“Green industrial parks would facilitate the global relocation of energy-intensive industries, hasten the development of renewable energy in resource-rich regions, and encourage governments to go beyond their individual decarbonization targets. They would also expedite the global reduction of emissions in manufacturing by making it financially viable to relocate early to regions that can produce cheap green energy. Lastly, they could spare the world millions of tons of solar panels, wind turbines, cables, and batteries by placing these capital goods in locations where, thanks to natural conditions, they can be most productive.

A net-zero world cannot be achieved by relying on efforts by industries in each country to reduce emissions on their own. Current industrial locations reflect our carbon-based energy system and its low transportation costs. Relocating those activities is crucial to completing the energy transition, and green industrial zones could serve as a practical way of getting it done.” (Project Syndicate)

Implementation Steps (Government):

Program details designed:
-Design technical and financial strategies, goals and plans for project to “be significant net exporter of clean energy to the grid” (Project Syndicate)

-Create targeting strategy (e.g. who is eligible)

-Site selection and build-out plans

-Identify new sources of clean energy and emissions targets (Project Syndicate)

-Craft outreach strategy and materials to explain how program works

-Plan “to compete on the availability of other production inputs, such as human resources, local supply chains, research and development capabilities, logistics, and more.” (Project Syndicate)

-“Introducing effective green-energy regulations, facilitating right-of-way provisions for transmission lines, adjusting zoning regulations, building arterial infrastructure, and investing in urban development and human resources.” (Project Syndicate)

Implementation:

-Sign lease or buy property

-Attract tenants

-Build out site

-Connect to electricity grid (Project Syndicate)

-Build operating team and manuals

Opening, marketing & monitoring:

-“Relocation of energy-intensive industries” (Project Syndicate)

-“Development of renewable energy in resource-rich regions” (Project Syndicate)

-Market property, and leverage it to get others interested in, knowledgeable about, and working on climate

-Collect and monitor data on outcomes of the project (e.g. usage of green energy, emissions reduced, number of climate businesses started, revenue, etc.)

-Continuous improvement (see World Bank graphic below)

(World Bank)

Required Capabilities of the Government:

Program details designed:

-Deep understanding of climate, economic growth and development, exporting, etc.

-Experience in designing green growth programs

-Staff with knowledge, time and abilities to lead project

-Ability to run a fair program

-Funding from government or securing private financing for real estate and energy investments (Project Syndicate)

Implementation:

-Real estate knowledge and capabilities

-Marketing capabilities to attract tenants

-Construction capabilities

-Electrical capabilities

-Ability to hire and train workers

-Funding

Opening, marketing & monitoring:

-Climate and energy knowledge and capabilities

-Funding

-Budget

-Data collection and monitoring abilities, and technical understanding of the data to determine program effectiveness

-Ability to do continuous improvement activities (staffing, funding, etc).

Takeaways:

I learned that while implementing green industrial parks (or eco-industrial parks) has happened in several places around the world (World Bank), it is a complicated process that requires a fair amount of steps and alignment. The solution seems implementable, based on the fact that is has been done before and that guidelines have been shared from reputable sources on how to do so. (World Bank)

This was interesting for me because as a climate tech investor, I am aware of amazing climate tech hubs for climate startups – such as Greentown Labs in Boston and Houston, and Newlab in Brooklyn. These places have been incredibly successful, and when I noticed that there was no such space in Toronto, I proposed the creation of one to the government. I don’t know that these would be considered green industrial parks, but it is interesting to think about the concept of place or physical locations to spur green innovation and economic development – and I believe it is a powerful and implementable solution in terms of funding, staffing, expertise and more. I believe those spaces are operated privately, but could do well with support from the government or the government creating their own spaces. However, one concern I have is that these spaces could take years to build and roll out – but climate change and climate action are much more urgent than that.

“In Canada, eco-industrial parks exist across the country and have enjoyed some success. The best known example is Burnside Park, in Halifax, Nova Scotia. With support from Dalhousie University’s Eco-Efficiency Centre,^[4] the more than 1,500 businesses have been improving their environmental performance and developing profitable partnerships. Subsequently, two greenfield industrial developments have been started in Alberta: TaigaNova Eco-Industrial Park^[5] is in the heart of the Athabasca oil sands, while Innovista Eco-Industrial Park^[6] is a gateway to the Rocky Mountains ~300 km west of Edmonton.” (Wikipedia)

Implementation Risks:

Evaluation of Implementability:

The solution still seems promising for the goal of reducing emissions, but it might take some time to become effective – and climate change Is quite urgent. Thus, prior to the physical spaces opening up, it could be possible to create networks of companies that could be a good fit for moving into the spaces and provide them with resources and support while the spaces are being built out.

It could be useful to get private organizations involved in opening and running green industrial parks, as they have done for co-working spaces. This could lead to a potentially faster rollout of spaces, and more effective management of spaces. As well, getting venture capitalists involved could perhaps help with the funding and acceleration of startups. If green industrial parks seem too big, creating smaller climate spaces similar to Greentown Labs and Newlab could be ideal – with the view of expanding to larger green industrial parks.

