GREENING CONSTRUCTION The Role of Carbon Pricing About IFC IFC—a sister organization of the World Bank and member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work with more than 2,000 businesses worldwide, using our capital, expertise, and influence to create markets and opportunities in the toughest areas of the world. In fiscal year 2018, we delivered more than $23 billion in long-term financing for developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity. For more information, visit www.ifc.org About CPLC A unique initiative, the Carbon Pricing Leadership Coalition (CPLC) brings together leaders from national and sub-national governments, the private sector, academia, and civil society with the goal of putting in place effective carbon pricing policies that maintain competitiveness, create jobs, encourage innovation, and deliver meaningful emissions reductions. The Coalition drives action through knowledge sharing, targeted technical analysis and public-private dialogues that guide successful carbon pricing policy adoption and accelerate implementation. The Coalition encourages private sector climate leadership through sector-specific task teams, including for the construction industry and the banking sector. The Coalition was officially launched at COP21 in Paris in December 2015. As of 2018, CPLC comprises 32 national and sub-national government partners, 150 private sector partners from a range of regions and sectors, and 67 strategic partners representing NGOs, business organizations, and universities. More information: https://www.carbonpricingleadership.org/ GREENING CONSTRUCTION The Role of Carbon Pricing © International Finance Corporation 2019. All rights reserved. 2121 Pennsylvania Avenue N.W. Washington, D.C. 20433 Internet: www.ifc.org IFC, a member of the World Bank Group, creates opportunity for people to escape poverty and improve their lives. We foster sustainable economic growth in developing countries by supporting private sector devel- opment, mobilizing private capital, and providing advisory and risk mitigation services to businesses and governments. This report was commissioned by the Carbon Pricing Leadership Coalition (CPLC) through IFC’s Climate Business Department. The CPLC Secretariat is administered by the World Bank Group. The conclusions and judgments contained in this report should not be attributed to, and do not necessarily represent the views of, IFC or its Board of Directors or the World Bank or its Executive Directors, or the coun- tries they represent. IFC and the World Bank do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequences of their use. The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. IFC encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly, and when the reproduction is intended for educational and non-commercial purposes, without a fee, subject to such attributions and notices as we may reasonably require. Cover photo: Greenox Residence, located in Istanbul, Turkey, and developed by Aycan-Feres Joint Venture, has received final EDGE certification from thinkstep-SGS. Contents Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Carbon Pricing in the Construction Value Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 The construction industry setting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Carbon pricing mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 CPM influence heatmap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Carbon price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Case study profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Applying Existing Mechanisms to the Construction Value Chain . . . . . . . . . . . . . . . . . . . . . . . . . 22 Internal carbon price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Emission reduction credit scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Emissions trading systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Hybrid scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Carbon tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Command and control mechanism. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Developing an Integrated Carbon Pricing Mechanism for the Construction Value Chain . . 51 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54  iii Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Reporting operational emissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Relationship with wider carbon pricing markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Moving Forward. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Adapting existing CPMs for the CVC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Further research on carbon pricing in the CVC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Worked example of integrated concept. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Scope of Carbon Pricing Mechanisms in Buildings and Infrastructure. . . . . . . . . . . . . . . 71 Endnotes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Acknowledgements This report was commissioned by IFC’s Climate Business Department (Alzbeta Klein, Director), Climate Finance and Policy Group (Vikram Widge, Global Head), as part of the Secretariat of the Carbon Pricing Leadership Coalition (CPLC). The work was led by Aditi Maheshwari and Ayesha Malik. This effort was made possible with the support of Neeraj Prasad and Angela Naneu Churie Kallhauge (World Bank). The CPLC is grateful to the project team that undertook this analysis: Dr. Matthew Free, Dr. Kristian Steele, Dimple Rana, Harriet O’Brien, Esme Stallard, Jonny Whiting, Dr. Heleni Pantelidou, Filippo Gaddo, and Tim Chapman (Arup); Dr. Jannik Giesekam (University of Leeds); Hector Pollitt (Cambridge Econometrics); and Damien Canning (Costain). This analysis could not have been done without the essential support of CPLC partners, especially Cedric de Meeus and Elodie Woillez (LafargeHolcim); Rocio Fernandez (Acciona); and Dinara Gershinkova (Rusal). Other CPLC partner companies also involved in the Construction Value Chain task team have been key to shaping this project from the outset, including Cemex, Dalmia Cement, EllisDon, Groupe ADP, Mahindra & Mahindra, Siemens, and Tata Group. We are also grateful to Philippe Fonta (Cement Sustainabiliity Initiative), Nicoletta Piccolravazzi (Dow), Mark Crouch (Mott MacDonald), Miroslav Petkov (S&P Global), Nicolas Baglin (Saint-Gobain), and Thomas Sanders (thinkstep) for their inputs during the project workshop, and to Voight Uys (Kale Developments) for his assistance with the case studies. The report has benefited greatly from the inputs of the Sounding Board, which comprised a number of industry experts: Rehema Muniu (Green Building Council—Kenya); Samir Traboulsi (Green Building Council—Lebanon), Anila Hayat (Green Building Council— Pakistan); Francesca Mayer Martinelli (Green Buildings Council—Peru); Chris Bayliss (International Aluminium Institute); Araceli Fernandez Pales (IEA); Michel Folliet, Stefan Johannes Schweitzer, Prashant Kapoor, Rozita Kozar, Henri Rachid Sfeir, Ommid Saberi, Jigar Shah, and Alexander Sharabaroff (IFC); Luca De Giovanetti and Roland Hunzikar (WBCSD); and Terri Wills (World Green Building Council). Their collective expertise and inputs have greatly enhanced the comprehensiveness of this work. ACKNOWLEDGEMENTS v vi GREENING CONSTRUCTION Acronyms AKH Awash-Kombolcha/Hara Gebeya Railway BRICS Brazil, Russia, India, China, and South Africa CPLC Carbon Pricing Leadership Coalition CPM Carbon pricing mechanism CVC Construction value chain DBB Design-Bid-Build DBFOM Design-Build-Finance-Operate-Maintain ERC Emissions reduction credit ETS Emissions trading system EU European Union ICE Inventory of Carbon and Energy IEA International Energy Agency IFC International Finance Corporation LEED Leadership in Energy and Environmental Design NDCs Nationally Determined Contributions ACRONYMS vii Foreword By 2050, 70 percent of the global population is expected to reside and work in cities, where there is a concentra- tion of people, assets, financing, and opportunities. In parallel, 60 percent of the area expected to be urban by 2050 remains to be built, signifying the large scale of construction activity that the world will see in the decades leading up to then. Much of this growth will be in emerging markets. Since so much of the urban area expected to exist in the coming decades is yet to be built, there is an opportunity for cities to leapfrog historic urbanization approaches and divert scare resources to low-carbon, resilient, efficient construction, and avoid the pitfalls of locking in high-carbon infrastructure in their urban landscape. Carbon pricing has emerged as a key tool to help construction sector companies choose lower-emission alternatives, manage carbon risk, and reduce emissions. The private sector is already recognizing that there is a huge business opportunity associ- ated with green construction – almost $25 trillion in emerging market cities alone to 2030 according to IFC estimates – and is approaching sustainable construction in a variety of ways. Companies across the construction value chain are using internal voluntary carbon pricing as well as signals from external carbon regulations, including taxes and emissions trading systems, to incentivize low-carbon decision-making in their own operations. Their broad range of interests in applying carbon pricing include using it as an incentive for individual business units to reduce their emissions, developing low-carbon construction material and other products, and engaging with their supply chains to encourage the use of low-carbon and sustainable alternatives, to name a few. While these individual initiatives are essential and commendable, the efforts of construction sector companies to reduce the industry’s carbon emissions can be made significantly more effective by working in a collaborative manner. This last finding is a key takeaway from this report – that companies along the construction sector need to work together and with other stakeholders, such as contracting authorities, suppliers, and consumers, to align approaches to carbon pricing and to sustainability more broadly. viii GREENING CONSTRUCTION By bringing together the various companies and other stakeholders along the construc- tion value chain for this work, the Carbon Pricing Leadership Coalition is helping drive this agenda. The goal is for all these different stakeholders and initiatives to come together and work with governments to deploy well-designed carbon policies that will help reduce the construction industry’s total emissions and meet climate targets. IFC stands ready to explore the development of such an integrated approach, and work with its clients and partners, both within the CPLC and outside, to design and implement it in the most effective manner. We are also working with stakeholders such as industry associations and construction sector compa- nies to ensure the inclusion of all perspectives in this effort. The construction industry already accounts for between 25 and 40 percent of global carbon emissions, and it is imperative that the footprint of this expected construction is managed if we are to meet the goals of the Paris Agreement and restrict the rise in temperatures to less than 1.5˚ Celsius. We must act to ensure that all this forthcoming construction is built in a sustainable manner and recognize the role of the private sector in achieving this as well as the business opportunity associated with green construction. Alzbeta Klein Director, Climate Business Department, IFC FOREWORD ix x GREENING CONSTRUCTION EXECUTIVE SUMMARY T his report examines how to design effective car- bon pricing mechanisms (CPMs) for the construc- tion industry. As the world’s largest consumer of raw materials, it accounts for a significant proportion of final energy demand and is responsible for 25 percent to 40 percent of global carbon-related emissions.1 Demographic trends underline the need for the con- struction industry to do more to address its contribution to climate change. The world’s population is predicted to reach nearly 10 billion by 2050, with the major- ity expected to live in urban areas.2 This will increase demand for buildings and infrastructure; some estimates suggest that 75 percent of the infrastructure we will need by 2050 must still be built.3 1 Putting a price on carbon can be an effective on different life-cycle stages, asset classes, way for governments and organizations to construction delivery methods, and market plan for a low-carbon future. Applying a cost contexts. The strengths and deficiencies of each to emissions encourages sectors and supply CPM were analyzed, and ideas for refinement chains to alter behavior in favor of lower- and improvement were explored. carbon choices. However, to date, CPMs have yet to achieve their potential when it comes to The study findings suggest that there is no driving behavior change in construction. single fix. If carbon prices were increased to “midpoint” levels of $25/tCO2e used for this The construction value chain (CVC) is a com- analysis (with a lower limit of $10/tCO2e and plex mix of life-cycle stages, delivery models, an upper limit of $53/tCO2e), then project costs and stakeholders. Large projects with long could potentially change the behavior of both life cycles and multiple actors can be highly polluters and downstream CVC actors, includ- fragmented; accountability or incentives to ing clients, designers, and users. This indicates consider climate change impacts are often lack- that simply raising carbon prices within ing. These constraints make the application of existing CPMs may bring about the refocus CPMs to construction particularly challenging. needed to change behaviors. Whether or not this is possible in political and practical terms This study explores how CPMs can be designed depends very much on the context. better to more effectively account for emis- sions from the CVC. To date, carbon pricing has Established CPMs fail to influence the CVC tended to apply to carbon-intensive production actors commonly associated with early stage activities. In the CVC, this commonly includes project-making, including funders, developers, raw material extraction, product manufac- and designers. This represents a failure in the ture, and energy generation. However, this is way the mechanisms are designed and func- ineffective at influencing construction design, tion. In practice, many of these actors retain where carbon emissions are locked in for the significant power and influence over a proj- duration of an asset’s life. ect’s whole-life carbon emissions by defining material supply chain, operational, and in-use The study used scenario modeling of four carbon emissions. To reduce total emissions case studies to examine the impacts of CPMs 2 GREENING CONSTRUCTION over an asset’s life, an effective CPM needs to activities and regulated energy in use. By influence the early stages of project-making. accounting for the whole-life carbon perfor- mance at the point of project-making, the CPM One way of capturing CVC emissions more concept creates an incentive to tackle carbon at comprehensively is to include constructed the beginning of the asset’s life cycle by those assets within CPMs. Depending on the charged with its design, thus cascading low- approach, this might extend in scope to carbon objectives along the value chain. include everything from the asset’s embodied carbon emissions to those arising from opera- In the development of CPMs, governments and tion and use, as well as emissions from end of companies must carefully weigh the potential life. Because CPMs are already well established negative impacts against the benefits, provid- around the world, expanding them to include ing solutions to help those who cannot easily CVC assets may be viable and acceptable to the alter their behavior while challenging those industry and consumers. who can through stricter targets and penal- ties. Schemes must engage and align with their Of the existing CPMs applied, hybrid models regional and international counterparts to cre- are likely to provide the flexibility needed ate a more level playing field, share learning, to maximize the capture of emissions while and minimize threats to competitiveness. reducing the impact on welfare and competi- tiveness. The value of this model lies in its As economies in emerging markets grow and adaptability, accommodating variances in demand for infrastructure increases, significant asset class, scale, project delivery method, and opportunities and benefits from implementing market type. Hybrid models could also help to carbon prices arise. In these locations, carbon minimize price volatility, which would appeal pricing may be used to incentivize and drive to investors and governments. the market towards low-carbon infrastructure, raise revenues that may be used to support low- Where existing CPMs cannot be adjusted, this carbon initiatives, and help to fulfil local and study proposes a new integrated CPM for the global climate commitments. CVC. Devised to apply to projects, the proposed CPM would use a threshold or blanket carbon price and cover the supply chain construction FOREWORD 3 Introduction I n recent years the construction industry has made notable progress to reduce its carbon emissions, developing and regulating energy efficiency requirements and implementing low-carbon technologies in buildings and along the supply chain. However,the industry remains highly energy and carbon intensive, producing 25 percent to 40 percent of the world’s total carbon emissions,4 which is likely to be compounded by the expected increase in demand for built assets.5 The industry recognizes that it needs to take are currently being used in 45 national and 25 further action if the world is to meet the Paris subnational jurisdictions around the world, Agreement target of limiting global tem- double the number in place a decade ago. perature rise this century to below 2oC above These account for 11 GtCO2e, or 20 percent of pre-industrial levels.6 To this end, carbon pric- global greenhouse gases, representing a value ing is emerging as an important tool to help the of $81 billion.7 The value of the fossil fuel industry reduce its carbon emissions. industry is about $4.65 trillion, suggesting that there is still significant potential to be seized.8 The scope, influence, and complexity of carbon pricing mechanisms (CPMs) is growing. CPMs TACKLING CARBON EMISSIONS IN THE BUILT ENVIRONMENT ●● By 2050, six of the seven largest economies ●● Emerging economies account for nearly in the world could be emerging markets.9 60 percent of the global construction ●● Seventy-five percent of the infrastructure sector’s total CO2e emissions.13 that will be in place by 2050 must still be ●● CO2e emissions from buildings and built.10 construction rose by nearly 1 percent per ●● The construction industry is the world’s year between 2010 and 2016, releasing largest consumer of raw materials. It 76 GtCO2e in cumulative emissions.14 accounts for 50 percent of global steel ●● About 70–89 percent of construction production and more than 300 billion tons of industry greenhouse-gas emissions global resource extraction.11 originate from materials, 5–15 percent from ●● Buildings and construction account for transportation, and 6–9 percent from energy 36 percent of global final energy use and consumption during construction.15,16,17 39 percent of energy-related CO2e.12 4 GREENING CONSTRUCTION Carbon pricing is recognized in Article 6 of the Paris Agreement. The Stern-Stiglitz High-Level Paris Agreement. To date, 101 countries have Commission on Carbon Prices found that to keep stated an interest in pursuing carbon pric- global temperatures below 2°C, carbon prices ing initiatives in their Nationally Determined would need to be between $40 to €80/ tCO2e by Contributions (NDCs).18 As nations, cities, and 2020 and $50 to €100/tCO2e by 2030.20 companies shift towards a lower-carbon future, CPMs offer valuable opportunities to incentiv- Nonetheless, CPMs are increasingly being ize low-carbon investment and establish clear adopted by governments and private sector and competitive markets for carbon. organizations. Whether to incentivize low- carbon innovation, stimulate cost-effective Carbon pricing attributes a cost to the negative emissions mitigation, improve production impacts associated with the release of green- processes and industrial structures, tackle house gases. This sends an economic signal climate change, or fund broader social and to the emitter to either avoid high-emission environmental strategies, the adoption of activities or pay to continue polluting, creating carbon pricing is growing.21 To date, carbon incentives to change behavior throughout the pricing has tended to apply to carbon-intensive supply chain. But carbon pricing is complex production activities. In the construction and its impacts are often less powerful than value chain (CVC), this includes raw material anticipated when applied in real-world condi- extraction, product manufacture, and energy tions. The European Union’s (EU’s) emissions generation. While this has been successful trading system (ETS), for example, shows that up to a point, this approach is ineffective at even the most sophisticated mechanism will influencing construction design, where carbon not always achieve its objectives due to politi- emissions are locked in for the duration of an cal and external economic factors, loopholes, asset’s life. and gamification.19 To address this issue, some jurisdictions are Although many carbon prices around the world experimenting with applying CPMs at the point have increased year on year (see Figure 1), of carbon “consumption” (for example, Japan their trajectories remain lower than the values is applying a CPM to retail electricity). In the needed to meet the temperature goal of the CVC, this approach has the potential to more