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The Business Case for Carbon-Neutral Buildings

Going green isn’t just good for the planet: it’s good for business, too. This has been true in sectors like retail, hospitality, and other consumer goods for a while — but the construction industry is just starting to realize the financial ROI of implementing sustainable building practices. 

Real Estate is one of the biggest culprits of carbon emissions, accounting for almost 40% of global greenhouse gasses. Through the Carbon Title platform, we aim to neutralize buildings’ climate impact by empowering key stakeholders to understand a building’s CO2 emissions over time, reduce embodied carbon through materials and system choices, and purchase high-quality carbon credits to offset any remaining emissions to achieve verifiable carbon neutrality.

The business case for carbon credits and better building practices is growing clearer all the time. Building companies that invest in reducing their carbon footprint can command higher rents, access valuable grant opportunities, and get ahead of government mandates that may make the cost of carbon emissions higher than ever. 

Greener buildings not only help our communities achieve climate goals but can also be cost-competitive. Here’s how. 

Carbon-neutral buildings can command higher revenue

Tenants are willing to pay more for space in a climate-friendly building, a trend that aligns with consumer preferences in other industries. According to a JLL report, green certifications result in a rent premium of 6% and a sales premium of 8%. And Cushman & Wakefield found that LEED-certified buildings command a whopping 21.4% higher price-per-square-foot than less sustainable comparable properties.

The obverse is true, too: Even as green properties can charge higher rents, buildings with poor sustainability performance are suffering economic consequences. An ESG data intelligence firm found that 66% of UK properties with poor sustainability ratings have already seen a decrease in the capital and rental value of their portfolios. Owners of these less-sustainable buildings predicted that their portfolio value would continue to decrease if buildings don’t implement carbon reduction solutions. 

According to JLL, green certifications result in a rent premium of 6% and a sales premium of 8%.

Upcoming regulations will impose steep costs on doing nothing

States like New York and California are leading the way in regulating emissions in the U.S. building industry. In New York City, Local Law 97 sets limits for emissions from large buildings, with restrictions that escalate from 2024 into 2030. Fines for not meeting these limits will be steep: The New York Times reports that the owner of the Bank of America building, widely considered a “green” building by today’s standards, expects to pay $2.4 million a year in 2024. The implications are clear: even some buildings that are “green” today will soon not be green enough. 

California and New York's new building emissions regulations require action starting in 2023/2024 — and fines for non-compliance are steep.

California has also proposed an update to the state’s building energy efficiency standards, which will require that new buildings use less energy and cut carbon pollution, as well as instituting “buy clean” requirements for new construction. Contrary to New York City’s Local Law 97, the code offers compliance credits, as well as penalties that are based on both the energy efficiency and the carbon emissions of the building. 

Given that California and New York legislation often serves as a model for innovation across the country, it’s not surprising that more states and cities have introduced legislation incentivizing the use of lower carbon materials, including Austin, TX, and New Jersey

Gain access to grants and other credits

Reducing carbon emissions also enables contractors to access grants exclusively designated for this purpose. The recently-passed Inflation Reduction Act of 2022 includes over $5 billion in funding to drive low-carbon procurement in buildings and construction. Specifically, the bill includes the following provisions:

  • $100 million for low-embodied carbon labeling for construction materials: these funds will help builders identify and label low-carbon materials and products for use in federally-funded transportation and building projects.
  • $2.15 billion for use of low-carbon buildings: to be used to specify and install low-embodied carbon materials and products for General Services Administration-owned buildings.
  • $2 billion for low-carbon transportation grants: to reimburse and incentivize the use of low-carbon materials in Federal Highway Administration projects.
  • $4 billion for improving climate resilience of affordable housing: to offer funding to improve the energy or water efficiency, indoor air quality and/or sustainability of projects, and implement low-carbon technologies, materials, and products to improve the climate resiliency of affordable housing.

And that’s just grant funding available at the federal level, for one major piece of legislation. State and local governments also offer various grant incentives to support green building.

Committing to low-carbon procurement can net construction companies new opportunities to access federal funding, grow their business, and build their reputation as sustainable stakeholders. 

Funding your next building project in both the private and public sector will soon depend on meeting certain carbon-neutral requirements. 

Private funding is rapidly going green as well. More than 273 of the world's largest asset managers, representing $63.1 trillion in assets, have committed to achieving net-zero alignment. Ignoring a building's carbon impact is no longer an option for many capital partners, and the implications for developers are clear. Very soon funding your next building project will depend on meeting certain carbon-neutral requirements. 

Reducing embodied carbon doesn’t cost as much as you think

There’s a perception that greener construction requires a big upfront investment. The reality is that reducing embodied carbon is not as expensive as you may believe, and can provide access to the revenue benefits outlined above.

Real estate produces carbon in two ways: during construction and through building operations. As you can see from the graph below, 28% of carbon emissions is the result of the energy used to light, heat, and cool buildings. 

There are tons of incentives and solutions out there for buildings to lower their carbon emissions that result from utilities. However, 11% of emissions come from embodied carbon — that is, the emissions associated with building construction. Embodied carbon includes emissions from transporting, manufacturing, and installing building materials on site, as well as the operational and end-of-life emissions associated with those materials. 

Embodied carbon offers real cost-saving opportunities for building developers. The RMI report Reducing Embodied Carbon in Buildings found that embodied carbon can be reduced significantly at little to no additional upfront cost. In fact, with changes such as those outlined in the graphic below, builders can reduce embodied carbon by up to 46% with a less than 1% cost premium, leading to significantly fewer offsets needed to close the gap. 


There’s more than one way to go carbon-neutral

Much of the effort to reduce the building industry’s carbon footprint focuses on using low-carbon materials and processes. And we absolutely need to reduce carbon emissions in the building industry. But cutting emissions is only part of the picture. Even if contractors have taken measures to optimize the project, it is not possible today to construct a completely carbon-neutral building with currently available technologies. 

Carbon credits offer companies ways to achieve carbon neutrality and close this gap. Carbon credits invest in removing excess carbon from the atmosphere and offer a scalable solution to the emissions problem. They also complement and extend carbon-emissions reduction efforts that are ongoing and necessary.

It’s time for the real estate industry to recognize the business benefits of going carbon-neutral. To stay competitive, invest in sustainable options that are good for the planet, and good for your bottom line. 


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