Climate clause

Net Zero Aligned Construction Modifications

Luna's Clause

A clause that incentivises building contractors to propose 'Net Zero Modifications' to project works, which will benefit the Employer, the overall Project and the environment into the future.

This is a net zero clause

This clause aligns with Paris Agreement goals, Race to Zero requirements and the Oxford Principles for Net Zero Aligned Carbon Offsetting. For tools and support to use this clause, use our toolkit or join one of our events.

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Why use this?

To incentivise contractors and employers to provide more sustainable construction solutions during the delivery of the works by providing a mechanism for net zero modifications to the works.

Disclaimer - please read

The clauses on this website (and published in our Climate Contract Playbook) have been prepared in good faith on a pro bono basis and are free to download and use. The clauses have been drafted and edited by a variety of lawyers and, as such, the approaches to drafting may not conform to any particular drafting norms. We acknowledge this as a consequence of the collaborative drafting process.

The clauses on this website (and published in our Climate Contract Playbook) are provided on an ‘as is’ basis and without any representation or warranty as to accuracy or that the clauses will achieve the relevant climate goal or any other outcome.

This website (and the Climate Contract Playbook) does not comprise, constitute or provide personal, specific or individual recommendations or advice of any kind, and does not contain legal or financial advice. The clauses are precedents for legal professionals to use, amend and negotiate using their professional skill and judgement and at their own risk.

While care has been taken in the drafting of these clauses, neither The Chancery Lane Project nor any of its contributors owe a duty of care to any party in relation to their preparation and do not accept any liability for any errors or omissions, nor for any loss incurred by any person relying on or using these clauses or any other person. Users should use their own professional judgement in the application of these clauses to any particular circumstance or jurisdiction or seek independent legal advice.

At present, all the clauses are based on the laws of England and Wales. We encourage the conversion of these precedent clauses for use in other jurisdictions.

The clause

Additional Definitions 

Carbon Footprint means the total annual Scope 1, 2 and 3 Emissions relating to [the Project/Asset].

Carbon Footprint Standards means:

(a) for organisational Carbon Footprints and supply chain Carbon Footprints, the GHG Protocol Corporate Accounting and Reporting Standard, [or ISO 14064]; and

(b) for product Carbon Footprints, the GHG Protocol Product Life Cycle Accounting and Reporting Standard, or [ISO 14064].

GHG Emissions means emissions of the greenhouse gases listed at Annex A of the 1998 Kyoto Protocol to The United Nations Framework Convention on Climate Change, as may be amended from time to time including: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), nitrogen trifluoride (NF3), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6), each expressed as a total in units of carbon dioxide equivalent (CO2e) and calculated in accordance with the Carbon Footprint Standards.

Net Zero means a state of balance by [2050/ insert other date] between sources and sinks of GHG Emissions [in each calendar year] achieved by both a reduction of GHG Emissions overall and a removal of GHG Emissions.

Net Zero Modification means a change to the requirements of the contract or the Works that:

(a) increases the resilience of the completed Project to the impacts of climate change (including gradual onset and extreme weather events);

(b) reduces the Carbon Footprint the completed Project from that implied by the existing obligations in the contract (including through a design change or change to construction materials);

(c) increases protection of the natural environment by:

(i) increasing protection of, or enhancing, existing ecological features on the Site;

(ii) increasing protection of wildlife and wildlife habitats on or impacted by the Site or the Project;

(d) increases the use of local suppliers;

(e) increases low or zero emissions travel to and from the Site;

(f) otherwise assists the [Project/Asset] in meeting the requirements set out in paragraph (b) of the definition of Net Zero Objectives. 

Net Zero Objectives means:

(a) to carry out the Contractor’s activities:

(i) responsibly, sustainably, ethically and in accordance with all applicable laws and best practice;

(ii) consistently with both the Contractor’s and the Employer’s Net Zero Targets (including any interim targets notified to the other party prior to the date of contract) and in a manner that prioritises reducing GHG Emissions prior to Offsetting any Residual Emissions; [and]

(iii) [in a matter that satisfies the requirements of, and does not place the Employer in breach or default of, the terms of the [Employer’s sustainability linked loan/ Employer’s relevant Green Loan]];

(b) to ensure that the [Project/Asset]:

(i) on practical completion [and during its operating life] has GHG Emissions per m2 (Carbon Intensity) which:

(A) is Net Zero (by Offsetting only Residual Emissions); or 

(B) meets the [1.5 degree aligned Carbon Risk Real Estate Monitor (CRREM) decarbonisation pathway for that asset class / Paris Aligned decarbonisation pathway] (Asset Decarbonisation Pathway) and will continue to meet the Asset Decarbonisation Pathway, each year from practical completion until 2050 without substantive capital outlay or retrofitting; and

(ii) is capable of withstanding the projected physical impacts of climate change (including increased intensity and frequency of catastrophic weather events, and gradual onset climatic changes in the region) [in a [SSP5 8.5 future] as set out in The Intergovernmental Panel on Climate Change’s report AR6 Climate Change 2021: The Physical Science Basis (August 2021) from completion [until [insert date i.e. 2035] / until [15 years] after practical completion].

Net Zero Target means a Paris Aligned target to achieve by 2050 a balance between the sources and sinks of GHG Emissions in a calendar year and for each subsequent year thereafter by both removing GHG Emissions overall and using Offsets to cover Residual Emissions.

