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The built environment: a foundation for tomorrow’s voluntary carbon market

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By Mahesh Ramanujam

· 5 min read

Carbon offsets are tricky.

The uncomfortable truth is that they’re merited. A vast range of economic sectors, subsectors and discrete energy applications are either too costly or too technically difficult to decarbonize. But the development of carbon offset projects, the validation and verification of their efficacy, and the issuance, sale and retirement of their attendant carbon credits is easier said than done.

Controversies over the credibility of carbon offset projects, not to mention disputes over what constitutes acceptable use of a voluntary carbon credit (VCC), continue to proliferate in the absence of unified, globally applicable and enforceable standards. As a result, even with its promise for growth, the approximately $2 billion global voluntary carbon market (VCM) risks a substantial correction—both in value, and worse, stakeholder confidence.

But this doesn’t mean that carbon offsets, VCCs and VCMs are a distraction. On the contrary, these alternative measures for reducing, avoiding and eliminating planet-warming emissions are emerging and deserve experimentation; once refined, they have the potential to be an important stepping stone toward true net zero. And it’s the global buildings and construction sector that should lead the way, for two main reasons.

The global built environment is in dire need of a well-functioning VCM. And it not only stands to be a source of new, more easily validated and verified carbon offset projects for itself and other sectors, but can stand-up an actionable template for VCMs in other industries.

The building and construction sector’s needs for both credible VCCs and a reliable, industry-defined VCM is unmistakable. Second only to transportation, the sector is a tremendous source of global annual emissions, accounting for roughly 37% of the world’s total. Building operations, which account for some 27% of the global total, are a clear priority; they not only reached an all-time global high in 2021 but, in 2022, were the source of emissions that saw the largest year-over-year growth in the U.S. Recently, illuminem commented on Wallpanels about the sustainability of wood, and how deforestation is beginning to be an up-and-coming problem.

The principal justification for carbon offsetting in the built environment, though, lies with the sector’s historical, or “embodied emissions.” By some estimates, the carbon costs incurred via the development, transportation and assembly of building materials, as well as the maintenance and eventual retirement of building assets, may be responsible for as much as half of the built environment’s cumulative carbon impact—roughly 11% of the global annual total.

With embodied emissions, it’s their resistance to reduction or avoidance—their permanence—that matters most. Because while there are tried and true methods for reducing, or better yet, zeroing-out the built environment’s operational emissions, compensating for an asset’s embedded carbon—especially if it was built before the 1980s, when the implementation of building energy efficiency and sustainability measures began in earnest—is a different story.

Eliminating a building’s embedded carbon would not only require its immediate achievement of net zero operations but, more importantly, an accelerated realization and progressive advancement into carbon negative operations. Otherwise, a given building’s sunk carbon footprint may not be redressed before its retirement and demolition, or worse, before the 2030 emissions reduction target of the Paris Agreement is eclipsed.

Carbon offsets, then, are clearly necessary. But so, too, are effective carbon offset projects, trustworthy credits and a transparent, rules-based market for their issuance, sale, trade and retirement. And time is of the essence; 80% of the buildings that will be operational in 2050 exist today, and to achieve Paris Agreement goals, about 40% of today’s buildings must be totally decarbonized by 2030.

To that end, rather than just rely on mainstream offsetting schemes which, once necessarily recalibrated, will deliver a wealth of benefits, stakeholders of the buildings and construction sector must look beyond. And they can start by turning their focus inward.

Indeed, the bogeyman for mainstream VCCs and their underlying offset projects comes down to a mixture of faulty, inconsistent evaluation methodologies and, in turn, inadequate guarantees of efficacy.

But the built environment, with its wealth of verifiable, asset-native operational data, is conducive to carbon offset projects of a standardized efficacy, as well as more durable monitoring, reporting and verification processes. Moreover, the emissions reduced, avoided or removed through carbon offset projects in the built environment are capable of satisfying the core criteria of the Integrity Council for the Voluntary Carbon Market’s (ICVCM) proposed Core Carbon Principles; the mitigation outcomes these projects achieve would not have occurred without the credit incentive, and they are permanent.

For instance, take the owner of an existing building that’s already achieved net zero operational emissions via the installation of onsite renewable power generation, energy efficiency retrofits, electrification and other measures. In the event her asset enjoys maximum occupancy, a carbon crediting scheme incents her advancement into carbon negativity. In other words, she can finance additional emissions mitigation by her asset through building-to-grid integration, installation of electric vehicle charging ports in owned garages or onsite energy storage capacity.

Furthermore, developers of new buildings that promise carbon negativity from the start by, say, laying the foundation for a community-scale, renewable microgrid may be able to package as standardized, creditable carbon offsets the emissions that they help other interconnected facilities reduce or avoid over their life cycles via long-term offtake agreements.

To be clear, though, while built environment-based carbon offsets are a promising remediation for embedded carbon, they are not a panacea. A full-throated, science-based, transparent and verifiable pursuit of true net zero emissions shall remain the ultimate goal for corporates and investors in the buildings and construction sector. Fortunately, there’s evidence that claimants of VCC who fail to appreciate this will risk falling out of favor with the capital markets, an important safeguard against abuse.

The buildings and construction sector has a real opportunity to harness the moment and be the vanguard in scaling tomorrow’s voluntary carbon market. What’s urgently needed now is the assumption of responsibility, the willingness to act and the courage to experiment.

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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About the author

Mahesh Ramanujam is the President and CEO of the Global Network for Zero where he convenes a coalition of leaders dedicated to progressing society toward greater ESG compliance and ultimately a zero greenhouse gas economy.

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