EUROPE - Hermes Real Estate is to launch Hermes Emissions Trading Scheme (HETS) in a bid to prepare the asset management firm and its tenants for the Government's introduction of the Carbon Reduction Commitment (CRC) in October 2009.
HETS' two-year-trial is intended to prepare managers for the potentially significant financial implications of the CRC, a mandatory emission-trading scheme whose objective is to create a market for carbon emission permits, and in turn encourage tenants to reduce their carbon footprint.
The trial is scheduled to start in October 2008 and finish at the end of March 2010, although the firm is already using data collected since April 2008 to find out how companies and the real estate manager might improve energy efficiency within its buildings.
"The main objective of the Scheme is to prepare us for the introduction of CRCs," said Keith Bugden, director at Hermes Real Estate.
"We aim to have educated our teams, from our internal Investment and Fund Managers to our external Tactical Asset and Property Managers, so that we are well-placed to take advantage of opportunities and minimise risk."
Hermes, the asset manager owned by the BT Pension Scheme and a company responsible for around £11bn (€14.2bn) of real estate assets, has estimated the positive and negative financial trading risk across the sub-sectors could be approximately £100,000.
All of the funds under HREIM will be included in the scheme and at the end of the first year the performances of the sub-sectors will be assessed and recorded in a league table, according to Tatiana Bosteels, head of responsible property investments at Hermes Real Estate.
"At the end of the first year we assess CO2 emissions against allowances. If a sub-sector has emitted more than its allowances it must buy credits in the market. If it has emitted less it has the opportunity to sell emissions into the market."
Tenant organisations whose annual electricity use exceeds 6,000MWh will be included in the CRC and will be required to calculate all energy use and surrender carbon allowances to cover the emissions they generate. Hermes has calculated the cost of purchasing allowances in 2008 across Hermes' sub-sectors would be £500,000, and this would add approximately 10% to their energy bills.
Bosteels also outlined the scheme should bring benefits to the BT pension fund and other investors.
"The initiative will enable us to accurately advise our pension fund and other investor clients on CRC and emissions trading. We will be in a position to ensure they are aware of the potential impacts and opportunities for their assets and how these are being addressed by Hermes Real Estate," she said.
"In our experience the most successful reduction schemes rely heavily on cooperation between owners and occupiers. Many of our occupiers will also be required to take part in the CRC scheme and therefore this scheme is an opportunity for us to engage with our occupiers further to reduce emissions between us," said Bosteels.
According to Bosteels, the scheme will help Hermes determine the risk and opportunities in the market.
"By 'showing by doing', we will be in a position to test and analyse on the ground the issues that will arise from CRC implementation and advise the government and our stakeholders during the final consultation process that DEFRA will launch later in 2008."
HETS' findings will be shared with the British Property Foundation group working on the CRC and with the Department for Farming and Rural Affairs (DEFRA).
Bugden is also confident Hermes can implement the scheme without any major concerns as it has been collecting associated asset data through its responsible property management programme, set up in 2001.
"Hermes Real Estate has committed to one of the most stringent carbon reduction targets in the industry, pledging a year-on-year 5% reduction of its emissions, and Hermes Emissions Trading Scheme is one of the tools we are using to ensure that we can meet this target," he said.
Hermes Real Estate will make changes to its properties' management strategies, including its Central London office portfolio managed by Jones Lang LaSalle. The Jones Lang LaSalle team has tested what it considers to be a reliable method of reducing energy usage and CO2 emissions by consistently reporting utility bills and engaging closely with occupiers.
One of Hermes' properties, Nations House, has seen a 17% reduction in CO2 emissions between the start of 2006 and end of 2007 under this arrangement.