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The Rise and Stall of Carbon Offsetting in London

July 12, 2021
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The Greater London Authority (GLA) introduced carbon offsetting for all major domestic developments[1] in October 2016, in line with Mayor’s plan to be a zero-carbon city.

Local Planning Authorities (LPAs) within the London Plan area are required to set up carbon offset funds and collect from developers to meet any shortfall in the reduction of carbon from new developments. The GLA monitors and reports this progress, with the latest progress reported for 2020. Nahla Abdalla takes a closer look at London’s progress towards carbon offsetting schemes established by local authorities.

The Big Picture

Since carbon offsetting mechanisms were put in place in London, nearly £90 Million in revenue has been collected or secured by legal agreement – the equivalent to 50,000 tonnes of CO2. These funds were collected from developments that have not met the net zero carbon target on site.

The payment is calculated by multiplying the cumulative carbon shortfall for a development by the offset price to confirm the required cash-in-lieu contribution. The GLA’s price for offsetting carbon to this point has been £60 per tonne calculated over 30 years. The carbon offset price (for regulated energy) introduced in the London Plan 2021 has now risen to £95 over 30 years, so effectively £2,850 per tonne. The implementation of the zero carbon and offsetting policies varies between all 35 London LPAs. All LPAs reported using a GLA-recommended carbon offset price for a 30-year period, except for Islington (£920/tonne CO2) and Lewisham (£104/tonne CO2) per annum.

Table 1 below shows the split between collected and ‘secured’ revenues across the whole of London and Table 2 shows the split by LPA.

Table 1 – Total value of carbon offset payments collected and secured since 1 October 2016

Total amount collected since 1 October 2016Total amount secured by legal agreement but not collected since 1 October 2016Total
£32,437,763£57,538,560£89,976,323

Table 2 – Breakdown of carbon offset payments collected and secured since 1 October 2016

LPATotal amount collected   since 1 October 2016Total amount secured by legal agreement but not collected since 1 October 2016
Barking & Dagenham£18,3700
Barnet£51,297£2,158,942
Bexley£68,000£517,508
Brent£531,246£382,980
Bromley£259,226£1,102,380
Camden£2,143,955£3,316,295
City of London Corporation£345,160£3,422,643
Croydon£1,424,000£3,684,000
Ealing£225,540Information not available
Enfield£321,998£94,900
Greenwich£600,874£1,355,378
Hackney£1,305,690£1,330,663
Hammersmith & Fulham£252,667£3,100,000
Haringey£755,060£2,866,594
Harrow£268,222£1,593,704
Havering£383,000Information not available
Hillingdon£900,000Information not available
Hounslow£747,941£2,037,945
Islington£7,231,489£3,176,127
Kensington & Chelsea£110,285£59,435
Kingston£319,819£353,166
Lambeth£186,224£4,019,201
Lewisham£236,196£833,264
London Legacy Development Corporation (LLDC)£130,000£130,000
Merton£139,259£282,817
Newham£684,061£3,012,836
Old Oak and Park Royal Development Corporation (OPDC)0Information not available
Redbridge0£240,762
Richmond on Thames£14,267£470,613
Southwark£1,933,249£4,868,915
Sutton0£44,037
Tower Hamlets£3,900,000£7,700,000
Waltham Forest£1,845,319£15,840
Wandsworth£405,348£2,897,615
Westminster£4,700,000£2,600,000

Tables 1 and 2 show that the amount that has been collected and is available for spending is 36% of the overall total, increasing from 22% in 2019.  However, this value will vary from year to year due for various reasons, including the time lag between securing of funds and their actual collection.

Table 3: Total carbon offset fund expenditure since 1 October 2016

LPAExpenditure
Camden£313,222  
City of London£14,382
Croydon£843,000
Enfield£200,000
Greenwich£9,960
Hackney£775,020
Hammersmith & Fulham£125,296
Hillingdon£250,000
Hounslow£364,415
Islington£6,335,439
Kingston£175,152
Lewisham£30,000
Merton£56,449
Tower Hamlets£3,100,000
Waltham Forest£849,387
Westminster£394,707
TOTAL£13,836,429

Of the 35 LPAs that have disclosed progress, only fifteen have reported they had begun spending their carbon offset funds, with one (Enfield) reporting that the funds were committed but had not been spent yet. Whilst there has been recent progress in terms of total expenditure and the number of LPAs spending (the number of LPAs has doubled since the 2019 survey), there is still significant way to go.

