Responsible for 40% of global greenhouse gas emissions, the built environment’s emissions stem from manufacturing materials and building operations. Sebastian Peck, Managing Partner at KOMPAS VC, addresses decarbonising the industry with an emphasises on technology’s role, retrofitting existing buildings and urban planning’s impact. They also highlight challenges like investment and policy framework, along with startups driving change.
Reshaping our future — embracing technology to help decarbonise the built environment
The built environment is responsible for approximately 40% of the world’s greenhouse gas emissions. In this, 11% is a result of manufacturing building materials and products such as steel, cement and glass. The remainder stems from the heating and cooling of buildings (so-called operational carbon). To fully decarbonise the built environment, we need to change how we build and reconsider the materials we use, and buildings need to become much more efficient in the way they consume energy and provide comfort for their occupants.
Over the past few years, technological solutions have emerged that can dramatically reduce emissions for both new and existing buildings – from cheap sensors and data analytics to advances in material sciences. At the same time, renewable energy generation capacity is increasing steadily – in 2022, renewables generated 22% of the EU’s electricity, overtaking gas for the first time.
Urban planners are also starting to think much more systematically about how to cool down cities, create more green spaces and improve the resilience of buildings and infrastructure to deal more efficiently with extreme weather events.
Retrofitting for tomorrow: Transforming existing homes
Construction adds approximately 1% to the existing stock of buildings every year. This means that retrofitting existing buildings is by far the biggest opportunity to decarbonise the built environment. Approximately 15% of the UK’s CO2 emissions are generated by heating residential homes. It is therefore unsurprising that the value of retrofitting is beginning to receive far greater attention.
The technologies to dramatically reduce emissions do exist today. For example, better insulation and double-glazed windows result in significant performance improvements, while heat pumps and the installation of solar panels make house owners less reliant on oil and gas when heating their homes and consuming electricity. Increasingly sophisticated home energy solutions that make use of electric vehicles to store and draw energy through bi-directional charging technology can also counteract the intermittency of renewables and thus help to make more efficient use of energy. The 75-kWh battery of a Tesla 3 can for example power an average UK household for a week.
From a technological perspective, it is perfectly feasible to significantly reduce the reliance on the national grid. That is particularly true in favourable geographies where the sun frequently shines. Full energy independence can be achieved through virtual power stations that connect the solar panels and storage capacity of multiple homes. The cost of solar panels has dramatically reduced over the past decade, and manufacturers are significantly increasing the production of heat pumps which will lead to similar cost reductions with increasing economies of scale.
The challenge to accelerate the decarbonisation of the built environment is therefore not a technical one. Instead, the challenge is the scale of investment required by house owners and institutional real estate managers to upgrade the existing housing stock with these modern technologies to improve the environmental performance of their properties, as well as a tight labour market.
For institutional investors, but also for private households, upgrading an existing property needs to be tied to return on investment considerations. Insulating a home, fitting new windows, replacing the gas boiler with a heat pump and installing solar panels on the roof, a smart metre and a wall box with bi-directional charging capabilities come at a very significant cost. The amortisation of these investments through reduced energy costs can look challenging without subsidies and without a policy framework that fully takes the costs of externalities into account (e.g. by putting a price on every ton of CO2 emitted by property owners). Policymakers also need to address the problem that building owners often don’t have an incentive to improve the energy performance of a building because it is the tenant who foots the energy bill, not the building owner. This is particularly true in real estate markets which are characterised by chronic housing shortages and where tenants do not have the luxury to make sustainable choices because suitable homes are either unaffordable or unavailable.
Policymakers face a formidable challenge to balance the need to accelerate the decarbonisation of the built environment while mitigating the social impact of the required investment. Studies estimate that the decarbonisation of the UK housing stock could exceed £2 trillion, which corresponds to two-thirds of the UK’s annual gross domestic product. While governments can introduce subsidies, the bulk of investments will have to come from private companies and households. This will ultimately only happen at scale if there is a clear investment case, and enough resources are made available to ensure no one is left behind.
These challenges notwithstanding, there are a lot of interesting startups that tackle different aspects of the green transition with increasing success. Companies like Enpal and 1Komma5 work to increase installer capacity and offer new consumer finance solutions to help spread the cost of retrofitting renewable energy solutions. Ecoworks, a Berlin-based company, is developing an industrial approach to retrofitting houses to improve their energy performance that is more cost-efficient and does not require a building to be completely dismantled to insulate it. Entrepreneurial energy has surged in this market, and it is encouraging to see that according to Pitchbook, venture capital investment into technologies to decarbonise the built environment has nearly doubled, reaching $1.8bn in the first half of 2023.
Green space — nature-rich urban landscapes
In addition to retrofitting, city planners can also do a lot to ensure cities become more resilient to the impact of climate change. The heatwaves, wildfires and floods that dominated the headlines this summer demonstrate that complacency is not really an option. And we are all familiar with the effect of heat islands in cities – public spaces that have been paved over with concrete and offer little shading on hot summer days. Transforming such urban spaces into landscapes with lakes, rivers and wetlands have the potential to reduce ambient temperatures on average by 1-2°C.
In densely populated cities like London where this might not be achievable, alternative technologies can offer a solution. Vertical Field is one example of a company that can help compensate for urban environments that lack sufficient natural cooling or shading options. It manufactures and instals sensor-controlled smart planters to purify the air from carbon dioxide. When mounted onto buildings they help insulate them from the sun and keep them cool. Another example is Lumiweave which has developed an innovative fabric that provides shade during the day and harvests the sun’s energy to illuminate itself and its surroundings at night.
Taking a more sustainable approach to urban planning requires commitment from city planners and politicians. Technologies to reduce urban surface temperatures exist, but their implementation requires dedicated and imaginative city officials who can navigate complex political landscapes.
The road to sustainable cities
We are not lacking in innovative technological solutions to decarbonise the built environment and create more sustainable, resilient, and liveable cities. Retrofitting remains the most powerful lever to decarbonise the built environment. But to ensure private companies and households invest, a concerted effort from policymakers is necessary to ensure there is a clear return on investment. It becomes therefore more of a matter of political will and the ability to mobilise the necessary resources to mitigate the social impact of the necessary investments. This is a formidable challenge that requires leadership to build the societal consensus to see through this change. It will also require technical competence to develop strong policy frameworks that encourage investment and pay economic dividends in terms of technological innovation and jobs.
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