INTRODUCTION 5 successfully address emissions associated with Section 4 (Applying Existing Mechanisms to the design choices and asset performance in use. Construction Value Chain) provides a detailed assessment and discussion of how established This study examines how existing CPMs can CPMs might be refined to better capture and be adapted to more successfully lower whole- influence carbon emissions across the CVC. life carbon emissions (all the emission sources associated with constructing and using a build- Section 5 (Developing an Integrated Carbon ing over its life). Where this is not practical, Pricing Mechanism for the Construction Value the study proposes adopting an integrated CVC Chain) outlines the concept for an integrated CPM that can be applied to both buildings and CVC CPM as an alternative model to consis- infrastructure. tently influence carbon emissions across the CVC for both the building and infrastructure Section 2 (Carbon Pricing in the Construction construction industries. Value Chain) of the paper examines the construction industry setting, including CVC Finally, Section 6 (Moving Forward) discusses formation, actors, and life-cycle stages. It also next steps and additional research needs.22 reviews six established CPMs. Section 3 (Case Studies) sets out the case study scenario and modeling work that has been undertaken to explore the impact of CPMs. 6 GREENING CONSTRUCTION FIGURE 1: GLOBAL CARBON PRICES IN 2017/18 RANGED FROM UNDER $10 TO OVER $140/TCO2.24 US$ 140/ tCO2e 139 Sweden carbon tax US$ 130/ tCO2e US$ 120/ tCO2e US$ 110/ tCO2e Switzerland carbon tax, US$ 100/ 101 Liechtenstein carbon tax tCO2e US$/tCO2e Spain carbon tax, Ireland carbon tax, 25 US$ 90/ Denmark carbon tax (F-gases) tCO2e Alberta CCIR, 23 Alberta carbon tax US$ 80/ tCO2e Slovenia carbon tax, 77 Finland carbon tax Korea ETS 21 US$ 70/ tCO2e 64 Norway carbon tax (upper) US$ 60/ tCO2e EU ETS 16 New Zealand ETS, California CaT, 55 France carbon tax 15 Ontario CaT, Québec CaT US$ 50/ tCO2e US$ 40/ tCO2e 36 Iceland carbon tax 9 Beijing pilot ETS US$ 30/ Denmark carbon tax Portugal carbon tax, 29 (fossil fuels) Switzerland ETS 8 tCO2e 27 BC carbon tax 7 Shenzhen pilot ETS Shanghai pilot ETS, Saitama ETS, Tokyo CaT, Colombia carbon tax, 6 US$ 20/ Latvia carbon tax tCO2e 5 Chile carbon tax RGGI, Chongqing pilot ETS, Norway carbon tax (lower) 4 Fujian pilot ETS, US$ 10/ 3 Mexico carbon tax (upper), tCO2e Estonia carbon tax, Hubei pilot ETS, Japan carbon tax Guangdong pilot ETS 2 Mexico carbon tax (lower), 1 Tianjin pilot ETS Poland carbon tax, Ukraine carbon tax <1 US$ 0/ tCO2e INTRODUCTION 7 Carbon Pricing in the Construction Value Chain accountable for or incentivized to consider how The construction their activities affect other parts of the system (for example, designers do not commonly industry setting remain accountable for how much energy and carbon a building may use in operation). THE CVC Carbon pricing presents an inherent challenge to the construction industry as many of the The CVC is complex, consisting of interlinked products and services it offers are energy and and interdependent processes and actors. carbon intensive and are therefore costlier Large projects with long life cycles and multiple if emissions are priced. Despite this, many actors often operate independently, meaning organizations have successfully implemented that actors along the value chain are not always internal CPMs, and many more are subject to KEY MESSAGES ●● Although the construction industry is taking ●● This study examines six CPMs identified action to reduce carbon emissions, carbon through a comprehensive literature review: pricing is a relatively unexplored tool. This is Internal carbon pricing, emissions reduction largely due to the nature and structure of the credit schemes, ETS, hybrid schemes, industry, which is complex, fragmented, and carbon taxes, and command and control carbon intensive. Carbon pricing presents mechanisms. Their functioning, strengths, an opportunity to make the industry more and weaknesses are assessed in this sustainable. section. ●● This report uses a broad conception of ●● A CPM influence heatmap is used to the CVC, addressing all carbon-emitting compare the influence on carbon reduction activities at all life-cycle stages, from design each of these CPMs has in relation to the through to construction, use, operation, and stages of the CVC and the actors involved at end of life. those stages. 8 GREENING CONSTRUCTION regulatory ETS and carbon taxes. Thus, with ignored by the decision-making or regulatory some adjustment, there are more opportunities frameworks used to bring about emissions cuts, to overcome barriers to applying CPMs along the outcomes will be less successful. the CVC. To address these constraints, this study uses a broader definition of the CVC based on BS EN THE STRUCTURE OF THE CVC 15804 on Sustainability of Construction Works,23 and adapted by PAS2080 Carbon Management Although there is no standard industry defi- in Infrastructure.24 This broader definition is nition of what is included within the CVC, presented in Figure 2, which shows the scope traditional interpretations have tended to of actors responsible for carbon management include raw material production and supply, in infrastructure and buildings, and Figure 3, product manufacture, and construction works. which illustrates the life-cycle stages relevant to When it comes to considering carbon emissions, carbon emissions sources. this definition is inadequate as it does not cap- ture all the value chain actors who have control and influence over carbon emissions or all the ACTORS IN THE CVC life-cycle stages where carbon emissions occur. Many diverse actors operate in the CVC. The This leads to two inherent challenges. First, if relationship between them is complex and all relevant actors are not included and targeted changes from project to project. The following in the industry drive to cut carbon emissions, actors are usually involved in a construction it will be more difficult to ensure behavior project: changes throughout the value chain. Second, if ●● Investors and shareholders fund the devel- life-cycle stages that are responsible for signifi- opment of an asset. cant sources of carbon emissions (that is, the use of a building or an infrastructure asset) are ●● Developers may fund, construct, or own and manage an asset for profit. CARBON PRICING IN THE CONSTRUCTION VALUE CHAIN 9 FIGURE 2: CVC ACTORS RESPONSIBLE FOR CARBON MANAGEMENT (ADAPTED FROM PAS2080).82 Government and Regulators National/Sector policy-level Citizens carbon management Asset Owners/Managers Users Shareholders Designers Asset and program-level carbon management Constructors Employees Product/Material Suppliers ●● Designers develop the design of the asset position on the matrix indicates the level of that is to be constructed or maintained. integration, and the extent to which the project is directly financed by the owner or client.25 ●● Constructors undertake work to build, maintain, or disassemble a constructed The delivery method applied is usually chosen asset. based on project size, budget, client prefer- ●● Product/material suppliers extract, manu- ence, and program. The way a project is facture, or produce materials or products for delivered may influence how carbon may be construction or maintenance of an asset. reduced over the life of the project or asset. For example, the contractor in a traditional ●● Asset owners/managers manage and may DBB segmented model has little influence be responsible for providing, operating, and over the design of a project and no incentive maintaining assets. to maximize carbon reduction. Conversely, ●● Users use a constructed asset and the in an integrated model such as design, build, services it provides during operation. finance, operate, maintain (DBFOM), each ●● Demolition contractors/waste manage- party (designer, builder, investor, operator, ment demolish, process materials arising, and manager) can be incentivized to maximize and dispose of waste. carbon reduction at every stage to ensure the overall project is delivered most efficiently. PROJECT DELIVERY METHODS The financing of a project will also influ- ence how and whether carbon emissions are The CVC collaborates to deliver projects reduced. For example, an owner who directly in various ways. There are different risks, finances a project may choose to prioritize strengths, and weaknesses associated with carbon reduction and impose targets that con- each approach. Figure 4 shows some of the tractors, operators, and managers must meet. most common project delivery methods. Their In contrast, an owner who does not finance 10 GREENING CONSTRUCTION FIGURE 3: IN THE CVC, ACTIVITIES ARE CARRIED OUT ACROSS FOUR MAIN LIFE-CYCLE STAGES.83 • Design • Transport • Use • Deconstruction • Raw material supply • Construction • Maintenance • Transport • Transport • Installation • Repair • Waste processing • Manufacturing • Refurbishment • Disposal • Replacement • Operational energy • User utilization of infrastructure (or deliver) the project, may not have control for driving low-carbon behaviors. Similarly, over how carbon emissions are reduced over projects where the owner has control over the course of the project’s life cycle and/or any funding may increase the likelihood of carbon incentive to prioritize it. reductions by prioritizing it from the start of the project. Projects delivered via methods in Given that in the CVC the operation and use the upper right quadrant (Figure 4) therefore phases are responsible for a large portion of have the greater theoretical capacity for car- emissions, integrated project delivery models bon reduction over the asset life cycle.26 that include operation have greater potential CARBON PRICING IN THE CONSTRUCTION VALUE CHAIN 11 FIGURE 4: COMMON CVC PROJECT DELIVERY METHODS. THESE CAN BE CHARACTERIZED AS SEGMENTED TO INTEGRATED, AND DIRECT TO INDIRECT FINANCING. Direct Financing DBB Design-Bid-Build (Traditional) DBO BOOT DB Design-Build DBB DB DBOM BLT DBO Design-Build-Operate BOO DBOT Design-Build-Operate-Transfer Segmented Integrated DBOM Design-Build-Operate-Maintain DBFOM Design-Build-Finance-Operate-Maintain BOT DBOT DBFOM BOO Build-Own-Operate BOT Build-Operate-Transfer BOOT Build-Own-Operate-Transfer BLT Build-Lease-Transfer Indirect Financing Carbon pricing mechanisms Through a literature review and observation of ●● Life-cycle stage: Suitability of CPMs to be ongoing pricing schemes, the study identified applied to the stages of the construction life six types of CPM: cycle: product, construction, use, and end of life. ●● Internal carbon pricing. ●● Asset class: Suitability of CPMs to be ●● Emissions reduction credit schemes. applied to different asset classes, for ●● Emissions trading systems. example, buildings or infrastructure and subsectors of these. ●● Hybrid schemes. ●● Project scale: Applicability based on project ●● Carbon taxes. size. ●● Command and control. ●● Market: Applicability based on market type, for example, low-, middle-, or high- Table 1 compares the strengths and weak- income economy. nesses of the six CPMs. When compiling the table and considering how these CPMs could ●● Project delivery method: Project contrac- better integrate with the CVC, the following tual approach which works most effectively perspectives were considered: with a CPM, such as DBB. 12 GREENING CONSTRUCTION TABLE 1: THE STRENGTHS AND WEAKNESSES OF THE SIX CPMS. Mechanism How it works Strengths and weaknesses Internal carbon Voluntary mechanisms may be implemented Strengths pricing by companies looking to manage risks from • Allows organizations to target specific internal business units with high future climate policy, identify inefficiencies, emission levels. and incentivize shifting from higher to lower emission technologies.27 There are two main • Allows organizations to set targets to influence their supply chains, approaches: creating cascading changes throughout the system. • Shadow pricing, which simulates the effect • Drives innovation, which may lead a company to gain market share and of an externally imposed tax on internal grow the market for lower-carbon products and services.29 projects by adding a cost to projects. • Acts as a risk management tool to understand how climate regulations • Internal fees, which are imposed on specific will affect companies, helping them to prepare for an external future business units based on their emission climate price.30 levels. Fees are centrally collected and • Familiarizes organizations with carbon pricing, helping them to prepare reinvested, ideally in projects facilitating for a more rigorous and enforceable scheme. energy efficiency or carbon offsets. 28 Weaknesses • Voluntariness may limit impact and narrow targeting may limit the effect across the whole business. • Lack of external regulation may result in low price setting (by an organization), limiting the overall impact of the policy. • May pose a risk to the competitiveness of an organization by raising costs that are passed on down the supply chain. • May be difficult to get financial executive buy-in. • May miss scope 3 (and sometimes even scope 2) emissions. Emissions Under an ERC scheme31 firms earn credits (or Strengths reduction credit offsets) by reducing greenhouse gases below • Credits can generate revenues, which may be reinvested in green (ERC) scheme a predetermined level (for example, historical initiatives. emissions level or emission intensity). Credits can then be traded with parties who need to • Encourages efficiencies within high-carbon sectors. comply with emissions targets regulations • Facilitates reporting of emissions reductions. or who wish to offset emissions to become carbon neutral. In this way, ERC schemes can • Provides a framework and rewards for offsetting, and encourages be integrated with ETS. Unlike ETS, there is parties to consider other low-carbon initiatives. no fixed limit on emissions, as credits are Weaknesses generated for each additional project. • Involves an administrative burden for verifying and vetting projects to ensure additionality.32 • Potential for unintended incentives to keep business-as-usual emissions high to keep the baseline high and maximize the number of credits (and revenue) earned.33 • Requires independent benchmarking. • Lack of fixed emissions limit may dampen actual emissions reductions. Emissions ETS, or cap and trade systems, are market- Strengths trading system oriented schemes that allow parties to • Theoretically creates an efficient market where emissions are reduced buy and sell permits to emit greenhouse in the most cost-effective way. gases. ETS are quantity-based instruments in which an emissions upper limit is set (for • Potential to generate revenues for governments (if emissions example, x tons/year), and an associated auctioned), which can be used to reduce negative impacts, for example, number of tradable emission allowances (x increased costs for certain sectors or impacts on competitiveness. permits to emit 1 ton) are either allocated or • Attractive to business since there is potential for allocated allowances auctioned to polluters. Parties that do not and related benefits (such as trading or banking allowances). use up all their permits can sell their surplus via international trading exchanges, thereby • Potential for global-scale implementation and consequent reduction in creating an incentive to reduce emissions. the risk of carbon leakage (when businesses shift their production to countries with less stringent carbon regulations). • Certainty of emissions limit via a cap, subject to credible penalties and enforcement for non-compliance.34 CARBON PRICING IN THE CONSTRUCTION VALUE CHAIN 13 Mechanism How it works Strengths and weaknesses Emissions Weaknesses trading system • Potential for carbon leakage, which may limit overall emissions (continued) reduction. • Potential for price volatility, which may affect business confidence. • Low price setting may limit impacts on emissions reduction. • Over-allocation of allowances and grandfathering may cause price crashes and rent-seeking behavior.35 • Creation and oversight of market may be complex and costly. Hybrid scheme Hybrid schemes combine elements of Strengths quantity-based ETS instruments and price- • Price volatility risks associated with market-based ETS are reduced by based tax instruments.36 For example, a price floors and ceilings, which typically stabilize prices.37 hybrid option may involve having a cap and trade with a price floor and ceiling. Or the • Attractive to governments due to potential to raise revenue, assuming ETS may have an allowance reserve set, quotas are auctioned. whereby when a permit price exceeds a • Creates flexibility to suit a variety of markets, for example, a price certain ceiling, companies may buy a limited threshold may be used in lower-income economies to limit welfare number of permits set aside (the reserve) for impacts. this purpose, at the ceiling price. Weaknesses • May be complicated and onerous to regulate, and may require more intervention in the permit market. • May be complex and costly to implement as a new emissions trading unit must be created and allocated. Carbon tax Taxation is a price-based instrument that sets Strengths a fixed price for carbon emissions.38 Taxes • Simple to implement administratively, compared to market instruments. can be implemented at different points along the supply chain; for instance, taxes can be • Provides a clear price signal to the market. levied on fossil fuel suppliers or final emitters. • Potential to capture the majority of emissions with just a few points of regulation. • Attractive to governments, as revenue generation may help compensate for negative impacts (such as raised prices and competitiveness). Weaknesses • Inaccurate price setting may limit effectiveness; significant analysis may be required to achieve the right price.39 • Potential for carbon leakage. • May be politically unpopular and therefore difficult to implement, unless tax can be proven to be revenue neutral.40 Command and Although not a CPM, command and control Strengths control regulations are compulsory policies that • Top-down implementation is simpler to enact and manage as no market stipulate actions and penalties for non- or associated regulation needs to be formed. compliance.41 Such policies are generally applied across the board. Examples include • Compulsoriness provides more certainty about a given target or emission limits, performance standards, and outcome. prohibiting the use of certain materials. Weaknesses • May be costly as regulations do not recognize that some businesses will face higher abatement costs and tend to have higher implementation costs than others. • Does not create an incentive to go beyond a certain level of reductions signaled by the target. 14 GREENING CONSTRUCTION CPM influence heatmap An influence heatmap was developed to indi- comparative influence (high to low) that the cate the scope and impact of CPMs across CVC CPM applies to value chain actors to reduce actors and life-cycle stages. It was separately carbon emissions. applied to each of the CPMs and is presented throughout the section on applying existing Figure 5 only indicates potential. In practice, CPMs to the CVC. applying a CPM to a project and CVC context will show variation. The section on applying exist- Figure 5 applies the heatmap concept to all ing CPMs to the CVC discusses where it is best to six CPMs. The image is based on common target a CPM to maximize emissions reductions. CPM application examples and shows the FIGURE 5: THE HEATMAP VISUALIZES WHERE CPMS ARE IMPLEMENTED IN THE CVC AND THE IMPACT ON THE ACTOR BEHAVIORS THEY CAN HAVE (THE COLORED CIRCLES INDICATE WHICH ACTORS ARE INFLUENCED OVER THE PROJECT LIFE CYCLE). Stage at which CPM is commonly applied 1. Internal carbon pricing 2. Emissions reduction credit (ERC) scheme* 3. Emissions trading systems (ETS) 4. Hybrid scheme 5. Carbon tax 6. Command and control A0 Design A1-A3: Raw Material, Transport, Manufacture A4 Transport A5 Constr. – Install. B1 Use B2 Maintenance B3 Repair B4 Replacement B5 refurbish B6 Operational energy, water B7 User utilization of infrastructure C1 Deconstruction C2-C5 Transport Waste processing Disposal Design Product Construction Use End of life (A0) (A1-3) (A4-5) (B1-7) (C1-4) *An ERC scheme often requires the sustainability of the whole project to be evaluated, which is why a CPM is not placed on one particular stage. CARBON PRICING IN THE CONSTRUCTION VALUE CHAIN 15 Case Studies T o understand the potential for maximizing carbon reduction across the CVC, a scenario modeling exercise was undertaken. The modeling exercise demonstrates how applying CPMs at different stages in the CVC (product, construction, use) could influence the behavior of actors operating at those stages. The results indicate where a CPM should be targeted to maximize carbon reductions over the life of a project, which in turn helps identify the most suitable CPM, bearing in mind industry consider- ations and constraints (see above). For example, how CPMs may be modified or applied differently in high-, middle-, and lower-income economies, how actors in different life- cycle stages may be incentivized to reduce carbon, and how CPMs should be imple- mented in relation to other existing carbon reduction schemes and policies. KEY MESSAGES ●● Case studies of a road, a residential ●● Guidance. The case studies applied a development, a commercial building, and a standardized approach to determining railway were modeled to understand how greenhouse-gas emissions. However, the application of CPMs at different stages this approach is not standardized in all in the CVC could influence the behavior of markets and segments. There is also little actors operating at those stages to reduce guidance on how carbon pricing might be carbon emissions. The results of the analysis applied to CVC projects. Guidance on such are examined in Chapter 4. aspects would help practitioners seeking to ●● Identifying the case study materials for this determine project-based carbon costs. report proved challenging. No case study ●● Capacity. Case study development relied was immediately available that had applied on engaging with project funders, architects, carbon pricing to construction projects, engineers, quantity surveyors, costing perhaps reflecting the topic’s newness within specialists, and suppliers, among many the industry. This provides useful context to others. In most cases, much coaching several important lessons learned: was needed on carbon pricing and its ●● Data quality. Project and life-cycle datasets application to the CVC. Skills and knowledge were difficult to access. Data quality was on carbon pricing remain limited among poor and incomplete and different projects project stakeholders and will prove most recorded data inconsistently. To facilitate challenging for smaller projects and robust carbon pricing across the CVC, such operators who are less likely to have the variations and data gaps must be resolved. relevant training capacity. 