Carbon neutrality and the law

The UK has set some of the most ambitious carbon reduction targets in the world, but to turn these into reality will require legislation – and so far there is only the Climate Change Act. While this specifically legislates for the construction industry to work towards net zero emissions, there is little other legislation in this area. To meet the targets for 2030, 2035 and beyond, urgent action must be taken.

Achieving these targets will require effort not just from the construction supply chain but from those investing in the built environment. Government departments and other clients will need to set contractual targets and benchmark carbon emissions across the supply chain in order to achieve final projects that meet these targets – as well as to provide a level playing field for those bidding for the work.

The European International Contractors’ Association recently held a digital workshop titled Turning the 2050 Carbon Neutral Challenge into a Business Opportunity for European Internal Contractors. This focused not just on the realities of planning for net zero but also on the likely impact on construction contract terms. In addition, the Chancery Lane Project has produced a climate contract playbook, which proposes a series of clauses for use in various commercial situations, not just construction.

The building industry needs to see immediate changes to procurement practices as well as contract conditions if government targets are to be met. These may include:

• Increased legislation To develop sufficient detail on what is needed from the industry in practical terms, more primary and secondary legislation is highly likely. As a major client itself, the government may lead the way in developing procurement guidelines and protocols.
• Increased moves towards sustainability Businesses’ commercial purposes and objectives, and potentially their social purpose, are being increasingly linked to targets for carbon reduction and eventual net zero emissions. Guidance in this area can be seen in the UN Sustainable Development Goals.
• Green baseline clauses Companies will be required to identify their carbon footprint and those not meeting current standards may be excluded from tendering. The Greenhouse Gas Protocol Corporate Accounting and Reporting Standards is likely to be used as the basis for such clauses.
• Green procurement This growing area comprises the development of checklists for emissions, target reductions and best practice. Ongoing reporting will eventually extend to independent audits to check compliance. Meeting specified standards could be linked to bonus and termination clauses in contracts. Increased collaboration in the supply chain may assist in reducing overall emissions for a project, and could become the only way to successfully compete in a low carbon world.
• More focused carbon footprint standards There will be an increased requirement to measure, manage and report obligations on emissions, together with reducing targets over time. The methods used will grow in complexity to improve accuracy.
• Contractual emissions targets Contracts are likely to feature carbon emissions targets, working towards a net zero obligation. These will eventually need to cover whole-life emissions for a project.
• Reduction targets for specific climatic impacts Initially the focus here will be on selecting the right firms, but further gains can be achieved by identifying particular design, techniques and materials. BIM will play a major role.
• Third party assessors These may come to be required so that assessment methods can be reviewed to check targets are being met.
• Purchaser warranties The idea of warranties for the carbon footprint from manufacture, delivery and construction is already reasonably well developed – see the UN Framework Convention on Climate Change Protocols.
• Climate remediation fee Contracts could include this as a liquidated damages amount based on an assessment of the owner’s costs of repairing damage and preventing future damage.
• Completion certification Takeover and certification of project completion may require proof that climatic obligations have been met.
• Green termination clause A clause could be included to provide for termination in favour of a greener supplier or contractor – perhaps by reference to the green baseline clause, with reporting carried out periodically.
• Rewilding obligations We are already seeing similar obligations in relation to solar and other renewable projects. The obvious rewilding obligation is the removal of the building at the end of its life and the creation of green space. Financial provisions may need to be made at the outset of the project, with adequate guarantees in place.

If we are to work towards a net zero target in 2050, this cannot be achieved without considering the whole-life costs and carbon emissions of projects being built right now. Emissions reduction policies in the design and construction phase contribute to the overall lifecycle carbon footprint of the completed building. Design, construction, operation and maintenance need to be considered together if real progress is to be made.

Reported case law shows that various individuals and organisations are taking action against the transport and business secretaries and other government bodies to challenge whether the government has properly taken into account the emissions targets when approving new projects. The time has come to consider the carbon emissions impact of your business, new projects and those who will deliver these projects as part of the procurement and contractual strategy.

Nicholas Gould is a partner at Fenwick Elliott, a visiting professor at King’s College London, vice president of the International Chamber of Commerce’s Arbitration Commission, president elect of the Dispute Resolution Board Foundation and past chairman of the Society of Construction Law