Environmental challenges facing the property industry

Environmental change is accelerating and property in whatever form is vulnerable. At present climate change is ringing in all our ears; and the debate has undergone a profound shift since the publication of the Stern review on the Economics of Climate Change on 30 October. I gather that with over 40 percent of the British carbon emissions coming from the built environment, the British Property Federation has already welcomed the Stern review.

Since then the International Energy Agency, and in Britain the Institute of Policy Research have also joined the debate, and recommended urgent action. There is currently a UN conference on the subject in Nairobi. On Monday I returned from China where again climate change as part of the environment in general was at the top of the agenda. Today there is likely to be reference to it in The Queen's Speech.

Climate change is only one of the environmental problems now facing the future of our society. Most things have happened in the long history of the Earth, but our current circumstances are unique. In the words of a recent book there is Something New Under the Sun. To make sense of the impacts, we have to bring in such issues as human population increase, degradation of soils, exploitation of non-renewable sources, pollution of water, both salt and fresh, and destruction of other living species on which we wholly depend. All these affect property.

At present climate change has pride of place. In Britain all three political parties recognize its importance, and if they do not always agree on the action to be taken, they accept the general analysis. In his review of the economics, Sir Nicholas Stern said that his approach was "about the economics of the management of very large risks".

We all of us, whether in government, in business and industry, in the world of property, or in civil society generally have to learn how to adapt ourselves to the very different world which will be taking place in the course of the present century. The future will not be a simple extrapolation of present. On 7 November the Secretary of State for the Environment, Food and Rural Affairs said that the necessary transition to "a low carbon economy will involve the biggest restructuring in how we live and work since the industrial revolution".

Property - its place, its value, and the responsibilities that go with it - is at the heart of the current debate. The risks to which Sir Nicholas Stern has referred apply particularly to it. Let me look particularly at climate change. The science is becoming ever clearer and more precise. It relates primarily to the build up of greenhouse gases in the atmosphere, now at their highest levels for 740,000 years. As a result the Earth has warmed by 0.7C since 1900. We are heading back to the conditions of around 125,000 years ago when the relationship between land and sea was very different.

The results for human society are becoming evident, and could become rapidly more so with a variety of positive feedbacks. In a few words, these results include changes in weather everywhere with a different distribution of rainfall and drought and more extreme events such as storms, heat waves, and hurricanes; more melting of the Arctic and Antarctic icecaps and the surrounding sea ice (I have just been to Svalbard to see things for myself); increasing sea level rise from the current 2mm a year upwards; acidification of some upper layers of the ocean with its effects on marine biology; and changes in ecosystems generally, including insects and micro-organisms, with all that means for human health.

As for more precise predictions for this country, you may have heard about various scenarios produced by the Hadley Centre within the Met Office. In general terms Britain can be divided by a line running north west to south east. There will be warmer summers in both, with more rainfall in the north west and much less, even drought conditions, in the south east. For winters both will be warmer and wetter. Sea level rise will be coupled with isostatic sinking in the south and south east. Together these changes could have major impacts on the whole economy as well as on property conditions and values.

The implications for the economy, and in particular property, go far and wide. Thinking differently is always painful. We all suffer from the disease of what has been called conceptual sclerosis. Change is rarely linear. There are sudden breaks, unforeseen thresholds, uncomfortable shocks. Where the breaks and thresholds are, what uncomfortable shocks are coming constitute at least part of the subject of your conference today.

Let me summarize the more obvious impacts, and the questions arising from them:

Water

• What will be the effects on reservoirs, storage capacity, sewage systems: are they in the right place, will supply match demand?

Agriculture

• What should be our choice of crops?
• What new plant and animal diseases should we expect?

Energy

• What restrictions should be placed on carbon emissions?
• How should we move towards renewable sources (wind, tide, geothermal, solar, biofuels etc)? And possibly new nuclear technology?
• How much should we move from macro to micro energy systems?
• How should we best promote energy saving and greater efficiency?
• What new technologies should be applied to transport (cars, ships, aircraft)?

Cities and towns

• As a member of the Government's Urban Task Force, I worked on the future character of all British cities (at present urban areas in England alone account for 90% of the population, 91% of economic output, and 89% of jobs). Throughout we took good account of environmental, in particular climatic factors. What more should be done?
• How should town planning, such as it is, be adapted to take account of urban breakdown of all kinds?
• Buildings, architecture and future design?
• New configurations of business and industry?
• Waste disposal?

Coastlines

• What will be the effects of sea level rise? What should governments do? How should priorities for preventive action be set?
• How should we cope with salt water pollution of wetlands and aquifers?

Many of these points were considered at a conference of the Association of British Insurers in London last week. I particularly commend the speech then made by David Miliband who looked at the issues from several points of view, some of them global, some of them European, and some of them national. In a few words we have to reduce our carbon emissions by all means available to us, and to take advantage of the many technologies, here and elsewhere, that already exist.

His was not a doctrine of despair. It was rather an acceptance of the responsibilities pertaining to government, industry, business, communities and individuals, and a call for adaptation to the very different future ahead of us. For government he referred particularly to a combination of regulation, promotion of carbon trading, use of taxation (incentives and disincentives), and investment to set the framework for the economy as a whole.

What David Miliband and others have said does not mean a denial of market forces but it does mean getting the framework right. By way of example, he mentioned that changes in building regulations since 2002 have already increased the energy efficiency of new homes by 40%. More can be expected as the result of the new EU Eco-design Directive which is intended to promote minimum energy performance requirements in a variety of areas.

We also need to think very differently about future planning procedures, where at present there is a high degree of chaos, and to challenge such fashionable policies as affordable housing, the siting of such housing especially in flood plains, and the building of transport networks.

But perhaps the most fundamental difference of all is the need for us to think differently across the whole spectrum. Taking account of environmental change is uncommonly difficult, the more so as we still do not know exactly what changes to expect.

Let me conclude with a brief reference to the way in which certain cities have already made profitable guesses about their future. First in line comes Curitiba in Brazil; then Dong Tan in China, and last but not least Woking which over more than ten years has managed to reduce carbon or equivalent emissions by over 70% and energy consumption of public buildings by 50%, and to derive 90% of its energy from local sustainable sources.

The lessons for property are similar to those for insurance. As The Economist recently remarked,

"Just as people spend a small slice of their incomes in buying insurance on the off chance that their house might burn down, and nations use a slice of taxpayers' money to pay for standing armies just in case a rival power might try to invade them, so the world should invest a small proportion of its resources in trying to avert the risk of boiling the planet. The costs are not huge. The dangers are."

The challenge to us all is clear. This conference can help us to meet it.