Only two per cent of Australia’s buildings are considered ‘new’ each year, while the remaining 98 per cent represents one of the key challenges in achieving a sustainably built environment. The environmental agreement is an important tool for Australian cities to become world’s leading in sustainability.

Australia’s commercial and residential built environment produces 23 per cent of the total greenhouse gas emissions in urban areas.

The Low Carbon Growth Plan, launched by independent, research-based, non-profit organisation ClimateWorks Australia argues that Australia can reduce its greenhouse gas emission to 25 per cent by 2020 and that this reduction can be achieved using current technology.

According to ClimateWorks, the most cost-effective solution to future environmental problems is retrofitting existing commercial buildings such as offices, shopping centres, schools and hospitals.

While a number of building owners have already undertaken environmental upgrades, turning existing buildings into more energy efficient, healthy and sustainable ones is neither a simple nor a low-cost task.

The Green Building Council Australia (GBCA) found that one of the biggest barriers building owners were facing was the issue of split incentives on the subject.

“Recognising that overcoming this barrier will unlock opportunities that will benefit building owners, tenants and the environment, several state and local governments are enabling building owners to access Environmental Upgrade Agreements as a way to overcome finance obstacles and split incentives,” the GBCA said.

An Environmental Upgrade Agreement (EUA) is a tripartite agreement between a building owner, a local council, and a finance provider, where the finance provider lends funds to a building owner for water, energy and other environmental upgrades. The financed amount – the Environmental Upgrade Charge – is then levied as a special charge by the local council that collects the repayments and reimburses the financial institution.

Environmental Upgrade Agreement

While there are some differences in the implementation of EUAs from state to state, the basic principles of the mechanism remain the same. Because the charge is tied to the building and not to the building’s owner, it is considered less risky. Moreover, the structure of the EUA overcomes the “split incentive” where tenants enjoy energy efficiency savings while the building’s owner pays the charges associated with the upgrade.

Last week, Eureka Funds Management and National Australia Bank (NAB) financed a $7 million agreement to retrofit a Melbourne office building located at 499-501 Swanston Street in order to reduce carbon emissions by an estimated 606,700 kilograms a year and to cut more than $80,000 off the building’s energy bills.

The building is a 19-storey tower built in the 1970s which features approximately 19,000 square metres of office space occupied by 10 retail/commercial tenants.

The EUA was negotiated between the City of Melbourne, the owners of the tower and the Australian Environmental Upgrade Fund. It is funded by NAB and Eureka Funds Management and includes upgrades to the building’s heating and ventilation systems, air-conditioning and cooling systems, as well as a $2.5 million lift upgrade.

“The signing is a significant milestone. Today, we celebrate with the owners of 501 Swanston Street as they use environmental upgrade finance to upgrade their building to achieve superior environmental and economic outcomes,” said Scott Bosckay, chief executive of the Sustainable Melbourne Fund.

“Soon they will enjoy the benefits of reduced energy costs and improved workplace environments as heating, ventilation, air condition and cooling (HVAC) systems and elevators are upgraded. The owners of 501 Swanston Street clearly understand that the technology is available, the finance is accessible and the cost reduction benefits are obvious.”

501 Swanston Street

The building in 501 Swanston Street.

Barry Calnon, chief financial officer of PDG said the result would be “an innovative, energy-efficient and iconic building on the northern Melbourne city skyline.”

Melbourne Lord Mayor Robert Doyle commended the agreement, noting that it adds greatly to his city’s green goals.

“Melbourne is already one of the world’s most liveable cities and we know that liveability, prosperity and sustainability are closely linked,” he said. “This agreement brings us a step closer to becoming one of the world’s leading sustainable cities.”