Building Decarbonization

The nation’s first networked geothermal system owned by a utility went live June 4 in Framingham, Massachusetts. The roughly $15 million network of ground-source heat pumps will cool and heat 36 buildings without fossil fuels, says Eversource Energy, the utility leading the project.

As decision-makers nationwide eye networked geothermal as a technology with the potential to decarbonize entire neighborhoods, the two-year Framingham pilot aims to offer lessons for other communities.

Networked geothermal systems rely on the consistent underground temperatures of around 55 degrees Fahrenheit. Buried pipes allow heat to be transferred into homes in the winter and out of homes in the summer, or between buildings when one has excess heat that another could use.

A data center where machines are generating large amounts of heat, for example, could give that energy to nearby homes rather than releasing it into the atmosphere, explained Ania Camargo, thermal energy networks senior manager at the Building Decarbonization Coalition.

“It is the most efficient way to heat and cool buildings that we know of,” she said, avoiding the need to build out as much electrical infrastructure to get buildings off fossil fuels. Networked geothermal also offers an “evolutionary path” forward for the gas companies and workers who could otherwise be out of a job in a renewable energy future, Camargo said. 

Already, some college campuses and developments owned by a single entity use networked geothermal systems, Camargo said. Utilities have been slower to get into the game because they are highly regulated, she said. “Gas utilities are only allowed to sell gas,” she said.

That’s slowly changing in some places. Six states have passed legislation that either allows or mandates that utilities pilot thermal energy networks, and six more states have filed such legislation, Camargo said.

Nine pilots in New York are in the engineering phase; in Massachusetts, four pilots proposed by utility National Grid have been approved and one is under construction. Plus, two utilities in Minnesota proposed networked geothermal district energy systems in their five-year innovation plans.

The U.S. Department of Energy threw some financial support behind community-scale geothermal projects last year, awarding 11 communities a total of $13 million to design systems.

The heat pumps used in these systems “are the most underutilized tool right now in terms of the potential to decarbonize our building and community infrastructure,” Alexis McKittrick, a program manager in DOE’s Geothermal Technologies Office, told Smart Cities Dive at the time of the DOE awards.

In Framingham, work to convert customers to the geothermal system will continue throughout the summer, according to an Eversource press release. Data collection begins in July. 

Eversource paid for the construction of the system and the new equipment for homes and businesses. Customers will pay a monthly fixed charge to use the system — about $10 for residential customers and $7 for income-qualified customers, said Eversource Media Relations Manager William Hinkle in an email. Commercial customers will pay $21 monthly. Customers will also pay for the electricity that powers their heat pumps, but Eversource expects they will end up paying less for energy each month because they won’t be paying as much for gas or delivered fuels. Customers that rely on gas for cooking or hot water appliances will still do so, Hinkle said.

The question everyone is asking right now is how to fund these projects, Camargo said. “When you're doing the first [project of its kind], it's going to be really expensive because everybody's working it out,” she said. But utilities have long spread the cost of expensive infrastructure across customers for decades. The harder part is figuring out how to pay for retrofits inside people's homes, Camargo said, noting that the Inflation Reduction Act and other state programs can help.

Cities interested in pursuing networked geothermal can consider using the systems for groups of municipal buildings, a strategy Rochester, Minnesota, is pursuing. Cities can also ask their utilities to pursue the technology and can advocate for state-level legislation to allow utilities to do so, Camargo said.

“The utility companies are going to be much more excited to work with the town who wants this and who is educated about it,” she said.

Tens of billions of dollars are spent each year by utilities building out the network of pipelines needed to distribute gas to U.S. homes and businesses. But as policymakers set ambitious decarbonization goals and customers shift off fossil fuels, some communities and utilities are questioning if expanding the gas system is the wisest investment.

That question has led early movers to examine alternatives to gas pipeline construction or upgrades. That could mean reducing gas demand in a neighborhood that would otherwise need upgrades to meet higher demand, or it could be more ambitious: electrifying all the customers in an area and decommissioning that portion of the gas pipeline completely, for example.

Finding alternatives to pipeline investments “feels like an early and emerging idea and practice,” said Mike Henchen, principal for carbon-free buildings at the clean energy-focused nonprofit RMI. “But we're also at a point where we have enough examples that we can start to synthesize some of the takeaways.”

