Decarbonization Pathways

To date, 191 countries, 5,893 companies and 2,061 organizations have submitted climate actions to the United Nations Framework Convention on Climate Change, while the Net Zero Asset Managers Initiative, an international group of asset managers who support reaching net zero by 2050 or sooner, currently has 236 signatories representing US$57.5 trillion in assets under management.

In addition to the Paris Agreement, more investors are using environmental, social and governance (ESG) as a barometer for assessing risks in their investment portfolio, further driving corporations to address sustainability issues. This is especially true for the commercial real estate industry, where investors are asking for higher environmental standards.

The building and construction industry was responsible for 38 percent of total global energy-related CO2 emissions in 2019, so there is plenty of room for improvement. As companies strive to meet their sustainability goals, it is vital for facility managers to understand the various pathways to decarbonization as they work on implementing carbon reduction measures. Due to the uniqueness of each building, there are no one-size-fits-all solutions, so FMs will play a key role in identifying and implementing the measures necessary for individual properties to achieve their goals.

Decarbonization pathways to reach greenhouse gas (GHG) reduction goals

1. GHG reduction goal setting

Overall GHG reduction targets are generally set by a company’s management, after which asset managers may work on setting goals for each property or portfolio to achieve those targets. However, it is beneficial for FMs to understand the types of goals that can be set.

There are two well-known frameworks that corporations use to help define their decarbonization goals and report on their progress: the Science Based Targets Initiative (SBTi) and Carbon Risk Real Estate Monitor (CRREM). Both align their objectives with the Paris Agreement and provide decarbonization pathways that are based on climate science. They have recently joined forces to provide a single standard for building decarbonization. While SBTi and CRREM provide helpful frameworks for goal setting and tracking, they are not mandatory. Aside from these frameworks, companies could establish their own specific goals that align with their corporate policies and the state of their properties.

With individual properties and portfolios, the asset manager should be setting discrete goals, whether they are performance based (e.g., reducing carbon of all assets by 25 percent by 2030 based on a 2020 benchmark) or prescriptive based (e.g., replacing fossil fuel equipment with electric equipment, with a target of 100 percent electrification of all properties by 2035). The goals should be reachable by the determined date, even if they are aggressive.

Not all properties within a portfolio need to reduce the same amount of carbon for a portfolio to reach its overall reduction target. High-performance buildings could compensate for high GHG emitting buildings that cannot decarbonize. However, it is still best to have minimum standards across all assets, such as 100 percent LED lighting by 2025.

Conversely, when it comes to setting goals for individual properties, it may not make sense to set a goal of 50 percent reduction in carbon if the property already has an ENERGY STAR certification with an ENERGY STAR score of 75 or above. The goal should be determined by the current status of the property and what is achievable. For FMs, it is important to know how the property is performing to assess whether the goal set for that property is feasible.

2. GHG emissions benchmarking

After the general goals are set by the asset manager or owner, the next step is benchmarking the current GHG emissions levels of each property and systematically analyzing the GHG emissions sources. This is where FMs would be needed to help with inputting or aggregating the utility bills and gathering all the data. For multitenant properties, FMs would need to engage with the tenants to access their utility bills for analysis.

The data collected will help set the actual reduction targets and would be used to show emissions reductions year-over-year. Each property’s data could also be used as a comparative tool between the individual assets or aggregated to compare portfolios against each other.

GHG emissions are divided into three scopes.

• Scope 1 includes emissions from all the company’s owned or controlled sources, such as the equipment on site that burn fossil fuels or any company vehicles.

• Scope 2 includes indirect emissions from electricity purchased and used, or generation of heating and cooling that was purchased by the company but are produced elsewhere and provided by a utility company.

• Scope 3 includes other indirect emissions that are generated by the company’s activities upstream or downstream in the value chain and not controlled by the company, such as business travel or employee commuting.

3. Energy & water audits

Reducing GHG emissions begins with a detailed inspection and analysis of the property’s energy and water consumption, also known as an energy and water audit. For example, in the U.S., auditors go by the ASHRAE energy audit standards.

