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:
- Carbon neutral ways to produce industrial heat (e.g. renewable powered facilities, Rondo, Antora)
- 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
- Alternate building materials that reduce emission intensity and/or sequester carbon (e.g. CarbonCure, Blue Planet Systems, Biolith by Biomason, Cross Laminated Timber)
- 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.