Outlining those lessons learned is the purpose of a whitepaper released May 1 by RMI and National Grid, a combined gas and electric utility that serves New York and Massachusetts and has been evaluating alternatives to pipeline investments for several years.

Zurich is a frontrunner when it comes to putting these ideas into practice, the paper says. To the researchers’ knowledge, the Swiss city is the only one in the world to have actually completed neighborhood-scale gas system decommissioning. The city’s utility pursued the project because it didn’t make financial sense to maintain the gas pipelines alongside a district heating system that many customers had already converted to, the report says. Customers were alerted of this project about a decade before the pipes were decommissioned.

Tangible examples of pipeline decommissioning exist in the U.S., too. In California, Pacific Gas & Electric has converted a total of 105 customers from gas to electricity, resulting in the decommissioning of 22 miles of transmission pipe. However, that work has relied on 100% of affected customers agreeing to go electric, and PG&E’s successful projects have each affected fewer than five customers at a time. 

There is a lot of value — and untapped potential — in the small projects that impact a couple of customers at a time, Henchen said. But projects able to be derailed by just a single person aren’t a realistic path forward when it comes to scaling up this work, the RMI and National Grid researchers argue. “Individual customer persuasion to reach 100% participation is not a scalable [non-pipeline alternative] approach” to avoid investing in new gas infrastructure, the paper says.

So, what is scalable? In cities like Zurich, “the city governments are pretty much empowered to just make the decision” to pursue such projects, Henchen said. That’s not the case for many U.S. communities in jurisdictions with regulatory barriers. An oft-referenced barrier is utilities’ “obligation to serve,” which has largely been interpreted to mean that utilities must provide gas service to anyone who asks for it. 

For planned electrification projects to succeed, those typically state-level policies will need to change, the RMI and National Grid whitepaper says. Those policies could remove or clarify obligation to serve requirements so that utilities can pursue a new model for providing equitable energy access, a change that some California and New York lawmakers are pushing for.

State policy changes could also allow municipalities to conduct heat planning that retires gas infrastructure — which is what is happening in the Netherlands and Switzerland, the paper says. A bill being considered in Colorado would allow a handful of interested local governments to pilot neighborhood-scale alternatives to the gas distribution system.

Henchen said cities could step in to make their perspectives heard in these policymaking processes. “Cities have an opportunity to speak up at the utility commissions and say ‘Hey, we have a vision for how the infrastructure in our city evolves in the future,’” he said. Henchen also advised cities interested in this work to request information from the local utility about what projects are planned over the next five or more years and to explore where opportunities for alternative options exist.

“This solution is hyperlocal, and it requires going street by street and block by block,” he said. “There's a lot of value in that case for the municipality to be engaged in the planning process.”

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By Ameresco, Inc.

In the face of escalating climate challenges, cities are increasingly recognizing the critical role they play in reducing greenhouse gas emissions. The built environment is responsible for approximately 40% of energy-related carbon emissions, making it a focal point for municipal leaders aiming to achieve sustainability goals. 

And the urgency for action is real. According to the Department of Energy, emissions from U.S. buildings need to be reduced by 65% by 2035 and 90% by 2050 compared to 2005 levels to meet the broader strategy to achieve net zero emissions across the economy by 2050. 

With the high cost and environmental impact of new construction, municipalities are realizing the immediate benefits of focusing on retrofitting existing buildings. This approach addresses the trifecta of cost, consumption and carbon in the near-term while laying the groundwork for a more sustainable urban future.

The transformative power of retrofitting

Facility retrofits are a powerful strategy for decarbonization, allowing cities to leverage existing infrastructure while minimizing waste and resource consumption. These upgrades can significantly reduce energy use, operating costs and scope 1 and 2 emissions, with energy efficiency measures saving an average of 25-30% of energy consumed. Efficiency also reduces the load on renewable energy resources.

Simple building envelope improvements, such as better insulation, sealing leaks and installing energy-efficient windows, can reduce heating and cooling demands. Upgrading critical components like HVAC systems to high-efficiency models decreases a facility’s energy use intensity (EUI). 

Adding smart building technologies enhances retrofitting efforts by optimizing energy use based on real-time occupancy patterns and environmental conditions, and digitalizing building systems helps cities measure progress towards consumption and decarbonization targets.

