Research Note - updated
Coming in 2010, perhaps mid-2010
A legal requirement to disclose an
office building's NABERS Energy rating
at sale or lease.
An updated research note from Big Switch Projects
About this revised note
Big Switch Projects issued our first Research Note on this issue on January 12. We reported then that it was a little unclear whether the Australian Government was proposing that tenant space should also be subject to a mandatory NABERS rating prior to building sale or lease. It’s now clear this is indeed what is proposed. That’s controversial.
This revised note incorporates greater clarity on what the Australian Government is proposing, obtained by Big Switch Projects attending the stakeholder briefing on February 20 in Sydney and the earlier Adelaide briefing.
Need to know
The draft framework by which office building owners will have to disclose the energy and greenhouse performance of their buildings and tenancies has been published by the Australian Government.
The proposal is that from 2010 all building owners will have to disclose a NABERS Energy rating when an office building or tenancy over 2000m2 is for sale or lease.
That will be both a base building rating and also tenancy ratings for the space up for lease.
Major property owners have indicated they oppose the requirement that ratings should be provided for tenancies.
The rating must be shown in advertising and in material provided to buyers and tenants.
The ratings must be no more than 12 months old.
The scheme is known as the Mandatory Disclosure of Commercial Office Building Energy Efficiency.
1. The Australian Government’s objective
Big Switch Projects has reviewed the two background documents published by the Australian Government on December 18, 2008: the Mandatory Disclosure of Commercial Office Building Energy Efficiency Consultation Regulation Document and the Consultation Regulation Impact Statement and attended stakeholder briefings in Adelaide and Sydney. Since our earlier Research Note, the government’s plan and timetable have become clearer.
The objective of the scheme remains to overcome what are viewed as two types of market failure in the delivery of energy-efficient office buildings and tenancies. The first is that tenants may have an interest in energy efficiency but are unable to influence the owner, or that owners are interested in energy efficiency but have insufficient incentive to improve energy efficiency because costs are passed on to tenants. The second is simply that buyers or potential tenants currently find it difficult to easily and cheaply determine the energy efficiency of a building.
This is the same rationale governments have used to justify energy efficiency labels on fridges and fuel efficiency labels on new cars. Now they’re applying it to office buildings. “The essence of mandatory disclosure,” the Government says, “is to ensure that participants in the buildings market have access to credible information regarding the energy efficiency of a prospective building or tenancy” (Consultation Regulation Document, p23).
2. When will owners have to disclose energy performance?
On implementation timing, the regulation documents issued in December were vague. The best answer obtained from Government officials at the Sydney briefing was that they were aiming for implementation in mid-2010.
The Consultation Regulation Document (p41) states:
“The central requirement of the proposed scheme is that when a commercial office building with a NLA of 2000 m2 or more, or any part of such a building that is greater than 2000 m2 NLA is to be sold, leased, or sub-leased, an appropriate energy efficiency rating and assessment report of the building must be disclosed:
• In any advertisement about that sale or lease (disclosure requirement is limited to an appropriate star rating, excluding Green Power);
• To prospective buyers and tenants (a valid Building Energy Efficiency Certificate (BEEC) and Energy Efficiency Assessment Report (EEAR)); and
• to a central registry (a valid BEEC and EEAR).”
Initially, the new Building Energy Efficiency Certificate will use the NABERS Energy rating, although other rating schemes may be accredited over time.
Public disclosure of ratings is not required, other than in advertising material for buildings for sale or lease. This makes the scheme different to the European Union directive which mandates that any building occupied by public authorities or by institutions providing public services must have an energy certificate prominently displayed.
The central registry will be run by the Australian Government’s environment department.
3. The big issue: at sale or lease, it’s not just the base building rating you must disclose
The Australian Government proposes that when an office building over 2000m2 is sold, not only must the base building NABERS Energy rating be disclosed, but as well the NABERS Energy ratings for all tenancies over 2000m2 . “It is important to note that, under this [recommended] option, the thresholds for the size of property apply directly to leased space as well as sold space” (Consultation Regulation Impact Statement, p25).
At the Sydney stakeholder briefing, Dexus, Stockland and Mirvac vocally expressed their concern about this requirement, arguing that property owners have little control over how tenants use their space.
There is also concern about how that tenancy information will be obtained.
The national legislation for Mandatory Disclosure will require tenants to provide the necessary information to an accredited assessor. This tenancy information will be provided to the assessor, not the owner.
