What does the new UK climate change target mean for real estate?

The UK Government recently announced that it would be aiming to reduce UK net greenhouse gas emissions by 78% by 2035 compared with 1990 levels. This new target builds on (and doesn’t replace) the existing target to reduce UK net greenhouse gas emissions by 68% by 2030.

It’s easy to get lost in this proliferation of targets, especially when you try and compare it with the new targets announced by, among others, the US and the EU. The two UK targets are not strictly comparable either, because the later target includes international aviation and shipping emissions, whereas the earlier one doesn’t.

But the basic idea is that, whatever your starting point, the Paris Agreement implies that we need to achieve a 100% reduction by 2050 (‘net zero’). In 2019 the UK Government made a 100% target legally binding upon itself, which means it must take steps to attempt to achieve it. The new 2035 target will also be made legally binding.

The chart below shows how the UK is doing so far. On the face of it, things seem to be going fine – the UK has cut net emissions by around 50% (400 megatonnes of CO2 equivalent) over the 30 years since 1990, and we have another 30 years to cut back on the other 50%. The new 2035 target commits the UK to a slightly steeper trajectory than the older one, and includes more sources of emissions, so it is genuinely more demanding than the previous one.

Figure 1: Annual UK greenhouse gas emissions, 1990-2020 and future targets, MT CO2 equivalent

Source: UK Greenhouse gases national statistics (March 2021; 2020 figure is provisional); Carbon Brief (March 2021); CBRE estimates

The above graph might lead us to conclude that we just need to keep doing the things we have been doing to date and we’ll be fine.

Unfortunately, we can’t. According to Carbon Brief, 90% of the gain between 1990 and 2019 came from taking coal out of the UK energy supply, cleaner industrial processes, less carbon-intensive manufacturing, and a smaller cleaner fossil fuel supply industry.

By contrast, and as the graph shows, net emissions from transport and homes have made almost no contribution at all to the reduction in emissions achieved so far (sadly the data don’t isolate commercial real estate). These sources are thus becoming ever-bigger proportions of the remaining emissions. So at some point in the next 15 years, these sources of emissions must start reducing if the new 2035 target is going to be met, never mind the 2050 target.

While the new target is not itself a specific regulatory action, its legally binding nature seems very likely to force the Government to regulate more aggressively than before, in ways that aren’t yet clear – but which will need to focus on the areas where less progress has been achieved to date. For the avoidance of doubt: that’s us.

For real estate investors, especially longer-term investors such as pension funds, 15 years is not a terribly long time. So many of our clients were already deeply focused on these issues before the new target was announced, and taking advice from CBRE accordingly.

But the new target brings the issue for real estate into even starker relief.