Carbon offset payments and how they reach a section 106

A carbon offset payment planning requirement arises when a scheme cannot meet a local net zero policy on site, and the authority asks for a cash sum in lieu of the residual emissions. The sum is built from the shortfall in regulated carbon dioxide emissions, multiplied by a price per tonne, multiplied by a period of years, usually 30. It is then secured through a section 106 agreement, because there is no other lawful way to collect money that is not the Community Infrastructure Levy.

That framing matters because it puts the payment inside the statutory tests for planning obligations rather than outside them. A request for an offset payment can be resisted, reduced or reshaped in the same way as any other obligation, and applicants who treat it as a fixed tariff pay more than they need to.

Where the requirement comes from

There is no national carbon offset payment. The requirement is a local plan policy, or a regional one. The clearest example is the London Plan, whose energy policy requires major development to be net zero-carbon, sets a minimum on-site reduction against the Building Regulations baseline through the be lean, be clean, be green, be seen hierarchy, and directs any residual to a borough carbon offset fund. A growing number of authorities outside London have adopted comparable wording in local plan policy or in a climate supplementary planning document.

Two questions decide whether the policy applies to your scheme at all. Is it in the adopted development plan, or only in emerging policy or a guidance note that has not been through examination? And does it apply to development of this scale and use class, or only to majors and to residential?

An offset request founded on a supplementary planning document that has no adopted policy hook is weak. Supplementary documents cannot introduce new policy requirements, only explain adopted ones, and that argument is worth making before the heads of terms are agreed rather than after.

Calculating the residual emissions

The calculation is arithmetic once the energy modelling is done, but each step is a place where the number can be argued.

1. Establish the notional baseline emissions for the building under the current Part L methodology.
2. Model the as-designed regulated emissions after fabric measures, efficient services and on-site renewables.
3. Subtract to get the on-site reduction, and compare it against the policy minimum.
4. Take the residual annual regulated emissions in tonnes of carbon dioxide.
5. Multiply by the price per tonne and by the offset period, normally 30 years.

Regulated emissions only. Unregulated emissions from small power and equipment sit outside the Part L calculation and outside the offset sum, and a request that includes them should be questioned. Communal heating losses, on the other hand, are inside it, and are one of the reasons an all-electric scheme with individual heat pumps often produces a smaller residual than a heat network on the same site.

The price per tonne is set by the authority or adopted from regional guidance, and it is reviewed, so check the current published figure rather than the rate used on a scheme two years ago. The same applies to the offset period, which has been stable at 30 years but is a policy variable rather than a law of nature.

All of this belongs in the Energy Statement, with the residual and the resulting sum stated explicitly rather than left for the officer to derive. Where a whole life carbon requirement also applies, keep the two separate: a Whole Life Carbon Assessment covers embodied and lifecycle emissions and does not usually generate an offset payment.

Testing the request against the obligation tests

Regulation 122 of the Community Infrastructure Levy Regulations 2010 makes a planning obligation a reason for granting permission only where it is necessary to make the development acceptable in planning terms, directly related to the development, and fairly and reasonably related in scale and kind to it.

An offset payment usually passes the first test where an adopted policy requires net zero and the scheme falls short, because without the payment the scheme conflicts with the plan. The arguments live in the second and third tests.

• Directly related: the fund must be used for carbon reduction, and the authority should be able to say what it spends the money on. A fund with no identified projects is vulnerable.
• Scale and kind: the sum must follow the actual residual, not a per-unit tariff. Where an authority applies a flat rate per dwelling, ask for the derivation.
• Double counting: if a scheme has already been required to fund a district heat network connection, or has paid for off-site renewables through a separate obligation, the same emissions should not be charged twice.

Pooling of contributions towards the same item is no longer restricted, so the old argument about the fifth contribution has gone. What remains is the requirement for the authority to report receipts and spending in its annual infrastructure funding statement, which is the practical route to finding out whether the fund has been spent.

Securing the payment in the agreement

Four drafting points do most of the work, and all of them are easier to win before the agreement is engrossed.

Index the sum from a stated base date to a stated index, and say which. An unindexed sum agreed at resolution and paid three years later is a saving, and an authority that indexes to construction cost inflation on a carbon payment should be asked why.

Set the trigger at a stage that matches the risk. Payment on implementation is common. Payment on first occupation is better for cash flow and is defensible, because the emissions the payment offsets do not begin until the building is occupied.

Build in a reconciliation. Where the as-built energy performance is better than the modelled design, the residual falls, and the agreement can provide for a recalculation on completion with a refund or a reduced final instalment. Authorities accept this more often than applicants expect, because it aligns the payment with the actual shortfall.

Where the offset depends on something outside the applicant's control, such as a network connection, consider whether the obligation should be structured as a payment or as a negative condition. The choice between a Grampian condition and a planning obligation turns on who controls delivery.

Reducing the payment through design

The lowest cost tonne is the one never emitted, and the offset price is usually high enough that fabric and services improvements pay for themselves against it. Run the comparison explicitly: cost per tonne saved by each measure against the offset price per tonne. Improvements to airtightness, ventilation heat recovery, pipework insulation in communal systems, and a larger photovoltaic array frequently beat the offset rate.

Two measures are often overlooked. Reducing communal distribution losses in a heat network, which can be a large share of the residual, and optimising the heat pump flow temperature, which changes the seasonal coefficient of performance used in the model.

Where the residual survives all of that, the payment is the right answer, and arguing about it is unbillable time. Where viability is constrained on the evidence, the offset sits in the appraisal alongside affordable housing and other obligations, and the tension is resolved through the viability evidence tested at appeal rather than by refusing to engage with the policy.

This is general guidance, not legal advice. Check the position with your local planning authority or a qualified professional 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.