16 GREENING CONSTRUCTION sets out the generalized structure of these Methodology stages: product manufacture, construction, use/ operation, and end of life. These terms can, Four existing projects were chosen and however, shift in interpretation in practice. selected data from their project life cycles was This is particularly the case when it comes to modeled: the activities associated with the operation and use of buildings and infrastructure. To help ●● N340 dual carriageway in Spain understand these terms, the Appendix includes ●● The Village residential development in a table that sets out what might be identified as South Africa operational and user carbon emissions in dif- ferent buildings and infrastructure contexts. ●● One Mabledon Place, commercial building retrofit in the UK ●● Awash-Weldiya/Hara Gebeya railway line in Ethiopia. Carbon price A carbon price was applied to each ton of CO2e The projects differ in terms of asset class, project emitted at each stage of the project life cycle. scale, and market. The analysis used project- Low, medium, and high carbon price scenarios specific information such as bill of quantities were created and applied to demonstrate how (detailed a statement of work setting out prices the application of CPMs at different stages in and quantities of materials required for the the CVC could influence the behavior of actors project) and complete life-cycle assessments to operating at those stages. The prices reflect the create datasets on which the scenario modeling range of carbon prices currently implemented was based. Where information was lacking or through CPMs globally. The low and medium formats differed, assumptions were made and carbon pricing regimes are intended to reflect secondary research was carried out. In addi- the range at which most current carbon prices tion to consulting with Arup experts, external sit, while the high pricing regime represents sources included the ICE carbon database, UK the carbon price required in 2020 to stay con- Environment Agency Carbon Calculation sheets, sistent with achieving the temperature goal set and the HM Treasury Green Book. out in the Paris Agreement.42 ●● Low: $10/tCO2e—based on the average EU The research and assumptions reflect indus- ETS allowance price over the last year. try best practice and use expert guidance. However, it is important to note that with such ●● Medium: $25/tCO2e—based on the IEA new variety of project types across the construc- policies scenario (2025) for the EU. tion industry, the case studies cannot capture ●● High: $53/tCO2e—based on the IEA all life-cycle emission profiles and should Sustainable Development scenario (2025) therefore be considered indicative rather than average of BRICS and advanced economies. representative of the industry. LIFE-CYCLE EMISSIONS Case study profiles The following profiles provide an overview of The case studies examine the suitability of each case study and the analysis carried out CPMs at different stages of the construction on them. life cycle. The section on the CVC's structure CASE STUDIES 17 N340 FOUR-LANE HIGHWAY, SPAIN The N340 road is a four-lane highway in during its entire useful life. The mode con- Alicante, Spain. It was developed by Acciona sidered a 1-kilometer stretch; the life cycle Infrastructure and obtained Environmental considered is to 2050. The project followed a Product Declaration, which certifies the DBB delivery method. environmental footprint of the infrastructure Project characteristics ●● Stages considered in the analysis: ●● Electricity costs ($/kWh): EC – Quarterly Report on European Electricity Markets, • Product (manufacturing of raw materials) Spanish industrial retail electricity price— • Construction central consumption band assumed. • Operation (energy consumption of the ●● Discount factor for analysis of net present lighting along the road) value: 3.5 percent, from HM Treasury – The Green Book. Industry standard approach • Maintenance (repair the top layer) used in discounting future costs to present • Use (vehicular traffic using road). costs. ●● Data: The road owner, Acciona, provided a ●● Carbon dioxide emissions during usage range of data, including key material quanti- stage: Based on Arup analysis from previ- ties from a bill of quantities and life-cycle ous experience working with carriageways assessment inventory, and the cost per unit in the UK. This provides a proxy for road of these key materials. Additional research usage, based on similar road characteris- was carried out to inform the inputs and tics— standardized for 1 kilometer. assumptions required for the analysis. ●● Carbon emission factor: From Acciona’s GABi modeling tool. FIGURE 6: PHOTOGRAPH OF THE N340, SPAIN. 18 GREENING CONSTRUCTION THE VILLAGE RESIDENTIAL DEVELOPMENT, SOUTH AFRICA The Village is a low-rise residential develop- two-bedroom units. This study models data ment in Tshwane, South Africa, developed by from 66 units. The life cycle considered in the Kale Developments. The total construction model is to 2050. The project followed a Build- area is 16,000 m2, comprising 288 one- and Operate-Transfer delivery method. Project characteristics ●● Stages considered in the analysis: ●● South African grid emission factor: From UNFCCC and the Institute for Global • Manufacturing of raw materials Environmental Strategies, annual release (provided in bill of quantities) figures. • Operation and use (annual energy ●● Gas and electricity costs for use consump- consumption, both electricity and gas, of tion ($/kWh): Retail energy costs from South a user in a typical one-bedroom block). Africa’s Department of Energy. ●● Data: The developer provided a bill of quan- ●● Discount factor for analysis of net present tities listing the materials and associated value: 3.5 percent, from HM Treasury—The costs across the project. Additional research Green Book. Industry standard approach used was carried out to inform the inputs and in discounting future costs to present costs. assumptions required for the analysis (including density figures for raw materials, ●● Carbon dioxide emissions during usage carbon factors, and average South African stage: From Green Building Council sched- household consumption levels). ules and DTS Energy Modelling Protocol Guide. Used to build load profiles based on ●● Carbon emission factors: Taken from ICE average income. V2 Emission Factors, University of Bath, based on kilogram of CO2e per kilogram of material, converted using EACC database. FIGURE 7: PHOTOGRAPH OF THE VILLAGE RESIDENTIAL DEVELOPMENT, SOUTH AFRICA. The Village (Clubview) is a property owned by IFC’s client, International Housing Solutions (IHS). It has received final EDGE certification from the Green Building Council of South Africa. CASE STUDIES 19 AWASH-WELDIYA/HARA GEBEYA RAILWAY LINE, ETHIOPIA The AKH railway project is building a railway with building and operating the railway. line between the Ethiopian towns of Awash Additional research was carried out to and Weldiya. The line will be 394 km long and inform the inputs and assumptions required will carry both passenger and freight traffic for the analysis. when complete in around a year’s time. The ●● Carbon emission factors: Taken from US life cycle considered in the model is to 2050. Environmental Protection Agency—Emission The project is using an Engineer-Procure- Factors, used in previous Arup studies of Construct delivery method. scope 1 and 2 emissions. Project characteristics ●● Ethiopian grid emission factor: Taken from Ecometrica—Electricity-specific emis- ●● Stages considered in the analysis: sion factors for grid electricity, used in previ- • Construction (heavy machinery such as ous Arup studies of scope 1 and 2 emissions. excavators, backhoe loaders, trucks, and ●● Electricity costs ($/kWh): Taken from US bowsers, and electricity required for Commercial Service—Ethiopia: Power Sector powering accommodation, offices, and Market Factsheet. portacabins). ●● Discount factor for analysis of net present • Operation and use (electricity needed for value: 10 percent, from Asian Development powering passenger and freight trains Bank, World Bank Studies. This is an indus- and diesel for freight transfer). try standard approach used in discounting • The product (raw materials) stage was future costs to present costs, relevant to a not considered in this case study due to a middle-income economy. lack of robust data. ●● Power requirements during usage stage: ●● Data: The analysis drew on previous Used in previous Arup studies of scope 1 and Arup estimates of emissions associated 2 emissions. FIGURE 8: RENDERING OF THE AWASH-WELDIYA RAILWAY, ETHIOPIA. 20 GREENING CONSTRUCTION ONE MABLEDON PLACE, COMMERCIAL FIGURE 9: PHOTOGRAPH OF ONE BUILDING RETROFIT, UK MABLEDON PLACE, UK. The commercial building project is an exist- ing building located in the west end of London, built in the 1960s and re-developed by Stanhope PLC under the project architect Bennetts Associates. It covers 13,032 m2 and consists of a 10-story tower, a four-story annex building, and a conference hall. This case study focuses on planned refurbishment work, rather than new-build construction. The life cycle considered in the model is from 2013 to 2063. The project followed a Design-Construct delivery method. Project characteristics ●● Stages considered in the analysis: • Product and material manufacture • On-site construction activities • In use, including maintenance • End of life. ●● A carbon footprint for the refurbishment work, together with expected operational Copyright Edmund Sumner emissions and analysis of how these compare to the emissions from the original building, is also provided. CASE STUDIES 21 Applying Existing Mechanisms to the Construction Value Chain T his section assesses how existing CPMs can be adapted to better capture emis- sions along the CVC. Section narratives focus on the aspects deemed most relevant to the specific CPM and the CVC, and therefore vary in content and discussion. Throughout, evidence from the case study modeling work is used to support the findings. emissions are likely to be associated with its Internal carbon price supply chain, applying an internal CPM can also help companies engage with and influence Internal CPMs are increasingly used in business these external parties. The Financial Stability and industry to manage carbon risk exposure Board’s Task Force on Climate-related Financial and plan future investment strategy. Between Disclosures is helping to advance this agenda, 2014 and 2017, the number of global companies providing leadership and guidance for those disclosing to CDP that they embed an internal concerned about their climate risks.46 carbon price into their business strategies grew from 150 to almost 600.43 In the CVC, companies However, because internal carbon pricing including Acciona, Cemex, LafargeHolcim, and is voluntary, it lacks the global coverage and Siemens are considering or already implement- associated impacts that a more compulsory ing internal CPMs.44 While early indications mechanism like a carbon tax has on reduc- suggest that some of these mechanisms have ing emissions. Nonetheless, as companies and been successful, the companies also report their supply chains become more familiar with ongoing challenges with internal CPMs, includ- internal carbon pricing, and reporting becomes ing risks to competitiveness, misalignment the norm, the potential for broadening the between policies and approaches across differ- scope of internal CPM increases. ent geographies and jurisdictions, and a lack of standardized and comparable frameworks to As shown in Figure 11, applying an internal aid scenario analysis.45 CPM to the product (materials) phase of the CVC would result in increased costs of 2 percent to Internal CPMs enable companies to quantify 6 percent for the N340 road and 3 percent to 15 climate risks, helping them to create metrics percent for The Village residential development that financial decision-makers can use to sup- (as a percentage of total raw materials costs and port their investment decisions and future measured at the point of construction).47 strategies. As a large portion of a company’s 22 GREENING CONSTRUCTION KEY MESSAGES ●● Global carbon prices need to be higher ●● Market-based instruments like ETS are (between $25 to $53/tCO2e) to trigger effective for large, industrial emitters in changes in behavior along the CVC. At a low higher- and middle-income economies, carbon price ($10/tCO2e), additional costs where high administrative costs can can be absorbed by the polluter or passed be accommodated and rules enforced. on in a way that is affordable to downstream Conversely, a carbon tax can be applied CVC actors and their customers. by any administration, making it viable in ●● CPMs must focus more on the early CVC high- as well as lower-income economies, life-cycle stages such as design and funding. notwithstanding the political challenges of At present, CPMs focus on materials implementing taxes. A well-designed hybrid manufacture and construction, and operation mechanism can combine the benefits of and use. To be more effective, CPMs must market mechanisms like ETS with other also target the stages and actors associated approaches like price floors and ceilings, with early stage project-making, including making them more flexible and effective in funders, developers, and designers, where capturing CVC emissions. decisions that influence carbon emissions ●● Integrated project delivery methods can are often locked in. effectively internalize life-cycle considerations ●● However, since the vast majority of such as low-carbon ambitions along the CVC. emissions are generated during the This is particularly powerful when the CVC operation and use phases of the asset (at retains responsibility for the asset’s operation least in the case studies), these stages must and use. This may help to incentivize project also be addressed. As decarbonization actors to look at the full life cycle in a planned, increases, we will see a comparative holistic, and balanced way. shift in emissions from these later stages ●● The design and application of CPMs in the to the earlier stages (such as materials CVC has the potential to create unintended manufacture). To ensure CPMs are effective incentives and unintended outcomes. For and sustainable over the long term, they basic-needs infrastructure, the impacts on need to incentivize actors from designers affordability and citizen welfare need to be downwards to improve efficiency at all carefully considered. A poorly designed stages of the CVC. CPM could increase housing costs and lead ●● Including constructed assets in CPMs could to higher life-cycle carbon emissions (for help incentivize project-making actors to example, encouraging single glazing over address project emissions or face pricing double glazing alternatives), with particular penalties. For example, by including new impacts in lower-income social housing building projects in an ETS, the scope of brackets. influence could extend from some hundred or so assets in a single country (for example, power stations) to hundreds of thousands, or even millions of assets, with clear advantages for carbon reduction. APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 23 FIGURE 10: ASPHALT AND CEMENT-BASED PRODUCTS WERE FOUND TO HAVE THE HIGHEST CARBON COST OF MATERIALS, AS A PERCENTAGE OF TOTAL MATERIAL COST FOR THE ROAD (LEFT) AND RESIDENTIAL DEVELOPMENT (RIGHT). 70% 35% 60% 30% 50% 25% 40% 20% 30% 15% 20% 10% 10% 5% 0% 0% 5 e r s r ick g alt 20 s ick te Ba all te et ilin C1 ph C as Br Br ga cr W el te T te Pl on As re alf e ick or re re St ed g dC Flo tH nc Br nc Ag at Co ce en Co t Flo en or m m inf Ce Ce Re 24 GREENING CONSTRUCTION FIGURE 11: CARBON COSTS AS A PERCENTAGE OF TOTAL RAW MATERIAL COSTS FOR THE VILLAGE RESIDENTIAL DEVELOPMENT. IF A CPM WERE APPLIED AT THE MATERIALS STAGE OF THE CVC, ADDITIONAL CARBON COSTS WOULD BE SUFFICIENT TO CATALYZE A SHIFT IN BEHAVIOR ON THIS DEVELOPMENT. $53/tCO2e $25/tCO2e $10/tCO2e 8% 3% 15% 85% 92% 97% Project Costs Carbon Cost These percentages are significant enough in operational emissions. However, as further scale to catalyze a shift in behavior by the discussed in the section on carbon tax, decar- actors affected, including: bonization of the electricity grid will reduce operational emissions, making the raw mate- ●● The client as they set out project objectives rial phase a comparatively more significant ●● The design team as they respond contributor to CVC emissions. ●● The contractor as they procure and build. However, this change in behavior would most FIGURE 12: IN THE CASE OF THE ROAD, likely occur if the client (that is, the organiza- EMISSIONS FOR THE USE STAGE VASTLY tion commissioning and potentially financing OUTWEIGH THOSE FROM THE OTHER CVC the project) applied the CPM. This is because STAGES. THIS COMPRISES EMISSIONS they would be able to pass the burden of the FROM VEHICLE USAGE AND A VERY SMALL carbon cost on and hence focus the project AMOUNT FROM LIGHTING THE ROAD. implementers on its reduction. By compari- son, a mechanism applied unilaterally by the 1.5% 0.3% project designer (and to some extent the con- tractor) might conflict with client objectives. More significantly, in both cases the emissions from use (for example, vehicle emissions and building inhabitants’ use of gas or electric- ity) vastly outweigh those from other CVC phases (as shown in Figure 12 for the road and Figure 13 for the residential development). 98.2% This means that if an internal CPM addressed use and operational emissions by applying a cost to energy or fuel use, it would incentivize developers to develop a project that had lower Total Use Raw Materials Construction APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 25 On the other hand, and as shown in the heat- FIGURE 13: EMISSIONS FOR THE USE map in Figure 14, although internal CPMs tend STAGE VASTLY OUTWEIGH THOSE to be applied to the product and use stages of FROM THE OTHER CVC STAGES IN THE the CVC, their voluntary nature means that CASE OF THE VILLAGE DEVELOPMENT. users may choose not to burden themselves THIS COMPRISES EMISSIONS FROM with additional costs. However, this overlooks ELECTRICITY AND GAS USAGE. the benefit of applying an internal CPM, which CONSTRUCTION DATA WAS NOT is to provide organizations (and those charged AVAILABLE FOR THIS CASE STUDY. with strategic and financial decision-making) with insights on operational and supply chain 14% carbon risk exposure, capacity building, and leadership and reputational benefit among peers, and thus encourage low-carbon decisions. Another constraint is that project designers do not usually apply internal CPMs, as this would make them liable for their design projects, along with facing a number of potential down- 86% side risks associated with such an approach, including: ●● Creating cost where none existed previously, thus potentially impacting competitiveness. Use Raw Materials ●● Making certain project types and services they have incompatible with the CPM Voluntary schemes are likely to be most objectives. effective for companies that own and operate ●● Bringing the design service provided into buildings and construction assets (preferably conflict with the objectives of the client or via integrated procurement routes), and that other project actors. have a long-term pipeline of similar projects. FIGURE 14: THE VOLUNTARY NATURE OF AN INTERNAL CPM MAY RESTRICT ITS EFFECTIVENESS IN LOWERING EMISSIONS ACROSS THE CVC. Stage at which CPM is commonly applied 1. Internal carbon pricing A0 Design A1-A3: Raw Material, Transport, Manufacture A4 Transport A5 Constr. – Install. B1 Use B2 Maintenance B3 Repair B4 Replacement B5 refurbish B6 Operational energy, water B7 User utilization of infrastructure C1 Deconstruction C2-C5 Transport Waste processing Disposal Design Product Construction Use End of life (A0) (A1-3) (A4-5) (B1-7) (C1-4) 26 GREENING CONSTRUCTION Internal CPMs may be more applicable in development. Further economic analysis higher-income markets, where the relative would be needed to determine the most appro- higher cost of producing carbon-intensive priate form of compensation and calculate products can be recouped from the market. the relevant functioning in a given industry The Village case study shows that where or company. Ideally, compensation would be project costs (for construction and raw materi- temporary, with clear phase-out plans as firms als) are lower, an internal carbon price set at adjust and competitiveness concerns subside. the medium range of $25/tCO2e would add an additional 10 percent to product costs, making An integrated delivery model (such as DBFOM) the project potentially unfeasible. might help raise awareness of carbon when making design choices that cascade down the Summary supply chain. However, designers and client organizations are unlikely to add significant An internal CPM could be used by high-carbon financial and administrative burdens to their material suppliers to incentivize product projects without being compensated or heav- substitution (for example, high fly-ash-content ily incentivized. Moreover, they may not be concrete) that offers a low-carbon alternative capable of applying internal CPMs to their and improved performance.48,49 operation and use phases—where there is the greatest potential to reduce carbon emissions However, the mechanism will not influence in the CVC—unless they operate under an behavior unless a reward metric is introduced integrated delivery model that allows them to to incentivize designers to incorporate ele- influence operation and use activities. ments that reduce carbon in their designs from the start of a project. Possible incen- Establishing and managing internal CPMs can tives include lump-sum rebates, exemptions, be costly and difficult due to administrative or funding for low-carbon research and and verification requirements, potentially APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 27 making it more challenging in lower-income internal CPMs, and interest is growing, with as economies. Similarly, where higher costs many as 1,400 companies reporting that they are incurred compared to competitors as a are planning to implement a scheme.50 Other result of internal mechanisms, middle- and challenges include a lack of clarity on how to higher-income economies may more easily measure emissions, uncertainty regarding how absorb or recoup such costs from the market. to apply an internal CPM consistently across Nonetheless, international organizations may investment and lending portfolios, uncertainty use their resources to support parties in their about how to measure what an appropriate supply chains (especially in lower-income geog- carbon price is, and the potential threat to com- raphies) to improve efficiencies while avoiding petitiveness from a lack of a level playing field. the possible negative impacts of introducing an internal carbon price. Collaboration is critical In the CVC, organizations’ unwillingness to establishing and operating an internal CPM to internalize costs and project emissions as it ensures all parties understand their role remains an obstacle to widespread uptake of and have the knowledge and resources to make CPMs. However, as environmental regulations the necessary changes. become stricter, the quality of information on carbon increases, and more organizations The global influence on internal CPMs in the report the benefits of using internal CPMs, CVC is still at the scaling phase. Although they companies in the CVC are likely to follow suit are secondary to the large-scale and more and work together to overcome the remaining compulsory mechanisms that exist, about barriers and increase the effectiveness of inter- 600 companies worldwide have implemented nal CPMs throughout supply chains. 