Carbon offset payments and shortfall contributions
An offset payment is the price of the carbon you did not save on site. Getting the calculation and the clause right is worth more than arguing about the rate.
A carbon offset contribution in planning is a cash payment covering the regulated carbon emissions a development fails to eliminate on site. The policy structure is simple enough: achieve a stated percentage improvement on the Building Regulations baseline through design, then pay for the remaining tonnes over an assumed 30 year period. London Plan policy SI 2 is the best known version of it, requiring major development to be net zero carbon with any shortfall met through a cash in lieu payment into the borough's carbon offset fund.
The arithmetic is where the money is decided, and it is settled in the energy statement rather than in the negotiation.
Where the requirement comes from
Policy SI 2 of the London Plan sets the net zero carbon target for major development and applies the Be Lean, Be Clean, Be Green, Be Seen hierarchy. A minimum on-site improvement is required before any offsetting, and the Greater London Authority's energy assessment guidance sets the current percentages and the recommended offset price per tonne. Take both from that guidance, because the GLA updates it between plan reviews.
Outside London, a number of authorities have adopted similar offset policies through their local plans, with their own rates and their own funds. Check whether your authority has one, what it charges, and whether the policy applies to your scale of development, before assuming the London approach transfers.
The legal hook is a planning obligation under section 106 of the Town and Country Planning Act 1990, and it has to satisfy regulation 122 of the Community Infrastructure Levy Regulations 2010. That means necessary to make the development acceptable, directly related to it, and fairly and reasonably related in scale and kind. A payment calculated from the scheme's own residual emissions passes those tests comfortably.
Calculating the residual shortfall
The calculation runs off the compliance model, so the inputs matter more than anything else.
- Model the regulatory baseline for the scheme under the current Part L methodology.
- Model the proposed design and report the regulated carbon emissions after energy efficiency measures alone, which is the Be Lean stage.
- Add heat network or efficient supply measures, the Be Clean stage, and report again.
- Add on-site renewables, the Be Green stage, and report the final regulated emissions.
- The residual is the difference between the final figure and zero regulated emissions, expressed in tonnes of carbon dioxide per year.
- Multiply the annual residual by 30 and by the authority's price per tonne.
Two common errors inflate the result. Using the wrong baseline edition, which happens whenever a scheme is designed across a regulatory change. And reporting unregulated emissions in the residual, which most policies exclude.
Set the whole sequence out in the Energy Statement as a table showing tonnes per annum at each stage. An officer who can see the hierarchy working will accept the residual. One handed a single final number will ask for the workings, and that costs a round of correspondence.
The price applied per tonne and how it is set
The rate is a policy figure rather than a market one. It is published by the authority, usually in the local plan or in supporting guidance, and it is set to approximate the cost of achieving the carbon saving elsewhere over the assessment period.
Three practical points follow.
The figure in force at the date of the decision is normally the one applied, so a scheme determined after an update pays the new rate. Agreements index the payment from the date of the agreement, which matters where occupation is years away. And the 30 year assumption is a convention built into the policy rather than a measured lifetime, so arguing about it rarely gets anywhere.
What can be argued is the quantum, because the quantum comes from your model.
Securing the payment and its spending
A straightforward clause does four things. It states the sum or the formula, fixes the trigger, provides for indexation, and restricts what the money may be spent on.
Triggers vary. Payment before implementation is the authority's preference and the developer's least favourite. Payment before first occupation of the final unit is the common compromise. Phased payment linked to occupation of each block is achievable on larger schemes and worth asking for.
On spending, authorities generally commit to applying the fund to carbon reduction projects in the borough. Developers sometimes negotiate a clawback where the money is unspent after a stated period, and whether that is accepted depends on the authority's standard form. Ask, and accept that it is often refused.
Where an obligation later turns out to be unnecessary because the scheme has changed, there is a route to modify it, which we cover in discharging a section 106 obligation that no longer serves. And on which instrument does what across a development, section 278, section 38 and section 106 sets out the distinctions.
Monitoring after occupation
The Be Seen stage changed the exposure on London schemes. Policy SI 2 expects as-designed, as-built and in-use energy performance data to be reported through the GLA's monitoring platform, with in-use reporting continuing for several years after occupation.
Which means the modelled figure that generated the offset payment is later compared with measured performance. That does not reopen the payment, but it does create a record, and authorities increasingly condition the reporting obligation.
Three things make the reporting deliverable rather than theoretical. A metering strategy designed at the outset, so the data exists in a usable form. A named party responsible after the developer has sold out, usually the management company. And a reporting format agreed in advance, because retro-fitting data collection to an occupied building is expensive.
Arguing against an offset where on-site is feasible
The hierarchy is the argument, and it runs both ways.
Where an authority seeks an offset payment while on-site measures remain available, the obligation is vulnerable on the regulation 122 test of necessity. Offsetting is the residual mechanism, so it should be preceded by a demonstration that on-site reduction has been taken as far as it reasonably can.
Where a developer wants to pay rather than build, the same hierarchy bites in reverse. An energy statement that reaches the minimum on-site improvement and then stops, with a large offset payment attached, invites an officer to ask why the roof is empty.
The honest position is usually in between. Some sites cannot accommodate the renewables needed for net zero on site, because of overshadowing, heritage constraints or roof area given over to plant. Say which constraint applies and show the area available, rather than asserting infeasibility. Embodied carbon is a separate conversation and belongs in a Whole Life Carbon Assessment, for which councils expect a suitably qualified author.
Drafting the clause
Watch four things in the draft.
The formula, which should reference the approved energy statement by document number and revision, so a later variation does not quietly change the sum. The indexation base date and index, because a payment indexed from an earlier date than the agreement costs more. The definition of occupation, which on a mixed use scheme needs to say which uses count. And any obligation to re-run the calculation if the design changes, which is reasonable in principle and needs a cap in practice.
Where a scheme is varied under section 73, check whether the offset obligation carries across and whether the residual needs recalculating against the amended design. It usually does, and the recalculation sometimes reduces the payment.
Pull the policy narrative together in the Sustainability Statement so the officer reads one account rather than three.
PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval. This is general guidance rather than legal advice, so check the position with your local planning authority or a qualified professional before relying on it.
Frequently asked questions
How is a carbon offset payment calculated?
Model the regulatory baseline, then the proposed design through the energy hierarchy, and report the residual regulated carbon emissions in tonnes per year. Multiply that annual residual by 30 years and by the authority's published price per tonne. Unregulated emissions are normally excluded, and the baseline edition must match the one in force.
Who sets the price per tonne?
The local planning authority, through its local plan or supporting guidance. In London the Greater London Authority's energy assessment guidance carries the recommended figure and is updated between plan reviews. The rate in force at the date of the decision is normally the one applied, so a scheme determined after an update pays the new rate.
Can I refuse to pay an offset if I can do more on site?
You can argue it, and the argument is a good one. Offsetting is the residual step in the energy hierarchy, so an obligation sought while reasonable on-site measures remain available is vulnerable on the regulation 122 test of necessity. Show the measures you have taken and the constraints preventing more.
What is the Be Seen stage?
It is the monitoring limb of London Plan policy SI 2, requiring as-designed, as-built and in-use energy performance to be reported through the Greater London Authority's platform, with in-use reporting continuing after occupation. Delivering it needs a metering strategy designed from the outset and a named party responsible once the developer has sold out.
Does the offset obligation survive a section 73 variation?
Usually, but check rather than assume, because a section 73 permission is a new permission. Where the design has changed, the residual emissions should be recalculated against the amended scheme, and that sometimes reduces the payment. Reference the energy statement by document number and revision in the clause to keep the link clear.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.