There are three levels of ASHRAE audits: Level I is a walk-through analysis; Level II is an energy survey and analysis; and Level III provides a detailed analysis of capital-intensive measures and expenditures. The purpose of these audits is to establish baseline consumption rate and quantify the energy and water usage. The audits will also include recommended energy efficiency measures, estimated costs of implementation, estimated energy and cost savings, simple payback periods and estimated carbon reduction.

The FM is a key component of the audit, as they usually walk with the energy auditor as the auditor surveys the property and answer questions about the physical systems of the property, operations of the property, control set points and provide intel for data collection. More importantly, FMs determine the scope of work after the energy audit is finished and decide on which measures to implement. They oversee implementation, as well as choosing any contractors necessary to perform the scopes of work.

The FM plays a critical role when it comes to implementing capital-intensive energy efficiency measures, such as replacing old HVAC equipment with an energy efficient item. Often, the measures recommended in an audit may not be implemented immediately, as the owner may want to wait until equipment reaches its end-of-useful life before replacing it. In this case, the FM must ensure that when the time comes, they are following the recommended measure to purchase the energy efficient item instead of like-kind equipment.

Additionally, FMs should document any changes in policies regarding the implementation of efficiency measures, such as using efficient LED lights, so that the company continuously follows the recommended measures instead of reverting to its old ways.

4. Retrocommissioning

Retrocommissioning (RCx) is the process by which existing building systems and equipment are optimized so that they perform more efficiently and their useful lives are extended. As buildings age, systems and equipment may degrade from wear and tear, sensors may become miscalibrated, and building control sequences may accidentally become modified/obsolete/turned off, thus losing their original performance. RCx is a low-cost way to improve the property’s efficiency while also reducing maintenance costs. There may be on-site staff who can perform RCx; but if not, the FM could hire someone with RCx experience.

RCx, along with energy and water audits, and utility benchmarking are required as part of local ordinances in some municipalities, such as the Los Angeles Existing Buildings Energy and Water Efficiency Ordinance. FMs should be aware of any such ordinance in their cities and comply to avoid incurring late fees or other penalties.

5. Electrification

Electrification is the process of replacing technologies that use fossil fuels with those that use electricity as their source of energy. The electric grid is decarbonizing and getting cleaner, as areas that are still using dirtier fossil fuels (e.g., coal) for electricity generation are transitioning to cleaner fossil fuels such as natural gas and renewables, such as solar or wind. The International Energy Agency projects that clean energy will make up 95 percent of all new power generation globally through 2026. This means that if a property’s equipment and systems are all electric, the property will decarbonize when the electric grid decarbonizes. Switching to all electric equipment may increase overall cost now depending on the property location, but electrification is necessary for the property to achieve net zero overall.

FMs can work with engineers or contractors to determine if existing equipment that is burning fossil fuel can be replaced with electric equipment. Additionally, they can work with their utility company to purchase green power, which is electricity generated by renewables. This usually comes with a premium, and the utility provider may not be able to provide enough electricity using a renewable source such as solar PV and wind. However, it is something worth exploring to reduce GHG emissions now.

6. Renewable energy systems

To reduce the property’s reliance on fossil fuel and the electric grid, FMs can weigh the option of installing renewable energy systems, such as solar PV or solar thermal, which will reduce utility bills. Renewable energy technology is also maturing and costs have decreased. For example, the cost of solar panels has fallen 89 percent in the last decade, making it a more viable option than ever before.

7. Carbon offset

Sometimes, direct emissions reduction and renewable energy may not be feasible. In this case, purchasing carbon offsets could be an attractive option for lowering the property’s net GHG emissions. These certificates help fund projects that reduce emissions; so by purchasing them, the company is compensating for, or offsetting, their own emissions.

Getting to net zero

There is no one path to decarbonization and reaching net zero. However, there are numerous ways to improve the efficiency of a property, and a portfolio-wide goal can be net zero without all the assets having to achieve the same. As the focus on climate change intensifies, there is a tremendous amount of work to be done. But decarbonization is worth it, whether from a risk-mitigation point of view or to improve the asset.