Context and Importance of the Problem: Climate change is one of the most pressing issues of our time. Ninety-nine percent of the world’s population lives in places where the WHO air quality guidelines levels are not met (WHO). Environmental disasters are increasing. Over 2.2B+ people lack safely managed drinking water (UNESCO) and water scarcity impacts 40% of the world’s population, increasing the risk of disease, death, and displacement (WHO). Wildfires are increasing and extreme rises in temperatures are leading to mortality. And these are only a few of many issues that we face. Our nations have set broad and ambitious goals when it comes to climate change, yet temperatures continue to rise and these issues are increasing in frequency and intensity due to climate change (WHO). To use an analogy, in order to build a tower with Lego, you need a base to build on. We humans are at risk of losing what has long been thought of as a given - a safe base (or earth) on which to live, build and play. Our earth systems are cracking and breaking like never before. And this could not only cause destruction to billions of lives, but to economies, businesses, and countries as we know them.

Climate change is urgent. There are certain posts past which change is irreversible, and it’s impossible to predict the consequences. Why does this matter? Currently there is a non-zero chance of catastrophic climate risks. These risks include impacts on our food systems and water shortages, political and social destabilization, sea level rise and flooding that could lead to mass relocation, destructive storms that are increasing in intensity, mortality from heat waves, ocean acidification that could pose risk to marine life ecosystems, and more. Basically, our world and our lives could be destroyed, and we need to act now to make a difference - because by the time the consequences of climate change become more clear, it will be too late to do much about it. We must decide what to do very soon and take drastic action now.

Greenhouse gases emissions rising is the key cause of climate change. Current policies are not sufficient, leaving market actors to in many cases emit unsustainable amounts of CO2, methane, etc. There are failures present in each category of policy actors.

Analysis and Key Findings: There are numerous policy instruments to consider when thinking about reducing climate change. Each of them has differing levels of potential effectiveness, and implications:

  (IMF)                                                                                               

(IMF)

Policy Recommendation: Status quo includes runaway emissions. Carbon tax (a form of carbon pricing) has been shown to be one of the most effective potential solutions. Carbon pricing could substantially reduce emissions (OECD).

Without action, the MIT En-Roads policy simulator shows that emissions are predicted to continue to increase (1). Subsidizing clean energy won’t drastically reduce GHGs or temperature (2). With carbon price, emissions are predicted to reduce substantially (3). It’d be very difficult to get to 1.5C without this.

1. 

2. 

3

I urge you to implement effective carbon pricing, priced high enough - $200+ (OECD) - to reduce emissions to zero as soon as possible, and encourage other geographies to do the same. As well, pursuing green growth strategies with green industrial parks, subsidies and incentives could be helpful strategies. A risk of carbon pricing is that many consider it not politically supportable. To mitigate this, you can focus in your communication and approach on educating people about that the policies and climate. Communication about the policies need to be crafted carefully in order to mitigate these risks. A risk of green growth strategies is that it is not effective in terms of reducing climate impact. Another risk is green growth strategies could take too long. Climate change is urgent, and building buildings takes a long time. This can be mitigated by also using carbon pricing.

I am hopeful that these key actions can make a major difference in reducing emissions, thereby reducing climate change. Please contact me if you have any questions. -Jennifer Turliuk (jenn.turliuk@gmail.com)

Let’s start with the problem we are trying to solve: climate change. How can we do that? One key solution is reducing greenhouse gas emissions. How could we reduce GHGs?

Potential Solutions:

-Regulation: tell industries they have to emit less or clean up emissions. Put laws and policies in place so that companies etc are not allowed to emit at all, or past a certain point. Put fines/taxes in place.

-Carbon tax: simple, less vulnerable to negotiation etc than cap and trade. Can be implemented immediately, has fewer administrative costs, and is much more neutral in its effect. Leads to the production of emissions being more costly, leading to emitters having lower profit. Need to figure out what is the appropriate rate of tax based on technical work, how it affects low income families, etc. Need transparent tax calculations. Carbon tax improve efficiency and social outcomes because it taxes the bad. Effective and efficient in its outcomes. Taxes are unpopular. Companies respond to carbon taxes by finding ways to pay less by emitting less – which aligns goals with society. -HKS

“A price on carbon helps shift the burden for the damage from GHG emissions back to those who are responsible for it and who can avoid it. Instead of dictating who should reduce emissions where and how, a carbon price provides an economic signal to emitters, and allows them to decide to either transform their activities and lower their emissions, or continue emitting and paying for their emissions. In this way, the overall environmental goal is achieved in the most flexible and least-cost way to society.” (Carbon Pricing Dashboard)

-Cap and trade: which involves setting specific productions of emissions and allowing those who emit more to trade with others who emit less.

