Creating Resilience

Decarbonizing Commercial Real Estate

A guide to making your carbon-reduction strategy a reality

November 11, 2022 30 Minute Read

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Introduction

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Reducing environmental impact is a priority for companies across the world. Commercial real estate owners, occupiers and businesses will likely need to develop plans to decarbonize portfolios quickly, and at scale.

The pressure is on

The effects of climate change are becoming clear, and people are demanding that businesses play an active role in reducing their carbon footprint.

Consumers are now prioritizing environmentally conscious brands. Employees seem more likely to accept jobs from sustainably-aware employers. Many governments are making carbon-reduction commitments and regulators are stating their intent to introduce legislative changes. Investors are seeking evidence that companies are prioritizing decarbonization.

As part of the November 2021 Conference of Parties (COP26) in Glasgow, governments across the world agreed that 90% of global emissions should be reduced to zero. The Global Carbon Budget report released at COP27 revealed that carbon emissions are on track to rise nearly 1% in 2022, exposing the large gap between promised targets and actual, rising emissions. The quality of these targets varies—and more will need to be done to reduce emissions in line with the 1.5°C Paris Agreement.1 However, these commitments are now shaping policy.

40%


To meet globally agreed targets, nearly 40% of all buildings across the world will need to be decarbonized over the next 10 years.2

1 The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 parties at COP 21 in Paris, on December 12, 2015 and entered into force on November 4, 2016. Its goal is to limit global warming to well below 2, preferably to 1.5°C, compared to pre-industrial levels.

2 World Green Building Council: 2019 Global Status report for Buildings and Construction 2019 Global Status Report for Buildings and Construction | World Green Building Council (worldgbc.org) & UNEP-FI action framework on implementing the Paris climate agreement SustainableRealEstateInvestment.pdf (unepfi.org).

Achieving this will require clear strategies, targets and roadmaps.

What is decarbonization?

Decarbonization is the permanent removal of carbon emissions from an organization’s value chain by implementing sustainable, clean energy systems and a low-tolerance approach to residual emissions.

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The time is now

Over the coming decade, companies are preparing for significant changes. More than 450 firms have committed $130 trillion to achieving net zero, through the Glasgow Financial Alliance for Net Zero (GFANZ). These commitments include decarbonizing global assets over the next 30 years.

However, the issue’s scale cannot be underestimated. According to the Carbon Risk Real Estate Monitor (CRREM) and the Global Real Estate Sustainability Benchmark (GRESB), only 15% of global assets currently align with the Paris Agreement’s 1.5°C target. This means 37% of global buildings will need to be decarbonized by 2030, which presents a significant challenge for the real estate sector.1

1 Building Performance Standards aim to reduce carbon emissions across the U.S. CBRE Econometric Advisors | Viewpoint

Every company needs an actionable decarbonization strategy

Failure to drive decarbonization could soon become a business liability—and contribute to global socio-economic and environmental risk.

It's critical for every company to have a proactive decarbonization plan, made up of clear strategies and roadmaps that span operations, leasing and capital expenditure (Capex)—and that have performance targets. Having a plan is the only way to manage up-front costs and regulation.

54%


Of CBRE GWS’ enterprise clients have made net-zero commitments

11%


Have carbon neutrality goals

45%


Have strategies in place to meet their carbon-reduction goals

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What is the difference between net zero and carbon neutral?

Net zero is a strategy to reduce carbon emissions through efficiency, electrification and use of renewable energy. A company reaches net zero when the amount of greenhouse gas they produce is no more than the amount they remove. To achieve net zero, a company must decarbonize its entire value chain as outlined by the Science Based Targets Initiative’s Net Zero Standard.

Carbon neutrality is where a company commits to not increasing its carbon emissions—and offsets the carbon it already emits. This strategy does not address a company's value chain. Instead, it compensates for the carbon it produces by purchasing credits outside of the organization.

Of CBRE Global Workplace Services’ 150 enterprise clients, fewer than half have published strategies in place to meet their carbon-reduction goals. This isn't surprising. Creating a real estate decarbonization strategy that includes management, finance, operations and decision-making can feel overwhelming.

Yet delaying action can lead to significant business risk. And of course, the threat to global economies, societies and the environment looms.

That’s why we’ve created this guide: to give you a robust framework to plan your decarbonization strategy.

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Source: EPA Greenhouse Gas Emissions.

