How Portfolio Decarbonization Can Help Building Owners Fight Climate Change Strategically

By Annie Smith and Tom Abram

Given the immediate pressures of climate change, eliminating carbon emissions is on the agenda for many building owners.

For those responsible for several buildings, such as offices, schools, universities, banks, retail, residential, healthcare, or storage facilities, the carbon emissions of these buildings are an immediate problem. According to data from the World Green Building Council, buildings account for 39% of all global energy-related carbon emissions, with 28% coming from operational emissions — the energy needed to heat, cool, and power them — with the other 11% from construction and materials. Yet the built environment is lagging behind other industries in dealing with these emissions. 

Decarbonization is a complex problem. To tackle it, we specialize in portfolio decarbonization, the strategic assessment and planning for a collection of properties to reduce carbon emissions at scale, align with capital planning and financial goals, and improve the comfort and well-being of occupants. We have applied our approach to many portfolios of varying scales — from a handful of buildings to dozens, and then up to hundreds of buildings at a time.

Regulatory pressures

Addressing carbon emissions is increasingly shifting from an aspiration to a necessity in business planning. There are growing regulatory pressures in different states, countries, and regions around the world that will compel companies to act, including:

• In New York City, USA, Local Law 97 changes starting this year mean that most buildings over 25,000 ft2 must meet stricter greenhouse gas emissions and energy efficiency standards, with even stricter limits coming in 2030. The city’s overall goal is to have these buildings operating at net zero by 2050.

• In Washington state, USA, House Bill 1390 requires that all campus district energy systems begin a plan by June 2024 for decarbonization over the next 15 years,

• In the European Union (EU), the Corporate Sustainability Reporting Directive (CSRD) came into force this year. This will bring in a new range of environmental, social, and governance reporting standards for publicly listed and other major companies, including mandatory reporting on their environmental performance, including Scope 1 and Scope 2 emissions, through the lens of double materiality.

• In New South Wales, Australia, new sustainability standards for residential and non-residential development came into effect on October 1, 2023. These standards cover greenhouse gas emissions reductions, improved thermal performance, water usage, and a transition away from fossil fuels.

• In British Columbia, Canada, the Energy Step Code has mandated 20% better energy efficiency for most new buildings as of May 1, 2023, as part of the pathway for all new construction to be net zero by 2032.

Time and money

Portfolio decarbonization planning covers many different aspects of reducing emissions and, at the same time, it must reflect the financial realities of the portfolio owners and what resources are available. This is not a quick fix; the strategy could stretch out over 20 years, with an ultimate goal of net zero emissions.

For example, decarbonization strategies include improving insulation, upgrading windows, improving energy efficiency via better HVAC systems and smarter controls, electrification of combustion equipment, and offsetting the remaining emissions with renewable energy sources. These actions do not need to happen all at once, nor affect each building at the same time, depending on the current conditions of the buildings and their systems. There are also interactivities between these strategies that can improve financial outcomes. For example, improving the building envelope can reduce the size and cost of heat pumps used to electrify a building's heating system.

This phased, long-term planning means there will also naturally be uncertainty caused by:

• Fluctuations in energy prices

• New technology

• Carbon pricing and costs

• Climate trends

Therefore, for portfolio decarbonization to be effective, it is important to carry out scenario modeling and sensitivity analysis of those models to find the right pathway that is cost-effective, and that has a level of risk that matches owners’ expectations and tolerance. Like the three bears’ porridge, the outcome should be just right: well-rounded with the best compromise across different performance dimensions.

Understanding Your Scopes

Carbon emissions are grouped into three “scopes” or categories:

• Scope 1 carbon emissions are emissions from fuels combusted directly onsite within a building or from a fleet vehicle or from refrigerant leaks

• Scope 2 emissions are from a utility provider (typically electricity, steam, or purchased chilled or hot water). These emissions are described as indirect since the emissions are released offsite (outside the property line) but are incurred by the building's operations.

• Scope 3 emissions include those from transportation, distribution of goods, business travel, employee commutes, emissions from leased assets, and purchased goods.

