The carbon offset calculation in an Energy Statement

The carbon offset payment in an Energy Statement is the cash value of the emissions a scheme fails to eliminate on site. It is calculated from the residual regulated carbon dioxide emissions remaining after the energy hierarchy has been worked through, multiplied by a period of years and by a price per tonne set by the authority. On a major residential scheme it is a six figure line in the appraisal, and it is frequently discovered late.

The mechanism is most developed in London, where the London Plan requires major development to be net zero carbon with a minimum on-site reduction, and any shortfall met through a cash in lieu contribution to the borough's carbon offset fund. A growing number of authorities outside London have adopted similar policies, so read the local plan rather than assuming the scheme is unaffected.

When an offset payment arises

The payment arises where policy sets a net zero target and the scheme cannot meet it on site.

Work through the hierarchy in order. Be lean, meaning fabric and demand reduction. Be clean, meaning efficient heat supply and connection to a heat network where one exists. Be green, meaning renewable energy generation on site. Be seen, meaning monitoring and reporting of actual performance after completion.

If the target is a stated percentage improvement over the building regulations baseline and the scheme achieves less, the gap is the offset. If the scheme achieves the on-site minimum but not net zero, the remaining emissions are the offset. Either way the figure is a by-product of the modelling rather than a separate calculation, which is why it should be visible from the first energy model rather than at planning submission.

An Energy Statement that presents a target percentage without showing the residual tonnage is incomplete, and most authorities will ask for the reporting spreadsheet before validating.

Calculating residual regulated emissions

Regulated emissions are those covered by the building regulations: space heating, hot water, fixed lighting, ventilation and auxiliary energy. Cooking and appliances are unregulated and sit outside the calculation, although some authorities ask for them to be reported separately.

For dwellings, the figure comes from the standard assessment procedure output. For non-domestic buildings it comes from the simplified building energy model or from dynamic simulation. The model produces a baseline emission rate and a rate for the proposed design, and the difference at each stage of the hierarchy is what the reporting spreadsheet records.

Two things trip people up.

The carbon factors used in the calculation are those built into the current version of the assessment methodology, and the electricity factor fell sharply between generations of the methodology. That change altered the relative standing of electric and gas heating substantially, so a comparison carried out under an earlier version cannot be reused.

And the baseline moves. The Part L uplift changed the target, and the Future Homes Standard will change it again. State in the statement which version of the regulations and which methodology version were used, with the date.

The period over which emissions are counted

The offset is not a payment for one year of emissions. It covers the emissions over an assumed operational period, conventionally 30 years.

So the calculation is residual regulated emissions in tonnes of carbon dioxide per year, multiplied by 30, multiplied by the price per tonne.

Illustrative example only. A scheme with residual regulated emissions of 20 tonnes of carbon dioxide a year, over a 30 year period, at a price of £95 per tonne, produces a contribution of £57,000. The figures are illustrative and the arithmetic is the point rather than the numbers.

The Greater London Authority has recommended a price of £95 per tonne over 30 years. Boroughs may set their own price, the recommended figure is reviewed periodically, and authorities outside London set theirs through their own policy. Confirm the current price with the authority in writing before it goes into an appraisal, because a change in the price per tonne moves the contribution proportionally.

How the payment is secured and what it funds

The contribution is secured through a planning obligation, normally payable before occupation or in phases tied to occupation triggers. It is ring-fenced within the authority's carbon offset fund.

Funds are typically spent on carbon reduction projects that would not otherwise happen: retrofit of the authority's own housing stock, energy efficiency schemes for households in fuel poverty, and renewable installations on public buildings. Authorities report receipts and spending through their annual infrastructure funding statement, which is worth reading if you want to know whether earlier contributions were used.

Two drafting points matter in the agreement. Index the contribution, and state the index and base date. And tie the trigger to an occupation event rather than to a calendar date, so a delayed scheme does not pay before it has revenue.

Interaction with the on-site reduction target

The offset does not replace the on-site requirement. Policies of this kind set a minimum on-site reduction, and a scheme falling below that minimum does not meet policy whatever it offers to pay.

That distinction gets lost in value engineering. Removing photovoltaic panels to save capital cost increases the offset payment, and if the removal takes the scheme below the on-site minimum it also creates a policy conflict that money cannot cure.

Run the comparison properly. The capital cost of the additional on-site measure, against the offset payment avoided plus the operational energy cost avoided over the building's life. On many schemes the on-site measure wins once the offset is counted, and that calculation belongs in the Viability Assessment inputs rather than in a separate spreadsheet nobody reconciles.

Evidence the authority checks

Expect the energy team or the authority's consultant to ask for five things.

1. The completed reporting spreadsheet in the authority's own format, showing emissions at baseline and after each stage of the hierarchy.
2. The model output files, meaning the compliance reports from the assessment software for a representative sample of dwelling types or for each non-domestic zone.
3. Evidence for the heat network position, including a search for existing or planned networks and a reason if the scheme does not connect.
4. The cooling hierarchy and an Overheating Risk Assessment to the relevant methodology, because a scheme that solves carbon by sealing the envelope and then adds comfort cooling has moved the problem rather than solved it.
5. The post-construction monitoring commitment, where policy requires actual performance to be reported after completion.

A Sustainability Statement usually sits alongside and should not contradict the energy figures. Embodied carbon is a separate exercise again, handled through a Whole Life Carbon Assessment, and the offset calculation does not cover it.

Budgeting for the payment at appraisal stage

Put the offset into the appraisal at the point the concept design is fixed, not at planning submission.

The inputs you need are the likely residual emissions from an early energy model, the period, and the current price per tonne from the authority. An early model will be wrong at the margins and right about the order of magnitude, which is what an appraisal needs.

Then test sensitivity. Model the payment at the current price and at a materially higher one, because prices have been reviewed upward and a scheme with a long consent to start date carries that risk. And model it with and without the marginal on-site measure, so the design team is choosing between costs rather than discovering one.

This is general guidance, not legal advice. Offset prices, policy targets and the building regulations baseline all change, so check the current position with your local planning authority before relying on it. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval. Councils usually expect an energy assessment to be prepared by a suitably qualified author, and professional review is strongly advised.

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