Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.
Embodied carbon refers to the carbon emissions associated with the production, transportation, and disposal of building materials, equipment, and other products over their entire life cycle, including extraction, processing, manufacturing, and end-of-life disposal or recycling. Embodied carbon emissions are sometimes referred to as “upfront” or “embedded” carbon emissions, as they are released before the product is put into use and are literally built into the fabric of the building. These emissions fall under the umbrella of Scope 3 emissions, or more specifically the category of carbon emissions associated with the production and use of materials and products.
Operational carbon, on the other hand, refers to the carbon emissions associated with the day-to-day use of a building or product, including energy consumption for heating, cooling, lighting, and other activities. Operational carbon emissions are sometimes referred to as “in-use” emissions, as they are released during the period of time when the building or product is in operation.
While both embodied carbon and operational carbon contribute to a building or product’s overall carbon footprint, they have different implications for sustainability. Embodied carbon is important to consider because it accounts for a significant portion of a building or product’s overall carbon footprint, particularly for materials with high embodied carbon, such as cement, steel, and aluminum. Just these three materials are responsible for 23% of total global emissions (most of this is used in the built environment). The built environment as a whole generates 40% of annual global CO2 emissions (IEA) and of those total emissions building and infrastructure materials and construction (embodied carbon) are responsible for 13% annually. This is also expected to grow with the projected increase of construction initiatives over the coming decades. Currently, accounting for embodied carbon emissions or life cycle emissions is atypical for firms in commercial real estate and real estate investment trusts, but this could be about to change as embodied carbon has moved a lot higher up on the prioritization agenda for industry and government. With the pressure on to decarbonize the built environment and deliver carbon-neutral buildings in pursuit of global and national net zero goals, it’s becoming increasingly important for contractors and developers to tackle embodied carbon appropriately- whether in anticipation of future compliance or out of regard for their public sustainability agendas.
Unfortunately, embodied carbon is more difficult to measure and track than operational carbon, which is relatively simple to extrapolate from occupants’ energy bills. Furthermore, mandatory and voluntary sustainability reporting methodologies have typically only required scope 1 and 2 emissions accounting, aka the operational carbon, leading to it being the sole reduction priority for real estate firms for a while now. Determining the embodied carbon of any building material is impossible to ascertain from the finished product alone and requires self-assessment and process transparency on the part of the manufacturer, which may not accurately disclose its emissions.
Despite the challenges associated with accounting for embodied carbon (all in line with challenges of scope 3 accounting) that have kept this a low-priority action item for firms, proactive real estate firms will understand that this is no longer a nice to have due to a few key shifts in regulatory policy agendas and ESG business trends we are seeing in 2023.
Policies addressing embodied carbon reporting and disclosure are set to grow this year. Within the next three to five years, there may be requirements for embodied carbon disclosures happening in almost all state jurisdictions. This is already happening in California and New York, where embodied carbon information has to be provided as part of the whole-life carbon information for a building. BREEAM, LEED, and Green Star are all building rating systems that firms report to voluntarily that recognize embodied carbon measurement and mitigation as part of minimizing the impact of a building’s life cycle. Important voluntary sustainability frameworks like GRESB already require companies to provide data on the embodied carbon emissions of their buildings, including the materials used in construction and the transportation of those materials. This data is used to calculate the carbon footprint of a building, which is included in the overall sustainability performance score. As embodied carbon continues to gain importance as a sustainability metric opening it up to be included in possible mandatory disclosure requirements, reporting to GRESB can help companies stay ahead of the curve and position themselves as sustainability leaders in the real estate and infrastructure sectors.
Embodied carbon requirements are also likely to be integrated with existing state or city green codes, building performance standards, and ordinances that have been growing in scope and number for a few years now in North America. These codes, which have historically mainly addressed operational emissions are likely to now consider the environmental impact of siting, design, construction, and plans for the operation of projects. The recently passed Inflation Reduction Act even includes $1 billion in grants to help states deliver new residential and commercial building codes. Funding from the IRA has also been appropriated to the General Services Administration to procure materials and products available today and in the near future with the lowest levels of embodied carbon. A recently released document from the GSA outlines standards for low embodied carbon materials and products to be used on federal construction projects. (Read the draft of GSA Inflation Reduction Act Low Embodied Carbon Material Standards.) GSA’s procurement actions and demand signals will help grow the United States market for even lower-carbon construction materials and will spur ongoing industry innovation.
Tax credit programs that deliver quantifiable reductions in embodied carbon by addressing the carbon output of materials like concrete are another trend to look out for. New Jersey is currently establishing embodied carbon baselines for concrete, measured in global warming potential (GWP), a value that quantifies the kg of CO2 generated per 1 m3 of concrete. Starting in 2024, concrete producers who submit certified Environmental Product Declarations (EPDs) that validate GWP scores that fall below certain baselines will be awarded a tax credit of up to 8% of the total cost of the contract. In a competitive commodity industry characterized by thin margins, such an incentive creates a powerful market signal for producers and real estate firms farther down the supply chain. Additionally, as low-carbon materials become more prevalent due to incentive programs, it is not far-fetched to assume that real estate builders may be further pressed to deliver on reductions when it comes to embodied carbon and disclose these metrics if the information from suppliers is readily available.
Ultimately, it is important to recognize that regulations that take action on embodied carbon emissions are on their way. Developers may find themselves obliged to engage specialist CO2e whole-life carbon emissions consultants to advise on the cost of compliance before the acquisition or development of buildings. Even if you are not subject to performance standards and embodied carbon emissions reduction requirements, you may still need to report on and disclose your firm’s embodied carbon emissions, which requires some foresight and planning. If you work in real estate or in a sector that includes embodied carbon as part of your overall emissions, it is crucial to engage sustainability teams on this topic to plan for potential reporting needs and supply chain management. Companies should also recognize that beyond compliance reducing embodied carbon emissions through the use of low-carbon materials and more sustainable production methods can have a significant impact on a building or product’s overall environmental impact. This in turn can result in using fewer resources and reducing costs and risk around resource availability.
By Caroline Pittard, Sustainability Content Specialist at Watchwire
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