Speedinvest Blog

Decarbonizing Real Estate: The Importance of Investing Now

October 13, 2022

The real estate sector is a key contributor to global warming, accounting for around 40 percent of annual global greenhouse gas emissions. Of these operational emissions, approximately 75 percent are related to energy use produced by building operations, while the remaining 25 percent are embodied emissions coming from materials used and carbon emitted during construction. 

The use of existing technologies can prevent significant emissions associated with real estate as well as provide positive economics. Investing in energy-efficient lighting and better insulation, for instance, can pay off financially.

In the decades to come, real estate will play a crucial role in the context of global carbon neutrality and will continue to reinvent the way we live and work through these profound physical and economic changes. By investing in technologies that work to decarbonize real estate and make real estate more resilient to climate-related damages, we stand a greater chance of easing the suffering of those in energy poverty and achieving emission-reduction targets outlined in the Paris Agreement.

The unconscionable waste of European building stock

A staggering 75-97 percent of the European building stock is currently energy inefficient, accounting for over a third of the EU’s CO2 emissions. This represents unconscionable waste, real suffering for those in energy poverty, and a significant barrier to meeting the global and national emission-reduction targets in the Paris Agreement. As energy poverty is expected to sweep Europe in the coming winter, we are reminded that the cheapest energy is the energy we don’t consume.

Meanwhile, communities are increasingly faced with storms, floods, fires, extreme heat, and other risks caused by a changing climate. These physical, transitional, and adaptation risks have created a significant risk of mispricing real estate across markets and asset classes. More importantly, it is affecting where and how we live, work and manufacture––forcing a reshaping of the real estate sector.

Related Reading: The Importance of Investing in a Nature-Positive Economy

Existing solutions to reduce energy costs

The challenges ahead are well-documented. Fortunately, there are existing tools at our disposal to reduce energy costs. For instance, the Environmental Protection Agency estimates that homeowners can save an average of 15 percent on heating and cooling costs or an average of 11 percent on total energy costs by air sealing their homes and adding insulation while reducing emissions proportional to energy usage.

A similar case could be made for commercial and industrial applications, where utilizing fugitive heat has been an important lever in improving resource efficiency and decreasing costs and emissions. As new technologies develop, low-carbon heating and cooling systems, including heat pumps and energy-efficient air conditioning, become more cost-competitive in a broad range of markets. Investing in these cost-effective upgrades can both result in meaningful improvements and reduce asset risks.

Utilizing renovation and reuse of high-carbon building materials

As the global population continues to grow and urbanize, the world is experiencing an unprecedented building boom. Based on current estimates, the rate of global building stock growth will be equivalent to adding a new New York City every month for the next four decades.

Choices about the types of buildings built and the materials used to construct them will have major implications for the real estate sector’s future carbon footprint. Finding out whether existing structures may be restored or repurposed in an adaptable manner should be the first step before starting any new development.

Renovation and reuse of high-carbon building materials like steel and cement can greatly reduce costs and demand for carbon-intensive materials. By reducing waste, reusing materials, and using recycled materials, construction can be more resource-efficient (e.g. scrap-based steel production creates far fewer emissions than new steel) or those produced using low-carbon methods. The inclusion of sustainably sourced organic materials, such as wood, hemp, cross-laminated timber, and other materials like mycelium, bioplastic, and olivine sand sequestering carbon in the structure can boost its climate benefits. 

Where new construction is necessary, building design and location can impact both the materials required and future energy needs. Achieving zero emissions from new buildings will also require the highest energy efficiency standards that use no on-site fossil fuels and are 100 percent powered by on- and/or off-site renewable energy.

“The greenest building is the one that already exists” –– Carl Elefante, former president of the American Institute of Architects

Making use of retrofits to boost energy efficiency

Approximately two-thirds of existing global building area will still be around in 2040. While net-zero aligned construction is a critical component of sustainability, existing buildings must also be considered in emissions reduction plans. Energy-efficient retrofits can reduce upcoming energy costs, meet rising efficiency standards, and raise the value of a home.

Heating, ventilation, and air conditioning (HVAC) systems, lighting (which can account for up to 40 percent of the energy used by a commercial facility), and water use are three areas of particular emphasis for retrofits. Electrification is closely related to the retrofitting of these crucial operational systems. The use of gas or oil for heating can have a considerable impact on a building's emissions. 

Using electric heat pumps instead of fossil fuels can significantly lower a building's carbon footprint. Although not a one-size-fits-all solution, if implemented worldwide, using heat pumps instead of traditional boilers and furnaces could cut global CO2 emissions by three gigatons per year

The increasing importance of clean electricity sources

Electricity production is an important factor to consider. Property owners should commit to purchasing a greater share of their energy from clean sources going forward. Many buildings may also be suitable for on-site electricity generation, such as the installation of rooftop solar panels (and even wind turbines), which can shrink both carbon footprints and energy bills.

Some areas we are currently exploring include: 

  • Grid hardening and resilience: Technologies that support the trend of electrification of all major end uses of energy
  • Local energy generation and storage: Technologies that enable properties to use their physical presence to generate and store energy, helping stabilize energy grids and reduce costs associated with clean energy
  • Heating solutions: Technologies that bolster low-carbon/energy and low-cost heating at scale
  • Climate-friendly cooling: Technologies that bolster the cold chain or expand access to efficient refrigeration and cooling at scale
  • Improving water and wastewater systems: Companies that expand access to clean water, and improve wastewater and stormwater management 

Real estate will play a crucial role in the context of global carbon neutrality and will continue to reinvent the way we live and work through these profound physical and economic changes. At Speedinvest, we’re looking to invest in scalable startups that can catalyze the decarbonization of real estate.

If you’re working on decarbonizing real estate or making real estate resilient to climate-related damages, we’d love to chat. Please get in touch. 

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