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Action on Climate Change: Proposals for Improving the Energy Performance of Existing Non-domestic Buildings - A Consultation by the Scottish Government

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Annex A: Partial Regulatory Impact Assessment

ACTION ON CLIMATE CHANGE: PROPOSALS FOR IMPROVING THE ENERGY PERFORMANCE OF EXISTING NON-DOMESTIC BUILDINGS

PURPOSE AND INTENDED EFFECT

Objective

1. The objective is to improve the energy performance of existing buildings as part of the Scottish Government's vision to achieve an 80% reduction in Scotland's carbon dioxide (CO 2) emissions by 2050.

Background - The need for Government intervention

2. As part of its contribution to the international effort required on climate change, the Scottish Government aims to achieve an 80% reduction in Scotland's emissions by 2050. In January this year, it launched a consultation 8 on its proposals for a Scottish Climate Change Bill. Allied to this, the Sullivan Report 9 includes recommendations to enhance energy standards in building regulations towards the goal of zero-carbon new buildings. However, given that existing buildings will make up the majority of the building stock in 2050 these require further specific measures.

3. The consultation on proposals for a Scottish Climate Change Bill set out the context and background for the Bill which, as well as setting the 2050 target, will establish a supporting framework to drive the emissions reductions necessary to meet it. Those within the Scottish Government, namely Historic Scotland ( HS) and Building Standards Division ( BSD) with responsibility for legislation and guidance on the existing building stock on behalf of Scottish Ministers, wish to consult on issues relating to the reduction of carbon dioxide emissions from such buildings with a view to potentially including powers in the proposed Bill to take these forward.

4. Requirements to reduce CO 2 emissions and optimise the energy performance of new buildings and new building work are included in Scottish building regulations, but no legislation is currently available to require the improvement of existing buildings. Accordingly, the Sullivan Report makes a number of recommendations concerning existing buildings and energy performance certificates ( EPCs) for which there could be enabling powers included in the Scottish Climate Change Bill.

5. Certification of the energy performance of buildings (both domestic and non-domestic buildings) based on Asset Ratings ( ARs) 10 is being introduced under the Building (Scotland) Act 2003 and the European Communities Act 1972. This is to meet the EU Directive on the Energy Performance of Buildings ( EPBD). However, the EPBD does not require that action is taken to improve energy performance, but relies solely on market forces and societal behaviour to promote improvements. Also, certification is only required at the points of sale or rental, and for public buildings with a floor area over 1,000m 2. The EPBD allows energy performance certificates ( EPCs) to be based on either an Asset or an Operational Rating ( OR), 11 and their lifespan must not exceed 10 years. 12

6. This RIA considers extending the scope of EPCs through increasing the implementation of cost-effective energy efficiency measures in existing buildings. This is discussed further in the Options section.

CONSULTATION

Within Government

7. There has already been extensive discussion and review of the proposals by the relevant departments in HS and BSD which have responsibility for legislation and guidance on the existing building stock.

Public consultation

8. As part of the formal consultation on proposals for a Scottish Climate Change Bill, the Scottish Government held four workshops with invited stakeholders during February and March this year. Three of these were hosted in partnership with public organisations. All aspects of these workshops including; the presentations, workshop notes for participants, and detailed reports on the views expressed, were recorded and can be found on the Scottish Government website at
http://www.scotland.gov.uk/Topics/Environment/Climate-Change/16327/Climate-Change-Bill/SCCBConsultation.

9. The public consultation on the Bill closed on 23rd April and the intention is to publish an analysis of the responses, and the responses themselves, in the summer of 2008.

10. Responses to the proposals in this public consultation to improve the energy performance of existing buildings can be provided by way of answers to the specific questions posed in the main consultation document. As with the Scottish Climate Change Bill responses these will be made available following conclusion of the analysis of responses.

OPTIONS

Overview

11. The Sullivan Report includes a number of recommendations concerning EPCs for non-domestic buildings for which there could be enabling powers included in the Scottish Climate Change Bill and which are described in the main consultation document.