Replacing fossil fuel-based heating with electric alternatives, such as heat pumps, supports carbon reduction. Heat pumps are particularly advantageous as they provide both heating and cooling efficiently, utilizing renewable electricity sources. 

Cities are developing comprehensive energy investment packages to generate savings and achieve higher greenhouse gas reductions. Transforming electricity supply to 100% renewable energy, producing renewable energy locally, and promoting electric and plug-in hybrid vehicles are critical steps. 

Prioritizing buildings and systems that can have the most meaningful impact is essential, often following the 80/20 rule: 80% of the overall impact can often be accomplished in 20% of the portfolio.

Embracing renewable energy supply

Integrating renewable energy sources is a key piece of the decarbonization puzzle, and arguably the most visible to constituents.

Many municipalities are working to install on-site solar systems to generate clean electricity. For buildings with limited space for solar installations, off-site solar options such as community solar programs or power purchase agreements provide viable alternatives. These initiatives allow cities to access renewable energy generated at larger facilities without the need for extensive on-site infrastructure. Often, city resources such as capped landfills or water treatment facilities can be beneficially used for these types of projects. 

Battery energy storage systems (BESS) also play a crucial role in maximizing the benefits of renewable energy resources. By storing excess energy generated during peak sunlight hours for use during low production times or peak demand periods, BESS enhance the reliability and availability of zero carbon energy sources. Together, solar and storage can reduce cities’ reliance on fossil fuels, while fostering energy independence and resilience within the community.

Financing decarbonization

To accelerate the adoption of retrofits and clean energy supply, municipalities must create supportive financial environments that encourage investment in sustainability. Whenever possible, leveraging private sector investment can help deploy clean renewable energy, battery storage, electrification and other efficiency and water conservation projects. Successful cities also engage their utility and state partners early in the process to secure incentive and grant funding for sustainability and electrification projects.

Offering green building incentives, tax breaks, or grants can motivate building owners to undertake these projects. Additionally, implementing energy performance standards for existing buildings can compel owners to prioritize upgrades that reduce emissions. Access to green financing options, such as Property Assessed Clean Energy (PACE) programs, enables property owners to finance energy efficiency upgrades through property taxes, making it easier to invest in necessary improvements without upfront costs.

For municipal infrastructure, public facilities can be upgraded using procurement structures like energy saving performance contracts (ESPC), where upgrades pay for themselves over the contract term. Another option is utilizing Energy-as-a-Service (EaaS) models. Both are excellent choices when capital budgets are tight, but progress needs to continue.

A path forward

The path toward sustainable urban environments does not always require new construction; often, the most sustainable option is to reuse a structure that already exists. Through strategic retrofits and upgrades, cities can lead the way in addressing climate change while creating healthier and more resilient communities for future generations.

The U.S. Department of Energy on April 2 released a federal blueprint to decarbonize the building sector, which accounts for over a third of the nation’s planet-warming greenhouse gas emissions.

The plan lays out actions the federal government can take to reduce building emissions 90% by 2050 compared with 2005, but it also calls for states, local governments and tribes to help with funding, policy reform and setting codes and standards.

While the DOE says that reducing building emissions promises to save consumers money on energy bills and avoid health costs, building decarbonization faces challenges such as pushback from the fossil fuel and building industries, upfront cost concerns and the huge number of buildings that must be addressed.

Nearly 130 million buildings exist in the U.S., and more are coming, according to the DOE. Between now and 2050, the agency expects 40 million new homes and 60 billion square feet of commercial space to be constructed. Reducing the climate pollution these structures create will require tackling the problem from several angles, from increasing energy efficiency and clean energy use to lowering the carbon footprint of building materials. 

The specific targets the Biden administration wants to meet are:

• Reduce the energy used on-site in buildings 35% by 2035 and 50% by 2050 compared with 2005 levels.
• Reduce greenhouse gas emissions buildings produce on-site 25% by 2035 and 75% by 2050 compared with 2005 levels.
• Triple the potential of demand flexibility, which is the capacity of energy users to change their electricity consumption patterns, by 2050 compared with 2020. 
• Reduce embodied emissions from building materials and construction 90% by 2050 compared with 2005.

A planning document like the blueprint can “go a long way to facilitate” careful coordination between federal agencies, Olivia Walker, equitable building decarbonization advocate at the Natural Resources Defense Council, said in an email to Smart Cities Dive. 

