Energy standards: when moving the goal posts is a good idea

Prime Minister Rishi Sunak has defended the government's decision to push back the ban on sales of new, pure petrol and diesel cars from 2030 to 2035, insisting the UK will meet its net zero targets. This decision brings the UK into line with a number of EU counterparts but it has been challenged because it undermines the certainty that the automotive industry needs to invest and sends a confusing message to consumers.

There are parallels with the real estate industry where the Minimum Energy Efficiency Standards Regulations have been used to drive change in both the commercial real estate market. The current minimum energy efficiency standard is a rating of E as shown in a valid EPC. It is unlawful to let commercial premises with an F or G rating unless all relevant energy efficiency improvements have been made or one of the narrow statutory exemptions applies. 

Through a series of consultations the government has made clear its intention to review this standard upward as part of the drive to achieve net zero. In the energy white paper it was confirmed that the aim is to increase the minimum acceptable standard to B by 2030. Progress towards that target would be governed by two compliance windows. The first window ending in 2027 would require a C standard to be achieved by 2027 unless a relevant exemption applies. The second window would end in 2030 and by that point the minimum standard of B would need to be delivered or an exemption registered.

The government estimates that there are 1.8 million non-domestic premises across England and Wales and approximately 1.1 million of those are currently let. CBRE have estimated that if the current trends in the issue of EPC certificates continue, then 60% of all UK commercial stock will fall below the projected B standard by 2030 and therefore become unlettable. 

Although there are many institutional investors and developers that are capable of “upcycling” sub-standard stock, this is highly capital intensive and involves material commercial risk at a time when many markets are cooling and the cost of finance and construction remains high. Unless there are significant financial incentives brought forward to offset this risk, it is difficult to foresee the sudden surge in projects of this type that would be required in order for the 2030 target to be met by the majority of UK commercial real estate. Re-setting the target or timeline now would provide certainty for the market but doing so would come at considerable political cost.