costs of embodied-carbon assessments are significantly reduced. It was also developed with integration into Breeam in mind.

Using it can gain up to four credits for UK Breeam assessments and up to six credits for international Breeam assessments.

Richard Quartermaine, environmental manager at Hammerson, says the company wants to make significant reductions to all areas of its carbon footprint, and the least well understood is the embodied carbon of its development activities. ‘Using Impact allows us quickly and consistently to assess the embodied carbon of a project at an early stage – to raise awareness among the design team and inform its decision-making.’

Envision is undertaking the Breeam assessment for the project, and EVORA EDGE has been appointed to do all the Impact modelling using IES VE Pro.

[clickToTweet tweet=”How EVORA is helping @Hammersonplc to measure embodied #carbon at its new retail park. ” quote=”How EVORA is helping Hammerson to measure embodied carbon at its new retail park development. “]

An energy model was developed by the building services engineer using IES VE software. This was used for the energy strategy, to comply with Part L and to calculate Breeam energy credits. The model was also issued to the Impact modeller to undertake the life-cycle impacts assessment using the same software.

The first task was to check the suitability of the model for an Impact assessment. Models must be constructed using the ApacheSim (DSM) format – in Energy Performance Certificate (EPC) terms, this is considered to be Level 5. The geometry must also be extremely accurate; discrepancies that may have a minimal impact on the built emissions rate (BER) could have a significant impact on a life-cycle assessment by affecting material quantities.  For example, if the height of each floor of a 10-storey building with a floor plate of 1,000m2 is 25mm out in a model, this is unlikely to have a significant effect on predicted energy consumption or the BER. But 10 x 1,000m2 x 0.025m equates to 250m3 of material. Assuming the floors are concrete, the concrete alone would amount to around 100 tonnes of embodied CO2 as an inaccuracy. Add steel reinforcement and/or steel decking to this, and the amount increases.

Having assessed the model, and made minor adjustments to ensure its suitability, a study was implemented to identify the construction details and materials. Material data was imported from the BRE library into the model. The scope of the study covered the mandatory building elements detailed in Breeam Assessor Guidance Note GN08, which include piled foundations, lowest floor construction, steel frames, all upper floors, roofs, windows, and internal walls and partitions. Having determined the environmental impacts, an advisory report was prepared for Hammerson.

The software can measure a number of environmental impacts, including acidification of land and water, fossil-fuel depletion, human toxicity, and global warming potential. In this case, the primary metric that Hammerson wished to adopt was embodied CO2, and benchmarking was used to advise on whether the proposed scheme had a high or low impact.

Monitoring the embodied carbon emissions of different types of buildings is a relatively new field of research, and there are not yet regulatory standards or academic studies offering peer-reviewed benchmark values. However, the RICS document Methodology to calculate embodied carbon of materials, 1st edition provides some useful benchmarks for cradle-to-gate embodied carbon emissions. The MAT01 study is based on cradle to grave – and the RICS benchmark is regarded as indicative only – but, for completeness, metrics were supplied to Hammerson for cradle-to-grave and cradle-to-gate emissions. (See panel, ‘Product life-cycles’.)

The study concluded that the impact of the Orchard Centre is within an expected range, based on the nearest matching RICS benchmarks of between 750 and 935 kg CO2 per m2for comparable buildings (Table 1). It recommended interventions that could lead to a reduction in the project’s environmental impact of between 6% and 7% – amounting to more than 1,000 tonnes of embodied CO2.