12. Ostensibly they involve the need for building owners or persons delegated by the owners to obtain an Assessment of the Carbon and Energy Performance ( ACEP) of their building. Following such an assessment, they could be required to develop a programme of cost-effective improvements to reduce carbon emissions and improve energy performance, and thereafter carry out any necessary improvements.

13. Improvement measures might include insulation, equipment efficiency and equipment controls, as they are generally cost-effective at present. However, as new technologies become cost-effective, the use of low and zero carbon equipment, including micro-renewables, could be adopted as part of a programme. Such a programme of improvements would be specific to each building and there would need to be sufficient flexibility to ensure that historic buildings are treated with the respect they deserve so their character and structure are not compromised. Issues pertinent to historic buildings are discussed further elsewhere in the consultation documentation.

14. There is already support available both in the form of finance and guidance that would be affected by these proposals which are described in the main consultation document. These can be used to help implement energy efficiency measures. In the non-domestic/business sector there are advice services, guidance and on-site energy audits together with interest free loans for Small and Medium Enterprises ( SME) and some public sector organisations to install energy efficiency measures.

15. The options considered for the non-domestic sector have already been outlined in the main consultation document but are presented in more detail below. They extend from the 'do nothing' baseline (i.e. implementation of EPCs as required through the EPBD) to seven options of increasing scope with respect to the number of buildings addressed as well as their approach (i.e. from voluntary to mandatory). The impacts of each option are presented for non-domestic buildings.

16. This section outlines the options for extending requirements for existing buildings beyond the minimum level required to meet the EPBD for Scotland as outlined in the main consultation document which have been explicitly considered here. It also describes the assumptions made and the data sources used in assessing the costs and benefits. The approach adopted uses non-domestic stock models with broad corrections made to allow for the proportion of historic buildings (estimated using data from HS). The approach and assumptions were also checked for consistency with previous RIAs in support of the implementation of the certification requirements (Article 7) of the EPBD in both Scotland, and England and Wales.

17. As this is a strategic assessment exercise it considers a significant number of different options using a simplified modelling procedure which may not fully reflect the way in which the options might be implemented in practice. Therefore, more detailed assessment of options which are to be taken forward for further consideration will be undertaken. It is important at this stage to consider these eight options as scenarios.

Options for the Non-domestic Sector

Option 0 - Base case

EPC on sale or rent for all buildings and for larger public buildings frequently visited by the public

18. For the base case it is assumed that EPCs based on asset rating calculations will be required for non-domestic buildings on sale or rent, and all public sector buildings over 1,000m 2 which are frequently visited by the public. The EPC shall be no more than 10 years old. Further these EPCs will be accompanied by a list of recommendations relating to cost effective improvements 13 to the building envelope and services, and that this will lead to a typical potential reduction in annual energy consumption of 10% if they were implemented. 14 For historic buildings some cost effective measures may not be feasible, so here it is assumed that the recommendations will identify measures that would lead to a 5% reduction in energy consumption.

19. As uptake of these measures is voluntary it is assumed that only 10% of these savings will be realised by occupiers acting on the recommendations and that the typical payback period for measures implemented will be 4 years, and that the savings will persist for 10 years although in practice the savings will still accrue beyond 10 years.

Option 1

ACEP on sale or rent for all buildings and for larger public buildings frequently visited by the public with additional guidance to promote uptake of recommendations

20. Here, further to Option 0, additional guidance material is provided to promote the uptake of recommendations for all buildings. Here it has been assumed that ongoing costs to government for providing additional guidance is £250k per year. This is a nominal figure and it is envisaged that this guidance will supplement existing sources perhaps by providing a coherent framework through which to channel the advice and plugging any gaps in the current guidance.

21. It is assumed that if the additional guidance can be made sufficiently comprehensive, it will lead to a doubling in the rate of uptake of recommendations compared to Option 0, to 20%. 15 , 16 As with Option 0, it has been assumed that the average payback period will be 4 years across the measures implemented.