-Provide finance for startups pioneering new climate solutions that are zero emissions (MIT)

-Create incentives for companies to go net zero and expand (e.g. similar to the Inflation Reduction Act)

Why Solution is Most Promising (from a Technical Correctness Standpoint)?

I found carbon tax the most promising. I believe it will make progress on the policy problem of reducing emissions because it is quick, efficient, and effective – and widely agreed upon by economists as the most effective potential policy solution for reducing climate change.

The carbon tax should be accompanied by regulation - non-voluntary laws, policies and fines/taxes should be put in place so that companies etc are not allowed to emit at all, or past a certain point.

Policy Options for Reducing Emissions:

There are numerous policy instruments to consider when thinking about reducing climate change:

(IMF)

Each of them has differing levels of potential effectiveness, and different implications:

 (IMF)

 (IMF)

Carbon Tax is the Most Effective Potential Solution:

Carbon tax (a form of carbon pricing) has been shown to be one of the most effective potential solutions:

 (American Action Forum)

Carbon pricing could substantially reduce emissions:

 (OECD)

Experts Agree:

Economists agree that carbon pricing/tax could be one of the most effective measures:

“Many economists and policymakers consider carbon pricing one of the best available tools to combat climate change.  That’s because carbon pricing can touch every part of the economy, from electricity to manufacturing to transportation, and because it rewards any behavior that reduces greenhouse gas emissions. Rather than regulating exactly where and how emissions should be reduced, carbon pricing gives markets the flexibility to find the cheapest ways to lower emissions.” (MIT)

“The efficiency of a carbon tax relative to fuel regulation has received much attention and has been shown convincingly in several studies. Taxes on emissions, whether explicit or implicit, create incentives to adopt more fuel-efficient technologies and equipment. In the case of transportation, for instance, this translates into the anticipated acquisition by consumers of less polluting vehicles and/or lower overall driving distances. A fuel-efficiency standard, under which the fleet of cars produced has to meet minimum fuel economy standards, also incentivizes the anticipated purchase of more fuel-efficient vehicles. However, a rebound effect may be observed, where driving distances increase due to improved fuel efficiency. The standard does not apply to vehicles already in circulation, so the market value of these vehicles may increase, and their replacement may be delayed. Standards may eventually prove less cost-effective than emissions taxes for achieving given emissions reductions. Furthermore, standards are known to limit the incentives to invest in the development of greener technologies as they are established through regulation (whereas carbon pricing gives continuous incentives to develop new technology that lower abatement costs). “ (UNCTAD)

“Carbon pricing which keeps the aggregate cost lower and preserves better the overall competitiveness than across-the-board regulation is the first-best policy, especially in energy intensive and trade exposed industries. Regulations and feebates are good alternatives in the power sector, where technological substitution is possible. Feed-in subsidies, if used alone, are not cost effective.” (IMF)

Some say that carbon tax is not enough; it should be accompanied by regulations (Queen’s University).

“Carbon taxes are significantly more cost-effective at reducing greenhouse gases than regulations, with regulations costing more than twice as much per metric ton of carbon dioxide abated while reducing far fewer emissions. (American Action Forum)

“Environmental regulations and taxes are considered the most vital organs of any policy to mitigate environmental pollution (Wolde-Rufael and Mulat-Weldemeskel 2021).” (Environmental Science Pollution Resource Institute)

“Carbon pricing allows various pollution sources with differing marginal abatement costs to achieve emissions reduction efficiently whereas regulations tend to treat all pollution sources alike.” (Niskanen Center)

“carbon taxes can have strong trade effects as they affect production costs and potentially international competitiveness.” (UNCTAD)

Why A Carbon Tax vs Other Solutions?:

I learned some of the following from a Citizen’s Climate Lobby Canada webinar:

The C-Roads simulator by Climate Interactive (from MIT) shows that all regions need to do their fair share to reduce emissions in order for us to meet society’s goals and have a livable world.

 (C-Roads)

Without action, the MIT En-Roads policy simulator shows that emissions are predicted to continue to increase:

(En-Roads)

Burning fossil fuels account for 85% of GHG emissions. Subsidizing clean energy will not drastically reduce GHGs or temperature:

 (En-Roads)

We need to make polluters pay. Most greenhouse gases are coming from fossil fuels. Subsidizing clean energy could subsidize the rich, but polluters need to pay. If governments try to subsidize themselves out of climate change, they risk a debt crisis.

It would be very difficult for governments to get to the 1.5C goal without making polluters pay. Yet in the US for example, there is no federal carbon price. A carbon price would reduce the temperature scenario by 0.9 degrees. It would be very difficult to achieve 1.5C without carbon pricing.

With carbon price, emissions are predicted to reduce substantially:

(En-Roads)

With a carbon price, the En-Roads simulator shows that air pollution also goes significantly down. But as the En-Roads diagrams show, a carbon price is not enough – we need additional measures to reach 1.5C.

Carbon pricing is effective because fossil fuels become more expensive, renewable energies become more competitive – and entities are incentivized to swap to usage of fossil fuels. Total energy demand doesn’t necessarily go down – you still need energy efficiency – but you also still need to reduce fossil fuels. 

