The International Energy Agency said the world is facing its first “true global energy crisis” due to Russia’s invasion of Ukraine and subsequent restrictions on Russian gas supplies. Here is how the UK, Germany, France and the US reacted to the crisis.
In 2008, the UK became the first G7 country to sign into law its commitment to net zero greenhouse gas emissions by 2050. While the UK is steadily pursuing legislative reforms to incentivize the real estate sector to reduce carbon emissions, the emergence of the energy security crisis in 2022 has shown that these reforms do need to be accelerated.
In response to rising energy prices, the UK government passed the Energy Prices Act 2022 in October 2022, which aims to provide energy cost support for households and businesses and protect them from the volatility of rising gas prices. The Energy Bill Assistance Scheme, which offers businesses discounts on energy prices for six months, will be replaced by a new Energy Bill Rebate Scheme for businesses, charities and public sector organizations that began in April this year.
In the UK, we are also seeing a real push towards low-carbon electricity generation from renewables and nuclear power.
The UK government has pledged to reduce the UK’s dependence on fossil fuels with the goal of decarbonizing the UK’s electricity system by 2035. In January this year, leases were signed for an offshore wind project that could potentially provide up to 8 GW of offshore wind power – enough to power up to seven million homes in the UK.
Prioritizing renewables is on the agenda as there are signs that new gas-fired boilers in homes may be phased out and trials are underway to use hydrogen as an alternative energy source.
In addition to the way energy is supplied in the built environment, ongoing efforts are being made to improve the energy efficiency of buildings, and this year there will be changes to the Minimum Energy Efficiency Standards. Last year we also saw a much-needed review of how carbon is measured in building energy certificate ratings to account for the increased contribution of renewables to electricity generation (although using gas in buildings could now mean lower ratings).
There are also proposals to change the way energy efficiency is monitored in large commercial buildings (pending the outcome of government consultations on this) and to amend last year’s building codes to allow more electric vehicle charging points to be installed in the development. These are just some of the changes that are taking place, but they show that progress is being made in broad areas.
The energy crisis is clearly putting pressure on businesses, and in addition to the aforementioned legislative changes, some businesses have also decided to reduce hours of operation to reduce their energy consumption. We also see businesses taking practical steps, such as lowering temperatures to lower heating costs and looking for more energy efficient spaces when considering relocation.
In September 2022, the UK Government commissioned an independent review called “Mission Zero” to consider how the UK can better meet its net zero commitments in light of the global energy crisis.
This review aims to identify accessible, efficient and business-friendly targets for the UK’s Net Zero strategy and shows that the way forward is clear. A clean zero explicitly determines the rules and political decisions on the shop floor.
In recent years, the German real estate industry has faced significant challenges on the one hand due to the Covid-19 measures and on the other hand due to the energy crisis.
While the industry has made strides in energy efficiency over recent years through sustainable modernization and investment in green building technologies, government support has also played a vital role in tackling the crisis.
First, the German government has adopted a three-stage contingency plan for natural gas supplies. This shows to what extent security of supply can be maintained at various critical stages. The state has the right to intervene to ensure the supply of gas to certain protected consumers such as hospitals, police or household consumers.
Secondly, with regard to power supply, the possibility of so-called “blackouts” is now being discussed. In the case of a predictable situation in the network, when more energy is consumed than generated, TSOs first of all resort to using the existing reserves of power plants. If this is not sufficient, temporary and pre-planned closures will be considered in extreme cases.
The precautions described above pose obvious problems for the real estate industry. However, there are also programs that have shown measurable results, resulting in savings of more than 10% in electricity and more than 30% in natural gas.
The German government regulations on energy saving set the basic framework for this. Under these regulations, homeowners must optimize the gas heating systems in their buildings and conduct extensive heating inspections. In addition, both landlords and tenants must minimize the operation of outdoor advertising systems and lighting equipment, ensure office space is lit only during working hours, and reduce the temperature in the premises to the values \u200b\u200ballowed by law.
