$2-billion GHG abatement fund set for 2017-18

Commercial real estate primarily an indirect beneficiary of 2016-17 federal budget
Thursday, March 31, 2016
By Barbara Carss

For the commercial real estate industry, the key message from Canada’s recently unveiled 2016-17 federal budget could be: wait until next year. The private buildings sector is primarily an indirect beneficiary of the first expenditures in the government’s pledged multi-year infrastructure investment agenda, but the announcement of a pending $2-billion fund to reduce greenhouse gas (GHG) emissions could hold more promise.

That money is to be released to the provinces and territories beginning in 2017-18 in an effort to meet Canada’s GHG emissions reduction commitment to the United Nations Framework Convention on Climate Change (UNFCCC), which is now set at 30 per cent below 2005 levels by 2030. Although few details are yet available, the federal budget document states: “Resources will be allocated towards those projects that yield the greatest absolute greenhouse gas reductions for the lowest cost per tonne.”

Sustainability/energy management specialists maintain the buildings sector is well positioned to respond, with the expertise and leadership to deliver energy savings across a range of price points. In addition to an arsenal of proven approaches — tenant engagement, retro-commissioning, controls and retrofits with quick and longer term paybacks — there is still vast unexploited potential, both in Class B and C stock and some generally overlooked sources of energy savings.

Last December’s UNFCCC conference in Paris saw participating national governments reaffirm commitments to curb the rising global temperature. Parties to the agreement are also expected to develop and implement national energy efficiency plans for buildings, but fewer than 50 countries explicitly addressed buildings in their statements of intended nationally determined contributions (INDC) submitted prior to the conference.

Proven cost-effectiveness

Canada is among those nations now prompted to contemplate paybacks of improved building performance — a business case that noted economic analysts have already made long ago. Michael Brooks, chief executive officer of the Real Property Association of Canada (REALpac), points to McKinsey & Company’s circa 2007 GHG abatement cost curve, which concluded that 11 gigatonnes (11 billon tonnes) of potential annual carbon dioxide abatement to 2030 would come with a net economic benefit because the resulting energy savings would exceed the upfront investment in the measures.

More recently, research from Germany’s Fraunhofer Institute shows that fuller exploitation of energy efficiency and renewable energy could postpone the need for costlier and still largely theoretical carbon capture and storage solutions to at least 2030 and stay on target with required emissions reductions. The study of the European Union and five other countries tags energy efficiency in buildings, transport and industry as the most cost-effective approach to restrain the global temperature increase to less than 2° Celsius, while measures to overcome barriers to retrofits of existing buildings are ranked a top priority for both the EU and the United States.

Brooks submits the same would hold true in Canada. Based on the government’s directive for the greatest absolute outcome at the least cost, the higher reliance on natural gas- and coal-fired power generation in Alberta, Saskatchewan, New Brunswick and Prince Edward Island should factor into allocation of the $2-billion GHG abatement fund.

“It’s all about the CO2 footprints of the provincial (electricity) grids,” Brooks surmises. “In 2013, Canadian commercial buildings emitted about 29 megatonnes of carbon dioxide equivalent (MtCO2e) so, if the federal government wants to get the best CO2 bang for the buck, I would see energy retrofit initiatives in those four provinces having the highest priority.”

The definition of energy retrofits might also be broadened.

“Water consumption is energy consumption,” affirms Bob Bach, a senior associate with Energy Profiles Ltd. and vice chair of the Conservation Advisory Committee to the Ontario Building Code. “In the city of Toronto, for example, pumping and purifying water and later treating wastewater uses much more electricity than the Toronto Transit Commission, and water accounts for about 60 per cent of most municipalities’ energy consumption. Water conservation can produce very significant reduction in energy use.”

Spending directed to policy development

Beyond the obvious flow-through benefits of promised new investment in municipal infrastructure, the commercial real estate industry’s stake in 2016-17 budget disbursements is fairly modest. Approximately $129 million earmarked for energy efficiency and renewable energy will be channelled through Natural Resources Canada (NRCan) over the next five years, while $40 million will go toward incorporating climate resilience considerations into the scheduled 2020 update of the model national building codes and developing associated design and renovation guides. Funds for research, development and commercialization of clean technology could also serve the industry if they eventually augment the inventory of made-in-Canada energy management options and green building products.

As of budget day, March 22, 2016, commercial or multi-residential landlords will be able to claim accelerated capital cost allowance (CCA) on newly purchased electric vehicle charging stations (EVCS) and related equipment. EVCS that can supply 90 kilowatts of continuous power supply will qualify for Class 43.2 of Canada’s income tax regulations, allowing a 50 per cent depreciation of the asset for tax purposes; EVCS supplying 10 to 89 kilowatts fall into Class 43.1, allowing a 30 per cent depreciation for tax purposes. Fees related to installing the equipment can be claimed as conservation and renewable expenses and be fully deducted in the year incurred, carried forwarded or transferred to investors.

This small tax perk and the inclusion of a broader range of other energy storage systems in Classes 43.1 and 43.2 are projected to reduce federal revenue by just $19 million in the five-year period ending in 2021, making it an unlikely stimulus for investment. Nor are industry insiders expecting to see incentives derived from NRCan’s new pot of funds.

“As much as I am encouraged that the government is recognizing climate change and energy efficiency as critical, and has made some money available, $26 million a year (for five years) doesn’t suggest that end-users are going to be getting the money to implement measures,” observes Bala Gnanam, director of sustainable building operations and strategic partnerships with the Building Owners and Managers Association (BOMA) of Greater Toronto. “I think it will probably be spent on studies and program development.”

The budget document backs up that interpretation, noting that NRCan will use the funds to “deliver energy efficiency policies and programs, and maintain clean energy policy capacity. These resources will support improved energy efficiency standards and codes for products, buildings, industry and vehicles, and further the development of a legislative framework for offshore renewable energy projects.”

Meanwhile, property and facilities managers in the public sector are welcoming an influx of capital funding. This includes: $574 million over two years for social housing repairs/renovations and energy and water efficiency projects; $2 billion over three years for expanding and upgrading buildings on postsecondary campuses or affiliated research and commercialization organizations; and $2.1 billion for repairs of federally owned buildings and the continued greening of government operations.

Barbara Carss is editor-in-chief of Canadian Property Management.

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