The Pembina Institute launched a policy simulator that shows that in Canada, carbon pricing could dramatically reduce emissions:

Many scientists have come to similar conclusions, as well as Nobel prize winners, and so on. More information about the pros and cons of carbon pricing in Canada can be found in the CCL Canada Laser Talks for De-Mystifying Carbon Pricing document.

The Carbon Pricing Incidence Calculator (CPIC) shows the potential impacts of possible carbon prices in various geographies.

Citizen’s Climate Lobby Canada suggested to tell the story (problem, pathway, benefits) vs providing numbers. So if I were to speak to politicians about this, I would probably start with the following message track:
Problem: Fossil fuel companies have been emitting
Pathway: Get them to stop emitting through carbon pricing
Benefits: Live in livable world

Theory of Change:

Causal chain:

Log-frame:

Analysis:

I have learned a lot about this policy solution, including its potential for emissions reduction, and the amount of support it has from economists. I have also learned about how many countries have implemented it and how effective it has been in terms of emission reduction. “The number of countries who have adopted carbon pricing schemes is increasing: In 2022, 46 national/ regional and 36 subnational jurisdictions have a price on carbon. Carbon pricing initiatives cover a total of almost 12 gigatonnes of CO2 emissions in 2022, which correspond to 23 per cent of global GHG emissions. Observed median carbon prices are, however, still more than 50 per cent lower than the levels considered necessary to reach the 1.5 °C objective.” (UNCTAD)

Carbon tax is strong because it prices in externality and the costs of climate change to society, and it motivates behaviour change. It’s weak because people don’t like the word tax and research has shown that “Existing carbon taxes (and prices) are likely too low to be effective in the time frame since their introduction.” (Environmental Resource Economics). The uncertainty about this solution is the potential staying power of it. In terms of my solution, an assumption is that companies will find new ways to operate because of carbon tax, versus just accepting the carbon tax and the associated reduction in profits (as many companies have done). I believe that the level of the carbon tax will help dictate whether it is effective in behaviour change or not.

Unintended consequences:

There are a number of potential unintended consequences of carbon tax. There may be a decrease in domestic production: “firms are incentivized to relocate production to other countries either to avoid abatement costs due to regulations or to pay lower carbon prices” (UNCTAD). It may affect poor people, it may be so cheap that people don’t bother acting on it, and it could lead to reduced political support.

As well, carbon tax may not be effective if other countries don’t adopt it: “A reduction in domestic emissions may not result in a reduction of global emissions if trading partners do not adopt similar environmental policies, resulting in domestic production being substituted by more carbon-intensive imports. This effect could be observed if domestic firms react to the establishment of a domestic carbon scheme by relocating parts of their production to locations applying loose environmental regulations or if their competitiveness is reduced and foreign companies gain market shares. This risk of carbon leakage has increased over time with the evolution of global production chains.” (UNCTAD)

Technical viability:

The solution still seems promising, and the risks can be addressed through a marketing campaign and education, adding complementary policies like regulation, and making sure the carbon price is high enough to be effective.  Today, 73 countries price carbon in some fashion (National Observer). Yet clearly we still have rampant emissions well above what we need to reduce it to in order to meet society’s goals.

There is no time to wait:

(IMF)

“At current rates, a carbon tax alone is likely insufficient in inducing substantial aggregate emission reductions and must be supplemented with complementary technology-pushing policies, ideally targeting sensitive interventions points (Farmer et al. 2019).” (Environmental Resource Economics)

“Canada’s carbon pricing approach is essential to meet reduction targets but needs further improvement.” (Office of the Auditor General of Canada)

“Green (2021) provides a comprehensive meta analysis of carbon pricing on emissions, finding mixed evidence of their effectiveness. Metcalf and Stock (2020) study the effects of carbon pricing in the European Union finding marginal reductions in emissions. Rafaty et al. (2020) assess the effect of carbon prices (rather than the introduction of a tax) on emissions in a sample of OECD countries, finding that while carbon pricing reduced emissions growth, current carbon prices are too low to show substantial emission reductions. This matches the results obtained by Lin and Li (2011) who study the introduction of a carbon tax in countries in Northern Europe finding significant impacts on per capita growth in emission reductions in only a small subset of countries, and the findings by Best et al. (2020) who find some emission reduction in response to carbon pricing.” (Environmental Resource Economics)

Climate Change Ishikawa Diagrams:

Here are some ishikawa diagrams (or fishbone diagrams) about the causes of the various aspects of climate change.

Policy Actors in Climate Change:

Examining my first ishikawa diagram and the research behind it, it’s clear that greenhouse gases emissions rising is the key cause of climate change. Current policies are not sufficient, leaving market actors to in many cases emit unsustainable amounts of CO2, methane, etc. There are failures present in each category of policy actors.