“Right now, there are several federal agencies with varying grants and programs available that support building decarbonization in some shape or form – and that’s amazing,” she said. “However, there is a significant challenge in ensuring that the parties eligible to apply for these grants and programs have the capacity and awareness to maximize the opportunities available.” It’s critical for the federal opportunities to build off each other and for interconnections between the opportunities to be made clear to potential applicants, she said. 

The blueprint details high-priority actions state, local and tribal governments can take and have taken to lower building emissions. The federal plan also suggests how these governments can fund such initiatives: They can take advantage of bipartisan infrastructure law and Inflation Reduction Act programs, deploy financing with green banks and oversee programs funded by utility ratepayers, for example.

The document recommends stronger local codes, such as those that require electric-ready buildings, as well as state and local building performance standards, which require existing buildings to lower greenhouse gas emissions or energy use over time. Climate-minded procurement standards can usher in lower-carbon building materials, while state-level or regional appliance standards can increase energy efficiency, the blueprint says. 

Regulating and reforming utilities are other actions the blueprint recommends, as are zoning reforms, such as those that prioritize equitable distribution of sustainable building infrastructure and green spaces across neighborhoods. 

The federal government said it can support such work by, for example, offering technical assistance and financing programs, facilitating information-sharing between communities and participating in model code development processes.

‘There is no one size fits all approach’

Local governments still face numerous challenges in their work to decarbonize buildings, the NRDC’s Walker said. A federal appeals court’s decision to overturn Berkeley, California’s first-in-the-nation ban on gas in new construction was a setback, she said, although it wasn’t the end of local rules aimed at restricting fossil fuel use. 

“We’re going to see cities going for strengthened ordinances that focus on emissions and energy performance rather than fuel source directly,” she said. “As gas appliances just can’t keep up with their electric counterparts in those respects, these policy paths alongside preferential funding opportunities for electric appliances will ultimately reach the same outcome.”

Ensuring affordable housing and stability for residents is an additional hurdle for cities looking to decarbonize, Walker added. “Without a deep understanding of the risks to a given region’s renters and the needs of affordable housing providers — particularly nonprofit providers — building decarbonization has the potential to accelerate tenant displacement and even inhibit the development of new affordable housing,” she said. 

These risks differ from community to community, Walker said, heightening the need for local governments to collaborate closely on building decarbonization with the stakeholders, groups and coalitions in their area. “There is no one size fits all approach for local governments to decarbonize equitably,” she said. But addressing these risks also presents a great opportunity that goes beyond building decarbonization. “It could be an opportunity to strengthen tenant protections, or facilitate the development of higher quality affordable housing, or create new labor standards for government subsidized work,” Walker said.

Retrofitting, renovating or reusing existing buildings can be more effective in reducing operational and embodied carbon than constructing new ones, Ming Hu, associate dean for research, scholarship and creative work at the University of Notre Dame’s School of Architecture, suggests in a research note Sept. 3

An analysis of embodied carbon in over 1 million buildings in Chicago led by Hu and Ph.D. student Siavash Ghorbany reveals that increasing the average lifespan of buildings from 50 years to 75 or 80 years and reducing building size by 20% can cut their overall carbon emissions by two-thirds. 

The team is in the process of replicating the methods used in this study to create embodied carbon measures for buildings in Houston, Denver and Washington, D.C., with a goal of developing a picture of embodied carbon across most U.S. metropolitan areas by the end of 2025, Hu said in an interview.

In the U.S., a lack of methodology to measure the entire building stock, building-level data at the national scale and benchmarks to assess embodied carbon performance are the three main knowledge gaps in understanding whole-building embodied carbon impacts, the study says. Differences between states’ existing building inventory, climate and market demand, population size and density further complicate these assessments, it says.

The research used machine learning and artificial intelligence to develop an integrated dataset for the analysis, pulling data from existing sources including the National Structure Inventory and Cook County Open Data for Chicago. The study, which provides a visual analysis tool to evaluate embodied carbon at a granular level, identifies 157 different architectural building types, with buildings averaging 1,819 square feet and a mean year built of 1958. 

