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Understanding Building Decarbonization Strategies for Real Estate

We’ve all heard the familiar statistic: buildings are responsible for 40-50% of global emissions. As the world races to adopt carbon-mitigating strategies in time to hit key targets, real estate has a well-established and critical role to play. 

Building decarbonization refers to the process of reducing or eliminating the emissions associated with the use and operation of buildings. And with mounting scrutiny from capital markets, regulators, and the general public on the environmental impact of real estate, “decarbonization” has gone from being a niche term known only in wonkish sustainability circles to a key topic that is top-of-mind for real estate executives. 

We’re here to help you make sense of it. Though decarbonization can (justifiably) seem complex and technical, it becomes easier to understand when broken down into the three primary strategies real estate owners and operators can employ to reduce and eventually eliminate their operational emissions. We’ve laid them out in simple terms below – so let’s dive in! 

Author’s note: In this article, we’ll be exploring strategies for reducing/eliminating operational emissions; that is, the emissions associated with the use of built commercial real estate. We’ll dive into embodied carbon (i.e. the emissions associated with the construction of real estate) in a future post, so stay tuned! 

How does a building decarbonize? 

Real estate owners and operators seeking to mitigate their portfolio’s carbon footprint should broadly consider the following three strategies:

  1. Energy Efficiency: Using less energy to achieve the same indoor environmental outcomes 
  2. Renewable Energy: Shifting to carbon-free electricity 
  3. Building Electrification: Shifting energy demand away from fossil fuel combustion; replacing fossil-fuel-dependent building equipment and infrastructure with electricity-powered equipment 

Author’s note: You might be thinking, “what about carbon offsets?” Per the Science-Based Targets Initiative (SBTi), a company cannot use carbon offsets to achieve a formal Science-Based or net zero target for the emissions within its direct value chain. For that reason, we will not be discussing them here. For more information on the role of carbon offsets – and the concept of “beyond value chain” carbon mitigation – check out this resource from the SBTi, and stay tuned for a future article delving into offsets from the AQ team. 

Strategy 1: Energy Efficiency 

Energy efficiency: the trusty workhorse of real estate sustainability programs, and the first pillar of building decarbonization. Though the practical work of energy efficiency can be technical, boiler-room-level stuff, it is widely acknowledged to be foundational to any net zero pathway. 

At the highest level, energy efficiency means finding ways to demand and consume less energy to achieve the same indoor environmental outcomes. To accomplish this, there are a few primary tactics available that range in terms of effort and investment from optimizing operations and promoting behavior change (lower upfront investment) to pursuing capital-intensive projects and renovations (higher upfront investment). 

Strategy Tactic What is it?
Energy Efficiency Operational changes Increasing the efficiency of existing buildings and equipment by making operational adjustments.
Energy efficiency projects Projects designed to promote energy efficiency. May have wide applicability (e.g. LED lighting) and might require less upfront investment/have shorter payback periods.
Deep capital upgrades, retrofits, and renovations Updating/replacing old, failing, or poorly-performing mechanical equipment with more energy-efficient equipment. Renovating buildings to incorporate lower-emissions design features, e.g.:
- Roof color
- Window sizes
- Glass choices
- Shading
- Passive heating/cooling

The correct efficiency approach depends on the individual assets in a given portfolio and will require close collaboration between stakeholders in ESG, asset management, and at the site level to identify and implement the appropriate measures and forecast and verify their impact. 

Want to manage, but not sure how to measure? Check out our comprehensive guide to ESG data management to help you build an effective efficiency strategy from the ground up. 

Strategy 2: Renewable Energy 

Our next stop in the decarbonization journey is particularly timely, with many local, state, and federal regulatory actions converging over the last decade to make this strategy more affordable and accessible than ever before. We are talking, of course, about renewable energy, which in recent years has mushroomed in global popularity – and for good reason. 

Common forms of renewable energy include solar, wind, geothermal, and hydroelectric power, and they all share a common trait: they have a vastly lower (or carbon-free) emissions profile than conventional fossil fuels. Moreover, thanks to technological advances over the last decade, the cost of renewables has fallen a staggering 60-90%

For real estate, a renewable energy strategy can be broken down into two key buckets – “off-site” renewables, or renewable energy sources that generate electricity off-site which is then purchased, and “onsite” renewables, which generate electricity on premise where it is consumed: 

Strategy Tactic What is it?
Renewable Energy Purchase off-site renewable/clean energy Purchasing renewable energy credits (RECs), renewable retail contracts (RRCs), and/or power purchase agreements (PPAs).
Add onsite renewables and battery storage Pending building suitability and roof characteristics, installing solar photovoltaic panels and energy storage.

As with energy efficiency, the correct renewable approach for a given real estate portfolio will depend on a variety of factors, including the availability of renewables in the regional power portfolio, the availability of various funding mechanisms and incentives, and certain building characteristics (such as the roof area available for onsite solar). With that in mind, having access to portfolio-wide data is an important prerequisite for scoping any renewable project and evaluating proposals from vendors, so you can understand which buildings are suitable for onsite deployments and where renewable energy more broadly can make the biggest financial and energy impact. 

Strategy 3: Building Electrification 

Vaunted as the next big thing in real estate sustainability, the third and final building decarbonization strategy has risen in the last few years to official industry buzzword status: building electrification. In conjunction with aspects of the other two strategies, electrification is a crucial part of the overall decarbonization picture. 

Broadly speaking, building electrification – also known as beneficial electrification, when it leads to reduced emissions – refers to shifting energy demand away from fossil fuel combustion and towards cleaner electric power. For commercial real estate, this generally means replacing conventional heating equipment, like natural gas-powered boilers, with more modern electricity-powered equipment. Depending on a building’s age and underlying infrastructure, this can sometimes be a costly undertaking, which is why certain building codes now have stipulations around “electric-readiness” for new construction. 

Strategy Tactic What is it?
Building Electrification Shifting energy demand away from fossil fuel combustion and towards cleaner electric power Replacing fossil-fuel-powered equipment (e.g. conventional boilers/furnaces) with electricity-powered equipment.

One big consideration with respect to electrification is that any new electric-powered equipment will still only be as “clean” as the electricity it runs on. This means electrification is inextricably tied to the carbon intensity of the grid. Though the grid mix has become substantially cleaner over the last two decades, electrification as a strategy will generally make more sense in situations where a higher proportion of electricity is generated from renewable sources. This could be a result of the regional power portfolio (e.g. in Seattle, where 80% of power is carbon-free) or because onsite solar is also present. On the whole, as electrification continues to be promoted and adopted, real estate owners and operators must continue to think holistically about all three decarbonization strategies, while taking care to incorporate the appropriate grid emissions factors when calculating and reporting their Scope 1, 2, and 3 emissions

Final Thoughts 

The building decarbonization journey is just that – a journey – and every approach will be different. We hope this guide serves as a helpful resource for understanding the tools in your arsenal so that you can build a pathway that puts you on track to tackle your portfolio’s carbon footprint head-on.

View, download, or share our breakdown of Building Decarbonization Strategies here!