Carbon Management: A Hedge Against Compliance Costs

Energy efficiency programs have become a “must” for property managers said Francisca Quinn, Business Manager and Sustainability Practice Leader, Loop Initiatives (A PB Halsall Company) and they have been almost universally implemented by commercial building owners. Going one step further and converting energy data to green house gas (GHG) emissions can generate additional value for an existing corporate sustainability initiative.

If the looming possibility of carbon reporting becoming a baseline requirement is not motivation enough the cost savings, reputation and risk reduction benefits associated with managing an energy efficient building are compelling enough reasons to move ahead with a carbon management program said Quinn speaking at a Better Buildings Breakfast on January 19th in Ottawa.

Carbon Management Can Be Simple

Carbon emissions are primarily created through the combustion of fossil fuels. Consequently starting a carbon management program can be as simple as entering annual energy consumption information into an Excel spreadsheet and converting data to carbon equivalents. An in-house carbon accounting tool can be setup by any building owner or manager to benchmark building performance and get started. Carbon then becomes a ‘universal unit’ for making comparisons of building energy performance between properties types, energy sources and political jurisdictions.

Large Corporations Tracking Carbon Usage

While carbon accounting is available to any organization it is pension funds, institutional investors and companies with significant real estate holdings particularly those with international investments that are driving the shift toward standardized carbon management.

Corporations are responding to demands from their shareholders, suppliers and consumers to be accountable for their environmental footprints and green house gas emissions. A growing number of companies are filing corporate social responsibility (CSR) reports, publically registering GHG emissions, following international protocols such as those offered by the Global Reporting Initiative and disclosing carbon usage through organizations like the Carbon Disclosure Project now over 10 years old.

In Canada there is an expanding list of property companies pursuing carbon management, reporting GHG and filing CSR reports. Oxford Properties is considered a pioneer initiating their sustainability program in 2005. Bentall Kennedy, Cadillac Fairview, LCBO and Canadian Tire – the first Canadian corporation to file quarterly CSR reports – are some of the companies now preparing formal environmental reports that typically include a carbon analysis.

Delta Hotel and Resorts are reporting on carbon and 11 other sustainability indicators as well as providing updates on their website three times a year. Major retailers, and household names, Tim Hortons and Shoppers Drug Mart, have just started carbon reporting and are still formulating their sustainability programs.

There are numerous reasons for property companies to pursue carbon management. “In Real Estate there is a tangible part, and an intangible part. The intangible part is the overall brand reputation, and certain customers want that, and ask for that,” Quinn said. “Around more tangible measures, around margins and cash flow, there is also an argument that if you have a green building, you may command a higher rent. There is evidence to support that tenants in a green building will renew, and there will be a higher occupancy.”

When Carbon Accounting Becomes “business as usual”

One motivation for establishing a carbon management program is to avoid the catch-up cost associated with complying to carbon regulation when it becomes ‘business as usual’ explained Quinn. While carbon regulation is an emerging trend in North America in the public sector in the UK, which commands nearly one fifth of total office space, carbon management is a mandatory leasing criterion and large commercial buildings are required to display energy certificates.

In North America The Western Climate Initiative (WCI), started in 2007 by five Western U.S. states was formed to pursue a collective goal of reducing green house gas emissions.

The WCI has two types of members, partners and observers, and has seen considerable fluctuation in engagement since its inception. In 2011 WCI’s membership changed to California and four Canadian Provinces (BC, MB, ON and QC) representing 76 percent of Canadian GDP plus observer jurisdictions including Saskatchewan, several U.S. States and Mexican provinces.

As of January 1, 2012 California had started carbon allowance auctions. Quebec and BC passed legislation in 2011 to initiate energy intensive industry to report and verify emissions and Ontario has yet to announce its intention with respect to carbon regulation. The WCI’s role and plan to develop a market driven program remains controversial nevertheless it continues to operate and grow.

In Canada, independent of the WCI, Alberta requires GHG reporting from major emitters primarily in the oil and gas sector.

Does Trading Carbon Offsets Make Sense

While an international carbon market is beginning to take shape, at a corporate level property owners are considering the opportunity for trading or selling carbon offsets from energy efficiency measures however the financial case remains challenging.

In Canada the Canadian Standards Association has established a standard and public registry for carbon offset companies, GHG emission reporting and most recently a registry for organizations, building owners and tenants wishing to declare carbon neutrality. While the mechanisms for monetizing carbon reduction seem to be in place challenges remain: the complexity and cost of the process, necessary economies of scale, lack of track record and legal ownership issues of tenant derived credits will delay wide spread acceptance for trading carbon offsets.

The Future of Carbon Management

The current depressed price of carbon is another significant factor slowing the offsets market. Carbon is unlikely to reach an economically viable threshold in the near future, according to Quinn, particularly in the absence of a continent wide regulated carbon market.

Even in the absence of a North American carbon economy the benefits of operating energy efficient building abound; cost savings, tenant attraction and renewal, appreciated asset value, benchmarking, setting targets, monitoring and reducing energy consumption. The additional step of converting energy data to carbon equivalents is a hedge against a future that is progressing toward expanded carbon regulation.

Given the momentum in the carbon accounting sector it isn’t so much a question of ‘if there will be a carbon market’ simply ‘when’ and property owners should be prepared for the transition.







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