Hu and Ghorbany matched different types of data using geolocation before coding and categorizing buildings based on features such as structural materials and roof type. The team then multiplied the building type’s baseline emissions by the footprint of each building to approximate its total embodied carbon. When analyzed at the city scale, buildings with masonry structures and walls, basement foundations and tar and gravel roofs were found to have the highest lifecycle emissions compared with other archetypes, due largely to rooftop material, the study found.

Buildings with wooden structural elements and walls, basements and shingled roofs, accounting for 29% of the analyzed building stock, were found to have the lowest emission rates, the study says.

Considering a building’s entire lifespan, renovating an existing building has significantly lower carbon emissions over its whole life cycle, including operational and embodied carbon, Hu said. As a result, demolishing an existing building to construct a new one makes little sense from an environmental perspective, even if that new building is more energy efficient, according to the research note. 

Retrofitting commercial buildings is not without challenges, however. Hu pointed to a misalignment of incentives, longer payback periods, regulatory hurdles and a lack of awareness and expertise as key deterrents to retrofits. “Owners may hesitate to invest in retrofits when tenants reap the benefits of lower energy bills,” Hu said. “Additionally, some energy-efficient upgrades come with high embodied carbon costs.”

“The coordination of diverse stakeholders, such as owners, tenants, contractors and investors, further complicates retrofit projects, alongside the challenge of integrating new technologies with outdated infrastructure in older buildings, which may require extensive and costly upfront costs,” Hu said. 

The type of retrofit or renovation being considered largely depends on the building owner's objectives, though, Hu said. “If the goal is to enhance energy efficiency and achieve long-term cost savings, upgrading the HVAC system and improving the building envelope should be prioritized,” Hu said. 

Purely cosmetic upgrades, without any building performance improvements, will inevitably increase embodied carbon, however, Hu said. “Typically, we perform both lifecycle assessment and lifecycle cost assessment to guide building owners in making informed decisions,” Hu said.

About 2% of the building stock undergoes turnover annually, while nearly 70% of buildings today are expected to exist for the next 30 years, experts said during an Oct. 25 panel at ASHRAE’s Decarbonization Conference for the Built Environment. The key question, they noted, is whether decarbonization should focus on existing buildings or new builds. The panelists discussed the role of building performance standards, model codes and zero-energy codes in decarbonizing building stock, offering lifecycle approaches to building energy and emissions management.  

Building performance standards are a natural evolution of decarbonization measures like benchmarking, auditing, retro-commissioning and re-tuning policies, the panelists said. They are gaining ground as a way for municipalities to benchmark the existing building supply and prompt energy and emission reductions to meet climate goals. Jurisdictions that have committed to passing building performance standards are home to 22% of the country’s population and encompass more than 25% of commercial and multifamily buildings by square foot, said Harry Bergmann, management and program analyst at the U.S. Department of Energy.

Bing Liu, building sector manager and senior technical advisor at the Pacific Northwest National Laboratory, said BPS, while expensive, time-consuming and challenging to implement across the country, provide opportunities to implement large-scale carbon emission reductions in the U.S. building stock. Looking to the future, Liu said, the “big elephant in the room is our existing buildings,” which will need to be retrofitted or upgraded to meet carbon reduction goals.

Adam Hinge, managing director at Sustainable Energy Partnerships and board chair of the Institute for Market Transformation, agreed that existing buildings are a big decarbonization challenge. Owners are “not particularly thrilled about spending and seeing their operating costs increase,” Hinge said.

A large disconnect exists between predicted energy performance and measured performance in terms of the energy efficiency and operational outcomes of buildings, Hinge said. With BPS typically based on actual measurements rather than predictions, this gap has become more apparent in recent years, increasingly affecting operators as they weigh potential efficiency and renewable energy upgrades against actual, BPS-enforced performance, he said.  

Although new buildings can be constructed as net-zero structures, they face BPS as soon as they turn into existing building stock, Liu said, thus operational efficiency needs to be factored in from the beginning of a project. 

Hinge emphasized that upon completion of a new construction or a significant renovation, a structure transitions to the category of an existing building. He identified a “serious problem” and a policy flaw in new construction energy codes — naming Washington, D.C., New York City and Denver as examples — that do not align with the performance standards set for existing buildings.

Implementing and enforcing BPS can pose challenges as well. For Washington, D.C., one of the biggest hurdles has come from poor auditing, said Katie Bergfield, chief of building performance and enforcement at the district’s Department of Energy & Environment. The department is now one of the first in the country to regulate audits.