Barriers to Collecting and Spending Funds

Some of the key limitations to spending, include:

  • Limited staff resource reported by ten LPAs.
  • A greater accumulation of funds needed to support project delivery as reported by nine LPAs. However, this is changing as greater level of funds has been reported.
  • Four LPAs specifically cited the COVID-19 pandemic as slowing down their carbon offset fund activity.
Eligible types of Projects

To assess a project’s eligibility for carbon offset funds, LPAs should follow existing internal procedures to ensure it represents value for money and is deliverable.

Figure 1 – Eligible projects funded

  • Figure 1 shows the main project categories which are targeted for offset funds, with popular ones being projects on the local authorities own estate, as well as in schools, for example through retrofitting energy efficiency measures and renewable energy installations. In addition to behaviour change, education and green infrastructure projects also representing a popular target for funding.
  • This is in keeping with the GLA’s Carbon Offset Fund guidance which recommends spending funds on energy efficiency projects where solutions are readily available and commonly undertaken. Behaviour change type projects are not a priority since they are less tangible in terms of carbon saving.
  • Any projects that are funded directly by a developer should demonstrate additionality[2] in line with the GLA’s guidance.
Example of Spending
  • Camden climate fund with 3 different grants for households, businesses and community groups to install renewable energy systems and make energy efficiency improvements (applicants to match 50% of cost and any additional costs).
  • Installation of LED street lighting in Hammersmith & Fulham; £77,000 funded; carbon savings predicted and will be confirmed at project completion.
  • Solar PV rooftop installation at Civic Centre IN Bromley using £100,000 of offset funds, helping the council to achieve energy and cost savings and reduce the organisation’s emissions.
  • Feasibility assessment for low carbon retrofit of a local primary school In Westminster. Bid value £24,918. This will help identify opportunities to improve school facilities and reduce running costs.
Funding recipients and beneficiaries
  • There are no restrictions as to who can be a recipient or beneficiary of offset funds provided the project being funded aligns with an LPA’s identified priorities for offset funds.
  • Recipient or beneficiary could therefore be a local business, public sector organisation, community organisation or not-for-profit organisation.
Alternative ‘off-site’ arrangements

This is an alternative approach for offset payments which allows agreement between LPAs and developers to undertake a carbon saving project (providing additionality) off site in order to meet any shortcomings related to the resulting project emissions. This has been reported by 5 LPAs and some examples for offsite arrangements include the following:

  • Bexley – Carbon reduction projects funded by the developer on Orbit Housing Association’s existing building stock, resulting in a direct benefit to local residents.
  • Brent – Applicant replaced lamps in a nearby building to offset their carbon.
  • Hackney – The applicant installed solar PV panels at an off-site school.
Combining with other sources of funding

This is sought in cases where carbon offset funds are not enough to fully fund projects and to ensure maximising the impact of offset funds. It has been reported in the survey that:

  • Seven LPAs reported that they had combined offset payments with other sources of funding.
  • Six LPAs reported that as funds had not been spent yet there has not been a need to explore this.
  • 20 LPAs reported that they would, or are, considering co-funding.

Figure 2: shows the types of funding sources that were reported

Conclusion

The has been real progress in setting up carbon offset funds to collect revenue from developers, however a noticeable lack of progress in deploying the revenue. According to the GLA’s 2020 survey on carbon offset funds, 75% of collected funds remain unspent, and most LPAs have not yet begun investment.

The funds collected are expected to grow exponentially, as a result of the zero-carbon target being extended to major non-domestic development and the change in offset price from £60 to £95 per tonne of CO2 (calculated over 30 years), which raises the question of how LPAs should best maximise opportunities to spend the funds collected.  It is recommended as a result of the survey that LPAs should continue to accurately monitor and collect offset payments, partner with other LPAs to support funds, and lastly to establish governance arrangements for the remaining 7 LPAs for easier management of funds. In addition, to allow for more spending, LPAs could allow these funds to be accessible to businesses that are deemed eligible (with the consideration of additionality), which will help in providing greater carbon savings across London.

In general, LPAs should ensure proper existing or new arrangements and procedures are in place to be utilised in the management and comprehensive monitoring of carbon offset funds to ensure that they are being spent.


[1] All major developments: Generally, those developments with 10 or more units or with >1000m2 of non-domestic floorspace.

[2] Additionality means that a project will result in carbon savings that would not have occurred in the absence of the required funding ‘Savings achieved beyond of what would take place anyway.’ A project will need to offer additionality to qualify for an offset fund, and this means the following:

  • The project would not have occurred without the offset funding
  • The project would not have occurred under a business-as-usual scenario
  • Projects are not required to meet national legislation.

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