BUILT ENVIRONMENT JOURNAL

Incentives to build sustainably

Current market structures don't give sufficient incentive to sustainable building, but the construction industry needs to evolve rapidly if zero-carbon targets are to be met

Author: Richard Tibenham

10 April 2020

Costa Coffee's Ecopod outlet in Telford

Costa Coffee's Ecopod outlet in Telford

Last year was a pivotal one for climate change awareness in the UK: it saw the release of the Committee on Climate Changes report UK housing: Fit for the future? the announcement of the UN's Zero Carbon Buildings for All Initiative and the highly publicised rise of Extinction Rebellion, as well as extensive flooding in England that was widely attributed to our changing climate.

Polling by MORI shows that, in 2019, 85 per cent of Britons were concerned about climate change — with 52 per cent very concerned — rising from a low of 60 per cent in 2013. The term 'climate emergency' was declared Oxford Word of the Year, soaring from relative obscurity to become one of the most prominent phrases of 2019. The Royal Institute of British Architects was one of those to declare an environment and climate emergency, while glazed tower blocks also found themselves in the spotlight and the Goldsmith Street Passivhaus scheme in Norwich won the Stirling Prize.

Despite the competing news of the housing crisis, Brexit and the general election, tackling climate change was seen as a core issue at the end of last year. Responding to criticism that it wasn't doing enough, the government set a legal target to bring UK greenhouse gas emissions to net zero by 2050, and changes to the Building Regulations are now being proposed.

"People rarely consider that a building constructed todaycould well be operating in a 100 years' time"

The construction industry is readying itself for the need to change. The National Federation of Builders recently published the report Transforming Construction for a Low Carbon Future which concluded: 'All elements in the construction industry must be aware in no uncertain terms that if they do not take advantage of the opportunities ahead, they risk finding themselves left behind in a rapidly changing construction landscape'.

The long view

Unlike many other consumer purchases, buildings tend to exceed the average human lifespan. Making financial decisions in relation to such long timescales therefore involves risks, because no one knows quite what the future holds. Instead, financial decision-making is typically weighted towards immediate needs, the customs of the previous five to ten years, and a degree of short-term projection.

Rarely do people consider that a building constructed today could well be operating in 100 years' time, and that it may prove more financially prudent to design it for the needs of that intended lifespan. As a consequence, building design is largely governed by budget, and is often defined by the availability of credit and by the regulatory requirements of the moment.

With time, buildings are modified to address their users' evolving needs, and while this rationale served the UK reasonably well throughout the post-war period, it is proving itself increasingly unsuited to the longer-term planning required to tackle climate change.

Indeed, a 2019 government consultation states that 'new homes that we are constructing now and in the next five to ten years are homes that will exist in 2050' . The challenge, then, becomes how these ideas can be integrated into a market-led democracy, since the market in its current form does not promote long-term thinking.

The latest data from the Passivhaus Trust indicates that, when adopting current best practice, building a scheme to the highly efficient Passivhaus standard costs nine per cent more on average than an equivalent that complies only with the present Building Regulations. Exeter City Council, with nine years' experience of building to the Passivhaus standard, is achieving capital cost premiums of just eight per cent, and the Passivhaus Trust notes that the premium could fall to as low as just four per cent if there were wide-scale adoption. For comparison, average inflation-adjusted UK house prices rose by 147 per cent between 1997 and 2007, or 14.7 per cent per year.

Between 2013 and 2016, average house prices rose 19 per cent as the market responded to quantitative easing, the Help to Buy scheme and record-low interest rates, with minimal change in the performance of these buildings. This illustrates that the increased build cost of higher-performance buildings is substantially lower than the non-productive speculative gains in land value that have influenced the market in the past 20 years.

In essence, higher build costs are affordable if we want them to be, but the likelihood is that this will see value move from land itself towards construction fabric and design quality — to the benefit of some people and the disadvantage of others — disrupting the vested interests of the current market structure.

To test the hypothesis that lower running costs would make additional investment advantageous over a typical mortgage term, a Passivhaus Institut study of 2012 compared a small detached Passivhaus on a single plot against an equivalent house built to the standard required by the UK Building Regulations 2010.

The study concluded that, assuming a low-interest-rate scenario, investment in the Passivhaus would be more economically viable over a 25-year mortgage term, but only by a small margin. The prospective homebuyer would be just £1,293 richer by investing in the higher deposit for a Passivhaus than they would be had they placed their money in a bank account offering a compound interest rate of three per cent. If uptake of high energy efficiency, standards is to become more widespread, then a more compelling financial argument needs to be made for going green. Cheap fuel is the enemy of efficiency and as long it remains cheap the alternatives appear expensive .