28 GREENING CONSTRUCTION of developments to be assessed, thus allowing Emission reduction an asset owner or developer to trade cred- its across their whole scheme or portfolio of credit scheme schemes, as shown in Figure 16. In this way, as the heatmap indicates, ERC schemes have Operating facilities earn emissions reduction the potential to influence multiple CVC stages. credits (ERCs) when they shut down or volun- However, as there is no obligation to earn tarily reduce their emissions. This may be to ERCs, participants must first be incentivized to offset increases in emissions in one area (for join such a scheme.52 example, to compensate for new construc- tion or expansion of existing facilities). ERC A regulated market is needed to create and schemes are suited to industries where there is trade ERCs. In the meantime, existing programs a limit to the reduction of emissions that can be such as the Clean Development Mechanism achieved, such as high-carbon industries, or in can be used. In the CVC, ERC schemes might be countries attempting to gradually reduce emis- most appropriate at the sector level and in rela- sions in line with a date (such as South Africa, tion to the most carbon-intensive materials or which plans to peak emissions by 202551). ERCs large-scale asset classes (for example, building require robust verification processes. Although portfolios or infrastructure works programs). this results in an additional cost, in theory As such, the ERC approach has the potential to there is no obstacle to ERC schemes being accommodate varying asset types and levels applied in lower- to higher-income economies. of economic income. For example, an ERC scheme could be applied to the retrofitting of Analysis of the case studies indicates that existing buildings to improve energy efficiency, applying a CPM to materials could result in something that high-income markets with large additional carbon costs sufficient to incentiv- existing building stocks will benefit from. By ize a switch to lower-impact materials and contrast, in lower- to middle-income markets, processes (see Figure 15). In such a scenario, the focus could be on awarding credits to dif- an ERC scheme could be established to trade ferent industries (such as steel and concrete) or ERCs. This would allow the carbon profile of to discrete target development sectors (such as the entire residential development or portfolio water utilities or social housing programs). FIGURE 15: THE ROAD CASE STUDY SHOWS THAT EVEN UNDER THE LOW-PRICE SCENARIO, APPLYING A CPM TO THE RAW MATERIALS STAGE WOULD BE SUFFICIENT TO INCENTIVIZE BEHAVIOR CHANGE IN RELATION TO THE DEVELOPMENT. ��� ��� ��� 6.4% 3.6% 2% 93.6% 96.4% 98% Project Costs Carbon Cost APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 29 FIGURE 16: AN ERC SCHEME OFTEN REQUIRES THE SUSTAINABILITY OF THE WHOLE PROJECT TO BE EVALUATED; THEREFORE, A CPM IS NOT PLACED IN ONE PARTICULAR STAGE BUT ACROSS ITS ENTIRETY. Stage at which CPM is commonly applied 2. ERC scheme A0 Design A1-A3: Raw Material, Transport, Manufacture A4 Transport A5 Constr. – Install. B1 Use B2 Maintenance B3 Repair B4 Replacement B5 refurbish B6 Operational energy, water B7 User utilization of infrastructure C1 Deconstruction C2-C5 Transport Waste processing Disposal Design Product Construction Use End of life (A0) (A1-3) (A4-5) (B1-7) (C1-4) In the CVC, a project like a commercial building zones, that are simpler to implement and more might choose to participate in an ERC scheme, effective at changing behaviors along the value allowing both the materials and construc- chain would be needed. tion stages to be targeted. The lack of a fixed number of credits under ERC means that new Summary credits can be created for each additional project. This approach would not penalize In the CVC, an ERC scheme could allow carbon- retrofitting of commercial developments. For intensive industries and large assets to manage example, if a blanket carbon price was applied emissions cost-effectively. An ERC scheme to all building developments without taking could also be applied to influence the emis- account of improved efficiencies from retrofits, sions of larger-scale users such as commercial the market might be discouraged from making buildings. It could be adapted and tailored to retrofit improvements. a project and geography, allowing for greater flexibility and the inclusion of a wider range Using an ERC scheme to influence user emis- of assets, and to avoid discouraging industry sions in the CVC does, however, present several development. This could be applied to projects implementation difficulties related to usage and sectors in different economies. However, type. In the case of a road, for example, an while building projects could participate in an operator would not impose an emissions target ERC scheme, the administrative burden of hav- on users since neither party can reduce emis- ing to assess every project and award credits sions in this area. In such cases, alternative accordingly would be notable. approaches, such as toll roads or low-emissions 30 GREENING CONSTRUCTION FIGURE 17: ACROSS ALL THREE CARBON PRICE SCENARIOS (HIGH, MEDIUM, LOW, LEFT TO RIGHT), CARBON COSTS CONTRIBUTE BETWEEN 2.2 PERCENT AND 10.6 PERCENT OF TOTAL PROJECT COSTS FOR THE USE STAGE OF THE AKH RAILWAY. AT ANY PRICE LEVEL, A CPM AT THIS STAGE COULD INFLUENCE BEHAVIOR. ��� ��� ��� 11% 5% 2% 89% 95% 98% Project Costs Carbon Cost relevant regulatory structures are or could be Emissions trading established, and high administrative costs can be absorbed by the market. Extensive plan- systems ning, ongoing verification, and a binding and enforced system of penalties are essential to ETS are perhaps the best-known CPM. maintain a viable market in which participants Emissions trading is a market-based instru- can have confidence. ment in which an emissions limit is set and tradable emission allowances up to that limit The case studies demonstrate that an ETS are allocated or auctioned. By defining an emis- would be effective at the materials stage of the sions cap, emissions trading provides a degree CVC, particularly for high-carbon products, or of certainty not present in other approaches. in some cases on fuel associated with opera- This also increases the potential for alignment tions and use (Figure 17). An ETS is relevant to with NDCs. both the infrastructure and building sectors. Designing and managing an ETS requires In the AKH railway case study in Ethiopia, iterative administrative effort to, for exam- where use stage emissions are high, the pro- ple, decide the scope, set the cap, distribute ducer of the fuel used in the operation and use allowances, ensure compliance, and engage stages could participate in an ETS. However, stakeholders. While an ETS may be established the scale of the Ethiopian market may not be anywhere with sufficient parties to trade allow- sufficient to support such a scheme. The rail- ances, in practice, it will not be truly credible way company would need to avoid rail tickets or effective unless rigorous planning is carried increasing to unaffordable levels for consum- out and regulated management processes (such ers due to the additional costs associated with as reporting and compliance) are in place. This the ETS. may make ETS better suited to markets where APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 31 FIGURE 18: PROJECT AND CARBON COSTS WERE FOUND TO BE SIGNIFICANTLY HIGHER FOR FREIGHT TRAINS THAN FOR PASSENGER TRAINS IN THE AKH CASE STUDY (FREIGHT TRANSFER COSTS RELATED TO DEPOTS USED FOR LOADING AND UNLOADING). $160 M $140 M $120 M $100 M $80 M $60 M $40 M $20 M $0 Power Passenger Power Freight Freight Transfer Trains Trains Project Costs Carbon Cost A significant proportion of the cost incurred in to power freight trains could be a worthwhile the use stage of the AKH case study was associ- target for a CPM. Power freight train activities ated with procuring electricity for powering contribute about 91 percent of all carbon costs freight trains. This was driven by high daily incurred during the use stage, further support- power demand of over 1GWh/day. These costs ing the case for an ETS in this area. relate to a lifespan to 2050, and have been dis- counted at 10 percent. The results demonstrate Figure 19 shows that emissions trading is that, at $8.4 million, the total electricity used commonly applied to the product (such as 32 GREENING CONSTRUCTION FIGURE 19: EMISSIONS TRADING HAS THE POTENTIAL TO STRONGLY INFLUENCE BEHAVIOR AT THE MATERIALS AND OPERATION/USE STAGES. Stage at which CPM is commonly applied 3. Emissions trading systems (ETS) A0 Design A1-A3: Raw Material, Transport, Manufacture A4 Transport A5 Constr. – Install. B1 Use B2 Maintenance B3 Repair B4 Replacement B5 refurbish B6 Operational energy, water B7 User utilization of infrastructure C1 Deconstruction C2-C5 Transport Waste processing Disposal Design Product Construction Use End of life (A0) (A1-3) (A4-5) (B1-7) (C1-4) materials production) and use (such as power Applying an ETS to material suppliers would generation) stages of the CVC. However, there need to be carefully considered against any is also potential to apply it at the buildings and downside risks such as carbon leakage and asset level. This may encourage developers to loss of competitiveness. The most carbon- consider retrofitting existing buildings instead intensive sectors (such as steel, cement, and of building new ones. Retrofitting may be aluminum) could be significantly affected by especially relevant in economies with consid- carbon costs (as shown in Figure 21), poten- erable existing buildings. For example, in the tially driving them to shift their operations commercial building case study, operational to jurisdictions where carbon pricing is not emissions made up 89 percent of whole-life applied. As more jurisdictions apply ETS and emissions and retrofit provided a low-carbon taxes, this issue will be minimized. In the solution as compared to a new building. Figure meantime, a form of border tax adjustment 20 presents the case for retrofitting buildings, could be used, although it would need to be which has a carbon payback period of about assessed against World Trade Organization five years, compared with 14 years for a re- regulations to ensure compatibility.53 build project. In economies expecting significant growth Summary with corresponding new construction demand, a new building or asset could be included in In the CVC, an ETS may be applied at the an ETS built environment scheme. Assuming product stage and, in some cases, on fuel used an integrated delivery model is applied, this in operations and use. There is potential for would accelerate the cascading of require- construction projects to participate in an ETS, ments to reduce carbon throughout the project which could increase emissions-related prices life-cycle stages and associated actors, encour- for all parties involved in a project and may aging everyone from designers to contractors encourage designers and client organizations to choose low-carbon materials and employ to build in carbon reduction early in the devel- efficient practices. opment process to avoid additional costs. This APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 33 FIGURE 20: THE COMMERCIAL BUILDING CASE STUDY ILLUSTRATES THE POTENTIAL OF RETROFITTING OVER NEW BUILD WITH CARBON SAVINGS UP TO 4,000 TONS OF CO2e OVER THE ASSET’S LIFE. 8,000 Carbon payback point of refurbushment 6,000 Carbon payback point of re-build 4,000 2,000 Embodied Carbon tCO2e 0 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058 2061 -2,000 Total carbon saving of -4,000 refurbishment -6,000 -8,000 Time (years) FIGURE 21: APPLIED TO THE CONSTRUCTION STAGE OF THE AKH RAILWAY, CARBON COSTS WOULD CONTRIBUTE BETWEEN 3.7 PERCENT AND 17.1 PERCENT OF TOTAL PROJECT COSTS. AT ANY OF THESE PRICE POINTS, ACTORS WOULD BE INCENTIVIZED TO ALTER THEIR BEHAVIOR, SUGGESTING AN ETS AT THIS STAGE COULD BE EFFECTIVE IN LOWERING EMISSIONS. $53/tCO2e $25/tCO2e $10/tCO2e ��� ��� ��� 17.1% 8.9% 3.7% 82.9% 91.1% 96.3% Project Costs Carbon Cost 34 GREENING CONSTRUCTION will require oversight by an actor responsible is complex. Ensuring that the structure has a for trading credits and recognition of energy meaningful impact on emissions (now and in efficiency measures. As buildings have high the future), while avoiding negative impacts operational emissions, under certain circum- on competitiveness and welfare, requires stances this may encourage developers to detailed assessment, political negotiation, and consider retrofitting over new-build construc- close engagement with sectors likely to be tion, further reducing emissions. In emerging affected. Some of these issues are addressed in markets emissions trading has the potential to more detail in the section on applying CPMs to significantly impact future emissions, locking the CVC. in low-carbon operation and catalyzing and mainstreaming low-carbon materials manufac- ture and construction methods. Hybrid scheme In some cases, influencing use emissions may Hybrid schemes combine elements of quantity- be challenging as these are often generated at based emissions trading instruments and a smaller scale (for example, by individual cars price-based tax instruments. A hybrid model or home inhabitants) that may be difficult to applied to the CVC has the potential to pro- capture within a trading scheme. The impact of vide flexibility to accommodate varying asset price increases on certain users (such as low- classes and scales, allowing it to be applied in income, high energy users) and the potential lower-, middle-, and higher-income markets. for unintended consequences (for example, rail A hybrid solution may be applied at various ticket price rises resulting in a shift to individ- points along the CVC and thus take advantage ual car use) must be considered. of the positive impact from the characteristics of more than one CPM. For example, in the UK Further research is needed to understand the the EU-ETS is applied in combination with a possible impacts of including buildings and carbon price floor. This flexibility is illustrated infrastructure in an ETS. Calculating equitable in the multiple application points shown in price caps, allocations, and compensation Figure 22. for high-carbon industries and households APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 35 FIGURE 22: HYBRID SCHEMES HAVE THE POTENTIAL TO INFLUENCE ACTORS AT MULTIPLE POINTS ALONG THE CVC. Stage at which CPM is commonly applied 4. Hybrid scheme A0 Design A1-A3: Raw Material, Transport, Manufacture A4 Transport A5 Constr. – Install. B1 Use B2 Maintenance B3 Repair B4 Replacement B5 refurbish B6 Operational energy, water B7 User utilization of infrastructure C1 Deconstruction C2-C5 Transport Waste processing Disposal Design Product Construction Use End of life (A0) (A1-3) (A4-5) (B1-7) (C1-4) To be viable, effective, and equitable, the To counteract potential negative impacts on carbon price must be set at a level that reflects user welfare and generate socioeconomic specific market characteristics. In some lower- improvements, a green dividend may also be and middle-income countries, a low initial applied, allowing the revenue generated by the carbon price and threshold may be appropri- CPM to be disbursed back to consumers in the ate to establish a market that can be enhanced form of vouchers or credits for green products over time. Hybrid solutions are flexible to (for example, domestic energy efficiency mea- this approach. A phased approach to CPM sures, education, or health care). operation would allow industry to adopt new technologies and encourage behavioral change A hybrid solution may also catalyze fuel switch- gradually, without creating sudden burdens on ing, as in the case of the UK carbon price floor, certain groups. which successfully drove the shift from coal to gas. Hybrid options often include exemptions Analysis of The Village case study in South for certain high-carbon industries, but these Africa found that even under the low carbon may be phased out over time. price scenario ($10/tCO2e), an additional ​ 7 percent​(see Table 2) would be added to Summary annual consumer bills. This could prove unaf- fordable for many households. To limit the A hybrid scheme has the potential to com- increase, a threshold could be set to allow for bine the benefits of strong established market tax-free carbon emissions below a certain level, mechanisms like an ETS with other approaches gradually increasing over time. If a mecha- like price floors and ceilings, which more nism was applied to the materials stage, under closely reflect external market conditions. This the low pricing scenario, 3 percent would be approach also captures emissions that under an added to project costs. This is still a significant ETS on its own would remain unpriced (such increase with the potential to shift behavior by, as smaller-scale user emissions from build- for example, incentivizing lower carbon mate- ings or cars). However, by combining CPMs, rial choices (Figure 11). hybrids also create additional complexity and the alignment between these systems needs to 36 GREENING CONSTRUCTION be assessed. A discussion on double counting Thresholds may be used to help prepare mar- when combining two CPMs is detailed in the ket participants for stricter regulations and section on applying existing CPMs to the CVC. ease the immediate burden on lower-income projects and economies. A hybrid with a permit The case studies illustrate that applying a price and allowance reserve could be applied threshold would allow participants (particu- across multiple CVC stages and actors, negat- larly those only starting to implement carbon ing the need for a single responsible actor. pricing) to alter their practices gradually while Integrated project delivery methods such as limiting negative impacts. A hybrid mechanism DBFOM; Build-Operate-Transfer; and Design- could be applied to multiple actors across the Build-Operate-Transfer could all work well CVC, allowing for application across a broad with hybrid schemes. range of project delivery methods, asset classes, scales, and markets. Hybrid schemes can also be Given the wide variety of project types, sizes, adjusted to apply in different markets, although and project delivery methods in construction, high administrative burdens may present chal- a hybrid CPM may be the most flexible and lenges in some lower-income economies. effective way to capture emissions from across the CVC. A hybrid CPM can be applied at various points along the CVC, as shown in Figure 22. APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 37 TABLE 2: COMPARISON OF THE LOW CARBON PRICE MODELED FOR THE VILLAGE CASE STUDY ($10/TCO2E) WITH SOUTH AFRICA’S PROPOSED THRESHOLD RATE OF $9, WHICH, AFTER THE THRESHOLD IS APPLIED, WILL RESULT IN AN ACTUAL RATE OF BETWEEN $0.45 AND $3.58 PER TON OF CO2E. Low carbon price South African carbon tax price South African carbon tax price Stage ($10/tCO2e) ($3.58) ($0.45) Product (materials) 3% 1.2% 0.14% Use 7% 3% 0.3% South Africa is introducing a carbon tax, which Carbon tax is set to take effect in January 2020. The tax rate is set at R120 per ton of CO2e (about $9). A carbon tax is a price-based instrument that To give businesses time to transition, a basic sets a fixed price for carbon emissions. In percentage-based threshold of 60 percent will the CVC, a carbon tax may be most appropri- apply, below which tax is not payable. ate where there is a strict emissions target in place or where the potential for creating an A phased carbon tax on fuel might also be emissions market is limited. This could be a viable and would affect all CVC stages. It would lower- or middle-income economy or a smaller- also avoid discouraging the development of scale asset or project. A tax may also be better transport projects and give developers time to suited to certain sectors such as fuel, where prepare for the future higher tax rate. the potential for decarbonization increases effectiveness. By comparison, there may be The case studies illustrate that applying a tax greater challenges associated with decarbon- to the materials and construction stages could ization for a sector like cement, which may have immediate impacts for constrained indus- require further development and expansion of tries. For example, to avoid increased materials technologies like carbon capture and storage or costs in the short term, a contractor might seek clinker alternatives. A tax may also be set low to substitute carbon-intensive materials. In and increased over time to ease the initial bur- the longer term, this may be compounded as den of compliance and limit impacts on certain the power sector decarbonizes and building sectors and groups. systems electrify. Through this, a larger share 38 GREENING CONSTRUCTION FIGURE 23: UNDER A DECARBONIZED SCENARIO, EMISSIONS FROM RAW MATERIALS WILL BE COMPARATIVELY HIGHER THAN FOR USE. 800 700 600 500 tCO2e 400 300 200 100 0 Raw Materials Use-Gas Use-Electricity FIGURE 24: EMISSIONS FROM FREIGHT TRAINS, ACROSS THE LIFETIME OF THE NEW 400 KM AKH RAILWAY, ARE CONSIDERABLY HIGHER THAN FOR PASSENGER TRAINS. 