California Gov. Gavin Newsom announced on Sept. 25 that he signed a bill that allows natural gas utilities to pilot neighborhood-scale decarbonization of buildings instead of replacing old gas pipelines — as long as the decarbonization projects are less expensive.

SB 1221 authorizes up to 30 of these pilot projects across the state. At least two-thirds of affected property owners would need to consent to a pilot project for it to move ahead.

Supporters of the bill say such projects offer climate benefits and cost savings. A rural county advocacy group opposed the bill, saying local governments should be allowed to block such projects. Pool, hot tub and spa industry groups raised concerns about electrification’s impacts on pools, home fire pits and spas.

Building decarbonization advocates are increasingly pushing for neighborhood-scale decarbonization, which focuses on getting entire street segments, developments or neighborhoods off fossil fuels at once. They argue it is more effective than relying on individual consumers to electrify appliances one by one. Plus, advocates say, the managed approach addresses equity concerns about those who can’t afford to electrify getting stuck with the bill for gas infrastructure as ratepayers who can afford to do so get off the system.

Two primary forms of neighborhood-scale decarbonization exist: Electrification of all the buildings in an area or the installation of a thermal energy network, which allows for the transfer of heat in and out of buildings. The nation’s first networked geothermal system owned by a utility went live in June in Framingham, Massachusetts.

California is already home to gas pipeline decommissioning projects led by the utility Pacific Gas & Electric. The utility has electrified 105 customers, resulting in the decommissioning of 22 miles of transmission pipe, according to a May whitepaper published by National Grid and nonprofit RMI.

But even if California gas utilities are amenable to decommissioning gas lines, their legal “obligation to serve” customers has raised concerns that a single dissenting customer could derail an entire neighborhood-scale decarbonization project.

SB 1221 addresses this question by stating that the California Public Utilities Commission can relieve a gas company of its obligation to provide service in a pilot project area if the new energy service is “reasonably available to support the energy end uses” of affected customers.

If signed into law, the bill would also require utilities to annually submit maps to the commission showing where they plan to replace gas pipelines. The legislation also stipulates that the decarbonization projects should prioritize benefits to disadvantaged and low-income communities, and include tenant protections.

All this work will come at a cost for California, according to an analysis of the bill. The Public Utilities Commission anticipates needing seven new positions, which will cost $1.6 million each year, along with tens of thousands of dollars for public outreach, training and equipment.

Building performance standards, an increasingly popular policy among decarbonization-minded cities and states, are very likely safe from lawsuits arguing such rules are preempted by a federal energy law.

That’s according to Daniel Carpenter-Gold, staff attorney at the Public Health Law Center, speaking at a July webinar hosted by the Institute for Market Transformation. Building performance standards require existing buildings to reduce energy use or greenhouse gas emissions over time.

Concerns about the legal standing of local decarbonization policies rippled across the U.S. in the wake of a federal appeals court’s decision to overturn Berkeley, California’s first-in-the-nation ban on natural gas hookups in new construction. The judges agreed with the California Restaurant Association, which sued the city, that Berkeley’s rule was preempted by the federal Energy Policy and Conservation Act. EPCA preempts state and local standards on appliances that could also have federal standards, Carpenter-Gold explained. The Berkeley decision said the city’s ordinance effectively banned gas-powered appliances by cutting off their energy source, he said.

The same argument is unlikely to knock down building performance standards nationwide, he said. Carpenter-Gold cited numerous reasons for his confidence. Firstly, the Berkeley decision only applies in the Ninth Circuit, which comprises Alaska, Arizona, California, Hawai’i, Idaho, Montana, Nevada, Oregon, Washington, Guam and the Northern Mariana Islands. The Ninth Circuit’s decision is a radical reading of EPCA preemption that other courts may not choose to agree with, Carpenter-Gold said. 

“The federal government doesn't have authority through EPCA to create a [building performance standard] or to regulate who can have gas stoves,” he said. “Therefore, most general understanding is that the state and local governments retain that authority.”

Building performance standards also typically have safeguards against the argument that they effectively ban gas-powered appliances, Carpenter-Gold said. Those safeguards include exemptions for cases where buildings can’t effectively reduce energy use or emissions; they also include alternative compliance payments, which allow building owners to make payments rather than comply with the standards. 