"The question we should be asking is, are tax breaks for energy use really the right measure in a climate emergency?"

To compound the issue, domestic fuel also benefits from a reduced VAT rate of just five per cent. While this policy has served the immediate desires of the electorate, it has also legitimised a state of apathy on fuel efficiency in the built environment, rendering the financial arguments for going green somewhat limited. The question we should be asking is, are tax breaks for energy use really the right measure in a climate emergency?

Managing the performance risk

The Research Acceleration and Demonstration (RAD) building constructed at the University of Nottingham illustrates how insufficient consideration at the concept design stage can lead to potential unintended consequences. The building design, which was initially selected following an architectural design competition, was later put forward for Passivhaus certification. However glazing proportions and their configurations meant that it was not possible to achieve low energy consumption while also maintaining good levels of thermal comfort and daylighting. The project shows investment in high-performance construction fabric does not always result in the best-value building.

As capital costs rise, the risk of underperformance becomes all the more critical — and with this comes a requirement to minimise the gap between designed performance and performance in practice. While it is not a given that every project aspiring to fulfil the Passivhaus standard will meet its requirements, it is true that for those projects that do, the standard has been very successful in achieving its ambitions.

A recently launched design guide from the University of Oxford specifically noted: 'The university has moved to the Passivhaus design and construction methodology in its pursuit of excellent building performance, after the previous target of BREEAM Excellent ratings for all major new buildings failed to deliver the expected benefits.' Clearly, the stakes are getting higher.

When embarking on low-energy architecture such as this, it is critical that these higher performance standards are considered from the outset. Basic massing, orientation and glazed area ratios contribute substantially to performance, and it is therefore essential that these be considered at the pre-planning stage by suitably qualified specialists.

Skills for doing so are currently lacking, though, so there is a need for training and education among architects, planners and decision-makers. As the Passivhaus Trust recommends, Passivhaus needs to be part of the initial brief and teams must properly understand it.

The firm Zero Energy Architecture achieved net zero-carbon performance in its Ecopod Costa Coffee outlets in Swansea and Telford (see photo). When on-site renewable energy generation exceeds demand, it is exported to the grid. Though energy is still imported during periods when demand exceeds on-site generation, annual costs have still been halved by comparison to similar standard units, and at an economically attractive capital outlay. Over the course of a year, the building exports as much power as it imports achieving net zero energy demand.

To achieve this, energy efficiency was considered in the architectural design from the outset, adopting thermal modelling and relying heavily on data-driven decisions. Net-zero carbon performance is economically viable, but design and engineering must be valued.

A range of risks

Although current market structure doesn't support longer-term financial strategies, we shouldn't assume that this will be the case forever. Calculating return on investment on the assumption that current trends will continue for perpetuity is a short-sighted approach, and there are other financial risks that are important to consider.

Changes to government policy, for example, represent one such risk. Acknowledging the 2050 legal commitment to net-zero carbon, how much risk will an investor be exposed to over the next 30 years should they not build to net-zero carbon standards today?

The government has already launched a consultation on proposals to achieve energy performance certificate (EPC) ratings of B across all non-domestic rented property by 2030 where cost-effective.

The Scottish government has gone even further, introducing legislation to tackle climate change and eradicate fuel poverty. This means that all privately rented properties will be required to achieve EPC band D rating for new tenancies by 2022, and for all tenancies from 2025. Furthermore, Holyrood is proposing a new, legally binding standard for owner-occupied homes from 2024 onwards, and has sought the views of homeowners through public consultation on what this standard may look like; however, initial proposals are that it will set either a C or a B rating as a minimum under the Standard Assessment Procedure. As the policies develop, no doubt, these costs will increasingly be factored into asset values.

Likewise, payback periods on energy costs are just part of the issue. A recent study by business technology company the Remark Group on air quality and workplace well-being revealed that 86 per cent of UK office workers get headaches, with 23 per cent reporting that they suffer on a daily basis. Design philosophies such as Passivhaus are as much about creating healthful, productive, indoor environments as they are about reducing operational energy demands, and it is important when evaluating return on investment to remember this.

Building to net zero-carbon standards today may seem extreme, but it is likely to become the norm in the near future. Although doing so may offer limited financial reward in the short term, it will increase resilience to the effects of climate change and reduce exposure to the risks of a rapidly changing world.

These variables are complex and difficult to predict, but with legal commitments in place the general trajectory points towards a net-zero economy by 2050 — complete with everything that entails.

Richard Tibenham is director at Greenlite Building Physics and associate lecturer in building physics at the University of Lincoln info@greenliteea.co.uk

Related competencies include: Sustainability

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