45,000 40,000 35,000 30,000 tCO2e 25,000 20,000 15,000 10,000 5,000 0 Construction Power Passenger Trains Power Freight Trains Freight Transfer Total Profile APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 39 of emissions will come from the materials and to reduce emissions, but the extra costs of those construction phases (since there will now be measures would be absorbed by the rail com- little to no emissions from operations and use), pany rather than passed on to consumers. creating a stronger incentive to target these emission sources (Figure 23). Freight trains contribute a significant portion of emissions compared to passenger trains. Applying a tax to the use stage would be viable It may be more equitable to target a tax on under some conditions. For example, a carbon freight rather than passenger trains as a tax on cost of 5 percent under the medium scenario these assets could penalise train passengers, ($25/tCO2e) could provide a sufficient incen- who have no capacity to influence fuel con- tive to shift user behavior in the AKH railway sumption and for whom a price rise may cause example (Figure 17). a modal shift to less expensive but higher-car- bon alternatives. Since many use emissions are related to energy consumption, these are likely to reduce as Applying a set tax rate (equivalent to a $/tCO2e) electrification and decarbonization of the at the point of consumption could also help to grid increases. A tax targeting operation and reduce the likelihood of carbon leakage. For use may therefore hold significant opportuni- example, a charge on purchases of cement, ties in the longer term. However, since rail regardless of supply origin, would work in a is generally a lower-carbon mode of trans- similar way to existing excise duties. The tax port than road, it is important to ensure that could be set in line with science-based targets54 price increases at the use stage do not result or legally binding legislation, where it exists in impacts such as rail ticket price increases (for example, carbon budgets in the UK Climate that drive passengers to shift to higher-carbon Change Act).55 However, a consumption-level modes of transport such as cars. Figure 24 and tax may be politically difficult to introduce Figure 25 illustrate this point. To prevent this unless revenues can be reinvested in schemes outcome, a carbon price may be used in com- that are popular with the public or deemed bination with an affordability regulation. This carbon neutral.56 Introducing a green dividend would provide an incentive to the rail company could address this concern. The costs generated FIGURE 25: EMISSIONS FROM PASSENGER TRAINS, ACROSS THE LIFETIME OF THE NEW 400 KM AKH RAILWAY, ARE LOWER THAN FOR FREIGHT TRAINS. 8,000 7,000 6,000 5,000 tCO2e 4,000 3,000 2,000 1,000 0 Construction Power Passenger Trains Total Profile 40 GREENING CONSTRUCTION FIGURE 26: HEATMAP ILLUSTRATING THE IMPACT OF CARBON TAX ON THE CVC. Stage at which CPM is commonly applied 5. Carbon tax A0 Design A1-A3: Raw Material, Transport, Manufacture A4 Transport A5 Constr. – Install. B1 Use B2 Maintenance B3 Repair B4 Replacement B5 refurbish B6 Operational energy, water B7 User utilization of infrastructure C1 Deconstruction C2-C5 Transport Waste processing Disposal Design Product Construction Use End of life (A0) (A1-3) (A4-5) (B1-7) (C1-4) through the tax would be recuperated through if the sum is insufficient to cover the full cost of spending on green goods and services. For a retrofit, the dividend may go unused. example, a user pays $X on their energy bill but receives 90 percent of this tax back to The management of certain assets restricts the spend it on green services or products such application of a carbon tax. Applying a tax to the as installing insulation. Alternatively, a lump owner/developer of public infrastructure assets, sum payment could be given to households. In for example, would be pointless as they are com- some circumstances it may be preferable not to monly owned and operated by a public body. attach a rebate to green retrofits. For example, APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 41 Summary may, however, limit the mechanism’s ability to reduce carbon emissions to levels required by Because a carbon tax is simpler and cheaper national and international climate targets. As to implement and enforce than other types discussed above, carbon taxes can also be used of CPM, it may be better suited to lower- and in combination with other instruments to help middle-income economies. A blanket carbon share the burden and introduce stricter CPMs price could be applied across multiple CVC in the future. stages, as shown in Figure 24. However, a tax applied on evaluation of the carbon emission credentials of a whole project/asset could Command and control influence a greater range of actors than a tax applied at individual stages, which would not mechanism influence actors upstream. Command and control regulations are com- A carbon tax on the CVC could be applied pulsory policies that stipulate actions and across multiple types of use emissions, shift- penalties for non-compliance. A range of ing the common application of taxes from carbon pricing regulations could be applied, production- to consumption-based emis- some flexible (such as a carbon tax or ETS) and sions. However, while this may be efficient in others more prescriptive (such as emission achieving a set emissions goal, it may also be limits, performance standards, or a ban on politically difficult to implement and inequi- using certain materials or fuels). In this study, table, particularly at the use stage since this command and control regulations refer to the could disproportionately disadvantage cer- more specific regulations. tain groups such as people on lower incomes. Green dividends could be issued to consumers Although not strictly considered to be a CPM, to reduce this negative impact. command and control mechanisms in the CVC could help regulate new markets and A carbon tax has the benefit that it can be set minimize inequitable burden shifting from low initially (as in South Africa). This famil- misaligned incentives. For example, if a house iarizes business and individuals with the tax is designed with poor insulation, the inhabit- before it increases over time. The approach ant (who may not own it) will face higher 42 GREENING CONSTRUCTION FIGURE 27: IN THEORY, A COMMAND AND CONTROL MECHANISM HAS CONSIDERABLE POTENTIAL TO INFLUENCE ACTOR BEHAVIOR, RESULTING IN EMISSIONS SAVINGS ACROSS THE CVC. IN PRACTICE, THERE ARE OBSTACLES THAT MAY MAKE THIS APPROACH LESS VIABLE. Stage at which CPM is commonly applied 6. Command and control A0 Design A1-A3: Raw Material, Transport, Manufacture A4 Transport A5 Constr. – Install. B1 Use B2 Maintenance B3 Repair B4 Replacement B5 refurbish B6 Operational energy, water B7 User utilization of infrastructure C1 Deconstruction C2-C5 Transport Waste processing Disposal Design Product Construction Use End of life (A0) (A1-3) (A4-5) (B1-7) (C1-4) heating bills and emissions. This was observed carbon price floor, a standard was imposed in The Village case study, where the applica- that ruled out new coal generation to support tion of a $25/tCO2e CPM added $39 a month to the floor price. energy bills for an average consumer. For a higher consumption (and often poorly insu- Tradable performance standards may also lated) household, this would be unaffordable. help ease some of the welfare and political Regulation could help reduce this impact. acceptability concerns associated with other It could also be used as a non-price-based regulations. These standards require an aver- instrument to raise awareness around efficient age performance level across a sector. High products and services such as insulation. performers can generate permits to sell to lower performers, encouraging innovation The heatmap in Figure 27 indicates that (such as a carbon tax or ETS). Yet unlike a command and control mechanisms could carbon tax or ETS, the system only prices the significantly influence emissions reductions emissions above the average required perfor- because they are compulsory. However, this mance level. approach may not be the most cost-effective as it does not take into account that differ- Command and control mechanisms can ent users have different abatement costs. be applied across a range of economies, The approach also does not drive innovation although inconsistent standards could result as it incentivizes the fulfilment of minimum in unintended consequences. For example, if requirements instead of best practice. In the high-income countries restrict certain manu- CVC, performance standards and limits may facturing methods that result in high emissions, provide an effective way of guaranteeing a cer- business could move their polluting practices tain result, such as a fixed limit carbon saving to lower-income nations.57 Governments must for a given technology. Performance standards ensure that command and control mechanisms can also be used in combination with other align with international practices. solutions, for example, in the case of the UK APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 43 To apply command and control regulations price-based instruments by creating a mini- to the CVC, target levels for whole-life carbon mum requirement and ensuring actors are on projects could be imposed at the planning aligned. Command and control mechanisms stage. This would require designers to report can also be phased in gradually, allowing actors whole-life carbon emissions and surpass targets in the CVC to prepare for more stringent regu- established using benchmark data from preced- lations. However, as regulatory instruments ing reporting years. Such targets and regulations they do not encourage innovation beyond the could be delivered through strategic local level required by the regulation or standard.59 planning like the London Plan (which requires schemes to assess whole-life carbon and propose Command and control mechanisms can be reductions) and integrated with carbon offset implemented in any market, though it may fund payments to local districts/boroughs.58 This take time for a regulation to be designed, veri- approach would effectively place a locally deter- fied, and approved. Overall, they are likely to mined price on whole-life carbon and provide be simpler and cheaper to introduce than a an appropriate incentive to reduce emissions in market mechanism. A standard can be applied a command and control form. at any stage of the CVC, including operations or use, where a large proportion of emissions Summary are produced. Command and control regulations are effec- While command and control options are by tive in delivering a stated objective such as a themselves fairly rigid and targeted, in combi- strict emissions limit or energy performance nation with other CPMs or policy (for example, standard, but lack the flexibility and market ETS with performance standards), they pro- benefits of emissions trading and hybrid solu- vide a more flexible means to capture both tions. Performance standards can support upstream and downstream emissions. 44 GREENING CONSTRUCTION their activities tend to fall under the emission Discussion thresholds of operating CPMs. The case study analysis explored the potential However, this also represents a failure in the and impact of applying common CPMs to the way the mechanisms are designed and func- CVC, while also identifying the constraints that tion. In practice, many of these actors retain emerge when they are applied to a diverse and significant power and influence over a project’s complex sector. This section discusses these whole-life carbon emissions by defining the issues and what they mean for more effectively material supply chain, operational, and in-use integrating the CVC in CPMs. carbon emissions outputs. To reduce total emissions associated with an CARBON PRICE asset’s entire life cycle, an effective CPM needs to influence the early stages of project-making The case studies show that, at the low price (for example, funding, brief development, and threshold ($10/tCO2e) in high-income coun- design), as this is where project carbon ambi- try scenarios, the carbon-related costs are tions are set and decisions made that affect the small enough to be absorbed by the polluter rest of the CVC. This could be achieved by set- or passed on in a way that is affordable to ting a higher carbon price, as discussed above, downstream CVC actors and their custom- or placing the constructed asset in the CPM. ers. However, the medium ($25/tCO2e) and particularly the high carbon price thresh- old ($53/ tCO2e) have the potential to trigger PUTTING THE CONSTRUCTED ASSET IN changes in the behavior of both polluters and A CPM downstream actors in the CVC to reduce costs. Traditionally, CPMs aimed to capture emissions The findings suggest that simply raising the from large-scale, high-carbon sectors such carbon price within existing CPMs may bring as power stations and industrial plants. As about the refocus needed to change behaviors discussed above, these approaches fail to cover in the CVC to deliver low-carbon buildings and the early stage processes where critical deci- infrastructure. Whether or not this is possible sions are made. Including constructed assets in political and practical terms depends on the within CPMs would help capture CVC emissions context. But if carbon pricing is to meaning- in a more complete way. Depending on the fully contribute towards meeting the Paris approach, the CPM might extend in scope to Agreement goals, then prices across all sectors include everything from the asset’s constructed will need to rapidly increase.60 embodied carbon emissions, to those arising from its operation and use over its service life, as well as emissions from end of life and final TARGETING BEHAVIORS OF PROJECT waste treatment. FUNDERS, DEVELOPERS, AND DESIGNERS Addressing emissions across this scope would In the CVC, CPMs commonly target the con- be exceptional given how most construction struction materials manufacturing stage and projects consider carbon emissions. However, the operation and use stage of assets. By target- standardized methodologies exist for determin- ing these stages, CPMs miss the CVC actors ing construction asset life-cycle emissions, and associated with the early stages of projects, if combined with a CPM at the point of project including funders, developers, and designers. realization, they could incentivize project-mak- This is justified on the basis that these actors ing actors to address project emissions or face have marginal direct carbon emissions, and pricing penalties. APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 45 Given their size and function, buildings and DEALING WITH OPERATIONAL AND USER many forms of civil infrastructure generally CARBON emit much less carbon than industrial facili- ties or power stations. For this reason, the CPM Evidence from analyzing the four case studies would need to significantly lower the emission shows that across the asset classes considered entry level threshold. Furthermore, in order in the study (infrastructure – road and rail, and to easily compare buildings, the measurement buildings – commercial and residential), the impact would be per unit of service provided, vast majority of emissions are generated dur- for example per square kilometer of floor ing the operation and use phases of the asset’s space per year. By implication, this would also life, as shown in Figure 28 and Figure 30.61 mean that schemes would open up to a much However, existing CPMs tend to focus on the wider target base. For example, a country product and construction stages (Figure 29), might have many hundreds of power stations reflecting the “polluter pays” principle. captured by a CPM. However, a scheme that placed new buildings under its jurisdiction More emissions need to be captured from would likely extend to hundreds of thousands, every stage of the CVC. While tackling opera- and even millions of assets (particularly if tional emissions is crucial in the short and operational/user emissions from existing build- medium term, as the world electrifies and ings were included). decarbonizes, the significance of operational emissions (largely related to energy and With further design, the CPM could also be fuel) will decrease relative to materials (that effectively applied to existing built assets, thus is, embodied energy).62 To be effective and helping to capture emissions from their opera- sustainable over the long term, CPMs need to tional stage. This would broaden the impact incentivize actors from designers downwards of the CPM and encourage a shift to emissions to improve efficiency at all stages of the CVC. performance across the building stock. FIGURE 28: USE STAGE EMISSIONS CONSTITUTE A SIGNIFICANT PROPORTION OF TOTAL PROJECT EMISSIONS ACROSS THE FOUR CASE STUDIES. % % % % 100% 90% 80% 70% Use Emissions 60% 50% 40% 30% 20% 10% 0% N- Road AKH Railway The Village Commercial Building 46 GREENING CONSTRUCTION FIGURE 29: LIFE-CYCLE EMISSIONS PROFILE FOR A COMMERCIAL BUILDING, SHOWING THAT WHILE EMISSIONS AT STAGE A (MATERIAL MANUFACTURE) ARE HIGH, EMISSIONS FROM STAGES B (CONSTRUCTION) AND C (OPERATION AND USE) ARE ALSO SIGNIFICANT AND MUST BE ADDRESSED. Construction and Demolition Additional Materials Unegulated Electricity Mechanical Services Regulated Gas Finishes Regulated Electricity Internal Partitions Envelope Superstruct tCO₂e A B C CVC IN MARKET-BASED CPMS particularly powerful when the CVC retains responsibility for an asset’s operation and use. Market-based instruments can work well for large, industrial emitters, who can accommo- As such, where low carbon is a priority, an date the high levels of administrative oversight integrated delivery model spanning multiple needed. Consequently, these mechanisms tend life-cycle stages will incentivize project actors to deliver better carbon reductions in higher- to look at the full life cycle in a planned, holis- and middle-income economies, which can tic, and balanced way. There may be trade-offs, organize these systems and shoulder associated but the CVC will be incentivized to optimize the costs. A tax can be applied more broadly, mak- project for a low-carbon outcome because it is ing it viable in high- as well as lower-income accountable for emissions at all life-cycle stages. economies, though carbon taxes can be politi- cally difficult to implement.63 It is also important to note that the project delivery model may vary from project to proj- ect. A jurisdiction using a CPM cannot dictate DELIVERY MODEL which model the CVC will use, and any CPM will need to have the flexibility to work across Construction project delivery models are different delivery models. On this basis, no diverse, ranging from highly integrated to seg- particular challenges associated with specific mented; integrated models tend to internalize types of CPMs are identified and the full range life-cycle considerations (such as low-carbon of segmented to integrated delivery models are ambitions) of the CVC more effectively. This is widely applied in markets using the six gener- alized types of CPM. APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 47 FIGURE 30: HEATMAP ILLUSTRATING IMPACT OF CPMS ON THE CVC. THIS VISUALIZES THE SCOPE AND IMPACT OF CPMS WHEN APPLIED TO THE CVC AND SHOWS THE COMPARATIVE IMPACT OF THE SIX CPMS ON THE CVC. Stage at which CPM is commonly applied 1. Internal carbon pricing 2. ERC scheme* 3. Emissions trading systems 4. Hybrid scheme 5. Carbon tax 6. Command and control A0 Design A1-A3: Raw Material, Transport, Manufacture A4 Transport A5 Constr. – Install. B1 Use B2 Maintenance B3 Repair B4 Replacement B5 refurbish B6 Operational energy, water B7 User utilization of infrastructure C1 Deconstruction C2-C5 Transport Waste processing Disposal Design Product Construction Use End of life (A0) (A1-3) (A4-5) (B1-7) (C1-4) *An ERC scheme often requires the sustainability of the whole project to be evaluated and is therefore not placed in one particular stage. MANAGING DOWNSIDE RISKS considered. For example, as the N340 road case study illustrates, it may be inequitable to apply As with any new mechanism, there is poten- a CPM to users (in this case, drivers on roads) tial for unintended outcomes. In the CVC, for because they have no capacity to influence the example, applying a CPM could drive materials asset’s design and may struggle to shift to lower production to regions without such regulations. carbon modes of transport due to, for example, It could also increase relative costs of low- a lack of alternative transport options. emission forms of transport against baseline costs and discourage the selection of this mode This indicates that the CPM needs to be clearly of transport over a higher-emitting one. tailored to building and infrastructure asset classes. For example, a poorly designed CPM More critically, there is a direct link to social could increase housing costs and lead to higher benefit (such as the development of hospitals, life-cycle carbon emissions (by, for example, schools, homes, or roads). For basic-needs incentivizing single glazing over double glazing infrastructure, the impact of a CPM on afford- alternatives), with particular impacts in lower- ability and citizen welfare needs to be carefully income households. 