To defend against potential EPCA preemption challenges, “there should be some policy built into a building performance standard that ensures that you’re not trying to completely eliminate the use of gas appliances,” Carpenter-Gold said. He caveated that statement by encouraging state and local governments not to weaken the policy’s goals when building in those safeguards. Since building performance standards apply to already existing buildings, local and state leaders can increase or decrease the policy’s stringency as the legal landscape requires, Carpenter-Gold said.

Four states and nine localities have adopted building performance standards, according to IMT. The organization leads the National Building Performance Standards Coalition, a group of states and local governments committed to implementing such laws. Right now, IMT is only aware of three pending lawsuits against building performance standards, said Cliff Majersik, senior adviser at IMT.

“The main takeaway is that jurisdictions should go full speed ahead in developing, adopting and implementing building performance standards,” Majersik said at the webinar.

The split incentive gap — where landlords and developers foot the bill for building energy efficiency upgrades, while tenants benefit from lower energy costs — remains a key barrier to decarbonizing buildings, according to a new road map from the Sustainable Markets Initiative’s Sustainable Buildings Transition Hub.

The road map outlines strategies to bridge this gap, emphasizing three areas: legislation; clear, enforceable emission reduction targets; and green leases that align the interests of both owners and tenants.

Laws such as New York City’s Local Law 97 and Boston’s Building Emissions Reduction and Disclosure Ordinance signal a shift toward stricter building performance standards, which are reshaping operational strategies for commercial buildings. These laws, along with tax breaks for deep retrofits, are reshaping commercial building strategies and aligning U.S. policies with global decarbonization trends, the report says.

Split incentives are among “the most commonly recognised issues when it comes to accelerating progress in the global real estate sector," George Oliver, chairman and CEO of Johnson Controls and chair of the Sustainable Markets Initiative’s Sustainable Buildings Transition Hub, said in a Sept. 26 news release.

Targeting public and private sector organizations, the report outlines challenges, solutions and best practices for addressing the split incentive gap via legislation, target-setting and green leases.  

Legislation

A transparent, performance-based ratings system for commercial buildings could help the industry move toward decarbonization by addressing operational inefficiencies. This would involve collecting and comparing data on energy and water use, as well as on other sustainability efforts like recycling. Furthermore, PBRs could demonstrate a link between improved operational efficiency and increased asset value. For instance, buildings that operate more efficiently can attract higher rents and that could potentially address the split incentive gap, the road map says. 

However, jurisdictions moving to implement PBRs for buildings must avoid making the systems overly complex and consider how they will interact with existing regulations, like those that set minimum energy efficiency standards, while providing relevant real-time data on energy efficiency that can facilitate transparent reporting on decarbonization progress, SMI cautions.

Additionally, incentivizing the use of ready and proven decarbonization technologies and facilitating a broader collaboration between building owners and municipalities looking to address split incentives, such as by incentivizing the reuse of waste heat, can help lower emissions and boost energy efficiency, the road map says. 

Target-setting

The road map underscores the need for a globally standardized definition of net zero to simplify target-setting for building owners. The International Organization for Standardization’s Net Zero Guidelines, which are being formalized into a full ISO standard, aim to provide clarity across sectors, formalizing a single target of net-zero greenhouse gas emissions by 2050. 

Decarbonization efforts also require a clear understanding of real-time operational carbon performance in buildings, supported by a comprehensive carbon measurement standard, the road map says. A new PBR system must define carbon efficiency clearly, with standardized key performance indicators to enhance trust and clarity. An informal working group, led by the Institutional Investors Group on Climate Change and the Royal Institution of Chartered Surveyors, aims to release globally adaptable climate transition KPIs by early 2025 to boost investment in sustainable practices.

Green leases

The potential for green leases identified in SMI’s road map echoes the growing momentum of energy consumption and utility cost reduction measures through these leasing practices highlighted in a recent Cushman & Wakefield report.

The road map notes that green leases can “accommodate an equitable distribution of risk and reward when it comes to investments in decarbonization.” An effective green lease would include a carbon reduction goal that landlords and tenants can agree on. Other key themes, the road map says, include collaborative target-setting and data-driven tracking of environmental performance. 

Green leases should also allow for requirements in the local jurisdiction, the report says. It lists several factors such leases could address, such as office vacancies or renewable energy use, that would help boost operational efficiency.