Buildings account for more than a third of global emissions and real-estate asset owners stand to profit from a shift to cleaner energy. However, the sector's carbon footprint keeps growing.
Decarbonizing Buildings, a report from The Conference Board, presents an urgent business case for reversing these trends in commercial (non-residential) real estate, and lays out key strategies for success.
Emissions from the building sector come from both embodied carbon emissions, as well as operational carbon emissions. Embodied carbon largely refers to the manufacturing, transportation, installation, and demolition of building materials, such as concrete. Operational carbon emissions result largely from heating, cooling, ventilating, lighting, and performing maintenance of buildings. Heating is responsible for about a third of a building's operational emissions and 85% of commercial buildings are heated using natural gas, or district heat often powered by fuel oil or coal.
"It's clear that net-zero goals will require rapidly diminishing the reliance on fossil fuels for building heating and power," said Erin McLaughlin, Senior Economist at The Conference Board. "For companies that own or invest in commercial real estate, the economics of electrification and renewables now make this transformation feasible. Delaying it will mean incurring operational, financial, and reputational risk."
Among the report's key insights:
Globally, buildings are responsible for 37% of carbon emissions and 34% of energy demand. Emissions are still growing at 1% per year putting net-zero goals increasingly out of reach.
- In 2022, only 5% of new buildings were net-zero, with gains in efficiency offset by adding floor area.
- To meet midcentury greenhouse gas reduction goals, 100% of new buildings would have to be net-zero by 2030, and operational emissions from existing buildings would need to fall 50%.
- Rapid declines in the cost of renewables and the advantages of electric building systems make decarbonization profitable in the long run. However, meeting the upfront capital cost of retrofitting building systems and seeking out non-fossil fuel energy sources have not been a business priority.
In the US, local and state governments are ratcheting up the pressure and penalties on building owners. They are offering carrots and sticks.
- Despite the cost savings of decarbonizing buildings including moving to all-electric systems, more than two-thirds of commercial buildings in the US still rely on fossil fuels.
- States, and especially cities, have unique power to impact climate policy through real estate, because buildings are permitted, designed, inspected, and operated in line with local codes and standards.
- More than 30 of America's largest cities have already adopted tough benchmarking and disclosure ordinances. In 2024, New York City the country's largest commercial real estate market began enforcement of a local law that aims to cut GHG emissions by 40% by 2030. Fines for non-compliance can reach millions of dollars.
- In many cities, these rules will require retrofitting upwards of 80% of existing buildings by 2050. A range of state, local, and federal incentives is available to property owners to carry out these changes. Corporate owners should act on these now or risk stiff penalties later.
Building decarbonization requires a multipronged strategy, led by a multidisciplinary team.
- The right team goes far beyond sustainability or facilities staff to include operations, technology, finance, the C-Suite, and outside consultants.
- They will need to audit assets site-by-site, building-by-building, to identify the most carbon-intensive operations, establish a baseline for GHG emissions, and set smart goals.
- Companies should prioritize activities to realize the best path to upgrading, retrofitting, and replacing building components and systems to achieve maximum emissions reductions for their efforts. For instance, replacing natural gas space-heating with electric heat pumps can have an outsized impact.
About The Conference Board
The Conference Board is the member-driven think tank that delivers Trusted Insights for What's Ahead . Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c)(3) tax-exempt status in the United States. ConferenceBoard.org
Media Contact: Jonathan.Liu@tcb.org
