Out-Law Analysis 5 min. read
18 Apr 2023, 3:52 pm
The imposition of mandatory embodied carbon product standards for concrete, cement and steel would begin to stimulate the market for low carbon versions of these products, and for substitutes, and would help real estate businesses meet their ambitious ‘net zero’ emissions targets.
The UK government has an opportunity to catalyse the market through its efforts to address the risk of ‘carbon leakage’, but regulation is needed quickly to encourage investment in and use of such products amidst the climate emergency.
In September 2022, in response to recommendations made by the Environmental Audit Committee in its ‘building to net zero’ report, the UK government said it would consult on developing new standards for industrial products aimed at promoting the use of low-carbon construction products. Last month, the government followed up on that commitment, as well as its 2021 industrial decarbonisation strategy, when it issued a consultation dealing with the issue of carbon leakage – a term that refers to the movement of production and associated carbon emissions from one country to another because a more stringent approach to regulating emissions is taken in the country that production is moved away from. The consultation is open to responses until 22 June.
Two main policy options to address carbon leakage risk are outlined in the consultation paper. First, the UK government is considering implementing a UK Carbon Border Adjustment Mechanism (CBAM), along the lines of the EU CBAM which is expected to come into force by the end of the year. Second, potential new mandatory product standards (MPS) on embodied carbon.
According to the proposals, new MPS would set an upper limit on the embodied emissions of products within its scope. The consultation proposes that a MPS would be piloted in one or more sectors – the government favours piloting for steel, cement, and concrete. These products not only make up a significant percentage of the UK’s industrial emissions but are also the subject of initiatives aimed at delivering lower carbon products. The proposals are of particular relevance to real estate and infrastructure businesses.
The consultation considers the emissions scopes that would be covered by any MPS. This will clearly include Scope 1 and 2 emissions – respectively, emissions relating directly to activities the manufacturer owns or controls, and those that relate to their consumption of purchased electricity, heat, steam and cooling – but views are sought as to the extent Scope 3 emissions – other emissions associated with a business’ activities but which are outside of their its direct control, such as those arising in its supply chain – are included.
Regulation, and the level playing field and certainty for investors in new technologies that it creates, would be welcome to turbo charge the urgent development of low carbon building products
The government’s preference in this regard is that only some upstream Scope 3 emissions should fall within any proposed MPS scheme. It proposes that MPS would apply at the midstream stage of manufacturing processes when raw materials are manufactured into intermediate products – an example of this would be when a bar of steel is produced – rather than at the downstream stage when those intermediate products are assembled into final goods for sale. However, it expressed concern that whilst this would capture a significant part of embodied emissions it would not incentivise eco-design of products or repairability, both of which would promote the circular economy. It is also concerned that the proposals to introduce MPS at the midstream stage could lead to offshoring midstream processes and suggested that if this risk is considered high enough its preference would be to apply MPS to final consumer stage goods.
In its consultation paper, the government also considered whether the point of obligation for compliance should be the point of sale or the point of production. It favours the point of sale, save for domestically produced goods which it has suggested should be at the point of production to ensure goods for export are captured. It favours MPS applying to imported goods at the point of sale – i.e. when they clear customs.
On the issue of the standards themselves, the government suggests these should initially be set at levels which are “ambitious but achievable” with energy and resource efficiency measures rather than requiring deep decarbonisation. However, it recognises that the standards will need to become more stringent over time and be regularly reviewed to ensure account is taken of the necessary progress towards net zero and increasing decarbonisation technologies.
The government has recognised that before any MPS are introduced there first needs to be an emissions reporting obligation and framework so that data is available to enable the setting of the standards. It suggests a reporting framework could be in place by the mid-2020s with MPS being introduced in stages over the next decade, commencing in the later 2020s for certain products, sectors and emissions with those broadening in the 2030s.
Detailed proposals are made in part two of the consultation about the proposed reporting framework. There are various suggestions concerning alignment with some existing standards. Those involved in the measurement of emissions from key building materials would be well advised to consider the options here and respond to the consultation to ensure any possible further reporting obligations are as aligned with existing methodologies and reporting duties as possible. This would help ensure the reporting burden on industry is reduced as far as possible.
Beyond potential new MPS, other non-mandatory measures to grow the market for low carbon products are considered in the government’s consultation paper. Proposals include voluntary labelling and standards which would be more ambitious than the mandatory standards and could run alongside those standards, as well as new public procurement requirements ranging from new obligations to disclosure embodied carbon in carbon intensive materials to, by 2030, requiring procurement of a share of cement and/or steel from near zero emissions material, as well as requirements for whole life cycle assessments for public construction projects also by 2030 and net zero emissions in such projects by 2050.
It is clear from the consultation on both the CBAM and the MPS that there are complex international trading issues to consider and that risks of offshoring of carbon intensive manufacture or undermining the competitiveness of domestically produced products need to be understood and dealt with, none of which is easy.
However, as the Environmental Audit Committee found, there is in fact evidence not of offshoring but of the real estate industry already looking overseas for low carbon building materials where foreign governments have funded environmental product declaration databases which enable greater transparency about low carbon materials. This is understandable given the increasing pressures to take account of embodied or whole life carbon in construction of new buildings both through the planning system and the possibility of regulation of whole life carbon in the UK.
The industry has made great strides in supporting the development of low carbon cement and steel. However, to turbo charge the urgent development of these products and broaden their use in the industry, regulation, and the level playing field and certainty for investors in new technologies that it creates, would be welcome. It is to be hoped that the government moves from consulting on proposals to well thought out regulation in a timely fashion.
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