Carbon tax penalties: The financial incentive for building efficiency

With the post-COVID decline in office occupancy, commercial real estate owners have seen a significant dip in tenancies, a change exacerbated by soaring borrowing costs. But reduced footfall and high interest rates are just the tip of the iceberg, as building owners in cities worldwide brace for a new challenge: carbon emissions tax.

Several cities have introduced or will soon adhere to strict climate standards, taxing buildings that fall outside of carbon emissions requirements. Building owners are in a tight spot, faced with the choice between paying for upgrades to curtail emissions or shelling out hefty tax penalties.

Against the backdrop of falling occupancy and rising carbon emissions tax, operational efficiency is the best way to relieve the mounting pressure without substantial capital expenditure. This article will explore the numerous benefits of operational efficiency and the practical steps building owners can take to run at peak efficiency without excessive spend.

The cost of ignoring green standards

Major metropolitan centres worldwide are gearing up to levy taxes on buildings based on their carbon emissions, if they have not already done so. The built environment accounts for 30% of global energy consumption, making buildings one of the biggest contributors to our carbon footprint.

In New York City, building owners could face a fine of $268 for every tonne of CO2 emissions that exceed a prescribed limit. The Wall Street Journal predicts that over the span of five years, about 128 buildings will accrue tax bills surpassing $50 million. By 2030, this figure could escalate to a whopping $214 million for the same properties. New York isn’t an isolated case within the US; starting in 2021, more than a dozen local laws targeting building emissions were implemented or are scheduled to be implemented by 2030.

In the UK, carbon taxes effectively exist in the form of the climate change levy and the Emissions Trading System. While Australia does not have an explicit carbon tax, fuel excise taxes serve as implicit forms of carbon pricing. The World Bank’s carbon pricing dashboard shows the tax rate per tonne of emissions increasing steadily year-on-year in countries like Canada and Singapore.

The movement toward taxing emissions is a global phenomenon that is only growing. For building owners experiencing sluggish cash flow, additional tax penalties are a price they can ill afford to pay.

The road to enhanced operational efficiency

While the most direct approach to a greener carbon footprint might appear to involve significant capex, low- or no-cost solutions can prove just as effective—without the substantial cash outlay. 

Existing commercial buildings can attain lower emissions by embracing building analytics technology:

• Monitoring: Energy monitoring systems are now powered by advanced data analytics. Low-cost sensors monitor plant and equipment, sending thousands of data points per day and providing real-time insights into energy consumption trends, paving the way for performance optimisation. 
• ‍Optimisation: Armed with the right data, building managers can pinpoint the root cause of inefficiencies, optimising high-consumption systems like HVAC to reflect current building occupancy and weather conditions. These insights help optimise consumption patterns to reduce waste and make the best use of valuable resources such as fossil fuels. For instance, usage might shift to off-peak times, or excessive overnight operation might be identified and resolved. 
• ‍Data-driven maintenance: Finally, building owners can transition away from low-efficiency, schedule-based maintenance and lean instead into predictive maintenance, leveraging data analytics to increase equipment efficiency and extend its lifecycle. 

Success stories: the PEAK Platform

The success our customers have achieved using CIM’s PEAK Platform is a testament to the power of operational efficiency. For example, Charter Hall’s reduced energy consumption during COVID was not a surprise; like most commercial buildings, Charter Hall’s portfolio stood largely empty while stay-at-home orders were in effect. In collaboration with CIM, Charter Hall has managed to maintain reduced consumption rates, even as occupancy has returned to normal levels.

Another striking example is an impressive 80% reduction in HVAC gas consumption at a prominent CBD office property. PEAK identified excessive seasonal usage, prompting the implementation of an optimised control strategy to enhance efficiency while maintaining ideal comfort levels for tenants.

LaSalle has also seen accelerated sustainability performance through PEAK. Operational efficiencies across seven sites have facilitated an 18% reduction in energy consumption compared to pre-COVID levels, from which LaSalle has derived significant cost savings. These gains have been achieved without compromising the tenant experience; the average indoor environment score increased by 13% to 84%.

Conclusion

Commercial real estate owners cannot afford to ignore the current climate of carbon emissions penalties. Failure to adhere to evolving green standards will not only be costly in terms of fines; it will also diminish the market value of their buildings. 

Enhancing operational efficiency has become a global imperative. Thanks to building analytics platforms like CIM’s PEAK, it’s also highly achievable for building owners who are already stretched thin. 

In the realm of commercial real estate, operational efficiency is a valuable currency in its own right. Discover how PEAK can help protect your portfolio and reduce your impact.