The term “net-zero” is everywhere, including in the real estate sector. It’s hard to avoid, even if people don’t know how to define it. Solemn pledges of “net zero by 2050” have filled newsfeeds and become a call to arms for countries and businesses. The United Nations says more than 70 countries, including the biggest polluters China, the United States and the European Union, have set a goal of net zero carbon emissions, covering 76% of global greenhouse gas emissions. greenhouse effect.

Major commercial real estate companies have joined the race to present their net zero commitments. Companies like CBRE, JLL and Cushman & Wakefield have made the net zero pledge, along with commercial real estate services firm Transwestern. Since the start of 2021, more than a dozen real estate companies have set net zero goals, including REITs like Boston Properties, Prologis and AvalonBay Communities.

In most cases, shareholder and public pressure is the main motivation behind climate commitments, and many real estate companies admit it. “Many of our clients, especially those listed on the stock exchange, hear from their shareholders, just like us, wanting to know what climate risks and opportunities mean for their organization, and what they plan to do about their carbon footprint.” , CBRE Vice President of Corporate Responsibility Jennifer Leitsch said. For occupiers and business owners, adopting net zero carbon can also keep employees coming back to the office and lead to faster building rentals and rent premiums.

Is net zero a smokescreen?

Despite all the talk about net zero, it’s doubtful most people know what it means. “Net zero” does not equal zero emissions. In fact, it generally refers to a state in which emitted greenhouse gases are balanced by their removal from the atmosphere. The “net” is important because it will be very difficult, if not impossible, to reduce all global emissions within the timeframe demanded by climate activists. Countries and companies will need to increase carbon removal and dramatically reduce widespread emissions to meet the ambitious targets called for by the Paris Climate Agreement goals.

Yet there is a growing backlash to net zero commitments, something commercial real estate companies should be aware of. Environmental groups are calling out companies for so-called lackluster net-zero promises, and their efforts are intensifying. A recent report by Friends of the Earth International calls the concept of net zero “a smokescreen, a conveniently invented concept that is both dangerous and problematic because of how effectively it hides inaction”.

And environmentalists make a good point. Net-zero promises have good intentions, but they often rely on offsetting carbon emissions in multiple ways, including land use changes that establish forests or expensive technologies like carbon capture. Net zero goals often rely too heavily on carbon capture and removal technologies in order to continue operating at a cost-effective scale for the foreseeable future. And net-zero goals would necessitate possible “land grabs” by southern countries to plant trees and enable other nature-based solutions for carbon removal.

Many of the promises made by big companies may be unrealistic. Oxfam, a charity focused on poverty reduction, notes that net zero pledges from the world’s largest oil and gas companies (BP, Eni, Shell and TotalEnergies) would require them to afforest an area of ​​land equal to more than double the size of UK. They claim that many corporate promises are also so far off that they could defer responsibility until it is too late. It is common for net zero strategies to shift the burden of reducing emissions to carbon offsets, allowing them to pollute as much as they want for a long time until they predict that emissions will decline.

Net-zero plans that rely on those future promises of carbon removal instead of further reducing emissions now could prove to be a gamble. Indeed, the carbon removal and capture technologies that were expected to remove large amounts of carbon in the 2040s and 2050s may not work as expected. Another problem with net zero commitments is that, in many cases, many forest protection projects will come to fruition anyway. But carbon emissions continue elsewhere when reforestation projects are traded as offsets in carbon markets.

A large order

In the real estate industry, it is essential to remember that creating a net zero carbon building is still very difficult. The World Resources Institute says zero-carbon buildings currently make up just 1% of global buildings. The International Future Institute’s zero carbon certification was established in 2018, and the first certification was awarded to a Google office at 6 Pancras Square in London in 2020. The US Green Building Council also has a new LEED Zero Carbon certification and certified its first two buildings in 2020, including the Hanergy Renewable Energy Center in Beijing.

Net zero energy buildings are a little easier to achieve. With net-zero energy, facilities produce all the energy they need, using a mix of on-site renewables, electrification and deep energy efficiency reductions. There are now approximately 700 net-zero buildings in the United States and Canada, and according to the New Buildings Institute, net-zero buildings grew by 42% between 2018 and 2020.

Bringing a building to zero carbon is more complicated. A zero carbon building could be described as a building that balances the emissions of the carbon embodied in its materials and construction operations. Offsets can be used for zero-carbon buildings, but they are considered a last resort necessary to reduce the worst emissions. There is currently no building in the world that meets the zero carbon ideal without using offsets and is net zero carbon for operations and embodied carbon throughout its life cycle. It is a tall order, indeed.

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Net zero carbon is seen as a flawed goal by some. But when you consider how difficult it is to make a building or portfolio of buildings net zero carbon, you begin to understand the scale of the real estate decarbonization challenge. Net zero carbon is a fundamental new framework for the real estate industry, and many companies are using it as the North Star to build their long-term future. Achieving net zero for many commercial real estate companies is considered technically and economically feasible with existing and emerging technologies, but let’s not minimize the colossal shift in behavior and policy that this achievement will require.

Roadblocks ahead

Efforts to decarbonize real estate are just getting started, and it’s a long way to go with stacks of roadblocks. Moving to zero-carbon electrification comes with upfront costs that some major institutional players may be able to afford, but certainly not all property companies. Some of these replacement costs would be paid for anyway as gas heating systems and other equipment wear out or become obsolete. But why replace a less efficient system, unless you have to?

An example is the electrification of commercial building heating and cooling systems in the form of heat pumps. In some parts of the country, commercial heat pumps make good economic sense, but not everywhere. And many buildings’ mechanical systems have long life cycles and are only replaced when needed. Most often, the decarbonization of buildings brings energy savings and a return on investment. Yet it only pays off in the longer term in a global and real estate industry characterized by short-termism.

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Another obstacle to real estate decarbonization at scale is that sustainable transformations have significant and disruptive economic and societal impacts. At the national level, new green building technologies can create millions of jobs, but millions more jobs would be lost. An example is the natural gas industry and how green building codes and legislation affect it. More and more states and localities are considering laws prohibiting natural gas hookups in commercial buildings, which is good for the environment but terrible for the natural gas industry. Even if green building transformations result in a net increase in jobs in the future, the losers of this transition will slow things down unless they can be properly compensated or move quickly to other new jobs.

Some environmental groups say net zero is a sham, but it’s still a huge improvement over what we’ve had in the past. Bringing a building or a portfolio of buildings to net zero is a huge task that has only just begun, and whether or not these promises will be fulfilled remains to be seen. Commercial real estate companies need to be careful about how they communicate their climate commitments and be wary of environmental activists willing to make “greenwashing” claims. Net zero may not be all it’s made out to be, but the end goal is laudable and something that will be hard to achieve. Many people want perfection, but it’s the progress towards greener real estate that matters most.