48 GREENING CONSTRUCTION A tailored CPM design is crucial where poten- limit impacts on competitiveness and welfare tially conflicting standards already exist that across the built environment sector. A hybrid any new mechanism would need to align scheme could combine a traditional solution like with. Prescriptive design standards may limit an ETS with a tax or threshold to maximize the the options that designers have to reduce capture of emissions from all CVC stages while life-cycle emissions; in such cases, shifting to accommodating certain sectors and avoiding performance-based standards may allow the negative impacts on certain groups. CPM to target the full range of emission reduc- tion options. Solutions that increase the carbon price over time may be less effective in the short term but more acceptable to high-carbon industries and SUMMARY lower-income economies, and therefore more effective in the longer term. In some lower- The evaluation of the case studies demon- and middle-income countries, this approach strates that no single carbon pricing approach will provide additional time to alter processes could be applied to all CVC asset classes, scales, and behavior. It will also deliver countries’ and markets. However, regulated CPMs applied commitments to the Paris Agreement, under at scale will have greater impact than volun- the “common but differentiated responsibili- tary ones because they are enforceable. Despite ties” principle that encourages higher-income this, internal carbon pricing has an impor- nations to take the lead in tackling climate tant and growing role in helping companies change and allows some less developed econo- analyze their future climate risks and invest- mies to curb their emissions more slowly.64 A ment strategies, show leadership, and catalyze well-designed hybrid mechanism is likely to low-carbon behavior across their business and capture and price the carbon emissions across supply chain. the CVC in a more effective and fairer way than a tax or ETS alone.65 Given the diversity of the CVC and its assets, a hybrid scheme is likely to provide flexibility and APPLYING EXISTING MECHANISMS TO THE CONSTRUCTION VALUE CHAIN 49 The research suggests that in their existing could result in direct knock-on impacts on form, CPMs only really influence emissions material production emissions. However, the associated with material production activities technological alternatives for creating lower- and, to an extent, fuel and energy generation, carbon production processes must be in place, with little focus on the consumers of carbon, or there must be material substitute options that is, those investing in and developing proj- available. If not, there is a risk that changing ects, those who are activating emitters in the design may significantly increase project costs materials supply chain through design choices, or affect asset function and performance. In and those influencing operational and user practice, this means effective CPMs targeted emissions, again through design choices. at the CVC need to be implemented alongside clear industry targets that drive investment It follows that significant reductions in emis- and transition to lower-carbon production sions can be achieved by design choices, which processes or material substitutes. 50 GREENING CONSTRUCTION Developing an Integrated Carbon Pricing Mechanism for the Construction Value Chain Overview As the research has shown, existing CPMs can Depending on the extent of the CPM, it needs be adjusted to expand their scope to better to be underpinned by standards and protocols capture the CVC. However, in many cases this for an asset’s energy efficiency in operation will not be practical, and indeed, it may prove and use, and a materials supply chain carbon challenging to gain the support of those operat- emissions assessment (embodied carbon). This ing established CPMs. would need to come together within a whole life-cycle carbon accounting framework. The This section sets out ideas and models for an governing jurisdiction would need to provide integrated CPM for the CVC. An overview of the appropriate direction for this framework. concept is shown in Figure 31. At its core, the concept is about placing the constructed asset Depending on the required scope of the CPM, in the CPM. It might therefore be described as it could be applied to a complete project and a project-level scheme that incentivizes carbon its value chain, or targeted to more specific management early in the project planning life-cycle stages or actors. For example, stage, with cascading requirements to the and with reference to Figure 31, a CPM that wider value chain driven from those ultimately applied a price to a project’s carbon emissions, responsible for project-making. levied at the point of building consent approv- als, could target: The CPM would be authorized through existing ●● Supply chain emissions (such as the manu- planning approvals/project consenting pro- facture of products and materials), as cesses. As such, it would be enforced through required by the project brief, and defined by jurisdictional construction regulations/building design response and specification. codes, making the project-making actor, that is, the investor, developer, and/or asset owner, ●● Construction activity emissions (for exam- responsible for ensuring compliance. ple, diesel and electricity), as selected by the constructor. 51 KEY MESSAGES ●● An integrated CPM for the CVC at the capture life-cycle emissions, for example project scale has the potential to incentivize PAS 2080: 2016 Carbon Management in carbon management early in the project Infrastructure. planning stage with cascading requirements ●● Revenues from the scheme may be collected for the wider value chain. This places the and reinvested in industry schemes to constructed asset within the CPM. It would develop and demonstrate green innovations be authorized through existing planning or fund low-carbon infrastructure. approvals/project consenting processes Alternatively, a green dividend may be and enforced via jurisdictional construction established, which rewards individuals and regulations/building codes. companies for early investment in low- ●● The integrated CPM could apply as a blanket carbon options. carbon price, where the project carbon ●● The new CPM would need to align with emissions are determined for all relevant and respond to existing global carbon elements and a carbon price is applied to markets, including their structures, prices, every ton of emissions, or as a threshold and regulations, without creating double carbon price, where a carbon price is counting, uncompetitive outcomes, applied to every ton of carbon emitted over or disproportionate burdens for some a defined threshold. participants. Border tax adjustments and ●● Existing carbon management frameworks other mechanisms may be applied to avoid may also be used to monitor, report, and these outcomes. FIGURE 31: A CONCEPT FOR AN INTEGRATED CPM THAT PLACES THE CONSTRUCTED ASSET WITHIN THE CPM AND, BY IMPLICATION, THE ACTORS RESPONSIBLE FOR ITS DEVELOPMENT, DESIGN, CONSTRUCTION, AND OPERATION. Constructed Asset X...etc. Influence and control boundary that meets policy criteria must be delivered The physical jurisdictional boundary to CPM scheme operation Shareholders/Investors Each construction asset/project in the jurisdictional Constructed Asset 3 CPM revenue flows Constructed Asset 2 CPM rules, information, Constructed Asset 1: and reporting flows to CPM scheme requirements. Example with DBFO Asset Owners/Managers development model Designers Product/Material Supplier Constructors CPM scheme operator Depending on model these might Checking be a governmental planning Operator inspectorate, independently appointed audit body, or a green Reporting building rating scheme operator (as examples) Reporting Governance CPM Regulation Policymaker/regulator Energy/Fuel Suppliers User Authority or organization responsible for CPM Link to carbon Output Revenue establishment and governance markets where applicable 52 GREENING CONSTRUCTION FIGURE 32: UNDER THE BLANKET MODEL, THE REVENUE GENERATED IS THE CARBON PRICE MULTIPLIED BY THE SUM OF THE CARBON EMISSIONS PRODUCED AT EVERY STAGE IN THE CVC. 71 CO e Blanket model 22 Where CP=$X/tonneCO₂e CPM revenue=(X x 22)+(X x 7)+(X x71) 7 ion on s ial ti at er uc er at tr Op M ns Co ●● Regulated energy in operation (for example, elements and a carbon price is applied to every electricity, gas, and oil), as demanded by the ton of emissions. This concept is summarized asset operator. in Figure 32. Although not shown in Figure 31, variations Threshold carbon price: Where a carbon of the concept might extend to include user- price is applied to every ton of carbon emitted related emissions. over a defined threshold. Here, revenue gen- eration is a function of the difference between These strategies can in part be achieved by the aggregated emissions of material supply, different models through which the carbon construction, and operations; and the juris- price is applied to the project. Two poten- dictional CPM threshold level. This concept is tial mechanisms are a “blanket” CPM and a summarized in Figure 33. Variations of this “threshold” CPM. model may exist, where different thresholds are set for: Blanket carbon price: Where the project car- bon emissions are determined for all relevant DEVELOPING AN INTEGRATED CARBON PRICING MECHANISM FOR THE CONSTRUCTION VALUE CHAIN 53 FIGURE 33: UNDER THE THRESHOLD MODEL, THE CARBON PRICE IS ONLY APPLIED TO EMISSIONS PRODUCED OVER A SET THRESHOLD. CO₂e Operation: 71 t ∆ CPM threshold level Threshold model Where carbon price=$X/tCO₂e CPM revenue=X x ∆ Materials: 22t Construction: 7t ●● Discrete life-cycle phases (material supply, govern directly or set up a governance system construction, and operations). to oversee CPM application in its jurisdiction. ●● Developments of different sizes or projects Governance systems have different valida- of different asset class. tion and accountability procedures in place, ●● Different levels of operational performance. including regular auditing, self-disclosure, spot- checks, and third-party accountability. Which procedures are employed will depend on fac- Governance tors such as internal capabilities and cost. The pricing mechanism will be defined by Governments often adapt their governance jurisdictional boundary (such as national or frameworks for such schemes as they develop, local government), with governance overseen in an effort to streamline the approach and by government agencies/regulators. In this improve accountability. For example, the UK way, the CPM would be mandatory for those government recently introduced a new manda- seeking permission to build within the juris- tory framework for large companies to report diction. Certain sectors (such as education energy consumption (Streamlined Energy and social housing) may be exempted, pend- and Carbon Reporting framework), replac- ing evaluation of socioeconomic and political ing the CRC energy efficiency scheme.66 This impacts. The governmental level at which new framework requires companies to report this would be implemented would depend on directly to the scheme, rather than the previ- political priorities and the capacity of such ous spot audits and self-certification67 process, organizations to oversee the process. which carried a significant burden for the UK government’s Taskforce on Climate-related A real-estate or asset portfolio owner (such as Financial Disclosure. a health authority, highways authority, or com- mercial real-estate provider) might voluntarily choose to apply the mechanism to their devel- opment program to manage carbon across Operation their asset portfolio. Whether on a mandatory A CPM scheme operator would be appointed or voluntary basis, the authority responsible or established by the jurisdictional governance for the jurisdictional scope of the CPM would authority. Options might include: 54 GREENING CONSTRUCTION ●● The relevant planning inspectorate. ●● An accredited organization (such as a certifi- cation or verification body). ●● A green building rating scheme operator. The scheme operator would be responsible for verifying each applicant project within its jurisdiction, evaluating its carbon emissions and CPM accounts, including credits awarded and money paid. The project-making party or their representative would prepare project accounts. The scheme operator would prepare periodic summary reports to the CPM gover- nance authority. Submission to the CPM would be made at the point of planning application (pending consent to build). The project maker would thus be obliged to provide evidence to demonstrate how their project would meet carbon reduction objectives over its lifetime. The CPM would be administered, and revenues generated, based on a reported carbon output within a specified time period. Fines could be imposed at project completion if a project fails to deliver on its planned undertakings. The methodology for reporting/accounting may be determined by the governance authority over- seeing the scheme. In lower-income markets where there may be limited expertise/capacity within planning authorities, it might be more practical to inte- grate the CPM with light-touch rating schemes revenue gathered should be reinvested in such as EDGE than to incorporate it into the industry schemes to develop and demonstrate existing planning system. This approach would green innovations, rather than going into over- also need to consider potential conflicts with all government budgets. This could be a closed existing certification bodies. These bodies use fund that promotes sustainable innovation in transferable models applicable in multiple the industry through research and develop- jurisdictions, so assuming local circumstances ment, for example. This could help increase and regulations are taken into consideration, and sustain research and development even in there should be no conflicts, for example, downturns when margins are tighter. ensuring taxes are collected and managed by local government, not the accreditor. An alternative approach could be a green divi- dend, whereby individuals and companies are Revenue rewarded for early investment in low-carbon options. There is a risk that those already engaging in best practice would be rewarded, Revenue from the scheme may be collected for example, if UK timber-framed house- and used in several ways. In mature markets, builders were given a substantial dividend at DEVELOPING AN INTEGRATED CARBON PRICING MECHANISM FOR THE CONSTRUCTION VALUE CHAIN 55 the expense of those using brick and block. in Infrastructure.71 This could provide an However, this kind of scheme would also signal effective framework through which a project to the market which approaches are govern- could report to the CPM. For buildings, the ment-supported. Green dividends have been RICS Professional Statement on Whole Life more successful at the smaller community Carbon Assessment for the Built Environment72 scale, for example, residential developments to or other interpretations of EN 15978: 2011 incentivize homeowners to change behavior. Sustainability of Construction Works might be used. The scheme operator might also admin- In lower-income economies, revenue could ister the CPM using a model based on existing be collected into a fund for investment in green building rating schemes. LEED,73 EDGE,74 low-carbon infrastructure. This could more and CEEQUAL75 could all provide platforms for effectively maintain infrastructure invest- the management, verification, and reporting ment in regions where government revenues of projects under the CPM. The platform or are limited. To some extent, it could also help framework chosen would depend on what a ensure infrastructure investment keeps pace given government deems most appropriate for with commercial development, as fees would their jurisdiction, which may be determined be paid on such development that could be by current uptake rates, understanding of the reinvested in the infrastructure that is needed framework, alignment with current strategy/ to support them. regulation, and other priorities. Reporting Reporting operational Accounting for carbon within the CPM would emissions be undertaken using existing CVC protocols: Where operational emissions are included in ●● For products (including materials): BS 15804: the delivery method a project uses (for exam- 2012+A1: 2013 – Sustainability of construc- ple, in a DBFOM), the asset owner or developer tion works.68 Environmental product decla- is involved in all stages of the life cycle, includ- rations. Core rules for the product category ing the eventual operation of the building. In of construction products. this scenario, operation stage emissions could ●● To calculate construction emissions, the be calculated using the frameworks described CPM would use estimating protocols such as above, in addition to schemes such as the RICS Surveyors Construction Handbook to National Australian Built Environment Rating determine the site-based emissions, as well System, display energy certificates, or equiva- as the traditional program of works and bill lent local schemes.76 A carbon tax could then of quantities, which include contractor esti- be collected on an annual basis. This approach mates of build time, fuel, and labor costs. would also work for a building where the ini- tial developer was not the same as the eventual ●● To align with operational phase carbon operator. In this case, two revenue streams emissions and sensitivities around pricing could be collected: carbon on future performance, the CPM would use protocols such as display energy ●● From the asset owner/developer for the certificates69 or the National Australian materials and construction of the building. Built Environment Rating System70 to verify ●● From the operator on an annual basis for carbon output in asset operation. emissions produced through operation, such as fuel consumption. Existing carbon management frameworks may also be used to capture life-cycle emissions, This approach could also extend to cover such as PAS 2080: 2016 Carbon Management operation emissions, either with a levy at the 56 GREENING CONSTRUCTION point of construction or an annual tax based adjustments would be made to each project’s on the building’s display energy certificate or carbon inventory before reviewing how the equivalent. scheme performs against the assigned thresh- old level. Details of three potential scenarios can be found in the Appendix. Relationship with This approach is similar to border tax adjust- wider carbon pricing ments, which despite having the potential to conflict with World Trade Organization markets regulations, could also help to create a level playing field and minimize impacts on com- Any new CPM would need to align with and petitiveness.77 To ensure market stability and respond to existing global carbon markets. It minimize regulatory burdens across national would need to be sensitive to their structures, jurisdictions and industry sectors within the prices, and regulations without creating double value chain, it would be important to align counting, uncompetitive outcomes, or dispro- potentially overlapping programs. This would portionate burdens for some participants. For also support competitiveness and avoid seg- example, consider a cement manufacturer that menting markets and simply shifting where supplies cement to a project. The cement fac- emissions occur in an economy. Such align- tory is located in a jurisdiction outside the one ment would need to be carefully considered where the CPM originates. Carbon costs must given geographical contexts and would need therefore be adjusted for the cement factory in to facilitate local (for example, city or regional its production jurisdiction by: planning authority), national, and interna- tional synergies. As discussed above, linking ●● Applying a cost to the carbon arising from schemes across jurisdictions may be one way the cement based on the difference between to solve this. the carbon price in the production jurisdic- tion and the project CPM; or In Scenario 3 (see the Appendix), the project or ●● Awarding the project a carbon credit where supplier is in credit with