In this post, I dive into innovative companies and approaches that will help us attain net zero targets for the built environment. For a refresher on net zero commitments, see my prior writing here.

Buildings contribute over 1/3rd of global CO2 emissions. This includes 27% from operational emissions (direct and indirect energy use to run buildings). An additional 6% emissions come from embodied emissions (cement, steel, and aluminum used to construct buildings). Continued urbanization and increased standards of living will drive demand for buildings, with building surface area expected to double by 2060. The increased physical footprint is expected to increase demand for building energy by ~50% between 2018 and 2050.

Below, I will breakdown the contributors to buildings’ emissions footprint. Next, I will dig into the tools and intervention points we can use to reduce buildings’ emission footprint.

What Do We Use Energy in Buildings For?

We use energy in our buildings in a variety of ways. 2/3 of this energy is used in residential buildings, while commercial buildings account for the rest. What does this energy power? An illustrative summary below (usage will vary by geography, but using consumption in the U.S. as an example)

Mitigation Strategies

Armed with a breakdown of energy use in buildings, let’s dig into the path to decrease emissions from these activities. Before we jump in, one important callout, 35% of the energy used in buildings in 2021 came from fossil fuels (think gas powered space and water heating, stoves).

Increasing Energy Efficiency

The majority of buildings that will around in the coming decades have already been built. So, to achieve net zero commitments for buildings, it will be critical to improve energy efficiency in buildings. The path to net zero for energy use in buildings will involve a combination of improving cost curves for nascent technologies, incentivizing adoption of existing technologies through policy and financing innovations, and in some cases, inventing new technologies.

Heating

Space and water heating account for 40% of energy use in buildings. The emissions footprint of heating is even higher, representing 46% of building emissions as significant heating is natural gas powered. Heat pumps are a solution available today which provide 3-5x efficiency of gas boilers. The shift to heat pumps will have the added benefit of improving indoor quality and reducing home fire incidents.

Heat pump sales are recording highs. Large enterprises like Lennox and startups like Dandelion Energy and Quilt are driving innovations in heat pump technology. However, broader penetration faces a few demand side barriers. These include upfront costs (heat pumps can be 2-3x more expensive than gas furnaces), ongoing maintenance, and complexity of purchase and installation.

We’re starting to see companies tackle these problems. Startups like Helio are reimagining the consumer evaluation, purchasing, and installation process. Companies like Sealed are innovating on financing by offering no upfront payment home upgrades. In addition, regulatory incentives for heat pumps should serve as a tailwind for accelerating adoption.

Cooling

Cooling is another large contributor to energy use in buildings, and accounts for 10% of global emissions. The emissions from energy usage of cooling systems and fridges is significant. The emissions impact of cooling is exacerbated by the use of HFCs and HCFCs in refrigerants (used in ACs and fridges). The warming potential of these chemicals is in some cases >10000x that of CO2.

Cooling is expected to drive >1/3 of building energy demand growth through 2050. There is some good news, though. Best in class efficiency ACs today are 3x the average efficiency of air conditioners sold. However, mass market demand for cheap models (which are usually less efficient) is a headwind to adoption of more efficient ACs. Given this gap, policy intervention via efficiency standards can help drive improvements.

Startups like Blue Frontier and Transaera are innovating on next generation ACs that reduce energy and refrigerant use. Blue Frontier plans to offer HVAC-as-a-service, to reduce burden of upfront costs. In addition, innovations on heat pumps noted above are applicable here (heat pump systems are capable of cooling).

Insulation

Lack of proper insulation is the largest source of energy loss in buildings. Simple insulation solutions can improve energy efficiency of homes by 10-20%.

Companies like LuxWall are innovating on next generation windows expected to improve energy efficiency by up to 45%. In addition, increased policy incentives and regulatory support through building codes and efficiency standards can be catalysts for improving efficiency.

Lighting

After heating and cooling, lighting is the next largest user of energy in buildings. Fortunately, our shift towards LEDs from incandescent bulbs offers a great blueprint for the adoption more energy efficient technology. Furthermore, we can continue to drive further efficiency improvements with existing technology.