Option 2

ACEP on sale or rent for all buildings and all large buildings with additional guidance to promote uptake of recommendations and an increase in the frequency of certification

22. This option extends the requirement for carrying out asset rating on larger public buildings to all large buildings, which will increase the number of ACEPs required. Also, for the buildings where energy certificates are required they will need to be no older than 5 years, which will increase the rate at which energy savings arising from the uptake of recommendations will be made.

Option 3

ACEP on sale or rent for all buildings and for larger public buildings frequently visited by the public with additional guidance, an increase in the frequency of certification, and compulsory uptake of recommendations

23. This option extends the scope of savings by requiring compulsory rather than voluntary uptake of the measures in the recommendations report. The coverage of buildings is the same as for Option 1, in that it only applies to larger public buildings or those on sale or rent. It has been assumed that there may be legitimate reasons why not all the recommendations will be taken up, so here it has been assumed that 75% will be taken up under this regime. Additional costs associated with publicising this requirement are estimated at £125k and enforcement costs to the government are estimated at 5% of the cost of generating an ACEP for these premises. And, although it is assumed that the savings required are still cost effective, it has been assumed that the average payback for these measures is 7 years. 17 As well as additional costs for the government there will be additional costs to the building owner to implement the measures but supplementary carbon and cost savings will arise from reduced energy consumption.

Option 4

ACEP on sale or rent for all buildings and for all large buildings with additional guidance, an increase in the frequency of certification, and compulsory uptake of recommendations

24. For the non-domestic sector this option extends the requirement to carry out ACEPs on larger public sector buildings that are visited by the public to all non-domestic buildings. This will increase the number of certificates required for the sector and the associated costs and savings, particularly in earlier years.

Option 5

ACEP on sale or rent for all buildings and for all buildings with additional guidance, an increase in the frequency of certification, and compulsory uptake of recommendations

25. For the non-domestic sector this option extends the requirement to carry out ACEPs on larger buildings to all non-domestic buildings. This will increase the number of certificates required for this sector and the associated costs and savings, particularly in earlier years.

Option 6

ACEP and operational rating on sale or rent and for larger public buildings frequently visited by the public

26. This it the same as Option 0 except that at the same time that the asset rating is produced an operational rating will also be provided. The operational rating will, in additional to providing information on the actual fuel consumption costs, give tailored advice on energy management and energy efficient equipment, and that additional energy savings would be realised through the uptake of this advice.

27. The additional cost associated with providing an operational rating is assumed to be zero for buildings which are covered by the Carbon Reduction Commitment ( CRC) 18 (as they will already be required to report carbon emissions and so have collected the relevant information) and £325 for larger buildings and £50 19 for small buildings which are not covered by the CRC. These costs assume that the person who does the asset rating also completes the operational rating. This may cause issues in terms of legislation as responsibility for asset rating is best placed with the building owner, whereas the occupier of a building is in a better position to commission an operational rating.

28. It is assumed that the recommendations will identify measures which lead to an additional 10% reduction in energy consumption, 20 or a 5% reduction for those covered by the CRC. Further, the operational rating and advice will prompt building occupiers to realise 10% of the potential operational savings. As the additional recommendations associated with the operational rating are likely to be low or no cost measures, a 2 year payback is assumed for any savings arising from the operational rating recommendations.

Option 7

ACEP and operational rating on sale or rent and for larger public buildings frequently visited by the public with additional guidance

29. This option provides additional guidance in relation to both the asset rating and operational advice. Essentially it is the same as Option 1, but with operational ratings carried out at the same time as the asset rating. The cost associated with the operational ratings are the same as those for Option 6, but the additional savings will ultimately be dependant on the quality of the guidance.

Summary of non-domestic Options

30. The Options that have been considered here are summarised in the following table.

Option

Non-domestic Building Stock Coverage

Additional Options

Sale or Rent

Existing Buildings

All

Large Public Buildings

All Large Buildings

All Buildings

Additional Guidance

Frequency of Rating (Years)

Compulsory Uptake

Operational Rating

0

10

1

10

2

5

3

5

4

5

5

5

6

10

7

10

COSTS AND BENEFITS

Sectors and groups affected

31. The sectors and groups affected by the proposals are government, building owners, and local authorities as discussed in the Options section.