Government: Governments have failed to place sufficient caps on CO2 and methane emissions. They have allowed the following to occur: “Global greenhouse gas emissions have continued to increase, with unequal historical and ongoing contributions arising from unsustainable energy use, land use and land-use change, lifestyles and patterns of consumption and production across regions, between and within countries, and among individuals.” (IPCC) Government failures include weak performance owing to principal-agent problems, since many targets are often not met. There are also misaligned incentives, with governments not providing enough incentives to reduce emissions. Additionally, there is inadequate regulation, including insufficient regulations and targets, incoherent policies, and more. Climate change, seemingly more than any other, involves the tight interconnectedness and cooperation of nations – and nations seem to have approached the creation and follow-through of policies that work effectively together with a giant shrug.

Markets: In the absence of sufficient policies, companies are only too happy to go about their business in an unregulated and/or underregulated manner, working to maximize profits for shareholders at the expense of planetary health. Without appropriate carrots or sticks provided by the government, companies produce more and more, leading to increased emissions. Market failures include public goods and externalities, with many entities thinking that the government and/or large businesses are responsible for reducing emissions, so they don’t need to change their behaviour. Information asymmetries also exist because many players do not understand emissions or how to reduce them. With different policies, this could change.

Civil society: Once again, in the absence of sufficient policies, consumers are free to consume as much as they would like. Gas cars, food waste, and inefficient energy usage are just some of the many ‘climate crimes’ that individuals knowingly, or usually unknowingly, commit. Society is simply set up in a way that makes it easy to emit, and hard not to emit. Despite many impressive mobilization attempts from individuals and groups, there is coordination failure and splintering of groups aimed at reducing emissions. Many grassroots enterprises and NGOs also fail to scale due to failures of organizational transformation and values. Capture is also an issue, since influential individuals direct important resources away from reducing emissiongs. Finally, there is a huge amount of civil society mobilization for “bad” causes, with many folks and groups spreading misinformation and disinformation about emissions and how to reduce them. With different policies, this could change.

Potential Leverage Points:

Cause/Leverage Point 1: Reduce emissions. This could be done through introducing incentives to reduce emissions, and laws/policies against emissions. The IPCC highlights finance and innovation as a condition that enables individual and collective actions – and increasing finance towards startups making innovative emission-free solutions could be helpful.

Reducing emissions, including cutting CO2, methane leaks, black carbon, nitrous oxide and f-gases, comprises multiple of the emergency brakes recommended by Project Drawdown (a reputable source) and could drastically reduce climate change. Society has also agreed on this through COP events, since human emissions are the key cause of climate change. “All global modelled pathways that limit warming to 1.5°C (>50%) with no or limited overshoot, and those that limit warming to 2°C (>67%), involve rapid and deep and, in most cases, immediate greenhouse gas emissions reductions in all sectors this decade.” (IPCC)

Cause/Leverage Point 2: Slow ecosystem degradation. This could be done by creating laws and policies that stop allowing ecosystem degradation.

It’s not just emissions that matter. If we cut emissions to zero but have no more forests, fish, etc, we’re in trouble.

Cause/Leverage Point 3: Boost energy efficiency. This could be achieved through a mix of incentives and taxes for businesses and individuals, similar to what the Inflation Reduction Act (IRA) has done.

Energy creates the bulk of emissions, and if energy can be made more efficient, that would decrease its emissions.

4. Cut food waste, shift diets. This could be done through a mix of incentives, taxes and laws/policies. Low emission food companies could be given increased funding for innovation as well.
This could decrease the substantial impact of agriculture on emissions, by reducing the need for production of emission-heavy foods. (Project Drawdown)

The IEA says the Canadian government should do the following:

• “Model pathways to net zero by 2050 for Canada’s energy system, and develop national emissions reduction strategies in consultation with provinces, territories and other stakeholders for key sectors such as oil and gas, transport, buildings, and industry.

• Explore ways to enhance the federal government’s role in strengthening inter‑provincial connectivity, expanding the use of interconnectors, and accelerating key projects of grid modernisation and electrification.

• Develop a comprehensive energy efficiency strategy in consultation with provinces and territories that sets clear targets for energy efficiency in each sector (buildings, industry and transport).

• Increase federal funding in support of accelerating R&D and innovation of clean energy technologies to achieve 2050 targets, with an eye to also advancing future export opportunities.”

Reflection:

I did not know before researching this that “Energy production and use in Canada accounts for over 80% of the country’s GHG emissions, with fuel combustion in energy industries (including oil and gas extraction, electricity and heat generation, and refining) representing 26%, transportation 26%, buildings 13%, manufacturing industries 9%, and fugitive emissions 7% of overall emissions. Canada’s electricity system is 83% non-emitting and among the cleanest in the world, with heavy dominance of hydropower as well as an important role for nuclear.”  (IEA) I thought that Canada was pretty bad in terms of climate (Climate Action Tracker), and in many ways it still is, but I didn’t realize that it had some wins – such as having an electricity system among the cleanest in the world. Canada also only contributes 1.5% of the world’s emissions (Canada.ca). While this is still substantial, it’s not as high as I thought. However, it’s still the 10^th largest emitting country in the world (Canada.ca) – despite ranking 37th by population among countries of the world (Wikipedia). At 0.5% of the world’s population (Wikipedia), our emissions outpace our fair share – and should be reduced to zero.