Software Orchestration / Monitoring

Finally, lack of visibility into energy use, poor UX, and inability to orchestrate and control appliance use in buildings is a hurdle to reducing the energy footprint of buildings.

Smart Thermostat companies for residences such as Nest were a great step forward. The next step will be companies such as Ardette and Runwise that are building the OS for operating buildings.

Making Construction Materials Greener

Steel

Steel contributes to 7% to global GHG emissions and 11% to global CO2 emissions. Path to net zero requires a 30%+ decrease in emission intensity per ton of steel. However, Steel is extremely challenging to decarbonize due to two key reasons. First, carbon is part of the chemistry to make steel. Second, heat levels of >1500 C required to melt iron ore.

We are starting to see innovation to address these issues. This overview by CTVC is a fantastic primer on next-gen approaches to decarbonize steel production. This report by McKinsey (summary graphic below) outlines approaches from current steel makers to decarbonize steel making.

Cement

Cement is the second most widely used material on earth after water and contributes 8% to global CO2 emissions. Similar to steel, 90% of cement’s CO2 footprint is from two factors. First, energy required to heat limestone in the kiln during production to ~1000C. Second, chemistry of heating limestone (a core input to produce cement) to high temperatures which releases CO2.

Cement emissions footprint can be reduced by using more efficient kiln technology and by optimizing % of clinker used. However, to achieve step change reductions, we need different pathways. Some examples include:

1. Carbon neutral ways to produce industrial heat (e.g. renewable powered facilities, Rondo, Antora)
2. Carbon Capture, Usage and Storage (CCUS) at point of production can help address the CO2 produced in the kiln. However, it can be cost prohibitive at $75 – 100 per ton of cement
3. Alternate building materials that reduce emission intensity and/or sequester carbon (e.g. CarbonCure, Blue Planet Systems, Biolith by Biomason, Cross Laminated Timber)
4. Alternative production methods that remove the need for the kiln in the production process (e.g. Sublime Systems)

Buildings as Power Plants

To date, buildings have primarily been consumers of electricity. Only 4% of homes and <2% of commercial buildings in the U.S. have rooftop solar. There is significant room for improvement here as we’ve seen significant improvements in the cost of solar and battery storage in the last few years. Rethinking buildings as potential producers of energy will play a big part in our energy transition. However, we need to solve a few problems to achieve this future. These include ease of installation of batteries, real-time connectivity to the energy markets, and software to orchestrate flow of energy from buildings. Companies enabling on this future include Swell, Lumen Energy, Enode, Leap and many others.

Additional Considerations

Design

An omission from the building footprint stats above is the impact of location. A residential building in a higher density area has a lower emissions footprint than one in a lower density area. The emissions impact of building in sparser areas includes impact of extending infrastructure (grid, pipelines, roads), clearing land, and transporting goods and services farther. Thoughtfully designing our communities, cities, and supply chains will play an important role in reducing the footprint of the built environment. Companies like Cul De Sac are tackling this problem. In addition, zoning reform can have a large impact as well.

Importance of Policy

Policy can have a large impact on outcomes in the built environment. Efficiency standards for appliances and building codes have helped drive reductions in building energy intensity. We can drive further improvements through policies on energy efficiency standards (e.g. federal building standard, AC and heat pump standards). I view efficiency standards as a critical policy intervention in areas where actual energy efficiency today is significantly below the efficiency of mature technology already available in the market.

In addition, policy via subsidies or tax credits can help drive cost curve improvements for nascent technologies. Policy can help improve refrigerant disposal standards. We know from past experience that policy interventions can be extremely effective (e.g. Montreal protocol)

Finally, to support electrification of buildings and transportation, we need to produce a lot more electricity. To build enough renewable capacity to support demand, we should improve the permitting process to build new power plants.

