Australia's aggressive new green mandates

China isn't the only Pacific Rim nation with a government bullish on sustainability. Australia enters 2012 with tough new green mandates of its own. Among them, beginning in July 2012, is a carbon tax of $23 (Australian) per metric ton on about 500 companies accounting for about 60 percent of the nation's greenhouse gas emissions. Most of the companies subject to the tax are producers of non-renewable fuels such as coal, oil and natural gas; power companies that rely heavily on fossil sources; and members of industries emitting high carbon levels in production such as steel, cement and aluminum. Few commercial properties such as office buildings, which account for only about 10 percent of Australia's carbon emissions, should be directly subject to the tax.

While 'the jury is still out' on the full impact of the carbon tax on commercial portfolios, here are some likely scenarios:

• Cost of building supplies such as cement and steel could rise 2-5 percent at the source, but expected government assistance to polluters in their efforts to become more sustainable should reduce that impact to an actual price increase of about 0.5 percent, or less, for new construction and renovations.
• After a decline in real expense for the past 50 years, Australian electricity costs will rise for most commercial users as energy companies invest in green production technologies. For example, in 2011 electricity generated from wind farms cost approximately $100-125 per megawatt-hour (MWh), compared to existing coal-fired generation at approximately $30-40 per MWh. This disparity will decline steadily with increases in renewable production efficiencies and potential government subsidy increases, but expect to see higher electricity costs in the near term.
• As with all cost increases, investors and landlords that provide some or all of utilities in their leases will have to determine whether to absorb them or, most likely, pass them on to tenants. Tenants paying their own utility costs will have increased motivation to seek energy-efficient buildings where their expenses will be lower.

Another measure that will directly impact office stakeholders will be Australia's Commercial Building Disclosure (CBD) program, which went into full effect at the end of 2011. CBD requires the disclosure of a Building Energy Efficiency Certificate (BEEC) during the sale, lease or sub-lease of commercial office space greater than 2,000 square meters. The BEEC must include:

• A NABERS Energy rating, Australia's efficiency measurement that awards buildings between 0 and 6 stars in half star increments
• A tenancy lighting assessment that provides a nominal lighting power density measurement in watts per square meter, and grades the result on a scale of excellent to poor
• General energy efficiency guidance not specific to the disclosure affected area

The NABERS rating system - comparable to ENERGY STAR in the US - has already been implemented in many Australian office buildings. The new requirement will not only make it mandatory, but will strengthen the role of sustainability in commercial property transactions. Potential buyers and lessees can now determine at a glance how buildings compare in energy efficiency. Though owners are not required to reach a particular NABERS level, highly-rated buildings already use their achievement as a marketing tool, while those that disregard it, do so at their peril. At this early stage, CBD seems to be affecting leasing more than sales transactions, but as NABERS triggers full energy efficiency transparency in buildings, it is expected to be a larger consideration in all office deals.

CBD will complement Australia's Green Star measurement system for new buildings (comparable to LEED in the U.S.), but is forecast to have an even greater impact since only about 2 percent of the nation's building stock is replaced each year. Like China, Australian businesses and investors have, for the most part, supported the majority of the nation's sustainable measures to position Australia among the leaders on many global green indexes.