How financial incentives in the construction sector could be the key to achieving the Net Zero Target

In 2019, Gibraltar committed to a 100% reduction of greenhouse gas emissions by 2045, also referred to as the Net Zero Target, following the commencement of The Climate Change Act 2019. Emissions from households are currently one of the largest contributors to emissions of any sector. Positive environmental changes in the construction sector will therefore play a vital part in achieving the Net Zero Target. How, therefore, do we go about achieving this change? Might Gibraltar need incentives? 

In a climate where many are being forced to tighten their belts, financial incentives will encourage the desired change in the construction sector and will be an important factor in driving the societal shift desperately needed. Below some of the principal incentives that are currently being explored in the UK are discussed, albeit this list is not exhaustive. More and more green financial incentives are materialising which could serve as inspiration for the sector in Gibraltar. For a full insight on the UK incentives available see The Green Shift – GHA Knowledge Base (goodhomes.org.uk).

‘…financial incentives provide high levels of environmental sustainability in a way that are financially advantageous for all stakeholders.’ 

Principle Incentives

• Cheaper funding for greener projects is becoming available

There is now a demand for investors to be making smarter, greener decisions when it comes to their investments. Some market leaders in the investment industry are now offering loans to developers for low and zero carbon projects with lower and more competitive interest rates. The Royal Institute of British Architects (RIBA) Carbonlite Challenge rewards property developers by offering cheaper finance for more sustainable projects. Additionally, certain banks will now only fund projects with high environmental credentials. Providing discounted development finance to build energy efficient homes will undoubtedly steer the market in a greener direction.  

• Green mortgages 

There is now wider availability and eligibility for homebuyers to obtain green mortgages. To help combat climate change, certain lenders have developed innovative mortgage discounts based on the energy efficiency of a home. Barclays now offers a Green Buy-to-let mortgage to landlords with EPC ratings A or B. Any savings lenders offer on their mortgage rates can also be utilised towards further energy improvement costs. The Ecology Building Society even offer discount on mortgage rates throughout the lifetime of a mortgage where EPC performance improvements can be evidenced at the end of renovation works. 

• House prices are increasing for more energy efficient homes

Research has shown that, homes with increased energy efficiency sold for a higher price when measuring against traditional homes. Property values can be as much as 14% higher.  The additional premium Homebuyers are putting on homes that have been retrofitted more than covers the average cost of making green upgrades to a home.  Sustainable homes are also selling faster than traditional homes with reports showing that the speed of sale increases with the EPC rating.

• Additional build costs for more sustainable homes are getting smaller

It has been reported that the costs incurred for implementing more sustainable measures in buildings are only marginally higher than in traditional buildings. The costs of building sustainably have now fallen with the advancement of building technologies and active energy management becoming standard practice. Developers should therefore be incentivised to adopt sustainable building practices given that any additional build costs are outweighed by, as shown above, the increased premium homebuyers are willing to pay. 

• Energy Adjustment of SDLT calculation

An adjustment in the Stamp Duty Land Tax calculation for homebuyers who opt for more energy efficient households could push the market to deliver both energy efficient buyers and incentivise developers to make more sustainable improvements.  Adjusting the SDLT both up and down to mirror the energy efficiency of the home would boost the market and incentivise homeowners to act. An adjustment of this kind geared towards driving to the Net Zero Target would be beneficial to the UK. 

Financial implications seem to be the biggest barrier to greater levels of sustainability in the built environment. Fostering new change is difficult, especially in the environmental sector. The utilisation of these incentives will be of utmost importance to Gibraltar in the coming years as the Net Zero Target inches ever closer. Although these incentives strive for a greener future, they also strive to bring about a stronger, more stimulated economy in the UK. Gibraltar could also take advantage of these rewards. Monetary incentive is the driver here but that is not to limit the significant positive environmental impact these changes would have in Gibraltar, if adopted.