I also learned about the various causes of climate change and how important emissions are relative to other causes. I learned about the breakdown of emissions in Canada, through various ways of looking at them. I also learned that climate is a much more complex issue than I originally thought!

https://www.iea.org/countries/canada/emissions

https://www.ipcc.ch/report/ar6/wg1/resources/climate-change-in-data/images/t_SPM.2.webp

“Climate change is impacting all areas of society, real estate is no exception. Rapid urbanization and aging infrastructure are impacting our built environment while increased rainfall and higher frequency of natural disasters create additional challenges for residential and commercial real estate.” (R-Labs) It’s not just about emissions. “With extreme weather events such as hurricanes, floods, and wildfires increasing in frequency and severity due to climate change, the physical threat to real estate assets is real and rapidly increasing. These asset classes and those who rely on the sector also face high transition risks. These include for example declining market attractiveness, increasing regulation, and public pressure.” (UNEPFI)

“Responsible for about 40% of all greenhouse gas emissions globally, the real estate sector is already confronted by high climate risks and will face fundamental changes as the global economy decarbonises to meet climate goals.” (UNEPFI)

Is this significant? You bet. Altogether, “The built environment is responsible for about 42% of annual global CO2 emissions.” (Architecture 2030) Here is a graphic that shows the breakdown:

(Architecture 2030)

Real estate also comprises a large amount of energy usage: “Supplying power and space conditioning to buildings accounts for approximately 40% of all energy used in the United States” (Green Buildings Career Map)

Buildings are created through construction, and construction produces a lot of waste and emissions: “Costs associated with waste and the increased scrutiny of companies in their role in climate change have forced constructors to adapt in meeting waste and climate targets. Research shows that the construction industry generates nearly a third of Canada’s waste, and globally the industry is responsible for 40% of all CO2 emissions – all while increasing expenses and time spent on projects. (R-Labs)

How much do emissions need to be reduced?

“According to the IEA, in order to meet global net-zero targets, CO2 emissions need to drop by about 6% per year. Between the need for policies and materials that eliminate carbon emissions, the construction industry has far to go to keep pace with other industries and their green practices.” (R-Labs)

Project Regeneration shares that “To meet global climate targets, all building emissions must be eliminated by 2040” (Regeneration).

Yet without any changes to real estate, emissions associated with real estate are projected to increase.

With no changes in existing buildings, they will continue to emit. 

(Architecture 2030)

The population is growing, and more housing is being created:

(Architecture 2030)

With no changes to construction processes, the construction industry will keep emitting - and with more builds, the emissions associated with construction are projected to increase significantly:

(Architecture 2030)

It’s clear we need to make a change. “Global and national climate goals demand sharp emissions reductions in both operations and construction, which can only be achieved through significant changes within the real estate sector.” (Forbes)

How can we make this change? Let’s start with analyzing the source of emissions. 

Where are the emissions coming from?

Emissions from real estate come mostly from day-to-day building operations, but also from construction: “Nearly 40 percent of global carbon dioxide (CO2) emissions originate from the building sector, of which 70 percent are produced by building operations, and the remaining 30 percent come from construction.” (Regeneration)

Going back to our graphic here, we can see the breakdown of emissions between residential, non-residential, and so on.

(Architecture 2030)

According to Architecture 2030, “The built environment is responsible for about 42% of annual global CO2 emissions. Of those total emissions, building operations are responsible for approximately 27% annually, while the embodied carbon of just four building and infrastructure materials – cement, iron, steel, and aluminum – are responsible for an additional 15% annually.”
(Architecture 2030)

Are the emissions coming from big cities or large cities? “In most cities there are relatively few big buildings responsible for about 50% of city-wide building sector emissions, and a large number of small buildings responsible for the remaining 50% of emissions.” (Architecture 2030)

(Architecture 2030)

What materials are causing the emissions? “Just three materials  – concrete, steel, and aluminum – are responsible for 23% of total global emissions (most from the built environment). There is incredible opportunity for embodied carbon reduction in these high-impact materials through policy, design, material selection, and specification.” (Architecture 2030)

(Architecture 2030)

What climate solutions make sense for real estate?

For new and existing buildings, according to Architecture 2030, it’s all about EEER - energy efficiency, electrification, and renewable energy:

(Architecture 2030)

Architecture 2030 also highlights embodied carbon actions:

(Architecture 2030)

How can this be achieved? “Real-estate players have a wide array of options for how to proceed, including low-carbon development and construction; building retrofits to improve energy efficiency; upgrades to heating, cooling, and lighting technology; and technology to manage demand and consumption.” (McKinsey).

