commercial buildings in Ottawa

The race to Net Zero is making commercial real estate owners rethink their investment decisions

By Glenn Mooney,
Manager, Energy Services at Envari

This article was original published by Glenn Mooney on LinkedIn.

Commercial property owners and managers are being pushed and pulled in many directions. This isn’t anything new, it’s a part of their reality. Now comes along a new force using terms like climate change, climate resiliency, deep retrofitting, low-carbon, no-carbon, renewable energy, energy storage, and the list goes on.

We hear it from all levels of government. Our clients talk about it, and so do our employees and our owners. They use terms like net zero by 2050 or sooner, or 50% reduction of our carbon footprint. While we hear the talk and maybe even participate in the discussion, it is really hard to grasp what this is leading to. How will it affect me, my job, my community, my fantasy football pool – who knows what?

It’s time to pause and seriously consider climate targets.

This is not a new discussion, we’ve been talking about it since Y2K became old news. Actually, it’s been on the radar since even before that time. It was always framed as “someday we’ll have to move on this”. Well, as we get further into the years, let’s think about this. 2050 is less than 30 years away, and if math has taught us anything, 2040 is even closer. When we think about it in terms of 30, or even 20 years, it’s within sight. It may be beyond the retirement horizon for many of us, but in the life of a building, it’s not that far away.

Let’s think of it in terms of decisions that we make every day in our businesses. We do life cycle planning, and decide when and how we will replace aging pieces of equipment in our buildings. How about that air handler that’s starting to have more and more failures. The Operations guys are getting more and more nervous of a failure in the not so distant future. No problem; we’ll just replace it when it fails. Let’s just hope it’s not in February, or August. 

But let’s stop and think this through. If we replace it this year, or next, with the latest and greatest technology solution, we’ll be good for another 20, 25 or even 30 more years. Problem is; we’ve just kicked the can down the road, and guess what, we may have made it harder to meet that GHG reduction target that the owners keep threatening us with. There is a new phrase that is getting used almost as much as “pivoting during COVID”; it’s referred to as “locked-in”. In other words, that new piece of equipment that we purchase today is ‘locked-in” for another 20-30 years.

The pressure is on.

As we get closer to that not-so-distant net-zero deadline of 20.. something, we will be facing more pressure to have made the right decisions. There may come a day when that replacement decision comes back to haunt us and cause us stress.  Today’s argument is usually predicated on the best bang for the buck. Not that we don’t choose quality, but we often evaluate our purchase decisions based on the economics of the day. Well, these economics are set to  change rapidly as we move through the next 2 or 3 decades. 

Pressures will rise as the finish line gets closer, and the economics will change too. 

“We need to move forward sooner rather than later, or we may fall too far behind to be able to catch up.”

This is a hard thing to predict, and even harder when the numbers today don’t support the choices that we see down the road. But what if, for example, natural gas prices skyrocket with this new carbon tax thing they talk about? Could that really happen? What will happen to electricity prices over time – we don’t know for sure! When was the last time they went down? These new factors are making it harder and harder to predict costs going forward.

Maybe we need to look at the factors that we see coming that aren’t solved by simple payback or first cost. Will green leases, or tenant pressures, or social shaming play into our future? Let’s make it more personal; what if the owners make a decision to make us accountable for GHG reductions, and it becomes a measurable item on our annual performance review which affects our bonuses? This pressure may start to ramp up in the next few years as these future dates become not-so-future. Maybe we need to think this out a little better.

The road to net zero carbon.

Commercial real-estate in Ottawa

How do we make the best decision for the long term, and still fit within the current set of rules or practices? 

To be honest, anyone that claims to have all the answers, should be approached with great caution. This is a new frontier, and like COVID, we don’t have all of the answers, but we are starting to get a clearer picture of the outcomes. Without getting into the great climate debate, it’s pretty clear to see that this path is not going away. Today, many governments around the world have made bold claims and commitments about numbers, targets and dates.

So where does this leave us? There is no defined process for decision making. COVID has turned the economy upside down. It will take years to bail ourselves out of this, and they want us to spend how much on climate change? The advocates tell us that we have to do this. The shareholders still expect their dividends. Society is judging us on our actions for the planet. The business case doesn’t seem to make sense at all. 

Reality is that we should throw out all of the arguments that we can think of because the year 2050, 2040, or even 2030 is getting closer, faster than we think. It’s time to pay attention, get some advice, think outside of the box, educate ourselves, look a little further ahead than usual, make some bold decisions and listen to our clients, kids, competitors. There is no proven recipe for this. We may just have to accept it and move forward.  The message is, that we need to move forward sooner rather than later, or we may fall too far behind to be able to catch up.

So, let’s start the discussion. Maybe next time, we can start digging into what goes into making our buildings low carbon. It’s not all about electric boilers and no windows. The industry is getting a better picture of what positive change really looks like. There are some technologies out there like cold climate heat pumps for example, that have dramatically improved just in the past couple of years. As always, when we build momentum, technologies, strategies and smarts will keep up. 

As climate action heats up, these are definitely going to be interesting times.

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