Financing Innovation

A couple of hurdles for adoption of energy efficient appliances at home are high upfront costs and complexity of installation. This partly explains low adoption of heat pumps, efficient ACs, and home insulation despite favorable lifetime ownership cost of these appliances. Accordingly, policy initiatives and companies addressing this challenge can serve as catalysts in helping drive building electrification.

Conclusion

As with many solutions to combating climate change, there is no silver bullet to decarbonizing the impact of buildings. But, with a combination of technology and business model innovation, consumer education, and thoughtful policy intervention, it is a solvable problem.

An increasing number of organizations, 46% of publicly listed entities as of 2022 (up ~4x from 2018 levels) have announced some form of net zero commitment. However, net zero commitments across entities are far from equal with greenwashing becoming an increasing concern. In this post, I’ll dive into what net zero commitments are and how I evaluate their effectiveness.

Before we can evaluate net zero commitments, it is important to define a few things.

What is ‘net-zero’?

Before we can evaluate net zero commitments, it’s important to define net zero. Per the IPCC, net zero is limiting warming to 1.5C over pre-industrial levels by 2100. However, only 16% of listed entities have committed despite the current scientific consensus on the importance of meeting this specific target. Therefore, we should question what the commitment is referring to.

What emissions are entities referring to?

Entities engage in a wide variety of activities that cause emissions. Therefore, it is important to think holistically about an entity’s emissions to ensure we are evaluating from the right base level.

So, how do we holistically determine an entity’s emissions? The scope concept as defined in the GHG Protocol is a great framework to evaluate emissions holistically. I’ve found the below infographic by South Pole to be informative. A quick glance illustrates why the measurement and reporting of Scope 3 emissions is a significant challenge.

What steps are entities taking to get to reduce emissions?

There are two steps to achieving net zero. First, reducing emissions (e.g. Google’s data center innovations). Second, purchasing offsets.

In terms of emissions reduction, I believe that the optimal approach is to invest in innovation that’s applicable to other entities or situations. However, any efforts to reduce emissions with a favorable return are great.

Achieving net zero via offsets is a bit more nuanced discussion and warrants its own section. Before diving into that, a quick explainer of what an offset is.

What are ‘offsets’?

An offset is when a company buys the claim to an emission reducing activity that another entity undertakes. The emission reducing activities can include planting trees, land conservation/restoration, and carbon capture.

How to evaluate offset effectiveness?

Offsets can have a wide degree of variance in cost and efficacy. They can range from $1 – $50+ per ton of CO2. The efficacy of an offset boils down to three key factors. First is accuracy, i.e. is the offset properly estimating emission reductions. Second is marginality, i.e. is the purchase of the offset leading to a benefit that wouldn’t have otherwise happened. The third is permanence, i.e. will the emission reduction sustain for a long period. Excellent educational material on what makes for a high quality offset here.

An entity may purchase offsets for a variety of reasons, but the two primary ones are regulatory and non-regulatory reasons. Non-regulatory reasons include mission alignment, CSR, marketing, branding, and product offering.

State entities (e.g. California) determine the offset quality required for regulatory reasons. We can assume a reasonable level of offset quality, despite some downsides.

However, there isn’t a required offset quality for offsets purchased for non-regulatory reasons. It’s important to scrutinize this bucket of offsets because it gives entities free rein to continue their emitting activities while purchasing ineffective offsets to claim emission reductions.

So, how might we go about understanding if the offsets are effective? Gold Standard and Verified Carbon Standard both offer rigorous, transparent, and widely used certification standards for offsets. Gold Standard also offers excellent educational material to understand the nuances of offsets.

(June 2023 update: Verra, the publisher of Verified Carbon Standard has come under increasing scrutiny due to questions over the efficacy of its certification, specifically for forest based offsets. Even more reason to evaluate the efficacy of offsets before purchase)

In addition, there are several startups that have emerged to introduce more transparency, improve measurement, and reduce friction in the offsets markets. A few examples include Pachama, Patch, Carbonx. It’s too early to gauge how much sustained impact these startups can have, but the space is benefiting from much needed innovation.

What data is available?

