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For the construction industry, the impacts of climate change are already reflected in design and engineering, MEP engineering, project delivery and site conditions. Private developers and contractors are now required to comply with specific standards and regulatory requirements that lead to changes in ongoing projects, potentially increasing disputes.
Pressure to meet climate goals mounts
The International Energy Agency’s (IEA) 2021 report (Tracking Buildings 2021) found that buildings will still not be carbon neutral by 2050. For this to happen, all new buildings and 20% of existing building stock need to be zero-carbon emissions as early as 2030. On 12 October 2021, the UAE released the National Climate Change Plan 2017-2050 (UAE Government Web portals). The main objectives of the climate plan are:
- Manage greenhouse gas (GHG) emissions while maintaining economic growth.
- Reduce risk and improve resilience to climate change.
- Strengthen the UAE’s economic diversification agenda through innovative solutions.
The second of these three goals directly concerns the construction industry and takes appropriate steps to achieve a high level of preparedness and manage current and future climate risks. Government initiatives to address climate risks include:
- respect: Estidama (sustainability in Arabic) is considered one of the most transformative measures to improve the energy performance performance of new buildings in Abu Dhabi, and raises sustainability ratings during the design, planning and construction phases of new urban developments.
- Green Building Regulations and Specifications – Circular No. 198: Dubai has a mandatory code for all buildings that sets energy, water, materials and waste compliance standards.
- Energy Services Company (ESCO): Etihad ESCO promotes the creation of performance markets for ESCOs and develops energy efficiency projects focusing on energy efficiency technologies, building retrofits, district cooling and capacity building, with a goal of retrofitting 30,000 buildings by 2030 to reduce carbon emissions.
These and other steps towards sustainable infrastructure, such as Federal Law No. 24 of 1999 on Environmental Protection and Development, may attract further uncertainty in the building sector in meeting the changing regulatory environment to achieve environmental goals.
Project Risks Related to Climate Change
Benchmarking existing regulations with environmental targets is driving regional countries to further consider whether any legislative gaps need to be filled to guide the construction industry in meeting sustainability requirements and addressing climate risks. This in turn creates several project risks, including:
Reduced productivity
Given the size of the construction industry and the large number of outdoor workers, the potential socioeconomic impacts of heat stress need to be addressed. GCC countries have already reduced working hours during the summer. Increasing heatwaves are likely to further reduce working hours to safeguard workers’ health and safety. In addition, power supply constraints aimed at reducing greenhouse gas emissions, coupled with a reduction in power output due to warming cooling water, put the reliability and availability of power supply at risk. Both of these factors can have an impact on the timely delivery of a project.
Failure to consider climate change-related events during the design and construction phases
In terms of physical climate risk, heavy precipitation and flooding due to climate change are expected to increase. As a result, such claims are on the rise, including the failure of building structures and infrastructure drainage to cope with rare but severe storm events and eventual flooding from rising sea levels.
Construction professionals must account for more frequent and severe weather events in the region, including violent sandstorms known locally as cold winds, high temperatures, occasional but severe rainfall and the resulting cracking and subsidence. While contractors have limited themselves to significant budget constraints in order to remain competitive, more investment may now be required in the design and engineering phases of projects in response to extreme weather events. Historically, regulatory changes and standards have shown that designs, materials and processes take time to adapt to new requirements. The changing legislative environment is expected to spark new controversies about compliance and potential pitfalls.
range change
When it comes to transitioning climate risks, MENA governments are taking action to reduce their carbon footprints, and countries like Saudi Arabia and the UAE seek to play a leading role in the world’s energy transition markets. Growing pressure to reduce greenhouse gas emissions to meet global net-zero emissions commitments will widen the scope of construction disputes. Tighter regulatory requirements, such as achieving higher levels of sustainability ratings, may trigger a redesign of certain elements, leading to later changes in project design. Such regulations are likely to be more controversial in the short term due to changes in scope, whether for design engineering or construction.
Across the region, new regulations are expected to be introduced to improve building performance and sustainability ratings, requiring new design approaches in areas such as energy and water conservation, resource sourcing and strengthening buildings. Planning, construction and operation of buildings. The aforementioned UAE Green Building Code is a testament to these policy changes. Qatar and Lebanon have also issued other similar codes.
Impact on insurance companies
Climate change will have a profound impact on the underlying insurance industry. As mentioned above, it will bring with it a broad set of emerging risks that will have direct and indirect impacts on the global construction industry. Insurers will need to help construction companies manage the future of climate-related risks and liabilities to mitigate losses.
In terms of physical risk, every climate event causes immediate and potential damage to a construction project, for which insurance companies may be liable. An increase in the number and concentration of claims will reduce the profitability of insurers and will increase premiums for the insured.
Another monetary impact on insurers and their insureds is the disruption of supply chains. Higher prices related to disruptions caused by climate events will drive up labor costs and delay-related liquidation losses. Likewise, lack of access to construction sites due to climate events can delay projects and cost employers significant amounts of money.
Evolving rules and regulations that encourage construction companies to transition to a low-carbon economy have left the industry vulnerable to sanctions. Insured persons who inadvertently fail to comply with these regulations may attempt to pass on direct monetary sanctions to the insurance company. Indirectly, any non-compliant modification to an ongoing construction project will incur remediation costs in terms of materials, labor, and time. Anyone can notify the insurance company.
Insurers should also be mindful of the reputational risk of underwriting construction projects involving fossil fuels, oil pipelines and non-renewable energy production. Without actively supporting green projects, insurers run the risk of losing their business, which will have a knock-on effect on the value of their assets.
what’s next
according to World Economic Forumbuilding and construction account for 40% of global emissions (considering building materials and operational emissions), and addressing this requires collaboration across sectors and with governments.
Improving energy efficiency is critical to the design and construction, as well as the operation of a building. Cooling and powering desalination plants, by far the largest energy consumers, should transition to renewable energy sources such as solar energy. Decarbonisation should also cover the materials sector, including steel and concrete production. Unlike transitional movements, assets need to be protected from severe weather events and physical risks.
Comment
Developers and contractors should spend more time in the planning and design phases to mitigate physical and transition risks. One of the reasons for controversy over the scope change was construction without an approved final design. In addition, it is advisable to reach agreement as early as possible in the construction contract regarding changes in law and the party liable for any such changes.
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