The World Bank and IFC have recently reported that Russia’s current energy inefficiency is equal to the annual primary energy consumption of France. Indeed, the low local cost of energy, a mainly declarative legislation on environmental efficiency and little public interest have long kept Russia out of the global warming debate, and far away from the exotic issue of green buildings.

This trend is hopefully coming to an end with the recent enactment of a new law with compulsory requirements on energy saving and efficiency. This marks a clear ambition by Russian policymakers and will probably enhance the nascent interest in green buildings of the main players in the real estate industry, who were severely hit by the current crisis and seek new growth opportunities.

A modest yet growing interest of the Russian real estate industry in green buildings…

Russia has experienced a tremendous construction boom in the last decade, with a clear premium on fast investment returns and the quantity of buildings rather than their quality. Western voluntary green building certification schemes – giving a rating to a specific building on the basis of ecological, social and economic criteria – were then clearly seen as luxury imports and during a long period set aside.

An interesting move towards international standards in general has nevertheless taken place in the last few years, initiated by the growing importance of international financing of Russian real estate projects (this has triggered inter alia the necessity of clean titles for mortgages, offshore contractual schemes, as well as the necessary “bankability” of international models of contracts such as FIDIC for construction, almost nonexistent in Russia ten years ago).

Progressively, this “international” evolution has naturally concerned green building certification, as a clear competitive advantage in a saturated real estate market (decreasing operation costs, insurance rates and legal liabilities, while increasing market differentiation and value). Such international events as the MIPIM have also been instrumental in convincing Russian real estate players of the potential added value of environmental certification.

Part of a global network, the Russian Green building council (RuGBC) http://www.rugbc.org/ created in 2009 is one of the most active advocates of green building certification in Russia, promoting mainly BREEAM schemes (originating from the UK in 1990) and to a lesser extent LEED (US rating scheme introduced in 1998) http://kluwerconstructionblog.com/2010/01/20/going-green-gets-greatly-muddled/. RuGBC is working to adapt these voluntary norms to the Russian context, which is very specific not least climate wise. The creation of a national Russian certification scheme is in this regard envisaged.

Due to the relatively recent Russian interest in green buildings, there are currently less than ten buildings in Russia which have been certified under BREEAM or LEED schemes (one having been developed by a Russian developer, Clearlink). This situation is particularly striking when compared with other emerging markets like China where green building certification schemes are widespread. It appears that this is essentially the result of national priorities, and Russia has recently demonstrated a shift towards such climate-friendly policies.

… Recently stimulated by a bold legislative reform on energy saving and efficiency

Publicly deploring Russia’s inefficient use of energy and its disastrous economic and ecological consequences, President Medvedev has called for an action plan to halve Russia’s energy intensity by 2020. According to the World Bank and IFC, such plan would cost a total of USD 320 billion, but would be paid back in just four years thanks to annual savings of USD 80 billion http://www.ifc.org/ifcext/rsefp.nsf/AttachmentsByTitle/FINAL_EE_report_Engl.pdf/$FILE/Final_EE_report_engl.pdf.

Following these declarations – anticipating somehow the possible alignment of Russian energy prices on the internal market to global market prices and the end of low cost energy – fundamental legislation was passed in 2009. First to implement parts of the Kyoto protocol (ratified by Russia in 2004) and, most importantly here, on energy saving and efficiency with the Federal Law No. 261-FZ dated November 23, 2009 (the “Law”). Certain provisions of the Law directly address energy saving and efficiency measures in the field of construction, these include:

– All new buildings (with few exceptions) will be submitted to Energy efficiency requirements (to be revised every 5 years) and will have to integrate compulsory energy meters to allow energy audits;

Residential buildings will be rated according to their energy efficiency and such ratings will have to be indicated on the buildings’ facade;

Public Procurement: energy efficiency of a tender has to be taken into account (considering the lowest lifetime cost of the building, not the lowest cost only);

Tax incentives and administrative sanctions: while incentives are kept to a minimum, the Law provides for comprehensive administrative sanctions, the most efficient being that a building ignoring the Law requirements cannot be commissioned by the authorities (if the project (design) documentation / construction permit has been submitted to the authorities after November 27, 2009) and as a consequence under Russian law cannot be legally owned by anyone.

It is worth noting that the Law encompasses both construction and operation phases of a building project, and involves most of its actors, from developers and investors to operators and end users, together with designers and contractors. On a practical standpoint, this should permit an efficient implementation of the Law.

In this regard, the Law still lacks certain necessary application decrees and therefore many sensitive issues remain unanswered (e.g. under which SROs http://kluwerconstructionblog.com/2009/11/08/the-end-of-licensing-of-construction-related-activities-in-russia/ should an entity completing energy audits register). Many of these decrees have nevertheless been issued since November 2009 and Russian commentators agree that due to the clear political support of the reform, all of them should be issued within the next two years.

The implementation of this 2009 Law will therefore be an interesting test of Russian policymakers’ new commitment to environmental matters in general and to green buildings in particular.

Xavier Poulet-Mathis
The author thanks Irina Zimina-Lecornu (Attorney at Law, Moscow) for her collaboration.

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