the scheme, allowing the production jurisdiction CPM is higher the asset owner or developer to transfer assets than that applied to the project. to other projects within their portfolio. These credits are not intended to enter a tradable In the case of a blanket CPM, adjustments market with other asset owners/developers, would be made to each project’s carbon inven- but instead to encourage low-carbon devel- tory, while for a threshold CPM, resulting opments across the sector. The credits may DEVELOPING AN INTEGRATED CARBON PRICING MECHANISM FOR THE CONSTRUCTION VALUE CHAIN 57 FIGURE 34: CDP’S CARBON PRICING CORRIDORS PROVIDE A BENCHMARK FOR BUSINESS AND INVESTORS MAKING STRATEGIC DECISIONS CONSISTENT WITH A LOW-CARBON ECONOMY.84 120 $/metric tCO₂e 100 100 Majority Corridor Full-sample Corridor 80 60 58 38 36 30 30 24 20 15 12 10 accumulate over time; however, as the carbon the asset owner paying less or no carbon cost price in both the blanket and the threshold for their project.78 For project development model might be delivered in a carbon price models where the asset owner or developer corridor plan (Figure 34) – which escalates the is not solely responsible for project emissions carbon price for a designated sector or sub- (such as Build-Transfer), the credits could be sector to reduce emissions – these credits will awarded to the supplier, lowering their costs likely be used as the threshold drops or the on other imported materials. blanket price increases. The benefit of moving away from a carbon Alternatively, a time limit could be set on the market approach, which allows suppliers or use of credits to prevent the front-loading of project developers to trade with other similar reductions to obtain credits in anticipation of actors, is that it reduces the likelihood of com- future price rises. This would drive developers panies shifting production to countries with a to maintain best practice operation and develop lower carbon pricing regime, because they will innovative assets over the medium term. A still be required to pay a price on importing or limit on the use of credits, or a clear increase in constructing in jurisdiction A. price, is needed otherwise there would be no incentive for developers to innovate. Ideally, this concept would be developed alongside a suitable client or stakeholder such These credits can be awarded through two as government estates that commission work potential approaches. In the first approach, through multi-year partnerships/frameworks the asset owner or developer is solely respon- and operate assets for a prolonged period. This sible for project emissions. For example, if a would allow credits to be transferred and used material supplier has paid a higher carbon across multiple projects and give designers/ price, as shown in Scenario 3 (Table 7 in suppliers an opportunity to develop alterna- Appendix), then the asset owner/developer will tive solutions over a series of projects. This is be awarded credits. The supplier may reclaim discussed further in the next section. the costs paid by placing a higher cost on its materials or choose to absorb this cost but cre- ate a more favorable product that will result in 58 GREENING CONSTRUCTION Moving Forward While this approach successfully captures a Adapting existing significant proportion of life-cycle emissions, it does not comprehensively target emissions CPMs for the CVC from every stage of the CVC. To do so, it is criti- cal that CPMs incentivize the consideration of Applying CPMs to the CVC presents both chal- low-carbon priorities from the start of a built lenges and opportunities. This study proposes asset’s life, embedding it in design and procure- several options for adjusting established ment decisions, where carbon emissions are mechanisms to better capture CVC emissions. locked in for the duration of an asset’s life. The following section summarizes the most important observed opportunities and suggests One way of achieving this is for whole assets areas of future research. such as buildings to participate in CPMs like ETS. Under this approach, standardized methodologies may be used to determine the INCLUDE BUILT ASSETS IN EXISTING CPMS life-cycle emissions of the construction asset, combined with a CPM at the point of project CPMs tend to target emissions from large-scale realization, to incentivize project-making facilities such as materials manufacture, and actors to address project emissions or face some activities related to operation and use. pricing penalties. Scheme operators would KEY MESSAGES ●● Allowing built assets such as buildings ●● To reduce emissions throughout the CVC, to participate in CPMs would enable the carbon prices need to increase to levels that capture of emissions across the asset’s cannot simply be absorbed or passed on life, from constructed embodied carbon without any change in behavior. Action from emissions, to those arising from operation governments and the industry is needed to and use, as well as those from end of life deliver this change. and final waste treatment. ●● With further research and some adjustment, ●● Flexible solutions such as hybrid many of the CPMs reviewed in the study can mechanisms that combine elements of be applied to the CVC to more effectively established CPMs can provide adaptability capture emissions from across the value while easing the burden on welfare and chain. Industry and regional collaboration will competitiveness, making them appropriate enable greater efficiencies and coordination. to various asset classes, project scales, CVC delivery methods, and economy types. 59 need to make adjustments to allow buildings at the point of consumption for certain high- to participate in the ETS, and update and apply carbon products. regulatory measures to incentivize the appro- priate behaviors. With careful assessment of the potential impacts of such strategies, a hybrid solution Because ETS are already widespread and well could provide the adaptability needed to established in various locations, exploring the accommodate variances in asset class, project potential to expand such schemes to include scale, and CVC delivery method. CVC assets is recommended. Putting built assets into such schemes may also be a viable and relatively acceptable option to industry INCREASE THE CARBON PRICE and consumers. Fears over carbon leakage and competitiveness have led governments to intervene in schemes’ APPLY FLEXIBLE OPTIONS functioning by, for example, allocating free allowances to high-carbon industries or keep- Given the complexity and variation across the ing carbon prices low. These actions reduce the CVC, there is no single CPM solution that suits impacts of CPMs. all circumstances and markets. However, in many markets, a hybrid solution that combines To truly capture emissions from across the a market or regulatory mechanism with a floor CVC, prices will need to increase gradually over or threshold price may provide the flexibility time, to levels that cannot simply be absorbed needed to maximize the capture of emis- or passed on without any change in behavior. sions while easing the burden on welfare and While it is unlikely that actors in the CVC will competitiveness. It could also help to minimize push for such changes individually, there needs price volatility, which would appeal to inves- to be a concerted effort by governments and tors and governments. the industry as a whole to apply carbon prices that affect behavior. Higher carbon prices A carbon tax may be applied in combina- would undoubtedly drive more efficient emis- tion with an ETS at various points along the sions reductions. CVC. This would limit carbon reductions to a certain level and generate revenues that may While there are legitimate reasons for allo- be reinvested in decarbonization measures or cating allowances to carbon-intensive and redistributed to users via a green dividend. trade-exposed industries, research suggests Alternatively, a tax may be added, for example, that the impacts on these industries may have 60 GREENING CONSTRUCTION been overestimated.79 In higher-income econo- consequences, for example if a CPM on rail use mies, it is essential that these prices increase increases prices to unaffordable levels and trig- soon, while in lower-income economies, as gers a modal shift to cheaper, higher-carbon shown by the South African case study, it may transport such as individual vehicles. still be acceptable, though not ideal, to imple- ment low prices (of about $10/tCO2e), with a Businesses are already starting to understand structured and transparent plan to increase the benefits of implementing internal carbon them over time. prices. The construction industry needs to commit to more advanced efforts to curb its emissions (such as applying internal car- SUMMARY bon prices, and reporting climate risks and impacts) and work more closely within and The most appropriate CPM in a given location across sectors. This could involve sharing infor- or context will depend on a range of factors. mation on challenges and solutions. Change is For example, emissions trading requires com- already under way; platforms like the CPLC can plex structuring and oversight, which is costly facilitate and drive such activities. and time-consuming. This may make it bet- ter suited to geographies and markets where Governments and companies must carefully relevant regulatory structures are or could weigh the potential impacts against the ben- be established and high administrative costs efits, providing solutions to help those who can be absorbed by the market. Taxes may be cannot easily alter their behavior while chal- politically challenging to implement but better lenging those who can through stricter targets suited to certain sectors such as fuel, where the and penalties. By working with their regional potential for decarbonization increases effec- and international counterparts, schemes may tiveness, as opposed to a sector like cement, also be linked, thus creating a level playing field which faces more complex challenges in lower- and minimizing threats to competitiveness. ing its emissions. As more economies implement carbon pricing, The choice of project delivery method will international cooperation will play a critical also influence how emissions may be reduced role in aligning prices across borders, mini- over an asset’s life cycle. In many cases in the mizing the potential for carbon leakage and CVC, an integrated approach like DBFOM may overcoming concerns around competitiveness. be used to incentivize all parties (designer, This will create opportunities to share experi- builder, investor, and operator) to maximize ences and lessons learned and potentially to carbon reduction at every stage. link trading schemes. Economies are already aligning with other policies and global efforts Welfare and equity issues are also critical con- such as the Paris Agreement. This will also siderations, especially in emerging economies. incentivize and accelerate the uptake of CPMs. CPMs must make allowances or compensate for impacts on vulnerable groups likely to be Adjustments may be made to several of the affected, such as poorer households less likely CPMs examined in this study. The table below to have the capacity to implement energy effi- summarizes how existing mechanisms could ciency measures that have little or no potential be adjusted to more successfully capture CVC to change their behavior. It is also important emissions, and what would be needed to drive to evaluate the potential for unintended or accelerate that change. MOVING FORWARD 61 TABLE 3: ADJUSTMENTS TO EXISTING CPMS TO CAPTURE EMISSIONS FROM ALL STAGES OF THE CVC MORE COMPREHENSIVELY. CPM Adjustments to better apply the CPM to the CVC What is needed to drive development? Internal carbon price • Apply broadly to multiple business units and the supply • Agreement and drive from board level to ensure all chain. areas of a business are incentivized. • Apply a carbon price high enough to incentivize genuine • Engagement with the supply chain to ensure buy-in and behavior change, with a clear price increase trajectory avoid sudden negative impacts. over time. Emissions reduction • Apply to whole CVC scheme or portfolio of schemes, • Successful examples and sharing experiences will drive credit scheme allowing the owner or developer to trade credits across familiarity and uptake. their portfolio. Emissions trading • Include built assets in ETS to incentivize low-carbon • Adjustments to entry criteria and compliance system decision-making from the design stage onwards. procedures by scheme operator. • Link with other global schemes. • Engagement between regional and international scheme operators to facilitate linking. Hybrid • Apply to materials, operations, or use stages, under • Further assessment and engagement with industry integrated project delivery method. to streamline process and avoid negative impacts on competitiveness and welfare. Carbon tax • Apply a challenging price, or increase an existing price • Calculate potential for implementing a carbon-neutral appropriate to an economy’s income level. policy. • Apply to early project-making stages to maximize impact through the CVC. Command and • Apply performance standards, in combination with other • Further explore potential for combining with other control CPMs or target levels for whole-life carbon, on projects mechanisms, while exceeding minimum expectations. at the planning stage. Further research on carbon pricing in the CVC The integrated CPM proposed in this paper is just TECHNOLOGY CHANGE AND ITS IMPACT one example of how carbon pricing might be ON FUTURE CARBON PRICE better applied to capture emissions in the CVC. The work has identified a range of aspects that Any building or infrastructure asset will require further research and evaluation. This typically operate over many years. Significant section examines these issues. Although focused technology improvements can be expected in on the proposed CPM, the issues are also, in that time and it would be logical to account for many instances, relevant to established CPMs. such efficiencies in the whole-life emissions assessment of the CPM. PRICING CARBON IN THE FUTURE However, there is much uncertainty about how quickly technology deploys and is adopted. In In relation to operation and user emissions, a CVC CPM, there would be uncertainty about further work is needed to understand how to who should be liable if technology change price carbon in the future. For example, should were slower than anticipated at the design it be fixed at the point of the construction change stage. For example, should it be the project gaining planning consent, or should it vehicle drivers or the scheme developer who change over time subject to a pricing corridor? is charged more if uptake of electric vehicles is slower than anticipated on a highway scheme? 62 GREENING CONSTRUCTION KEY MESSAGES ●● Further research is needed to evaluate the early project-making stages (financing, possible impacts and consequences of development, and design). Testing this the proposed CPM concept for the CVC. approach on a real project would provide Research topics include pricing carbon in important evidence of the concept’s the future, carbon accounting, jurisdictional feasibility, as well as increasing industry boundaries, transaction costs, and knowledge of and confidence in carbon governance and emerging markets. pricing. ●● Collaborative industry engagement and ●● A dynamic model could be developed, leadership are needed to increase industry where all the controlling parameters and confidence in carbon pricing and develop variables of the CVC are described and and test the proposed concept. various scenarios are implemented to ●● Other opportunities to develop a model understand how best to price carbon and to evaluate the impacts of applying a CPM maximize benefits. to the CVC in a given jurisdiction include ●● Further research is needed to better working with a specific city like London, understand and reduce the potentially which already has plans to implement a negative social impacts of CPMs. This could carbon offsetting program. include pilot studies involving representative ●● Further work is required to understand the groups from across the CVC and market impacts of applying CPMs at the sectors to understand positive and negative impacts. A better understanding of this issue, along carbon emissions accounting. Clear require- with supporting principles, is needed to enable ments codified in assessment protocols and CPMs to better allocate future carbon costs. standards, together with supporting guidance, are needed. These must cover the full scope of the CVC life cycle to enable repeatable and PRICING AND EMERGING MARKET comparable carbon emissions measurement CONSIDERATIONS and cost valuation. Further consideration must be given to ensure Programs of work such as the CEN Technical jurisdictions are encouraged to set prices that Committee 350 on Sustainability of are both achievable and equitable as well as Construction Works have published standards sufficiently challenging to the CVC to drive the at product, building, and framework level, required low-carbon behaviors. This is par- and offer a basis for robust carbon account- ticularly pertinent to emerging markets, which ing. However, more work needs to be done to are expected to see the greatest future demand ensure repeatability of assessment across the for development, while also facing some of the industry and by different practitioners. Many greatest cost constraints. issues remain too undefined to support a CPM deployed at scale. Aspects that warrant further consideration include: CARBON ACCOUNTING Data quality: Specific and generic data is avail- Any functioning CPM for the CVC will need to able and can be used to estimate emissions. be based on a comprehensive set of rules for Which should be used and when, and what MOVING FORWARD 63 should be done if information is lacking or of accounting protocols or merely focus on emis- poor quality? What data quality rules should sions mitigation? be applied for CPM compliance and how might these change over the course of a project devel- Industry carbon targets and decarbon- opment process? ization pathways, science-based targets, and asset benchmarks: The CVC is not well Carbon sequestration: How might CPMs take informed when it comes to carbon-based account of carbon sequestration? This should targets for its civil assets and buildings. cover construction materials (biomass), as well Understanding low-carbon benchmark levels as activities associated with carbon capture and future sectoral decarbonization pathways and storage in manufacturing processes. How will help with positioning and deploying CPMs. should this be priced over the CVC life cycle With this appreciation, CPMs will also align and what incentives should the CPM provide (if better with NDCs. any) to use the built environment as a location in which to sequester carbon? JURISDICTIONAL BOUNDARIES Offsetting: How should CPMs address carbon offsetting? This could be particularly relevant The proposed integrated CPM requires fur- to offsetting between development sites, for ther investigation to understand how it might example, if carbon savings from implementing impact on, and integrate with, CPMs already renewables on one site can be claimed against established in the market. How the design a scheme on another. might change to ensure best fit across neigh- bouring borders and jurisdictions has not been Scale and specificity of CPM strategies: fully considered. For example, as the integrated Options exist for establishing CVC CPMs that CPM is applied there may be potential to apply consider discrete assets or account for mul- opt-outs, or take bespoke approaches either on tiple assets across a portfolio. Rules might be a project-by-project basis or to different asset extended to account for priorities in new build classes. Relevant variables that affect these or refurbishment. Could the carbon saved strategies require careful consideration, includ- through a refurbishment project with short- ing jurisdictional priorities, welfare issues, and term payback be used to seek approvals for carbon price threshold. another project? Service and end-of-life scenarios: Carbon TRANSACTION COSTS emission profiles for assets that reflect future service and end of life are uncertain, particu- If a supplier is manufacturing a product in larly due to the long lives expected for most a jurisdiction where a CPM is operating and buildings and civil infrastructure. Methods then exports this product to another jurisdic- for how to deal with this uncertainty and tion where a different CPM is operating, then ensure consistency within CPM accounting a balance of payments must be assured to would be required. avoid double pricing carbon. In principle, only one transaction cost is needed, which will go Dealing with multifaceted functions: to the scheme with the higher carbon price. Buildings and infrastructure may provide However, if the supplier is operating in a multiple functions beyond those originally jurisdiction with no CPM, then every time the envisioned. For example, a hydro-electric product is imported into a jurisdiction with a dam may provide flood elevation as well as CPM the full transaction cost of carbon would generate energy. The project will represent a have to be paid. Such cross-jurisdictional complex set of carbon benefits and impacts. pricing and assuring fair balance of payments Should CPMs recognize this balance within is complex. It requires further research to 64 GREENING CONSTRUCTION develop different model approaches. In addi- plans have been set out by the Greater tion, carbon leakage is a risk where CPMs are London Authority to implement a carbon not aligned across jurisdictions. As outlined offsetting program largely focused on retro- in Article 6 of the Paris Agreement, voluntary fitting homes and non-domestic