New buildings and tenancies of less than 12 months as well as some extreme cases where a valid rating and assessment is not possible, will be exempt.
4. What will the Building Energy Efficiency Certificates cover?
Core proposed requirements for BEECs include standard NABERS Energy inputs and the star rating, building assessor details, and whether the building has any co- or tri-generation facilities.
See Appendix 1 for a mock-up certificate. A BEEC will be valid for 12 months
5. How do my EEARS look?
The Government proposes that an Energy Efficiency Assessment Report will be included in the mandatory reporting framework to inform both tenants and existing and prospective owners with respect to the options they have to improve the building or tenancy. The EEAR will be valid for seven years and is expected to include opportunities to improve energy efficiency in such areas as controls, heating and air conditioning, lighting, hot water, the building envelope and office equipment.
6. Other types of commercial building later
At this stage, only office buildings will be covered by Mandatory Disclosure of Energy Efficiency but the Australian Government has signalled its intent to expand this measure to additional building types, subject to further cost-benefit analyses.
7. Big Switch Projects’ comment
Now that the Government’s intent is clearer in relation to rating tenancies, clearly a problem exists in relation to how relevant the previous tenancy ratings will be for future tenants in that space. For example, the NABERS Energy rating of a tenant who ran a 24/7 financial trading floor with significant supplementary air conditioning loads is not going to be a strong guide for a potential new tenant who treads more lightly on the same floorplate. It would appear that the designers of this scheme have had insufficient technical input from those who understand who uses energy in an office building, where and why, and the relationships between owners and tenants.
We believe this issue needs further reflection. Some kind of tenancy rating for new tenants is better than none at all as, typically, tenants use half the energy in an office building. We’ll urge the Australian Government to convene a technical group representing owners, tenants and energy-efficiency firms to consider the options, which might include mandatory minimum NABERS ratings for all new tenancies, provision of energy modelling of proposed fitouts, and at the very least an indication of the efficiency of the base building lighting system – which, of course, may be the only thing the previous tenant leaves behind. Making Australia’s office workplaces more energy efficient is fundamental to cutting the nation’s power use and carbon emissions but it may be that such a goal needs its own program.
Whatever this scheme’s final design, owners of office buildings that have never been rated on NABERS Energy, or that have been rated but remain poor performers, will face significant financial and reputation risk.
On the other hand, the scheme offers owners of high NABERS-rating buildings a new government-endorsed platform to promote their high-performing assets.
Big Switch Projects’ advice to office building owners is:
• have all office buildings rated on NABERS Energy thereby establishing your baseline portfolio performance – and while you’re at it, do NABERS Water too;
• Produce a strategy for property upgrades over a realistic timeframe, say the next three years;
• Set a target for portfolio-average NABERS ratings;
• Engage with your tenants on their energy efficiency and indeed broader environmental, performance;
• Tap into government funding schemes;
• Build long-term partnerships with service providers and other sources of advice such as government and non-government organisations.
We will be making our own submission on the proposal. Written comments are due to the government by Friday, February 27.
Appendix 1: A mock-up BEEC - Please download the PDF to read Appendix 1.
Appendix 2: Office buildings and carbon emissions
The Mandatory Disclosure of Commercial Office Building Energy Efficiency documents report that energy-related carbon emissions from all types of commercial buildings in Australia have grown from 32 million tonnes in 1990 to 60 million tonnes in 2006, an 87 per cent increase in a span of 15 years. Commercial buildings now emit 10 per cent of Australia’s total greenhouse gas emissions. Office buildings, the largest contributor of the commercial building sector, account for 27 per cent of these emissions, and they are estimated to have doubled between 1990 and 2010, from 8.5 to 16.5 million tonnes.
The Government notes Australia has a legal commitment under the Kyoto Protocol to cut its greenhouse emissions, and that every sector of the economy “must contribute in an equitable and cost-effective manner” (Consultation Regulation Document, p9).
Governments have accepted evidence from a number of recent reports, both international and Australian, that some of the most cost-effective cuts in carbon emissions can be delivered through improving energy-efficiency in buildings, both commercial and residential.
Further information:
Sydney: Gavin Gilchrist (02) 8270 7700 or 0407 663 125
Adelaide: Vikram Kenjle (08) 8212 0466 or 0410 184 587
The consultation documents can be viewed at www.environment.gov.au/buildings.
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