Avoiding perverse incentives: the progress on decarbonising construction

As contractors are increasingly being asked to consider embodied carbon and retrofit of commercial buildings, Construction News and Mitsubishi Electric brought together a group of those working in the field to hear about the issues involved

Roundtable sponsored by Mitsubishi Electric

Construction is a major driver of economic activity across the world – and also a major cause of carbon emissions.

The UN’s Global Alliance for Buildings and Construction estimates that building operations and construction accounted for 37 per cent of global energy-related CO2 emissions in 2022, demonstrating that the climate crisis cannot be tackled without the sector’s involvement.

In recent years, the issue has risen up the agenda among contractors and clients, and industry players have been making efforts to reduce their carbon impacts.

Following on from June’s CN Decarbonising Construction conference, an online roundtable hosted by Construction News and Mitsubishi Electric heard how things have changed – and how much more there is to do.

Operational and embodied carbon

There has been a rapid change in consideration of embodied carbon in the built environment, the panel hears.

Embodied carbon encompasses emissions generated through processes not seen by the end user, such as manufacture and transport of materials, as well as post-use demolition, whereas operational carbon is that generated while it is occupied, including things such as lighting and heating.

“Originally, there was a push for operational carbon, but now probably 35 to 45 per cent of our projects have some kind of whole-life carbon assessment”

Anisha Mayor, Collins Construction

Whereas the latter was once the only thing clients might mention, they are now more likely to talk about the former, says Anisha Mayor, head of sustainability at Collins Construction, which works primarily on cut and carve jobs in central London.

“We're increasingly being asked by our clients about embodied carbon. Originally, there was a push for operational carbon, but now probably 35 to 45 per cent of our projects have some kind of whole-life carbon assessment,” she says.

“More and more we're getting asked for a holistic approach rather than clients wanting to do an assessment at tender stage. A lot of clients are asking us about their property portfolio and what they can do to reduce the embodied carbon of their buildings.”

This can throw up a number of other questions, she notes, as there is a “grey area” around being able to quantify all of the embodied carbon in a building project, including the impact of some alternative materials, and there are often project-cost implications associated with reducing the embodied carbon.

Chris Newman, zero carbon design manager at Mitsubishi Electric, agrees that the focus has shifted. “The industry has looked at operational carbon in isolation for the past 20 years – now there's a bit more focus on embodied carbon. But the reality is that it needs to be a whole-life [both embodied and operational carbon] consideration before you can make a properly educated decision [about building use].”

He also notes that it can be more expensive to go for options that are better for the environment.

“The disproportionate cost of fossil fuel natural gas versus [green] electricity is a huge barrier that we see every day in terms of trying to drive a client to reduce the operational carbon in their building. It means they've actually got to be a bit like a turkey voting for Christmas and have got to choose to pay more,” he says.

ISG building performance manager Matthew Arnold says he sees big differences between clients on the importance they place on embodied carbon. “We find understanding our clients’ governance and reporting processes really critical. We're finding some clients are using embodied carbon at the tender stage to select an option, but it's not yet forming part of their annual reporting, which changes the granularity of data they're looking for and how much they're willing to invest in the process.”

On the costs of low-carbon options, he says his company is sometimes taking clients towards the greenest option, rather than delivering them to that element completely.

“We're taking great care to offer phased schemes as an option and taking clients to being ‘net-zero ready’,” he says. “We know the road map’s there, [but] we don't want to put them off when they see the electricity cost compared to what they were paying on gas. There's a great fear that that's going to scare tenants off, and so we're making sure that we're putting those options in.”

Retro in the future

The construction sector could turn en masse towards what is usually a more efficient and lower-carbon outcome by prioritising reusing and refurbishing existing building stock over delivering new ones, believes Willmott Dixon head of building performance Alasdair Donn.

“The sustainable way forward for contractors in the future may well be more and more low-carbon refurbishment rather than big shiny [new] things in big cities”

Alasdair Donn, Willmott Dixon

“New-build is a massive chunk of embodied carbon that maybe we shouldn't be spending if we can retrofit a building instead,” he says. “I think that's increasingly in a lot of our customers’ minds.