Results

32. The costs and benefits associated with each of the options described above have been calculated assuming that the policy is put in place in 2009 and remains until 2020 and include costs incurred by Government and building owners over those years. However savings arising from additional energy saving actions taken within that time period will persist beyond the 2020 and these have been taken into account by assuming that energy savings will typically persist for 10 years. 21 All monetary costs and benefits have been discounted at 3.5% in order to calculate the Net Present Value ( NPV) of each of the options.

33. The fuel prices and carbon emission factors used to generate the monetary and carbon savings are in the following table.

Non-domestic sector

Small

Large

pence/kWh Electricity

7.00

5.50

pence/kWh Fossil

3.00

2.25

kgCO 2/kWh Electricity

0.43

kgCO 2/kWh Fossil Fuel

0.21

Costs and Benefits for Option 0 for Non-domestic Buildings

Non-domestic

Government

Building Owner

Total

Costs

One-off Costs - £M

£0.3

£-

£0.3

Average Annual Cost - £M pa

£0.3

£8.0

£8.3

Lifetime Costs - £M

£3.3

£95.7

£99.0

Present Value of Costs - £M

-£2.8

-£79.3

-£82.1

Benefits

Average Annual Energy Savings - £M pa

£-

£4.9

£4.9

Lifetime Energy Savings - £M

£-

£107.1

£107.1

Present Value of Energy Savings - £M

£-

£74.7

£74.7

Average Annual CO 2 saved - MTCO 2 pa

-

0.04

0.04

Annual CO 2 saved in 2020 - MTCO 2 pa

-

0.07

0.07

Lifetime annual CO 2 saved - MTCO 2

-

0.80

0.80

Cost Effectiveness

Net Present Value of Package - £M

-£2.8

-£4.6

-£7.4

Net Present Value per tonne CO 2 saved - £/tCO 2

£-

-£5.8

-£9.2

Present Value of benefits from CO 2 saved - £M

£-

£14.9

£14.9

Costs and Benefits for Option 1 for Non-domestic Buildings

Non-domestic

Government

Building Owner

Total

Costs

One-off Costs - £M

£0.5

£-

£0.5

Average Annual Cost - £M pa

£0.5

£11.2

£11.8

Lifetime Costs - £M

£6.5

£134.7

£141.2

Present Value of Costs - £M

-£5.5

-£111.5

-£117.0

Benefits

Average Annual Energy Savings - £M pa

£-

£9.7

£9.7

Lifetime Energy Savings - £M

£-

£214.2

£214.2

Present Value of Energy Savings - £M

£-

£149.4

£149.4

Average Annual CO 2 saved - MTCO 2 pa

-

0.07

0.07

Annual CO 2 saved in 2020 - MTCO 2 pa

-

0.13

0.13

Lifetime annual CO 2 saved - MTCO 2

-

1.60

1.60

Cost Effectiveness

Net Present Value of Package - £M

-£5.5

£37.8

£32.3

Net Present Value per tonne CO 2 saved - £/tCO 2

£-

£23.7

£20.3

Present Value of benefits from CO 2 saved - £M

£-

£29.7

£29.7

Costs and Benefits for Option 2 for Non-domestic Buildings

Non-domestic

Government

Building Owner

Total

Costs

One-off Costs - £M

£0.5

£-

£0.5

Average Annual Cost - £M pa

£0.5

£13.7

£14.3

Lifetime Costs - £M

£6.5

£164.9

£171.5

Present Value of Costs - £M

-£5.5

-£136.6

-£142.1

Benefits

Average Annual Energy Savings - £M pa

£-

£12.7

£12.7

Lifetime Energy Savings - £M

£-

£280.2

£280.2

Present Value of Energy Savings - £M

£-

£195.4

£195.4

Average Annual CO 2 saved - MTCO 2 pa

-

0.10

0.10

Annual CO 2 saved in 2020 - MTCO 2 pa

-

0.18

0.18

Lifetime annual CO 2 saved - MTCO 2

-

2.12

2.12

Cost Effectiveness

Net Present Value of Package - £M