More solutions can be found here: 

-Buildings (Project Regeneration)

-Carbon Architecture (Project Regeneration)

-Electrify Everything (Project Drawdown)

Architecture 2030 provides actions for the built environment, while RMI provides a Carbon-Free Regions Handbook for Buildings.

Project Drawdown’s Table of Solutions shows some options relevant to real estate. Some of the solutions are not ranked by emission reduction potential, because for example “The emissions and financial impacts of building retrofitting are included in individual solutions to avoid double counting” (Project Drawdown)

I have attempted to order some of them here, with the top ones listed having the most potential emissions reduction potential from what I can tell (note that my ordering is not a comprehensive academic study but instead back of the envelope calculations - though Project Drawdown’s ordering is quite rigorous and comprehensive):

-Electrification of buildings.

-Building retrofitting: “Improving building energy efficiency is one of the most cost-effective and fastest ways to reduce electricity demand and associated fuel imports, while indirectly slashing carbon emissions as well as improving local air quality and public health.” (Project Drawdown)

-Construction/industry

Here are some of the ranked solutions in the Table of Solutions that I believe would come after these in terms of emissions reduction potential:

SOLUTION | SECTOR(S) | SCENARIO 1 * | SCENARIO 2 *

Refrigerant Management | Industry / Buildings | 57.15 | 57.15

Alternative Refrigerants | Industry / Buildings | 42.73 | 48.75

Clean Cooking | Buildings | 31.38 | 76.34

I would follow these up with the following overlapping  solutions:

-Net zero buildings: “Net zero buildings can involve all drawdown solutions in these sectors, including Insulation, High-Performance Glass, LED Lighting, Building Automation Systems, and Distributed Solar Photovoltaics.” “Potential emissions reduction impacts ranged from 5 to 32 gigatons of carbon dioxide equivalent, depending on the adoption rate. If we project net zero buildings adoption from NBI data, we estimate that 9.7 percent of new buildings could be net zero by 2050, with a cumulative emissions reduction of 7.1 gigatons of carbon dioxide equivalent.” (Project Drawdown)

-Carbon architecture (Project Regeneration)

Next, I’d go back to some of the ranked solutions in the Table of Solutions:

SOLUTION | SECTOR(S) | SCENARIO 1 * | SCENARIO 2 *

Insulation | Electricity / Buildings | 15.38 | 18.54

Building Automation Systems | Electricity / Buildings | 9.55 | 14.01

High-Performance Glass | Electricity / Buildings | 8.82 | 11.34

Smart Thermostats | Electricity / Buildings | 6.91 | 7.25

District Heating | Electricity / Buildings | 6.18 | 9.68

Biogas for Cooking | Buildings | 4.65 | 9.70

High-Efficiency Heat Pumps | Electricity / Buildings | 4.04 | 9.05

Solar Hot Water | Electricity / Buildings | 3.41 | 13.73

So clearly, there’s a lot that can be done. Just as one example, electrifying buildings could make a significant impact - and there’s lots of climate solutions that could help us get there. Here’s an example of some of them:

(Rewiring America)

The amazing artist Nicole Kelner has made a beautiful illustration of home electrification, including tax credits and rebates that consumers in the US can get:

(Nicole Kelner)

Which companies are doing what?

Project Regeneration lists key players for buildings (broken down into energy service companies, and real estate management and property groups), and carbon architecture (here I’ve highlighted the materials companies they’ve listed.

“Key Players (Buildings)

Energy Service Companies:

Project developers that provide comprehensive services from development, designing, building, and financing projects that save energy and reduce costs.

Energiesprong (Netherlands)

BlocPower (United States)

Realize by RMI (United States)

INNOVATE (European Union)

Renesco (Latvia)

Resalta (Slovenia)

PadovaFIT (Italy)

EcoReal (Finland)

BuildingUp (Canada)

People Powered Retrofit (United Kingdom)

YellowTin (California, United States)

Biskit Controls (UK): Removing air bubbles from water to make the transfer of heat from boilers to radiators more efficient.

Amp X (UK): Creating a digital energy assistant to automatically schedule home energy usage for when energy is cleanest and cheapest.

AirEx (UK): Adjusting the insulation in buildings using artificial intelligence and sensors to control the porosity of bricks.

Green Builders (Maryland, United States)

Real Estate Management and Property Groups:

Antilooppi (Finland)

Argent Services LLP (UK)

Brunswick Property Partners (UK)

Charter Hall (Australia)

City Developments Limited (Singapore)

Citycon (Norway)

Dexus (Australia)

FORE (UK)

Grainger PLC (UK)

Grosvenor (global)

GPT Group (Australia)

Hudson Pacific Properties (U.S. and Canada)

JLL (UK)

Kojamo (Finland)

Lendlease (Australia and Europe)

NEO (Philippines)

OP Real Estate Management (Finland)

Stockland (Australia)

The Crown Estate (UK)

Tritax Big Box (UK)

YLVA (Finland)”

(Project Regeneration) 

“Key Players - Carbon Architecture

Materials Companies

Plantd (U.S.)