The definitions of the scopes and how to account for carbon emissions are based on guidance in the Greenhouse Gas Protocol, the global industry standard for carbon emissions reporting.

Typically, owners choose the scopes they wish to measure and focus on reducing. Most organizations start with Scope 1 and 2 when trying to decarbonize their building portfolio because these are the most commonly incurred emissions scopes for buildings. By electrifying systems, Scope 1 emissions can be eliminated by shifting away from onsite combustibles, and combining these efforts with energy efficiency can reduce Scope 2 emissions due to lowered energy use and related carbon emissions incurred at the local utility.

As the industry learns more about Scope 3 emissions, these emissions will be a greater focus in new construction and major renovations due to the embodied carbon inherent in buildings. Some building owners, including retail, can also reduce their Scope 3 emissions by facilitating decarbonization efforts in their suppliers’ buildings.

Image credit: EPA (https://www.epa.gov/climateleadership/scope-1-and-scope-2-inventory-guidance)

Strategic Approach

Each portfolio of built assets is different, so each requires a tailored approach. That starts with determining the baseline scenario, identifying opportunities to reduce building energy and carbon emissions (improved baseline scenario) through efficiency and electrification, deploying renewable energy, developing and assessing district energy solutions, and finally developing and evaluating scenarios to select the overall decarbonization plan.

It is vital to understand the portfolio’s energy use, its sources of carbon emissions, and its history with energy-related planning. That involves analyzing historic utility consumption data, building characteristics information, and energy infrastructure and systems information.

Facility information also comes into play. This could include relevant plans and datasets, including master plans, previous climate action plans, greenhouse gas (GHG) inventory data, any existing infrastructure schematics on utilities, and existing and proposed renewable energy projects. (However, we are also well versed in providing large portfolio decarbonization efforts with minimal information.)

After establishing that quantitative baseline for performance, high-level decarbonization opportunities can come into focus, ranging from district energy infrastructure improvements and building type-specific strategies to program development and policy strategies. Alongside being technically viable district energy solutions, each scenario of potential strategies will have pros and cons, including capital and lifecycle costs, carbon emissions, and construction and maintenance impacts.

 

The Power of Analytics

For building portfolio managers, data is the key to success. We use Carbon Signal, an in-house proprietary tool that combines the speed of machine learning with the accuracy of physics-based modeling techniques to generate insights about building performance and decarbonization. We designed Carbon Signal with portfolio asset managers in mind via metrics tied to portfolio-level performance. Our users typically have hundreds of buildings, but currently have little insight into performance outside of monthly energy use.

We see Carbon Signal as a scalable analytics solution for real estate professionals due to its ability to adjust the energy models to reflect potential building upgrades and then simulate each model to generate a carbon savings estimate.

We follow a three-step engagement process. This approach quickly identifies the most promising opportunities for carbon emissions reductions, starting with a high-level analysis of the portfolio, then the creation of a detailed implementation action plan:

• Assessment: Establishing a reasonable model of existing building conditions at the outset of the project and completing a planning-level analysis of decarbonization interventions (such as energy efficiency, electrification or demand flexibility) for each building in the portfolio.

• Strategy: Overlaying information such as project costs, operational constraints, and existing capital improvement plans to evaluate trade-offs and optimize project sequencing to create a comprehensive portfolio decarbonization plan.

• Implementation planning: Charting out actionable projects over future years with correlated costs, including key performance indicators to measure success over time and develop ongoing tracking and reporting protocols. This pathway blends the identification of gaps between the portfolio’s existing performance and established targets, guidance for current operational standards and best practices, and a plan that accounts for regional grid emissions, future regulatory changes, and portfolio growth.

Caption: The diagram above summarizes a typical building portfolio decarbonization plan, illustrating the multiple strategies leveraged to reduce the emissions and the relative impact of each measured against the baseline (current) emissions.  