-£5.5

£58.8

£53.3

Net Present Value per tonne CO 2 saved - £/tCO 2

£-

£27.8

£25.2

Present Value of benefits from CO 2 saved - £M

£-

£39.5

£39.5

Costs and Benefits for Option 3 for Non-domestic Buildings

Non-domestic

Government

Building Owner

Total

Costs

One-off Costs - £M

£0.6

£-

£0.6

Average Annual Cost - £M pa

£1.0

£71.0

£72.0

Lifetime Costs - £M

£8.5

£851.8

£860.2

Present Value of Costs - £M

-£7.2

-£705.5

-£712.7

Benefits

Average Annual Energy Savings - £M pa

£-

£25.7

£25.7

Lifetime Energy Savings - £M

£-

£565.8

£565.8

Present Value of Energy Savings - £M

£-

£454.0

£454.0

Average Annual CO 2 saved - MTCO 2 pa

-

0.19

0.19

Annual CO 2 saved in 2020 - MTCO 2 pa

-

0.41

0.41

Lifetime annual CO 2 saved - MTCO 2

-

4.21

4.21

Cost Effectiveness

Net Present Value of Package - £M

-£7.2

-£251.5

-£258.7

Net Present Value per tonne CO 2 saved - £/tCO 2

£-

-£59.7

-£61.4

Present Value of benefits from CO 2 saved - £M

£-

£86.9

£86.9

Costs and Benefits for Option 4 for Non-domestic Buildings

Non-domestic

Government

Building Owner

Total

Costs

One-off Costs - £M

£0.6

£-

£0.6

Average Annual Cost - £M pa

£2.2

£91.5

£93.6

Lifetime Costs - £M

£9.7

£1,097.5

£1,107.1

Present Value of Costs - £M

-£8.4

-£909.0

-£917.4

Benefits

Average Annual Energy Savings - £M pa

£-

£33.6

£33.6

Lifetime Energy Savings - £M

£-

£740.2

£740.2

Present Value of Energy Savings - £M

£-

£594.0

£594.0

Average Annual CO 2 saved - MTCO 2 pa

-

0.25

0.25

Annual CO 2 saved in 2020 - MTCO 2 pa

-

0.54

0.54

Lifetime annual CO 2 saved - MTCO 2

-

5.60

5.60

Cost Effectiveness

Net Present Value of Package - £M

-£8.4

-£315.0

-£323.4

Net Present Value per tonne CO 2 saved - £/tCO 2

£-

-£56.3

-£57.8

Present Value of benefits from CO 2 saved - £M

£-

£115.4

£115.4

Costs and Benefits for Option 5 for Non-domestic Buildings

Non-domestic

Government

Building Owner

Total

Costs

One-off Costs - £M

£0.6

£-

£0.6

Average Annual Cost - £M pa

£12.4

£92.4

£104.8

Lifetime Costs - £M

£19.9

£1,108.9

£1,128.8

Present Value of Costs - £M

-£18.6

-£918.5

-£937.1

Benefits

Average Annual Energy Savings - £M pa

£-

£34.0

£34.0

Lifetime Energy Savings - £M

£-

£747.4

£747.4

Present Value of Energy Savings - £M

£-

£599.7

£599.7

Average Annual CO 2 saved - MTCO 2 pa

-

0.26

0.26

Annual CO 2 saved in 2020 - MTCO 2 pa

-

0.55

0.55

Lifetime annual CO 2 saved - MTCO 2

-

5.64

5.64

Cost Effectiveness

Net Present Value of Package - £M

-£18.6

-£318.8

-£337.4

Net Present Value per tonne CO 2 saved - £/tCO 2

£-

-£56.5

-£59.8

Present Value of benefits from CO 2 saved - £M

£-

£116.4

£116.4

Costs and Benefits for Option 6 for Non-domestic Buildings

Non-domestic

Government

Building Owner

Total

Costs

One-off Costs - £M

£0.3

£-

£0.3

Average Annual Cost - £M pa

£0.3

£8.8

£9.1

Lifetime Costs - £M

£3.3

£105.4

£108.7

Present Value of Costs - £M

-£2.8

-£87.3

-£90.1

Benefits

Average Annual Energy Savings - £M pa

£-

£10.2

£10.2

Lifetime Energy Savings - £M

£-

£224.0

£224.0

Present Value of Energy Savings - £M

£-

£156.2

£156.2

Average Annual CO 2 saved - MTCO 2 pa

-

0.08

0.08

Annual CO 2 saved in 2020 - MTCO 2 pa