buildings.81 cooperation should be encouraged to ensure ●● Undertake further analysis of how CPMs mechanisms are aligned, helping countries to could be targeted to influence behaviors in meet their NDCs.80 the early stages of the life cycle. ●● Develop a dynamic model where all the GOVERNANCE AND EMERGING MARKETS controlling parameters and variables of the CVC can be described and various scenarios The proposed CVC CPM has a regulatory and can be implemented to price carbon and governance body to oversee it. Establishing maximize the benefits of selecting the and running such an entity would be costly and construction type and method of CPM with carry an administrative burden. Integrating the highest impact on emissions reductions. the concept with existing planning processes would likely reduce this risk. However, fur- ther research is required to understand the UNDERSTANDING USER BEHAVIORS feasibility of this approach, as well as adapting existing schemes such as EDGE. Existing CPMs have tended to focus on produc- tion-based emissions. As such, there is limited research on the potential impacts of consump- INDUSTRY LEADERSHIP tion-based carbon pricing on CVC behavior, including how users of buildings and infra- Industry leaders have an important role to play structure may respond. What are the associated in engaging with national and regional govern- socioeconomic impacts that may occur across ments to: different civil and building asset classes? ●● Oversee and provide input on the develop- Understanding and reducing the potential ment and trial of the proposed concept in a social impacts of CPMs is complex and requires specific locality or organization. further investigation. This should be sup- ●● Model the implications for the CVC of a CPM ported by pilot studies involving representative in a given jurisdiction. This might include groups from across the CVC and market sectors working with a city like London, where to understand positive and negative impacts. MOVING FORWARD 65 66 GREENING CONSTRUCTION Appendix Worked Example of Integrated Concept The carbon price of the proposed integrated CPM should be responsive to global carbon markets. The proposed CPM should also be able to respond to and interact with other CPMs, without resulting in double pricing and uncompetitive outcomes for those in or outside the jurisdiction. Below are several scenarios that could occur in relation to the integrated concept design. They also illustrate how the concept could align with wider carbon pricing markets. BLANKET CPM: ALLOWING FOR WIDER CARBON MARKETS A blanket approach applies a set price for carbon, for example $40; any previously paid car- bon levies are deducted from the set carbon price. Table 4 illustrates how applying a blanket CPM would affect project costs. TABLE 4: UNDER A BLANKET CPM APPROACH, ANY CARBON-RELATED CHARGES ALREADY PAID WILL BE DEDUCTED FROM THE FINAL FIGURE OWED. Example project CPM, set price of carbon: $40/tCO2e Project emission CPM carbon price Other CPM Other CPM carbon Final project CPM Project activity (tCO2e) levy ($) carbon price ($)* price levy ($) carbon levy ($) Material 1 100 4,000 10 1,000 3,000 Material 2 400 16,000 5 2,000 14,000 Material 3 600 24,000 30 18,000 6,000 Diesel 20 800 15 300 500 Electricity 5,000 200,000 20 100,000 100,000 Total 6,120 244,800   121,300# 123,500+ * Existing carbon price applied in another jurisdiction on a supplier’s material # indicates the amount CVC already paid to wider carbon pricing markets + indicates the amount left to pay as carbon levy by CVC APPENDIX 67 FIGURE 35: IN THIS EXAMPLE PROJECT, THE MAJORITY OF EMISSIONS DERIVE FROM ELECTRICITY. 7,000 6,000 5,000 Carbon Emissions (tCO₂e 4,000 3,000 2,000 Electricity Diesel 1,000 Material 3 Material 2 Material 1 0 Example Project Figure 35 shows the total greenhouse-gas emissions across the CVC from products (materials), construction, operation, and use for an example project. Under the blanket CPM approach, a set carbon price would be applied to every element. In the example shown in Table 4, this would be $40 per ton of CO2e without exemptions or a threshold. THRESHOLD CPM: NO RECOGNITION OF WIDER CARBON PRICING MARKETS Scenario 1: A threshold or maximum emissions level (for example, 2,000 tons) is set and a price on all remaining carbon emissions (for example, $40) is applied. For a threshold approach, jurisdiction A sets a threshold level (in Figure 36 this has been set at 2,000 tons) and a carbon price is paid on the difference Δ between the aggregated emissions of material supply, construction, and operations, and the jurisdictional CPM threshold level. THRESHOLD CPM: ADJUSTED TO RECOGNIZE SUPPLY CHAIN ACTIVE IN WIDER CARBON PRICING MARKETS Table 5 demonstrates how a threshold model would work if no carbon levies have previously been paid (Scenario 1). If a project importing materials from jurisdiction B or C has already applied a carbon levy, two options may arise. In the first, the CPM of jurisdiction B applies a carbon price of $20, which is lower than the price in jurisdiction A (see Table 6 for Scenario 2). In the second option (Scenario 3), a carbon price of $50 is applied by another jurisdiction (C), which is higher than the $40 applied by jurisdiction A (see Table 7). 68 GREENING CONSTRUCTION TABLE 5: THE TABLE SHOWS THE DIFFERENT PRICES FOR PROJECT ACTIVITIES AND THE RESULTING TOTAL TO BE PAID MINUS THE THRESHOLD DEDUCTION. Example project CPM, set price of carbon: $40/tCO2e Project emission CPM carbon price Project activity (tCO2e) levy ($) Material 1 100 4,000 Material 2 400 16,000 Material 3 600 24,000 Diesel 20 800 Electricity 5,000 200,000 Total 6,120 244,800 Project CPM threshold 2,000 tCO2e (deducted from project) Project to pay price on (∆) 4,120 tCO2e Project carbon price to pay $164,800 FIGURE 36: THE DISTRIBUTION OF CVC EMISSIONS AND THE APPLICATION OF A THRESHOLD LEVEL THAT DISCOUNTS THE CONSIDERATION OF THESE EMISSIONS. 7,000 6,000 5,000 Carbon Emissions (tCO₂e 4,000 3,000 2,000 Electricity 1,000 Diesel Material 3 0 Material 2 Example Project Material 1 APPENDIX 69 Scenario 2: Project CPM higher than wider markets average TABLE 6: IMPACT OF A THRESHOLD MODEL WHERE A CARBON LEVY HAS PREVIOUSLY BEEN PAID IN JURISDICTION B, WHICH HAS A LOWER CARBON PRICE. Example project CPM, set price of carbon: $40/tCO2e Project emission CVC carbon price CVC carbon price levy Project activity (tCO2e) ($) ($) Material 1 100 20 2,000 Material 2 400 20 8,000 Material 3 600 20 12,000 Diesel 20 20 400 Electricity 5,000 20 100,000 Total 6,120   122,400 ●● Project CPM threshold: 2,000 tCO2e ●● Project to pay a price on (Δ): 4,120 tCO2e ●● Project price to pay: $164,800 ●● CVC levy already paid: $122,400 ●● Project CPM left to pay: $42,400 ($164,800 – $122,400) Scenario 3: Project CPM lower than wider markets average TABLE 7: IMPACT OF A THRESHOLD MODEL WHERE A CARBON LEVY HAS PREVIOUSLY BEEN PAID IN JURISDICTION C, WHICH HAS A HIGHER CARBON PRICE. Example project CPM, set price of carbon: $40/tCO2e Project emission CVC carbon CVC carbon price levy Project activity (tCO2e) price ($) ($) Material 1 100 50 5,000 Material 2 400 50 20,000 Material 3 600 50 30,000 Diesel 20 50 1,000 Electricity 5,000 50 250,000 Total 6,120   306,000 ●● Project CPM threshold: 2,000 tCO2e ●● Project to pay a price on (Δ): 4,120 tCO2e ●● Project price to pay: $164,800 ●● CVC levy already paid: $306,000 ●● Project CPM left to pay: in this case the scheme ends in credit: $141,200 ($164,800 – $306,000) 70 GREENING CONSTRUCTION Scope of Carbon Pricing Mechanisms in Buildings and Infrastructure The CPM could be applied to either buildings or infrastructure and their defined subsectors. Across life-cycle modules A and B, the CPM could address capital and operational carbon emissions and could, on occasion, be applied to manage user emissions. Sector Subsector Capital carbon CPM Operational carbon CPM Use carbon CPM Domestic Housing Construction of new Heating N/A - ✓ ✓ buildings housing Refurbishment of Housing refurbishments Cooling N/A - ✓ ✓ housing & maintenance Emissions from waste Hot water N/A - processing/treatment and final disposal from construction, ✓ ✓ maintenance, and demolition activities of housing Ventilation ✓ N/A - Other regulated N/A - ✓ energy (e.g. lifts) Cooking Gas and - - electric cooking (cookers only) Unregulated energy Plug load - - electricity (i.e. all appliances) Non- Public buildings** Construction of new Heating N/A - ✓ ✓ domestic public buildings buildings Industrial** Construction of new Cooling N/A - ✓ ✓ industrial buildings Commercial** Construction of new Hot water N/A - ✓ ✓ commercial buildings Refurbishment Refurbishment & Ventilation N/A - of non-domestic mainteinance of non- ✓ ✓ buildings domestic buildings Emissions from waste Lighting ✓ N/A - processing/treatment and final disposal Other regulated N/A - from construction, ✓ energy (e.g. lifts) maintenance, and ✓ demolition activities of non-domestic buildings Cooking Gas and - - electric cooking (cookers only) Unregulated energy Plug load - - electricity (i.e. all appliances) APPENDIX 71 Sector Subsector Capital carbon CPM Operational carbon CPM Use carbon CPM Infrastructure Infrastructure- Construction of power Grid losses (SF6)*** N/A - Energy stations, and energy ✓ - distribution networks Infrastructure- Construction of Energy use to power N/A - Telecommunications communication telecommunications networks, cabling, ✓ networks, ✓ masts, etc. data centres, transmitters, etc. Infrastructure-Water Construction of Conveyance and N/A - reservoirs, pumping supply of potable stations, treatments water. Conveyance works, and distribution and treatment of ✓ ✓ networks waste water. Direct emissions from potable waste water treatment Infrastructure- Construction of road, Street and public Vehicular ✓* Transport rail, airports, and port realm lighting. emissions ✓ ✓ facilities Gantries, signage, signaling, etc. Infrastructure-Waste Construction of waste ✓ Energy used to Direct emissions ✓**** processing, treatment, power waste of final disposal recycling, and final handling, e.g. incinerators disposal facilities processing, and landfills and treatment ✓ equipment. Transport of waste could also be included if deemed appropriate Refurbishment Infrastructure ✓ N/A N/A - infrastructure refurbishment & - mainteinance Waste from any ✓ N/A N/A - construction, maintenance of - demolition activities, or infrastructure assets * Includes all direct and indirect vehicle emissions (highway, rail, boat, plane) within the jurisdictional boundary. ** For presentation purposes public, industrial, and commercial categories are used as summary headings to represent the wider building stock. Fuller non-domestic building definitions and scopes for CPM could be developed. *** Energy grid system losses and associated emissions would be accounted for within the relevant operational and use categories for buildings and infrastructure assets. However, losses arise due to infrastructure system inefficiencies that can be more directly associated with energy infrastructure so it might be better to assign it to the energy sector. Care would have to be taken to avoid double counting. **** Direct emissions from the use of waste infrastructure that provides end disposal solutions such as landfill, composting or incineration. 72 GREENING CONSTRUCTION Endnotes 1 World Economic Forum (2016), http://www3.weforum.org/docs/WEF_Shaping_the_Future_of_Construction_ full_report__.pdf 2 UN (2017), https://www.un.org/development/desa/en/news/population/world-population-prospects-2017.html 3 Global Infrastructure (2014), http://resilient-cities.iclei.org/fileadmin/sites/resilient-cities/files/Resilient_ Cities_2014/PPTs/A/A1_Tafur.pdf 4 World Economic Forum (2016), http://www3.weforum.org/docs/WEF_Shaping_the_Future_of_Construction_ full_report__.pdf 5 International Energy Agency (2017), http://www.worldgbc.org/sites/default/files/UNEP%20188_GABC_en%20 %28web%29.pdf 6 Creutzig et al. (2016), https://www.researchgate.net/ publication/310774945_Urban_infrastructure_choices_structure_climate_solutions 7 World Bank (2018), https://carbonpricingdashboard.worldbank.org/ 8 Mercure et al. (2018), https://www.nature.com/articles/s41558-018-0182-1 9 PWC (2017), https://www.pwc.com/jp/en/press-room/world-in-2050-170213.html 10 Global Infrastructure (2014), http://resilient-cities.iclei.org/fileadmin/sites/resilient-cities/files/Resilient_ Cities_2014/PPTs/A/A1_Tafur.pdf 11 Krausmann et al. (2017), https://www.researchgate.net/publication/313407407_Global_socioeconomic_ material_stocks_rise_23-fold_over_the_20th_century_and_require_half_of_annual_resource_use 12 International Energy Agency (2017), http://www.worldgbc.org/sites/default/files/UNEP%20188_GABC_en%20 %28web%29.pdf 13 Huang et al. (2017), https://www.sciencedirect.com/science/article/pii/S1364032117309413 14 International Energy Agency (2017), http://www.worldgbc.org/sites/default/files/UNEP%20188_GABC_en%20 %28web%29.pdf 15 Yan et al. (2010), https://www.sciencedirect.com/science/article/pii/S0360132309002649 16 Sandanayake et al. (2016), https://www.sciencedirect.com/science/article/pii/S0360132315301104 17 Ibid. 18 German Federal Environment Ministry (2018), https://www.carbon-mechanisms.de/en/introduction/ the-paris-agreement-and-article-6/ 19 Friends of the Earth (2010), https://ec.europa.eu/clima/sites/clima/files/docs/0005/ registered/9825553393-31_friends_of_the_earth_europe_en.pdf 20 Stern-Stiglitz (2017), https://www.carbonpricingleadership.org/ report-of-the-highlevel-commission-on-carbon-prices/ 21 World Bank (2018), https://openknowledge.worldbank.org/bitstream/handle/10986/29687/9781464812927. pdf?sequence=5&isAllowed=y 22 World Bank (2018), https://openknowledge.worldbank.org/bitstream/handle/10986/29687/9781464812927. pdf?sequence=5&isAllowed=y 23 BSI (2015), https://shop.bsigroup.com/ProductDetail/?pid=000000000030339218 24 Mott MacDonald (2015), https://www.mottmac.com/views/ pas-2080-prepare-for-worlds-first-specification-on-carbon-management 25 Please note that there are many more delivery mechanisms and substructures therein. This list outlines some of the most frequently used models in the construction industry. 26 The choice of delivery method will also depend on project type, size, complexity, and client priorities. More integrated approaches are not always better at achieving carbon savings. 27 Yale (2017), https://carbon.yale.edu/sites/default/files/files/Energy%20Econ%20Carbon%20Pricing%20Report.pdf 28 The Climate Reality Project (2017), https://www.climaterealityproject.org/sites/climaterealityproject.org/files/ HandbookonCarbonFinancing_Final_May16.pdf APPENDIX 73 29 Institute for Climate Economics (2016), https://www.i4ce.org/wp-core/wp-content/uploads/2016/09/internal- carbon-pricing-november-2016-ENG.pdf 30 Yale (2017), https://carbon.yale.edu/sites/default/files/files/Energy%20Econ%20Carbon%20Pricing%20Report.pdf 31 European Commission, https://ec.europa.eu/clima/policies/ets/markets_en 32 Additionality is the requirement that emissions reductions are generated by a project above what would occur in the absence of the scheme. GHG Institute (2015), http://ghginstitute.org/wp-content/uploads/2015/04/ AdditionalityPaper_Part-1ver3FINAL.pdf 33 International Rivers, https://www.internationalrivers.org/sites/default/files/attached-files/cdm_factsheet_low-rez.pdf 34 European Commission, https://ec.europa.eu/clima/sites/clima/files/docs/ets_handbook_en.pdf 35 Grandfathering results in permits for historic emissions being issued free of charge. This is designed to minimize the negative impacts on competition from reducing high-emission activities, often sought by high- carbon industries such as cement and steel. In practice, it can allow participants to ensure more generous future allocations, effectively rewarding high emitters and limiting the revenues governments can collect. SEO Amsterdam Economics (2010), http://www.seo.nl/uploads/media/2010-65__Carbon_Trading.pdf 36 The Climate Reality Project (2016), https://www.climaterealityproject.org/sites/climaterealityproject.org/files/ HandbookonCarbonFinancing_Final_May16.pdf 37 Policy Exchange (2018), https://policyexchange.org.uk/wp-content/uploads/2018/07/The-Future-of-Carbon- Pricing.pdf 38 IETA (2015), http://www.ieta.org/resources/Resources/Case_Studies_Worlds_Carbon_Markets/rggi_ets_ case_study-may2015.pdf 39 If the tax rate is too low, for example, there is no incentive to reduce high-emission activities, so companies and households opt to pay the tax while continuing to pollute. Equally, if the tax is too high, costs to limit high-emission activities may increase too much, with knock-on effects for companies’ profits and household budgets. LSE (2014), http://www.lse.ac.uk/GranthamInstitute/faqs/which-is-better-carbon-tax-or-cap-and-trade/ 40 LSE (2017), http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2017/12/How-to-make-carbon-taxes- more-acceptable.pdf 41 https://www.c2es.org/site/assets/uploads/2015/04/market-mechanisms-brief.pdf 42 World Bank (2018), https://openknowledge.worldbank.org/bitstream/handle/10986/29687/9781464812927. pdf?sequence=5&isAllowed=y 43 CDP (2017), https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/ reports/documents/000/002/738/original/Putting-a-price-on-carbon-CDP-Report-2017.pdf?1508947761 44 CPLC (2018), CVC Task Team Background Paper Construction Industry Value Chain: How Companies Are Using Carbon Pricing to Address Climate Risk and Find New Opportunities 45 Ibid. 46 Financial Stability Board: Task Force on Climate-related Financial Disclosures, https://www.fsb-tcfd.org/ 47 Given the small number of case studies tested, this analysis does not separate buildings and infrastructure products and materials with the highest carbon costs. 48 Thomas (2007), https://www.cement.org/docs/default-source/fc_concrete_technology/is548-optimizing-the- use-of-fly-ash-concrete.pdf 49 Moriconi (2018), https://www.researchgate.net/publication/267797384_Recyclable_materials_in_concrete_ technology_sustainability_and_durability 50 CDP (2017), https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/ reports/documents/000/002/738/original/Putting-a-price-on-carbon-CDP-Report-2017.pdf?1508947761 51 UNFCCC, http://www4.unfccc.int/submissions/INDC/Published%20Documents/South%20Africa/1/South%20 Africa.pdf 52 Kibwami and Tutesigensi (2015), https://core.ac.uk/download/pdf/30273266.pdf 53 Monjon and Quirion (2011), https://www.tandfonline.com/doi/abs/10.1080/14693062.2011.601907?src=recsys&jo urnalCode=tcpo20 54 Science-Based Targets, https://sciencebasedtargets.org/ 55 Committee on Climate Change, https://www.theccc.org.uk/tackling-climate-change/ reducing-carbon-emissions/carbon-budgets-and-targets/ 74 GREENING CONSTRUCTION 56 LSE (2017), http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2017/12/How-to-make-carbon-taxes- more-acceptable.pdf 57 Landrigan (2018), https://www.thelancet.com/pdfs/journals/lancet/PIIS0140-6736(17)32345-0.pdf 58 AECOM (2016), https://www.london.gov.uk/sites/default/files/london_carbon_offset_price_-_aecom_.pdf 59 Center for Climate and Energy (2015), Ehttps://www.c2es.org/site/assets/uploads/2015/04/market- mechanisms-brief.pdf 60 Stern-Stiglitz (2017), https://www.carbonpricingleadership.org/ report-of-the-highlevel-commission-on-carbon-prices/ 61 These case study examples do not represent all construction projects, some of which would not show a majority of emissions coming from use. 62 Koezjakov et al. (2018), https://www.sciencedirect.com/science/article/pii/S0378778817333364 63 LSE (2017), http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2017/12/How-to-make-carbon-taxes- more-acceptable.pdf 64 Norton Rose Fulbright (2016), http://www.nortonrosefulbright.com/knowledge/publications/134862/ cop21-the-paris-agreement#section4 65 Newbery et al. (2018), https://www.eprg.group.cam.ac.uk/wp-content/uploads/2018/06/1816-Text.pdf 66 BEIS (2018), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ file/725912/SECR_and_CRC_Final_IA__1_.pdf 67 DEFRA (2009), http://webarchive.nationalarchives.gov.uk/20090731171844/http://www.defra.gov.uk/ environment/climatechange/uk/business/crc/ 68 BSI (2011), https://shop.bsigroup.com/ProductDetail/?pid=000000000030256638 69 UK Government (2015), https://www.gov.uk/government/publications/ display-energy-certificates-and-advisory-reports-for-public-buildings 70 National Australian Built Environment Rating System, https://www.nabers.gov.au/ 71 BSI (2016), https://shop.bsigroup.com/ProductDetail?pid=000000000030323493 72 RICS, http://www.rics.org/uk/knowledge/professional-guidance/professional-statements/ whole-life-carbon-assessment-for-the-built-environment-1st-edition/ 73 US-GBC, https://new.usgbc.org/leed 74 IFC, https://www.edgebuildings.com/ 75 BRE, http://www.ceequal.com/ 76 Though other/similar schemes aimed at operation emissions may exist, this approach could be designed to account for and accommodate these, thus minimizing the additional burden of the scheme. 77 CS Federalismo (2018), http://www.csfederalismo.it/images/Research_paper/CSF-RP_AMajocchi_Border-Tax- Adjustment_February2018.pdf 78 These potential approaches taken by the supplier are also relevant to Scenario 2, where costs to the asset owner/developer are reduced as a carbon price levy has already been paid. 79 CPLC (2016), http://pubdocs.worldbank.org/en/759561467228928508/CPLC-Competitiveness-print2.pdf 80 IETA (2016), https://www.ieta.org/resources/Resources/Reports/Carbon_Pricing_The_Paris_Agreements_ Key_Ingredient.pdf 81 AECOM (2016), https://www.london.gov.uk/sites/default/files/london_carbon_offset_price_-_aecom_.pdf 82 PAS2080: Carbon Management in Infrastructure (2016), https://shop.bsigroup.com/ProductDetail? pid=000000000030323493 83 Adapted from BS EN 15804 on Sustainability of Construction Work and PAS2080 on Carbon Management in Infrastructure. 84 CDP (2018), https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/ reports/documents/000/003/326/original/Carbon-Pricing-Corridors-2018.pdf?1526464647 APPENDIX 75