To be able to evaluate the above questions, it’s important for companies to publish their emissions data. This is the final criteria to evaluate net zero commitments: how well does the company’s reporting help address the questions above? A model example of a company that does this well is Microsoft.

What do I think is most effective?

I’ve previously written about my belief that innovation is a big driver in helping address climate change here and here. I continue to believe this to be true. This could mean reducing emissions via innovation. Or, it could mean making advance commitments to purchase offsets attained through nascent technologies like direct air CO2 capture or ocean sequestration. There’s potential to drive technology maturation and cost competitiveness through these investments.

Digression on Pragmatism & Fossil Fuels

One aside, I continue to think that the approaches to reducing emissions are very situation-dependent (excellent podcast diving into this). If you’re reading this, you’re likely extremely privileged. You likely live in a country that has contributed significantly to cumulative GHG emissions. It can be easy to forget that the poor bear the brunt of the negative consequences of climate change. Even in an affluent place like San Francisco, it could mean supporting more affordable housing so people can avoid living in wildfire zones.

In developing nations, continued investment in more efficient fossil fuels will very much be part of the solution (e.g. helping households transition from wood to LPG). Investing in more efficient use of fossil fuels, like less carbon intensive fertilizer production to address food insecurity, will form part of the solution too.

Most critically, it’s helping drive economic growth (even if partly powered by fossil fuels). This could mean having the ability to afford housing that protects against extreme weather events. This could also mean having the ability to invest in advance warning systems and infrastructure to protect from natural disasters. It could further mean having the ability to afford air conditioning during a heat wave.

As such, western countries (the largest cumulative polluters to date) should continue to lead the charge in investing in innovation to drive the energy transition. Western banks and UN entities should continue to invest in projects that focus on improved fossil fuel efficiency that can be a source of cheap power and drive economic growth in developing countries.

Parting Thoughts

As a stakeholder in companies claiming emission reductions, I hope this deep dive can help you be more informed about the legitimacy of net zero commitments. If this has piqued your interest, I highly recommend reading Science Based Targets content on net zero commitments.

In Part 2, I’m going to discuss interesting approaches to addressing emissions in transportation, industrial production, and agriculture. If you haven’t read Part I, I’d recommend starting there.

Transportation

The transportation industry by end-use is one of the largest contributors to GHG emissions (~28% of all emissions in the U.S.). On the bright side, vehicle miles per capita in developed countries (using the U.S. as a proxy) have plateaued and emissions per mile have gone down as fuel efficiency standards have gone up. However, secular factors such as improving infrastructure, rising population, and income levels, particularly in developing nations are expected to drive demand.

An objection one might have, given the rise of remote work in recent months, is the impact of behavioral change around how much people need to travel for work. In response, I’d point out a few things. First, the majority of people don’t do knowledge work (yet). Additionally, remote work by itself will have a marginal impact on freight volumes and likely lead to more travel for pleasure. Regardless, even if demand for transportation and emissions from transportation reduce, it will remain one of the largest contributors to GHG emissions. So, what are some key areas within transportation and approaches that can move the needle?

Problems and Approaches

EVs: Tesla, Chargepoint, Lilac Solutions, CATL, Lime

A majority of transportation GHG emissions are from passenger travel. So, any innovations to boost the adoption of EVs can have a meaningful impact. Broadly, companies in the space include EV manufacturers, charging networks, battery manufacturers, and resource extraction companies.

Freight Efficiency: Convoy, Flock Freight

After passenger travel, freight is the next largest contributor to GHG emissions. Reducing the proportion of empty miles (estimated at 15-20% of all miles driven) by leveraging modern software route and load optimization tools strikes me as a low-hanging fruit we ought to address.

The conversation on transportation wouldn’t be complete without acknowledging the impact of ride-sharing and the potential mass adoption of autonomous vehicles. Ridesharing is likely to leave us worse off in the immediate term as people use ridesharing services as a replacement for more sustainable methods such as public transit. I’m hopeful, however, that in the long term we’ll continue to reduce dependency on personal vehicle ownership and increase vehicle utilization, particularly aided by the broader proliferation of autonomous vehicles.

