In addition to providing a catalyst for transformational change, the turmoil of the COVID-19 pandemic years provided us with a dress rehearsal for the type of collective action a resilience society will be required to make in order to cope effectively with some of the challenges ahead, including climate change and losses in biodiversity.  

During the pandemic I scribbled a few articles exploring some of the potential challenges and reimagination opportunities ahead as we collectively transitioned to an all-digital, work-from-anywhere world, aka ‘The Great Reset’ (World Economic Forum definition). 

In this article I want to focus on the built environment’s decarbonisation challenge as well as some of the evolving ideas and incentives to help us overcome a multi-dimensional sustainability, climate risk and decarbonisation challenge.

Quote

 “… take the environment .. accountants are beginning to realise that there are some gaps in their view of the world.  For instance, in accounting, ownership does not have the notion of stewardship attached to it. In fact, under accounting principles, if you own something you are entitled to destroy it.  Furthermore, if no one owns something then that something has not price, like air, sea or those things not reflected in the price of land, such as the ability to support life.”  

Charles Handy – Beyond Certainty (1996)

Climate Emergency: Only 7 years left to change course

It is widely acknowledged that the Built environment is one of the highest emitting Industries. According to The World Green Building Council the full life cycle (design, materials manufacturing, construction, usage, and demolition) of all buildings is directly or indirectly responsible for approximately 39% percent of global energy related carbon emissions (28% operational emissions from energy needed to heat, cool and power them and the remaining 11% from materials and construction).    It is also worth noting that Buildings also account for around 50% of all extracted materials, 33% of water consumption and 35% of waste generated.

In under a decade, the Property Industry is tasked with the goal of ensuring all new projects completed from 2030 are net zero carbon in operation and also achieve >40% reduction in embodied carbon.

Whilst the prioritisation of climate-resilient solutions in a fragmented market clearly has many challenges to overcome, perhaps the greatest is the risk of growth outpacing improvements in energy efficiency, energy intensity and lower carbon emissions.

Globally we build the equivalent of a city the size of Paris every week and forecasts indicate the global stock of real estate is set to double by 2060.  As a result, raw material use is predicted to also double by 2060 with two-thirds of this growth occurring in countries without mandatory building energy codes.

As a quick benchmark, the embodied carbon for new construction of office buildings in the UK is typically between 500 and 900 kgCO2e/m2 of GIA which is equivalent to five to ten years of the CO2e emissions due to the energy consumption (taken from The Institution of Structural Engineers).

Welcome to the challenge of our lifetime.

In major cities, buildings on average are responsible for 60% of citywide greenhouse gas (GHG) emissions. In some cities, like New York for example, this figure rises to ~ 80%.

If we are to have any chance of meeting our climate targets, carbon value engineering across both the upstream and downstream sustainability chain will be essential in addition to the collection and publication of reliable environmental performance data aka ‘what gets measured gets done’.  

Whilst voluntary compliance alone is unlikely to secure the cuts needed in carbon emissions, as carbon is a good proxy for resource efficiency, sustainability measures which successfully lower carbon use may eventually become the lowest cost option as well as the best environmental solution.  

Addressing rising demand for more ambitious solutions and whole life cycle accountability, a number of new regulations are on the horizon which may help promote more meaningful net zero ambitions as well as validating an organisation’s decarbonisation pathway. These include -  

• SEC’s climate proposal for climate-related information to be disclosure in financial statements / 10-K annual reports.

• New York City's Local Law 97 which imposes mandatory emissions limits for buildings over 25,000 sqft (targeting 40 % reduction in emissions by 2030 and 80 % by 2050) coupled with fines for non-compliant property owners.

• European Union’s Corporate Sustainability Reporting Directive (CSRD) requiring in-scope companies to report on time-bound sustainability targets, progress and processes; .

• European Union’s revamped Energy Performance of Buildings Directive (EPBD)  requiring all new buildings to become solar equipped and zero emission within defined timelines.

• European Union’s Green Deal which galvanises Europe ambitions to scale climate action with the overarching objective of making the EU the world’s first climate-neutral continent.

Green Sky Thinking: How to Incentivise Climate Resilience

Historically, it could be argued that the price of carbon dioxide emissions across the world has essentially been zero, limiting incentives to decarbonise. As we move towards mandatory disclosure requirements, a consistent approach to benchmarking carbon performance will be essential to ensuring incentives align with lower energy intensity and lower carbon emissions.  

Much has been written about the discrepancy between predicted and measured energy use arising from existing Energy Performance Certificates (EPCs), aka “the performance gap”. As noted in CIBSE’s London Energy Map project, huge variances in energy consumption exist within each EPC rating band which are based on a theoretical assessment of the asset energy efficiency, highlighting the risk that investment to upgrade a building from an EPC D to C may not actually result in lower carbon emissions or even any energy savings.

Because of this performance gap, many sustainability professionals now favour the NABERS energy performance ratings which is based on an annual review of an office building’s energy efficiency including actual metered energy consumption data.   

Similar to a graduated vehicle exercise duty, once a consistent approach to benchmarking asset performance has been identified, real estate taxes could be restructured to incentivise sustainable long-term decarbonisation improvements.

Without the right incentives, we may risk favouring the creation of a trillion dollar carbon offsetting market by 2030 as opposed competing in the race to zero, decarbonisation of our built environment, achieving a fifty percent reduction in global greenhouse-gas emissions by 2030 and maintaining our promise to limit global warming to 1.5 degrees C.  

Net Zero Obligations & Model Lease Language  

Whilst it would be foolish to simply wait until a lease has expired before seizing the opportunity to work together, too few incentives have historically existed for closer and more effective cross collaboration between Commercial Real Estate Landlords and Tenants.

For larger institutional landlords, one way of addressing this gap is to gather all tenants together (including across whole estates) at regular environmental forums / workshops aimed at promoting data sharing, performance benchmarking and joint evaluation of planned sustainability initiatives with a view to capturing and promoting common commitments in a ‘Green Performance Pledge’ or ‘Memorandum of Understanding’.

Whilst simple in approach, long-term leases typically lack the provisions needed to support landlord and the tenant cooperation throughout the lease term which has led to advent of green leases clauses aimed at ensuring the property is used as sustainably as possible, according to different shades of green.

However in most cases, the landlord is responsible for compliance with energy efficiency regulations, meaning that Tenants will commonly opt out of additional legally binding language if it entitles a Landlord to offload costs relating to improvements necessitated by changes in future environmental regulations.

Given the long-lead times to sway the needle, we may be rapidly approaching a critical juncture on our path to reimagining the built environment as a low carbon and climate resilient environment.

To ensure we meet our 2030 and 2050 decarbonisation goals, effective regulatory intervention will likley be required to ensure accurate carbon emissions data is made available and collaborative incentives aligned across the Industry.

Rather interestingly, Local Law 97 establishes a price for excessive carbon emissions (aka a carbon tax) at a rate $268 for every metric ton of CO2 equivalent exceeding prescribed carbon caps.

Will be interesting to see if other cities follow suit and opt to tax citywide building emissions in the future. 

What do you think ?

Which building certificates offer the most meaningful performance benchmark ?  

Are carbon taxes required to offset the social cost of carbon ?

Can we truly build net-zero emission buildings in a net-zero way ?