Offset or Offsetting means the purchase of carbon credits from a project:

(a)  that has been verified in accordance with [insert name of voluntary standard] or from a United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) [or [successor/ equivalent] UNFCCC mechanism];

(b)  where the GHG Emissions avoided, reduced or removed by the project are additional;

(c)  that in relation to greenhouse gas removals, employs long-lived storage methods that have low risk of reversal over millennia;

(d) that prioritises the removal of greenhouse gases from the atmosphere rather than avoids or reduces third party GHG Emissions; and

(e) that takes account of a just transition and addresses wider social and ecological goals.

Residual Emissions means the Scope 1, 2 and 3 Emissions from all operations of a party or relating to a project or an asset that are emitted after all reasonable efforts have been made to reduce the Scope 1, 2 and 3 Emissions. 

Scope 1, 2 and 3 Emissions means the three classifications of emissions in GHG Protocol Corporate Accounting and Reporting Standard as updated from time to time. 

 

Additional Clauses

1. Contractor’s Net Zero Obligations

The Contractor must, to the extent that is reasonably practicable in the circumstances, undertake its obligations under the contract in a manner that satisfies the Net Zero Objectives

2. Net Zero Modification

2.1 Net Zero Direction

(a) The Employer may direct the Contractor to perform a Net Zero Modification to the Works by giving a written direction to the Contractor setting out the reasons for the Net Zero Modification (Net Zero Direction). The Employer’s Net Zero Direction may include, but is not limited to, a recent development in climate science in the design or construction of the Works or may reflect an increased net zero ambition of the Employer.

(b) The Contractor must, within [20] business days of receiving a Net Zero Direction under clause [2.1], submit a written notice to the Employer setting out each of the items in clause [2.2(c) to 2.2(h)]. 

2.2 Net Zero Modification request by Contractor

The Contractor may propose a Net Zero Modification to the Works, by giving a written notice (the Net Zero Modification Proposal)  to the Employer and Superintendent, setting out:

(a) the proposed Net Zero Modification;

(b) the reason for the proposed Net Zero Modification, including how the Net Zero Modification will assist in delivering the Net Zero Objectives or, alternatively, how the Net Zero Modification will improve the [Carbon Footprint/ Carbon Intensity] of the [Project/Asset]];

(c) the time within, and the manner in which, the Contractor proposes to implement the proposed Net Zero Modification;

(d) the effect the proposed Net Zero Modification with have on the construction program (including any extension of time required to the Date for Practical Completion);

(e) any Approvals required to implement the proposed Net Zero Modification, and the effect of the proposed Net Zero Modification on any existing Approvals;

(f) the effect the proposed Net Zero Modification will have on the Contractor’s ability to satisfy its obligations under the contractor;

(g) the financial impact on the Employer arising from the Net Zero Modification, including but not limited to:

(i) cost savings or increases to the [Contract Sum];

(ii) costs savings to the ongoing operation and maintenance of the completed [Project/Asset] (including reduced energy costs arising from the Net Zero Modification);

(iii) reduced [costs of GHG Emissions obligations/offsets and carbon price etc];

(iv) reduced financing costs of the Project; and

(h) any other relevant information reasonably required by the Employer to assess the proposed Net Zero Modification.

2.3 Employer’s Net Zero Modification response

Within [10] business days of receipt of a Net Zero Modification Proposal, the Employer must issue a notice to the Contractor which:

(a) approves the proposed Net Zero Modification (either in whole or part), in which case clause [2.5] will apply to those approved parts;

(b) rejects the Net Zero Modification Proposal (either in whole or part) in accordance with clause [2.4], acting reasonably and setting out reasons; or

(c) requests further information from the Contractor within [20?] business days to enable the Employer to properly assess the Net Zero Modification Proposal or any part of the Net Zero Modification Proposal that has not been approved or rejected.

2.4 Rejecting a Net Zero Modification Proposal

The Employer can only reject the Net Zero Modification Proposal on one or more of the following grounds: 

(a) a delay to completion of the Works arising from the Net Zero Modification would be material having regard to the overall objectives of the Works and the Net Zero Objectives; or 

(b) the cost of implementing the Net Zero Modification would increase the cost of carrying out the Works by more than [x]% of the Contract Sum; or

(c) the Net Zero Modification would adversely affect the quality of the Works (including by reducing the value and/or useful life of the Works) or adversely affect the operation or maintenance of the Works; or

(d) the Net Zero Modification does not comply with applicable legislation.

2.5 Approved Net Zero Modification

If the Employer has approved the Net Zero Modification Proposal pursuant to clause [2.3(a) or 2.3(c)]:

(a) the Superintendent must within [10] business days of the approval, issue a notice to the Contractor that sets out:

(i) where the Net Zero Modification results in an increase [or decrease] to the Contractor’s design or construction costs, the revised Contract Sum valued as a variation in accordance with clause [#] (but not exceeding the amount nominated pursuant to clause [2.2(g)(i)]); and 

(ii) any extension of time required to the Date for Practical Completion (but not exceeding the duration of the extension of time nominated pursuant to clause [2.2(d)]); and

(b) the Contractor must proceed with implementing the approved Net Zero Modification.

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