Building Sustainability

We’re building a city the size of Paris every week. Building floor space is projected to double by 2050. And with buildings being responsible for about 40% of global greenhouse gas emissions, changes need to be made. Considering that 60 to 80% of building emissions come from building operations, it’s worth to deep dive in technologies that decarbonize building operations. In the current technology landscape, technology is already available to decarbonize CR assets, many of which are in the early stage of maturity. Heating technologies, like smart heating controls and heat pumps are already affordable, but there's much more...

The building sector has to respond quickly to reach net zero goals. Where can one make most impact + how is regulation driving this need?

The largest opportunities for reducing operations emissions are to be found in only a handful of regions, building segments, and technologies.

Macro, we see that 10 countries are responsible for about 65% of global building operation emissions. The US and China combined account for 40%!

China and the US are the biggest contributors. Also, when it comes to projected global retrofit spending, China and the US win again (45% of spending worldwide). Out of the top 10 countries with the highest global building emissions, 8 also make it to the top 10 of the countries with the highest retrofitting spending.

When we look at the different segments, we can see residential buildings account for 60% of building operations emissions globally, meaning that residential exceeds commercial and industrial buildings combined. For all of the top 10 emitters and for 7 out of the top 10 forecasted retrofit spending countries, residential building also accounts for around 60%.

From residential building operations, space and water heating make up about 60% energy demand. This makes heating the biggest opportunity for reducing emissions.

Appliances rank second at approximately 20% of demand. And despite increasing temperatures globally, cooling accounts for only 4%. However, the emissions from cooling are expected to grow, as global temperatures rise, and more and more household have access/need to air-conditioning. Heating will continue to account for the most of a buildings’ energy demand.*

Stakeholders are key to reduce emissions.

Asset owners: Asset owners will set the pace on the transition to net zero, as they are ultimately responsible about their asset achievements. But, they will be facing penalties if failing to comply with low-emissions regulations or green targets. All across the globe, more and more regulations for asset owners are coming in place. For example, in England and Wales buildings with poor energy rating will be banned from being let.

Asset owners have an opportunity to capture operational savings from more cost-effective technologies and potentially command rent premiums for more attractive, sustainable buildings. By adopting decarbonization measures now, they could gain reputational benefit, leverage green sources of capital, and mitigate the impact of future carbon taxes.

But one will need to develop capabilities in several areas: measuring the existing CO2 emissions baseline of assets, determining the feasibility of different green solutions so they can allocate capital more effectively, and implementing solutions in both new and existing buildings.

Asset owners will also have to explore the optimal combination and sequencing of green solutions for their buildings. Once they have developed these capabilities, they can offer them as a service to other asset owners, thus establishing new green ventures beyond core business practices (as today).

Building technology original equipment manufacturers (OEMs): OEMs play an important role in the way to zero as they need to provide the green technologies and services that are fundamental for the decarbonization of building operations.

Utility companies: Utility providers need to supply green electricity that will enable buildings to reach net zero. They could establish new business lines, such as installing and servicing green solutions, leveraging existing field staff and deep, data-driven understanding of customers’ energy usage and requirements. Utility companies will be able to offer large asset owners a one-stop-shop solution that combines renewable energy services with heat pumps and other green technologies such as district heating.

Local regulators: Local regulator can help the process by simplifying local regulations and increase sustainability requirements on the other hand. A great example of this is New York City’s LL 97. Local Law 97 is a key component of the Climate Mobilization Act established in 2019. It focuses on improving energy efficiency and reducing GHG emissions from large commercial buildings. The compliance periods are divided into four distinct intervals, spanning from 2024 to 2049. As time progresses, the emissions limits increase.

Studies show that 20% of properties exceed the first emission limits that are set for 2024, and 76% of is over the limits set for 2030. It’s crucial for NYC asset owners to understand the timeline and take action early to avoid penalties that could range from thousands to millions of dollars every year.

It’s impossible for stakeholders to achieve net zero goals on their own. In order to succeed, it is critical that everyone plays their part.

We are advising several institutional real estate players how to leverage technology to meet ambitious criteria. One of our MENA clients has one of the most ambitious standards for its project.

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* https://www.bcg.com/publications/2023/strengthening-sustainable-building-operations