-

0.14

0.14

Lifetime annual CO 2 saved - MTCO 2

-

1.65

1.65

Cost Effectiveness

Net Present Value of Package - £M

-£2.8

£68.9

£66.1

Net Present Value per tonne CO 2 saved - £/tCO 2

£-

£41.6

£40.0

Present Value of benefits from CO 2 saved - £M

£-

£30.9

£30.9

Costs and Benefits for Option 7 for Non-domestic Buildings

Non-domestic

Government

Building Owner

Total

Costs

One-off Costs - £M

£0.5

£-

£0.5

Average Annual Cost - £M pa

£0.5

£12.0

£12.6

Lifetime Costs - £M

£6.5

£144.4

£150.9

Present Value of Costs - £M

-£5.5

-£119.6

-£125.1

Benefits

Average Annual Energy Savings - £M pa

£-

£15.0

£15.0

Lifetime Energy Savings - £M

£-

£331.1

£331.1

Present Value of Energy Savings - £M

£-

£230.9

£230.9

Average Annual CO 2 saved - MTCO 2 pa

-

0.11

0.11

Annual CO 2 saved in 2020 - MTCO 2 pa

-

0.20

0.20

Lifetime annual CO 2 saved - MTCO 2

-

2.45

2.45

Cost Effectiveness

Net Present Value of Package - £M

-£5.5

£111.3

£105.8

Net Present Value per tonne CO 2 saved - £/tCO 2

£-

£45.4

£43.2

Present Value of benefits from CO 2 saved - £M

£-

£45.7

£45.7

SMALL/MICRO FIRMS' IMPACT TEST

34. A Small Firms' Impact Test ( SFIT) has not been undertaken at this stage given that this is a partial RIA and proposals are still subject to further development. However, as the proposals are firmed up they will be subject to a SFIT with a focus on SMEs representative of the affected sectors and groups.

LEGAL AID IMPACT TEST

35. It is too early at this stage to undertake the legal aid impact test. This will be undertaken should the proposals be further developed.

'TEST RUN' OF BUSINESS FORMS

36. This will be brought forward as part of subsequent RIAs, if proposals are further developed.

COMPETITION ASSESSMENT

37. The impact of these proposals on competition has been reviewed using Office of Fair Trading guidance and it is felt that it would not have any adverse impact on the relevant markets in terms of limiting the number of suppliers, limiting the ability of suppliers to compete and reducing incentives for suppliers to compete vigorously.

ENFORCEMENT, SANCTIONS AND MONITORING

38. Enforcement is discussed in the main consultation document which proposed that ACEP assessments would be the responsibility of the local authorities or similar public bodies as they also have an enforcement role regarding provision of EPCs in terms of the EPBD. Contraventions should be dealt with in the first instance through the service of an enforcement notice (failure to comply with such a notice being an offence).

39. Monitoring will depend ultimately on the arrangements for enforcing legislation.

IMPLEMENTATION AND DELIVERY PLAN

40. This will be identified in subsequent RIAs as proposals develop.

SUMMARY

41. The total carbon savings as well as the overall cost-effectiveness of each of the Options in the two sectors considered are summarised in the table below.

Sector

Option

NPV

CO 2 saved in 2020

Lifetime CO 2 saved

£M

MTCO 2 pa

MTCO 2

Non-domestic

Option 0

-£7

0.07

0.80

Option 1

£32

0.13

1.60

Option 2

£53

0.18

2.12

Option 3

-£259

0.41

4.21

Option 4

-£323

0.54

5.60

Option 5

-£337

0.55

5.64

Option 6

£66

0.14

1.65

Option 7

£106

0.20

2.45