Climate conscious drafting to facilitate net-zero projects

New Zealand’s political leaders and energy sector might disagree on some details and timing, but are united on the need to electrify and decarbonise the economy.

But bringing this new energy capacity to market will have its own environmental impacts – and these must be minimised.

A decarbonised energy sector will require significant investment in new sources of renewable energy, creating a vast pipeline of infrastructure projects required to meet this target.

Transpower modelling estimates that as much generation will need to be built in the next 15 years as was built in the previous 40 years. By 2035, about 40 new power stations will need to be connected to the grid.

It has been estimated that the construction and operation of buildings accounted for 39 per cent of global carbon emissions in 2017.  In New Zealand, emissions from the construction industry increased by 66 per cent in the decade from 2007 to 2017.

To address these impacts as part of the climate change solution, we must be smart in how we procure this vast pipeline of energy projects.

One solution is to adopt standard clauses in construction contracts that facilitate the development of net-zero, or low-carbon footprint, projects.

One organisation leading the way with this is The Chancery Lane Project (TCLP)

TCLP is a collaborative initiative of lawyers and legal professionals promoting an ethic of climate conscious drafting, aiming to seamlessly integrate low-carbon solutions into existing commercial contracting around the world.

TCLP aims to create an environment in which every contract enables solutions to climate change and facilitates sustainability.  TCLP methodology uses collective drafting of new and practical contract clauses that deliver an array of climate solutions regardless of the subject matter or the legal jurisdiction.

Some TCLP clauses are designed to address infrastructure projects’ entire project lifecycles.

For example, during the request for proposal stage, a questionnaire can be implemented to enable the principal to assess potential contractors’, subcontractors’ and suppliers’ climate change risk credentials.

TCLP model clauses are given a child’s name to signify their connection to the future generation.

“Robyn’s questionnaire” helps the principal identify sustainability expectations of that apply to the project and requires the bidder to self-evaluate its respective capabilities in achieving those expectations (whether in the immediate, near or long term).

It also enquires into the bidder’s own sustainability efforts from an organisational perspective.  This takes into account (for more project-specific considerations), whether the bidder has an environmental sustainability management system or equivalent, how the bidder intends to procure and use materials, dispose of waste, address emissions, and so on.

Similarly, project parties may decide to incorporate “Tristan’s clause” in a bespoke project agreement (or a standard form contract) which obliges the parties to procure environmentally friendly long-life construction materials.

Tristan’s clause is intended to effectively reduce emissions across the project and asset lifecycle by selecting more sustainable materials.  Introducing a “carbon budget” tackles the widespread practice of procuring materials primarily on the basis of price point and focuses the parties instead on environmentally-friendly procurement.

“Estelle’s clause” introduces an ongoing obligation on contractors to consider climate risks and sustainability objectives to achieve net-zero targets.

The clause revises the standard of care to require a contractor to use best practices to carry out its works in a way that achieves “green objectives”.  This entails carrying out the project responsibly, sustainably, and ethically manner in accordance with all applicable laws and good business practice.  In this context, parties are to maximise use of sustainable materials while minimising emissions of greenhouses gases and the use of environmentally harmful materials.

Estelle’s clause also adds a reporting obligation on the contractor to provide the client with a periodic report describing the actions taken to satisfy the green objectives.  Obviously, with the added obligations on the contractor, tender pricing must consider the direct and overhead costs associated with complying with this clause.

Of course, introducing new obligations of this nature creates challenges.  Material suppliers must source low-carbon products They also need to use technology and processes to track and report data on carbon impact, and adopt new ways of working to minimise emissions and waste.

Education is critical to successfully implementing these types of provisions.  Appropriate contract risk allocation is needed to assure project participants that satisfactory economic outcomes can be achieved together with environmental outcomes.

However, it is clear from discussing TCLP provisions with industry participants across the construction supply chain that there is a genuine desire to adopt the practices, mechanisms, and concepts these provisions encompass.

The industry appears motivated to work together and devise ways to use these types of provisions and perhaps amend them for the New Zealand market.

TCLP provisions are intended to be universal standard form clauses.

The expectation is that as the industry becomes familiar with the application of environmentally focused contractual provisions, all participants will gain a shared understanding of how they work best, enabling an accelerated transition toward climate-conscious drafting as the ‘status quo’.

This article was first published in Energy News, New Zealand’s online news and information subscription service for the energy sector.

MinterEllisonRuddWatts is leading the introduction of The Chancery Lane Project in New Zealand.  Scott Thompson is a partner in the energy projects team at MinterEllisonRuddWatts.  He specialises in project delivery and construction disputes.

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