Commercial buildings produce 40% of global carbon emissions, making the built environment one of the top global producers of carbon. That fact alone is enough to warrant immediate and dramatic action by the commercial real estate (CRE) industry, but there are other factors pushing CRE into a more sustainable future. But first, there are so many definitions to know. What is net zero? What is a net zero energy commercial building? And why do these concepts need to be on your radar? Read on for the answers.
What is Net Zero?
Net zero refers to a state in which the greenhouse gases going into the atmosphere are balanced by removal out of the atmosphere. It’s the international scientific consensus that, come 2050, global net human-caused emissions of carbon dioxide (CO2) need to decrease 45% from the levels they were in 2010 to prevent the worst climate damages.
It’s important because global warming is directly related to cumulative CO2 emissions. That means the planet will keep heating for as long as global emissions remain more than zero. This implies that climate damages, caused by global heating, will continue escalating for as long as emissions continue.
What is a Net Zero Energy Commercial Building?
A net zero energy commercial building is achieved when the amount of energy provided by onsite renewable energy sources is equal or equivalent to the amount of energy used. Simply put, it means the building is producing as much – or more – energy as it’s using. Renewable energy is defined as energy created by sources that are naturally replenished – things such as wind, rain, or solar power.
And to throw in some more definitions: Commercial buildings that produce a surplus of energy over the year are referred to as energy-plus buildings. Likewise, commercial buildings that consume slightly more energy than they produce are near-zero energy buildings. You may also hear these commercial buildings referred to as ultra-low energy buildings.
Why CRE Needs to Focus on Net Zero Energy Commercial Buildings
Even as more companies initiate efforts to achieve “net zero” carbon emissions, regulatory pressures will increase the speed at which those changes happen.
For instance, the UK’s Climate Change Act of 2008 set aggressive decarbonization goals for 2050, and it likely foreshadows similar changes stateside soon. In December 2021, President Joe Biden signed an executive order directing the U.S. federal government to reduce its emissions to net zero by 2050. The order covers only the federal government. However, it’s meant to be a catalyst for private sector regulation.
The order states in part: “As the single largest landowner, energy consumer, and employer in the Nation, the Federal Government can catalyze private sector investment and expand the economy and American industry by transforming how we build, buy, and manage electricity, vehicles, buildings, and other operations to be clean and sustainable.”
Notably, one of the five main priorities of the order is a net zero emission building portfolio by 2045, which includes a 50% emissions reduction within a decade.
Additionally, two of the largest CRE markets in the U.S., New York City and Boston, each have new requirements for building emissions. New York’s Local Law 97 mandates cutting emissions 80% by 2050, with numerous required benchmarks along the way. The first benchmarks must meet new energy requirements by 2024, with more restrictive 40% reduction demands by 2030. Meanwhile, Boston’s Building Emissions Reduction and Disclosure Ordinance (BERDO) aims for net zero by 2050.
CRE firms will need to meet these requirements or face hefty fines, which means there’s a clear bottom-line incentive to decarbonize as soon as possible.
The 3 C’s: Climate, Compliance, and Cost
CRE sustainability is not merely a political issue. In fact, debt markets have started factoring in emissions and climate change-related risks.
Older buildings are an obvious problem. There have long been costs associated with mitigating health and safety factors, like lead paint and asbestos. At the same time, the pandemic has placed a new emphasis on the need for improved ventilation and air quality. Faced with aggressive emissions and energy efficiency requirements, owners must consider the overall environmental impact of their buildings and the costs required to bring them into compliance.
Climate change threats are affecting real estate markets in certain geographies. One of the most dire examples is the Miami-Dade area of Florida, where rising sea levels resulted in nearly $500 million in real estate losses between 2005-2016 alone. Meanwhile, California is experiencing problems with coastline erosion, rising sea levels, and wildfires.
Because debt markets are factoring climate change into real estate costs, CRE owners must follow suit—not only in terms of purchase and resell prices, but also regarding the costs of upgrading buildings and risk management.
How to Meet Sustainability Goals While Maximizing ROI
External pressure is driving change and creating new challenges for the CRE market to overcome. And it’s also creating opportunities for investors and owners. Those who meet these expectations proactively will succeed. It’s crucial to understand the current CRE landscape and the many ways of solving pain points while balancing ROI.
Energy efficiency is the most cost-effective strategy with the highest ROI. However, all building owners and operators need at least some technology support to achieve their goals. Technologies enable property teams to:
- enhance energy management practices;
- prioritize health, wellness, and indoor air quality;
- perform proactive maintenance;
- prolong equipment lifetimes;
- measure and evaluate the effectiveness and efficiency of existing HVAC systems;
- plan for capital investments; and
- achieve key energy certifications.
This tech doesn’t need to cost you a ton of money. Look to technology where ROI is built in. For example, Hank from Building Engines integrates with existing BMS/BAS. That means no new equipment is required. And because the software immediately works to automatically optimize HVAC settings, owners and operators can save 20% on a total energy bill. Better usage has the side benefit of prolonging the life of HVAC equipment. That helps reduce replacement costs in the long term.
Learn more about how technology is shaping the future of sustainable commercial real estate and helping property owners and operators meet their goals by downloading the free whitepaper, “The CRE Playbook for Maximizing ROI on Sustainability.”
