The term “net-zero” is everywhere, including in the real estate industry. It’s hard to avoid, even if people may not know how to define it. Solemn “net-zero by 2050” oaths have filled newsfeeds and become a call to arms for countries and corporations alike. The United Nations says that more than 70 countries, which include the biggest polluters of China, the United States, and the European Union, have set a net-zero carbon emissions target, covering 76 percent of global greenhouse gas emissions.
Major commercial real estate firms have joined the race to showcase their net-zero pledges. Firms like CBRE, JLL, and Cushman & Wakefield have taken 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 targets, including REITs like Boston Properties, Prologis, and AvalonBay Communities.
In most cases, shareholder and public pressure are the primary motivation behind the climate pledges, and many real estate firms admit this. “So many of our clients, especially those publicly traded, are hearing from their shareholders, just like we are, wanting to know what climate risk and opportunity means to their organization, and what are they planning to do about their carbon footprint,” CBRE Vice President of Corporate Responsibility Jennifer Leitsch said. For corporate occupiers and landlords, embracing net-zero carbon can also lure employees back to the office and lead to faster building lease-ups and rent premiums.
Is net zero a smokescreen?
Despite all the net-zero talk, it’s questionable if most people know what it means. “Net zero” does not equal zero emissions. In fact, it commonly refers to a state in which greenhouse gasses being emitted are balanced by their removal from the atmosphere. The “net” is important because it will be very challenging, if not impossible, to reduce all global emissions on the timescale called for by climate activists. Countries and companies will need to increase carbon removal and reduce widespread emissions dramatically to meet the ambitious goals called for by the Paris Climate Accord goals.
Yet, there’s a growing backlash to net-zero pledges, something commercial real estate firms should be aware of. Environmental advocacy groups are calling out companies for supposedly lackluster net-zero promises, and their efforts are ramping up. A recent Friends of the Earth International report calls the net-zero concept “a smokescreen, a conveniently invented concept that is both dangerous and problematic because of how effectively it hides inaction.”
And the environmentalists make a good point. Net zero pledges have good intentions, but they often rely on offsetting carbon emissions in many ways, including land-use changes that establish forests or expensive technologies like carbon capture. Net-zero targets often over-rely on carbon capture and removal technologies in order to continue operating at a cost-efficient scale in the near future. And net-zero goals would require possible “land grabs” from countries in the global south to plant trees and enable other nature-based solutions for carbon removal.
Many of the pledges made by major corporations may be unrealistic. Oxfam, a charity focused on alleviating poverty, notes that the net-zero promises of the world’s largest oil and gas corporations (BP, Eni, Shell, and TotalEnergies) would require them to forest an area of land equal to more than twice the size of the United Kingdom. They claim that many pledges by companies are also so far into the future that they may put off accountability until it’s too late. It’s common for net-zero strategies to shift the burden from reducing emissions to carbon offsets, allowing them to pollute as much as they want for a long while until they project emissions will ramp down.
Net-zero plans that rely on these future promises of carbon removal instead of reducing more emissions now could prove to be a risky bet. This is because the carbon removal and capture technologies being depended on to remove vast quantities of carbon in the 2040s and 2050s might not work as expected. Another problem with net-zero pledges is that, in many cases, many forest protection projects will happen anyway. But carbon emissions continue elsewhere when the forestation projects are traded as offsets in carbon markets.
A tall order
In the real estate industry, it’s essential to remember that creating a net-zero carbon building is still very difficult. The World Resources Institute says net-zero carbon buildings currently account for only 1 percent of global buildings. The International Living Future Institute’s Zero Carbon Certification was created in 2018, and the first certification went to a Google office at 6 Pancras Square in London in 2020. The U.S. Green Building Council also has a new LEED Zero Carbon certification, and it certified its first two buildings in 2020, including the Hanergy Renewable Energy Center in Beijing.
Net-zero energy buildings are a bit easier to accomplish. With net-zero energy, facilities produce all the energy they need, using a mix of onsite renewables, electrification, and deep energy efficiency cuts. There are now about 700 net-zero energy buildings in the U.S. and Canada, and, according to the New Buildings Institute, net-zero energy buildings grew 42 percent between 2018 and 2020.
Getting a building to zero carbon is more complicated. A zero-carbon building could be described as one that balances out the emissions from the embodied carbon in its materials and building operations. Offsets can be used for carbon-zero buildings, but they’re viewed as a necessary last resort for reducing the worst of emissions. There’s currently no building in the world that meets the carbon-zero ideal without using offsets and is net zero carbon for both operations and embodied carbon throughout its lifecycle. It’s a tall order, indeed.
Net-zero carbon is considered an imperfect goal by some. But when you consider just how difficult it is to make a building or a building portfolio net-zero carbon, you begin to understand the scope of the real estate decarbonization challenge. Net-zero carbon is a new foundational framework for the real estate industry, and many firms are using it as the North Star to build toward their long-term futures. Achieving the net-zero goal for many commercial real estate firms is considered technically and economically feasible with existing and emerging technologies, but let’s not downplay the colossal shift in behavior and policies that that achievement will require.
Roadblocks up ahead
Real estate’s decarbonization efforts are just starting, and it’s a long road ahead with piles of roadblocks. Switching to zero-carbon electrification entails up-front costs that some major institutional players may be able to afford, but certainly not every real estate firm. Some of these replacement costs would be paid anyway as gas-fired 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 lifecycles and are only replaced when needed. More often than not, building decarbonization brings energy savings and return on investment. Still, it’s only profitable on a longer-term horizon in a world and real estate industry characterized by short-termism.
Another roadblock to wide scale real estate decarbonization 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 of other jobs would be lost. An example is the natural gas industry and how green building codes and legislation impact it. More states and localities are considering laws that ban natural gas hookups in commercial buildings, which are good for the environment but terrible for the natural gas industry. Even if the green building transformations result in a net increase of jobs in the future, the losers of this transition will slow things down unless they can be adequately compensated or quickly transition into other new jobs.
Some environmental groups say net-zero is a sham, but it’s still a huge improvement compared to what we’ve had in the past. Getting a building or portfolio of buildings to net-zero is an enormous task that has only just begun, and whether or not these promises are met remains to be seen. Commercial real estate firms need to be mindful about how they communicate their climate pledges and be wary of environmental activists eager to make “greenwashing” allegations. Net zero may not be all it’s cracked up to be, but the end goal is a laudable one and something that will be difficult to achieve. Many people want perfection, but it’s progress towards greener real estate that matters most.