Basilisk Self-Healing Concrete (Netherlands)

Green Cement (U.S.)

CarbiCrete (Canada)

InventWood (U.S.)

Hempitecture (U.S.)

ISOHemp (Belgium)

UK Hempcrete (UK)

StructureCraft (Canada)

Stora Enso (Finland)

Mayr Melnhof Holz Holding AG (Austria)

RIZOME (U.S.)

WiDuz (Singapore)

Moso International (Netherlands)

Plyboo (U.S.)

BamCore (U.S.)

ReNüTeq (U.S.)”

(Project Regeneration)

Contrary’s Living Landscape of Climate Tech companies lists some of the following companies:

-BlocPower: Making real estate energy-efficiency projects easy by bringing project scoping, financing, management, and maintenance under a single umbrella.

-Measurabl: Platform built for real estate investors to measure, manage, disclose, and act on ESG data.

-One Concern: Tool for capital markets, insurance, and real estate representatives to evaluate potential damage to infrastructure and the subsequent downtime.

Who’s Investing in Climate x Real Estate?

In terms of who’s investing in the real estate space, Project Regeneration lists out a number of different players in both the buildings arena and the carbon architecture arena. 

Their buildings page suggests that investors consider “Invest in retrofitting businesses. Research suggests that financing is a serious obstacle for energy-efficiency projects under $250,000, with only 33 percent of them able to access financing. Forward-thinking leaders and investors play an important role in providing financing options that make it easier to cut energy waste in small buildings:

BlocPower supports midsize buildings and apartments in low-income neighborhoods in Brooklyn and other cities in the United States by financing their retrofits. These investments are paid back by savings in the residents’ utility bills.

Kilowatt Financial obtained a $100 million loan from Citigroup that it used to finance energy-efficiency projects for U.S. homeowners. Homeowners can qualify for loans up to $30,000, which run for ten to twelve years, for home improvements that would include upgrading windows, insulation, and appliances.

MEETS is an accelerator coalition in Seattle that has tackled the lack of incentives that building stakeholders (tenants, owners, and utility services) have to increase energy efficiency in buildings. MEETS uses income from utilities to finance energy efficiency retrofits in tenant-occupied buildings, by bringing many stakeholders involved in retrofits to enter into an agreement with one another. For more information on the project, you can watch this video.

KredEx provides financial services such as loans and grants to homeowners, apartment associations, and even local governments for renovations and retrofits that facilitate energy efficiency and the adoption of renewable energy.

Joule Assets facilitates financing for energy-efficiency and renewables projects in Europe and the UK. They help small and medium energy service companies (ESCos), and engineering and construction companies access project investment by providing advisory work.”

(Project Regeneration) 

In terms of carbon architecture, they recommend “Invest in businesses that are developing innovative carbon-negative products for the construction industry. Research suggests that financing is one of the key obstacles in the sector’s tremendous potential for growth. Invest in help to scale up manufacturing and production or support research and development.

RePlant Hemp Impact Fund promotes hemp as an alternative building material by investing $500 million by 2030 in the supply chain.

Built by Nature is an accelerator fund to scale the use of sustainably harvested timber as a building material across Europe.

Impact Finance Center launched a Sustainable Forestry Investor Club to drive investment capital to mass timber technologies.

Market opportunities are expanding in the low-emissions concrete industry, in companies such as Low Carbon Materials.

(Project Regeneration) 

What can we do?

It’s clear that the climate x real estate space is a big one, and there is plenty that we as consumers, companies, entrepreneurs, investors and policymakers can do. Companies and consumers can look intro retrofitting, electrification, energy efficiency and more for the buildings they occupy. Entrepreneurs can consider building solutions in these spaces (for example, a company to help people figure out how to do retrofits for their homes - this is just one of many ideas), and investors can consider investing in them. Policymakers can help pave the way and provide taxes, incentives and regulations to accelerate the pace of climate-friendly real estate solutions. 

Are you building something at the intersection of climate x real estate or do you know of any cool companies in the space? I’d love to hear about it in the comments.

Resources:

Here are some additional links I found with resources and other information that could be potentially of interest to those interested in this space:

https://cre.mit.edu/research/climate-real-estate/ 

https://www.carboncollective.co/sustainable-investing/carbon-risk-real-estate-monitor-crrem

https://www.unepfi.org/wordpress/wp-content/uploads/2023/03/Real-Estate-Sector-Risks-Briefing.pdf 

https://www.msci.com/www/blog-posts/real-estate-s-climate/02516394049

https://recapeg.com/insights-reports/1-real-estate-industry/report/21-real-estate-scope-1-2-3-emissions 

https://www.weforum.org/agenda/2022/11/how-we-can-decarbonize-the-real-estate-sector/

https://buildingdecarbonization.ca/

https://site.pheedloop.com/event/bdaforum/home/ 

https://buildingup.ca/service/retrofits 

https://healthybuildingsbook.com/