Data in Action

The strategies that we develop are ambitious, implementable, and match our clients’ resources and goals. Here are four recent projects:

• Georgia Institute of Technology (Comprehensive Campus Plan): We provided portfolio decarbonization and utility strategy services for the NBBJ team that developed the university’s Comprehensive Campus Plan, a framework for the university to successfully execute its 10-year strategic plan. The decarbonization approach quantified the potential energy reduction and decarbonization potential for 140 campus buildings. We then aligned these opportunities with other building information, including an overlay of the facilities' condition assessments. This allowed us to identify which decarbonization measures should be captured through deep energy retrofits in the major renovations versus standalone energy upgrades. Our team provided direction by prioritizing of the potential reduction strategies (by specific building, building use type, and measure) and explored opportunities to leverage the modernization of the campus district energy infrastructure to reduce emissions and water consumption.

• Johns Hopkins University (Climate Action and Sustainability Plan): We led the development of Johns Hopkins University’s climate action and sustainability plan, including a portfolio decarbonization assessment and decarbonization roadmap. We also provided an interactive microsite for the campus to explore decarbonization potential at both building and portfolio level.

• The Lawrenceville School (Decarbonization Strategy):  This strategy plan identified opportunities for emissions reductions for the 1.3 million-square-foot preparatory school’s campus through energy reduction and electrification strategies, prioritized the strategies according to their cost-effectiveness, and packaged the recommendations into potential scenarios to guide the school’s leadership to meet its carbon neutrality goal. This project incorporated the school’s existing 6MW solar array, leveraged multiple points for student engagement, and included the initial Scope 3 survey results — all of which are unique in the secondary education sector. Through this effort, The Lawrenceville School is primed to be a model for decarbonization and sustainability.

• NOAA Fisheries (Carbon Footprint and Analysis for Meeting Government Mandates): The United States federal government requires its agencies to have a net-zero emissions building portfolio by 2045. Our team performed the analysis and planning to guide the agency to meet this goal for the 1.1 million-square-foot portfolios spread across 25 distinct site locations across the United States. This project started first by quantifying the baseline carbon footprint, then identifying and evaluating building-level strategies needed to reduce Scope 1 and 2 emissions, and finally summarizing the impact of these strategies and showing a pathway to meet the carbon neutrality goal.

Programmatic Decarbonization Support

Our team provides technical account management and resource development for the United States Department of Energy’s Better Climate Challenge. Through this program, building portfolio owners commit to reducing their Scope 1 and 2 emissions by 50% within two years (without using carbon offsets). In return, these organizations (including universities, cities, states, commercial real estate, data centers, and retail companies) receive direct technical assistance and other support.

We are one of three firms that provides technical account management. Through this program, Introba and Lawrence Berkeley National Laboratory (LBNL) co-developed the DOE’s Framework for GHG Emissions Reductions Planning. This five-milestone framework provides process-oriented guidance to organizations looking to decarbonize their building portfolios, and we have incorporated this process for our own decarbonization planning efforts.

We are also currently leading the team developing the New York State Energy Research and Development Authority (NYSERDA)’s Higher Education Decarbonization Playbook to provide strategic guidance to colleges and universities in New York state and beyond. This includes major coordination with several New York higher education institutions to gain insights and ensure their needs are met.

Your Strategy, Our Planet

Effective portfolio decarbonization assessment comes from combining sound engineering and mechanistic models (as opposed to statistical models) that establish a reliable baseline and predict the potential carbon emissions savings from various interventions. Extending these assessments into a cohesive strategy and plan requires integration with the organization’s capital planning needs, funding and financing opportunities (including from the Inflation Reduction Act) and other factors.

Every company that takes steps to decarbonize its portfolio is doing its part to protect the planet for future generations and reduce the harmful impacts of global warming. There is no time like the present to take action.

Annie Smith is an Associate, Design Analytics. Connect with her via email or LinkedIn.

Tom Abram is a Principal and Director of Design Analytics. Connect with him via email or on LinkedIn.

Additional reporting: Samuel Letellier-Duchesne

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Main photo credit for Georgia Institute of Technology: Shutterstock