Finally, government investments that drive behavioral change (such as investments and policies that encourage sustainable urban transit) and imposing greater discipline on the manufacturer side (through fuel efficiency standards, transparency requirements, etc.) will remain extremely important. So will the shift of the underlying energy production to cleaner sources as we discussed in Part I.

Industrial Production

Industries that produce the goods and materials that we use every day contribute 20%+ of the total GHG emissions. Particularly, combustion processes and materials used to produce steel, cement, and petrochemicals are the worst culprits. Steel and cement EACH account for 7%+ of all global carbon emissions. Emissions from heavy industries, given the structural factors outlined in this article are harder to make progress upon. Nonetheless, there are a few encouraging developments to highlight:

Problems and Approaches

Cement, Steel and Chemicals

Several interesting experiments to increase efficiency of various parts of the production process of heavy industries are underway. A recent announcement by LKAB (major Swedish mining company) that could significantly reduce the footprint of steel production is encouraging. Progress in this arena is reliant upon action from large mining and manufacturing companies that tend to be conservative. Given this backdrop, regulations will play a key role in driving investments in innovations that can help reduce emissions. Note that meaningful progress in improving the sustainability of industrial production will likely be a multi-decadal process. However, we need urgent action from the industry, regulatory, and investment communities to kick this process off.

Emissions Capture: See Part I

Agriculture

Agriculture is a major contributor to emissions. Cattle farming and meat production, in particular, leads to a large amount of potent GHG emissions. Similar to the demand for energy, demand for food and in particular, meat, is expected to rise as population and incomes rise. For instance, the per capita consumption of meat in the U.S. is 20x that of the per capita consumption of meat in India today and that gap will decrease as incomes rise.

However, we’re seeing greater pull from the demand side, with a rise in the number of people in rich countries increasingly adopting plant-based diets. While this decline is unlikely to stem the secular growth in global demand for meat, it has led to increased investment in alternative proteins. The supply-side, through the adoption of more sustainable practices, has a significant role to play in ensuring that we can sustainably feed the growing population of the planet. A few approaches that have caught my attention are:

Problems and Approaches

Alternative Protein: Beyond Meat, Impossible Foods, Memphis Meats, Finless Foods, All Things Bugs, Motif FoodWorks

Alternative proteins include plant-based substitutes, synthetically grown meat, and alternatives such as insect-based protein. Alternate proteins do require a change in public attitudes, but similar penetration in plant-based meat as seen in plant-based milk would still represent a major shift in consumption (and related emissions).

Crop Yield: Sym Soil, Grow Genics, Fasal, Indigo

Crop yields have gone up significantly in the last century, but disparity across countries remains high. Approaches that improve yield, education, and access have significant potential to drive crop yields and reduce the footprint of our agricultural production.

Food Waste and Supply Chain Optimization: Apeel, FoodCloud, Shelf Engine, Aero Farms, Agribazaar, Solar Freeze

Food waste accounts for 40% of all food production in the U.S. (including before and after reaching the consumer). Several companies (some of which are noted above) are addressing the problem at different stages in the supply chain and could make a significant dent in the food waste problem.

Additional Considerations

Given the availability of reliable data and my focus, a bulk of the data cited across both parts of this post have been focused on the U.S. However, the science, topics, and trends explored remain applicable on a global basis.

Since I wrote Part I, there has been a heightened (much needed) focus on addressing climate change in the zeitgeist. I’m hopeful that this increased attention in popular media is likely to attract higher caliber entrepreneurs and employees, customers, and funding to the arena.

Topics surrounding climate change have increasingly become an area of popular public discourse, and it’s important in our discourse not to get distracted by feel-good policies like banning straws. Yes, plastic pollution is a pressing issue, but banning plastic straws is addressing a marginal issue at best, and more likely to distract from more impactful and pressing issues (and create a false sense of contribution for individuals and enterprises). Similarly, personal lifestyle choices can have a meaningful impact, but I think they only form one leg of our response as individuals and as a society to addressing the GHG emissions issue.