“The sustainable way forward for contractors in the future may well be more and more low-carbon refurbishment rather than big shiny [new] things in big cities. It's a bit of a controversial view, but I think that is the direction of travel.”

Nevertheless, the industry does not yet have masses of empirical data on the carbon advantages of retrofitting, he says. “We know inherently that it saves a huge amount of embodied carbon because of the reuse of the structure and facade and stuff, but it's quite hard for any of the contractors here to benchmark a project in embodied-carbon terms. If a customer wanted to give me the best-possible embodied carbon on my next [project], they'd be hard-pressed to put a number on it.”

Mayor also notes that the industry operates long supply chains and other players cannot be excluded from the conversations in this area, and warns that industry experts on sustainability should not only be speaking to each other about the issue.

“We're aware of embodied carbon and we've upskilled ourselves in this area of the industry,” she says. “It’s [about] also filtering this down to the supply chain because they're the ones who are selecting products like paints, carpets and tiles, and supporting us. It's about educating them as well.”

She also suggests that the industry collaborates on a road map for standardised reporting, perhaps through a uniformly used piece of software, so clients can have a clearer picture of reporting. “If there was a more clear, unified route to what we want, then perhaps the data would be more quantitative,” Mayor adds.

Newman echoes her sentiment. “If we can get a framework for exactly how we measure, monitor and report on embodied carbon – we've already got that for operational carbon, within reason – then at least then everybody is using the same calculation methodology and you could actually do a comparison.”

New building regs

When asked about a proposal from a group of architects and developers to introduce a Part Z to Building Regulations that would make it a requirement to measure the carbon across the whole life of a scheme and to limit embodied carbon, Donn warns that such a move could create “perverse incentives”.

He says that the proposal may make sense to encourage a reduction in emissions and to incentivise refurbishment over new-build, but warns that the complexity of drawing up such a regulation could make it “impossibly punitive” to construct new buildings “if it wasn't done in the right way”.

The government declined an opportunity to introduce the proposal into law last year when it was put forward in a private member's bill.

Newman says he backs that position. “There shouldn't be legislation on this stuff, but there should be mandatory reporting and that was where I agree with the government's approach. There's a need for a lot more data before we can get to a point where we know what we should legislate,” he says.

Fantastic opportunities

Although there are costs and complications, there are also financial benefits from the drive towards lowering carbon emissions, the discussion hears.

“To present something that's perhaps the opposite to a perverse incentive, what we're constantly having to remind ourselves of, and we're trying to remind clients as well, is that retrofit more often than not is bespoke, it's unique, it has not been done before. So, there are fantastic opportunities to take advantage of R&D [research and development] tax benefits when doing retrofit,” says ISG’s Arnold.

Daniel Smith, Mitsubishi Electric’s sustainability and construction manager, believes the industry has been making rapid progress in the past couple of years, and is impressed with the cooperation he has seen through the likes of the UK Green Building Council and Supply Chain Sustainability School.

“Although we've highlighted some gaps, I think there's also a lot of positives and a lot of good outcomes happening in our industry right now,” he says. “For example, this conversation that we're having, I don't think this would have been the same discussion 18 months ago,

“The collaboration within the built environment is great and I think we need to encourage [that]. We need to highlight the [positive] schemes and really shout about [them] and encourage that behaviour.”

He adds: “Although it needs to happen a bit quicker and we need to continue to drive change, I think we are moving in the right direction. I think some of the behaviours in the industry are really encouraging.”

Newman agrees. “Sometimes it is easy to forget how far we've come in a relatively short period,” he says. “But it's just frustrating when we all know how much further we could go. The fact that we have got so far is good and the amount of data that exists now is more than what it was last year and the year before, and the decision-making process is so much more rounded now.”

Nevertheless, while progress may not always be smooth, he says: “If it was easy, it wouldn't be any fun, would it?”