In addition, it is forbidden to keep the doors of stores open all the time in order to reduce the inflow of outside air. Many stores have voluntarily reduced opening hours to comply with regulations.
In addition, the government intends to respond to the crisis by lowering prices starting this month. This reduces gas and electricity prices to a certain fixed amount. However, to maintain an incentive to use less energy, consumers will pay higher prices first, and only then will they be subsidized. In addition, nuclear power plants that were supposed to be shut down will now continue to operate until April 2023, thus securing the power supply.
In the current energy crisis, France has focused on educating businesses and households on how to reduce electricity and gas consumption. The French government has instructed the country to be more careful about how and when it uses energy to avoid gas or electricity cuts.
Instead of imposing real and mandatory limits on energy consumption by businesses and households, the government is trying to help them use energy more intelligently and at lower cost, while reducing energy costs.
The French government also provides some financial assistance, especially for small companies, which also extends to companies with large energy consumption.
Some assistance has also been given to French households to help people pay their electricity bills – any family within a certain income range automatically receives this assistance. For example, additional assistance was provided to those who need a car for work.
Overall, the French government has not taken a particularly strong new position on the energy crisis, as various laws have been passed to improve the energy efficiency of buildings. This includes a ban on future occupancy of buildings by tenants if they do not meet a certain energy rating.
The energy crisis is not only a problem for the French government, but also for companies, especially given the growing importance of the ESG goals they set for themselves. In France, companies are trying to find ways to increase energy efficiency (and profitability), but they are still willing to cut energy consumption even if it is not necessarily cost-effective for them.
This includes companies trying to find ways to repurpose waste heat, or data center operators cooling servers to lower temperatures after they have determined they can operate efficiently at lower temperatures. We expect these changes to continue to happen quickly, especially given the high energy costs and growing importance of ESG.
The US is addressing its energy crisis by offering tax breaks to property owners to install and produce renewable energy. The most important piece of legislation in this regard is the Inflation Reduction Act, which, when passed in 2022, will be the largest investment the United States has ever made in the fight against climate change. The US estimates that the IRA will provide about $370 billion (£306 billion) in stimulus.
The most significant incentives for property owners are (i) the investment tax credit and (ii) the production tax credit, both of which apply to commercial and residential properties.
ITC encourages investment in real estate, solar, wind and other forms of renewable energy through a one-time loan provided when the related projects go live. The ITC base credit is equal to 6% of the taxpayer’s base value in the qualifying property, but can increase to 30% if certain apprenticeship thresholds and prevailing wage thresholds are met in the construction, renovation or project improvement. In contrast, PTC is a 10-year loan for renewable electricity production at qualifying sites.
PTC’s base credit is equal to kWh produced and sold multiplied by a factor of $0.03 (£0.02) adjusted for inflation. PTC can be multiplied by 5 if the above apprenticeship requirements and prevailing salary requirements are met.
These incentives can be supplemented by an additional 10% tax credit in areas historically associated with non-renewable energy generation sites, such as old fields, areas that use or receive significant tax revenue from non-renewable energy sources, and where closed coal mines. Additional “reward” loans can be pooled into the project, such as a 10 percent ITC loan for wind and solar projects located in low-income communities or tribal lands.
In residential areas, IRAs also focus on energy efficiency to reduce energy demand. For example, home developers can get a loan of $2,500 to $5,000 for each unit sold or rented out.
From industrial projects to commercial premises and residential buildings, the IRA encourages the development of new energy infrastructure and the reduction of energy consumption through the use of tax incentives.
As we see countries around the world implementing increasingly stringent legislation and trying to limit energy use and cut carbon emissions in a variety of innovative ways, the current energy crisis has highlighted the importance of these measures. Now is the most important time for the real estate industry to continue its efforts and show leadership in this matter.
If you would like to know how Lexology can advance your content marketing strategy, please send an email to [email protected].
Post time: Mar-23-2023