Calculating and securing a carbon offset contribution

A carbon offset contribution planning payment is the price of the gap between the reduction your scheme achieves on site and the reduction policy asks for. In London the mechanism comes from London Plan 2021 Policy SI 2: major development should be net zero-carbon, with a minimum on-site reduction of 35 per cent beyond the Building Regulations baseline, and any shortfall met through a cash in lieu payment to the borough's carbon offset fund or through off-site provision. The sum is the residual regulated emissions, multiplied by a period, multiplied by a price per tonne.

Three numbers. Each one is argued about separately, and each one has to survive into the section 106 agreement in a form that works when the scheme is built out in phases.

When an offset payment arises

The trigger is a policy requirement your scheme does not meet on site. Under Policy SI 2 the on-site minimum is 35 per cent beyond Part L, of which residential development should deliver 10 per cent and non-residential development 15 per cent through energy efficiency alone, before any low carbon or renewable technology is counted. Whatever remains between the on-site result and zero is the residual, and that is what gets offset.

Outside London the position is patchier. A number of authorities have adopted local plan policies or supplementary planning documents with a similar structure, and some have none at all. Read the adopted policy wording and any energy or carbon supplementary document before you assume either way, and treat a neighbouring borough's approach as no guide to your own.

The payment is not a substitute for the on-site minimum. An applicant who offers a larger cash sum instead of hitting the energy efficiency element is refusing to comply with the policy, and officers treat it that way.

Identifying the residual regulated emissions

Only regulated emissions count. Those are the emissions from fixed building services: space heating, hot water, cooling, ventilation, fixed lighting and auxiliary energy, as modelled under Part L using the approved methodology for the building type. Unregulated emissions from cooking, appliances and small power sit outside the calculation.

The figure you need is the annual regulated carbon dioxide emissions remaining after the final stage of the energy hierarchy. Work through it in order:

1. Be Lean. Fabric and passive measures, with the percentage saving against the Part L baseline recorded separately, because the policy sets a minimum for this stage on its own.
2. Be Clean. Connection to or provision for a heat network where one exists or is planned.
3. Be Green. Renewable generation on site, most often photovoltaics, with the array area and orientation evidenced rather than assumed.
4. The residual. Annual regulated emissions in tonnes of carbon dioxide after all three stages.

Present the stages as a table with absolute emissions and percentage reductions at each step, taken directly from the compliance outputs. The Energy Statement is where this belongs, and the residual figure in it is the number the borough will use, so an error there becomes an error in the legal agreement. Logistics and industrial schemes have their own version of this problem, covered in our note on energy statements for warehouse schemes.

The period and price the authority applies

The London convention is to offset 30 years of residual emissions. So the calculation is annual residual emissions in tonnes, multiplied by 30, multiplied by the price per tonne the authority applies.

The price is the part that moves. The Greater London Authority publishes a recommended carbon price in its energy assessment guidance, boroughs may adopt that figure or set their own in a supplementary planning document, and the figure has been revised more than once. Do not carry a price forward from a previous application. Check the current published figure for that borough at the point you submit, and check whether the authority applies indexation to it.

As an illustrative example, take a scheme with a residual of 20 tonnes of carbon dioxide a year after the Be Green stage. At 30 years that is 600 tonnes to offset, and the contribution is 600 multiplied by whatever price per tonne the authority has published. The arithmetic is trivial. The argument is entirely about the residual figure and the price, which is where the scrutiny should go. Figures here are illustrative.

Checking the current published figure

Build this into your submission checklist rather than treating it as a detail.

• The borough's current carbon offset price per tonne, with the document and date it comes from.
• Whether the borough uses the Greater London Authority recommended figure or a local one.
• The offset period, which is conventionally 30 years but should be confirmed.
• Whether the price is indexed, and to which index and base date.
• Whether the borough requires payment into a ring-fenced fund and publishes what the fund is spent on.

Print the source page and keep it. Offset prices have changed between validation and decision on slow-moving applications, and having the figure you relied on, dated, is what keeps the negotiation short.

Drafting the obligation and its trigger

The clause needs to do four things: fix the sum or the formula, fix when it is paid, fix what happens on phasing, and fix what happens if the as-built performance differs.

Fixing a cash sum is simplest and is what most boroughs prefer. A formula clause, where the sum is calculated from the as-built compliance outputs at a stated price, is more accurate and much more likely to generate a dispute two years later. Where a formula is used, name the methodology version, the price source and the person who verifies the output.

Triggers in practice fall into three patterns. Payment before commencement, which councils like and funders do not. Payment on or before first occupation, which is the common compromise. Payment in tranches tied to occupation of defined phases or plot numbers, which suits build-to-sell schemes.

Indexation matters more than developers expect on a five-year build programme. Agree the index and the base date, and read whether indexation runs from the date of the agreement or the date of the policy document that set the price.

Phasing and payment on occupation

On a multi-phase scheme, calculate the residual per phase and pay per phase. A single sum for the whole development calculated from an outline energy strategy will be wrong by the time phase three is designed, and it removes any incentive to improve the later phases.

Two drafting points repay attention. First, define the phases by reference to a plan annexed to the agreement, not by description. Second, allow for a phase that over-performs, so a surplus in one phase can be set against the residual in another, with the net position reconciled at the end.

Where a heat network is planned but not yet built, the agreement usually needs a connection obligation with a fallback: provision for future connection, an interim heating solution, and a recalculation of the offset if the network never arrives. That fallback is frequently the difference between a workable agreement and one that stalls. Combustion-based plant brings its own consenting problem, as our piece on combined heat and power and air quality explains.

What happens if the as-built performance differs

Designed performance and as-built performance diverge, and the London Plan's monitoring stage exists precisely because of that. The Be Seen requirement asks for as-built and in-use energy data to be reported, which means the borough will eventually be able to see whether the modelled residual was achieved.

Sensible agreements deal with this in advance. A post-construction review clause requiring the as-built compliance outputs to be submitted before occupation, a balancing payment where the as-built residual exceeds the modelled one, and no refund where it is lower unless the council agrees otherwise. Read carefully whether the council wants the balancing payment or the whole payment deferred to as-built, because the cash flow consequences are different.

The offset payment does not answer every carbon question either. Operational regulated carbon is separate from embodied carbon, which on referable schemes is assessed through a Whole Life Carbon Assessment, and the wider policy commitments usually sit in a Sustainability Statement. Councils usually expect a suitably qualified author for whole life carbon work and professional review is strongly advised.

This is general guidance rather than legal advice. Offset prices, periods and policy wording differ by authority and change, so check the current published figures with your local planning authority and take advice on the section 106 drafting before relying on any of this.

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