Additionally, It’s important to be cognizant that climate change disproportionately impacts the world’s poorest who have contributed the least to current and cumulative emissions. Western countries were able to grow and industrialize with limited regard for emissions until the last few decades, so the ethical question remains, what level of restrictions on developing countries is reasonable? I don’t know what the answer is, but developed countries are and should continue to lead the charge in terms of R&D spending, innovation, and experimentation that can benefit the world at large.

Concluding Thoughts

In conclusion, climate change is a global issue with far-reaching and global impacts. Therefore, solving the issues noted requires a concerted global effort from multiple dimensions (to name a few, policy response, institutional and retail capital allocation, personal lifestyle changes & advocacy, entrepreneurship). I’m confident that entrepreneurship, in particular, can be a hugely important factor in addressing the issues around climate change. I hope the different problem areas discussed in both parts of this post have been informative in identifying areas ripe for innovation and entrepreneurship.

P.S I’m heartened to see an increased pace of business creation in the arena and increased funding for startups already underway.

P.P.S Don’t hesitate to let me know any gaps in my assumptions and analysis by reaching out to me directly.

Climate change has been particularly prominent in the public sphere recently. There are a plethora of ways in which anthropogenic activities contribute to emissions (and climate change). The public policy and private industry responses are similarly wide-ranging and disparate. This makes it challenging for an engaged citizen to identify & find activities that will help maximize their impact in combating emissions.

My intention for this post is to take a 30,000-foot view of the primary sources of emissions and explore different businesses/approaches towards tackling each of them. This is a top-down overview of a subject with a massive surface area, so the list below is far from exhaustive. I’m merely trying to highlight some interesting approaches. I hope it serves as a good starting point for determining if an initiative is addressing a major cause of emissions or an attempt at unsubstantiated virtue signaling.

P.S. I’m basing the order below off estimates of carbon-dioxide equivalent greenhouse gas emissions as seen below.

Energy Production

Energy production is by far the single largest contributor to GHG emissions. The primary end-use sectors are transportation, industries, residential, and commercial (we’ll discuss these in greater detail). So, what can we do?

As incomes and population continue to rise in the developing world, global demand for energy is expected to rise by 50% between 2018 and 2050. Plus, even in 2050, more than 2/3rd of our energy is expected to come from fossil fuels. The silver lining is the move towards cleaner natural gas and away from coal and the plateauing / decline of per capita energy usage in developed nations (thanks, LEDs?)

Given the secular factors (population and income growth) driving demand, the impetus is primarily on the supply side (whether through regulation or superior technology) to move the needle. What are some possibilities?

Problems and Approaches

Emissions Capture: Global Thermostat, Opus12, Climeworks
Several approaches that are generally expensive. But could be extremely impactful at capturing emissions at the source and potentially at reversal.

Oil Field Monitoring and Leak Detection: SeekOps, Satelytics, Sensia
Our efficacy at monitoring leaks will ultimately determine the emissions impact of the move to natural gas. Companies are leveraging novel data sources (drones, satellites, sensors, etc.) and ML / AI methods to address this.

Nuclear Energy: NuScale, Oklo, Terrestrial Energy
Modular nuclear fission reactors and nuclear fusion (as it becomes feasible) need to be a part of our energy toolkit. So, it’s encouraging to see startups attempting to address challenges with traditional nuclear reactors (meltdowns, waste, maintenance, etc.). Also, a few startups are experimenting with entirely new approaches.

PV Innovation: SwiftSolar, OxfordPV, Ciel & Terre
The cost-effectiveness of PVs has improved drastically over the last couple of decades. However, advances in the manufacture of PVs and addressing problems with storage and meeting peak demand are needed to drive the adoption of solar.

Note that approaches such as carbon offsets through tree planting provide marginal benefit (particularly in the short term). Though, this conversation with the founder of Pachama has made me re-question some of my assumptions.

An overview of interesting businesses in agriculture, transportation, industries and other misc. categories to follow in Part II.