Phase 1: Establish your decarbonization strategy

To start, you must understand how much carbon you're emitting—and from where. Only when you have this information can you set goals, identify opportunities and develop a strategy. Start planning with these steps:

  1. Build a Team
  2. Understand your carbon footprint and associated risks
  3. Set targets
  4. Develop strategy and tactics
  5. Publish targets and strategy
  6. Report and monitor
  7. Provide internal incentives

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01

Build a team and engage stakeholders

Decarbonization affects every area of the business—so bringing stakeholders together is a must. Climate affects every job, and siloed approaches won’t work. All stakeholders in corporate real estate and the C-suite should be engaged and aligned in an approach that's both top-down and bottom-up.

02

Understand your carbon footprint and associated risks

Identify the type and source of data needed to establish a baseline inventory for greenhouse gas (GHG) emissions.

  • Review your carbon emissions data and boundaries for GHG emissions: Are there any gaps?
  • Carry out decarbonization audits at your sites and evaluate space utilization within the portfolio. Data from these audits and assessments will provide meaningful insights into how you prioritize decarbonization decisions, site by site. It will also help you to verify data you collate from across the business.
  • Make sure your technology architecture is robust enough to produce financial-grade, auditable data. This will be vital for compliance, reporting and keeping your organization on track. Ideally, you will be able to produce data visualizations to help stakeholders understand the progress you're making towards your goals.
  • Carry out risk vs. return analysis. Start in the early stages of planning and continue on a regular basis. Carbon removal must be seen as equal to all other financial-model risk factors. So think about the financial, operational and reputational risks of not achieving your decarbonization targets. Then decide the financial investment needed to mitigate them.
  • Review your portfolio strategy and its alignment with climate goals. Are you in the right markets? Do you occupy the right square footage?

What are Scopes 1, 2 and 3?

Greenhouse gas emissions scopes organize and measure carbon emissions according to how they are created.

Scope 1
Carbon is emitted directly from a company's building systems and vehicle fleets

Scope 2
Carbon emitted indirectly through electricity or fuel consumption for heating and/or cooling buildings

Scope 3
This is the largest category, with 15 sub-categories. Carbon is emitted indirectly via the value chain, through the products and carbon produced by their suppliers.

Read more about Scope 1, 2 and 3 emissions

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03

Set targets

You can't change what you don't track. So set objectives that are aligned to your company's ambitions, as well as external, standard frameworks. We recommend aligning or certifying your targets to The Science Based Targets initiative (SBTi). Then use your goals to inform activities—and measure what you achieve.

Absolute and intensity targets are both ways to measure a company's progress towards reducing GHG emissions. An absolute target is one that aims to reduce GHG emissions by a set amount in relation to the total being emitted. For example, to reduce emissions by 45% by 2030.

An intensity target is a normalized metric that sets an emissions target relative to an economic or operational variable. For example, revenue or number of employees. This allows for a business to set emissions reduction targets while taking into consideration economic growth.

While an absolute reduction is the ultimate end goal, businesses should also consider intensity targets as they balance energy demands associated with growth and cutting overall emissions.

04

Develop strategy and tactics

With a clear understanding of your GHG inventory and high impact opportunity areas, you can begin your decarbonization roadmap. Our approach is based on the carbon-management hierarchy, often described as “reduce what you can, offset what you can’t." The following tactics should be implemented across your operations and value chain to achieve deep emissions reductions:

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Deploy tactics across own operation and whole supply chain

05

Publish your targets and strategy

Companies can participate in sustainability regimes by voluntarily disclosing their targets. Each regime gives corporations an opportunity to set out their sustainability ambitions. The table below gives examples of disclosure regimes our clients use—often reporting in more than one.

Disclosure Regime Description Region-specific? Industry segment Real estate occupier? Investor?
CDP Global CDP is a not-for-profit that runs a global environmental disclosure system. It supports thousands of companies, cities, states and regions to measure and manage risks and opportunities on climate change, water security and deforestation.

According to a 2020 report, investors and large purchasers with more than $110 trillion in assets and spending power asked companies to use CDP to disclose their environmental data.
Global All Both
Task Force on Climate-Related Financial Disclosures (TCFD) The Financial Stability Board (FSB) created the TCFD. It did so to develop recommendations on the types of information companies should disclose to support investors, lenders, and insurance underwriters in assessing risks related to climate change.

The TCFD framework allows investors to understand the financial impacts of climate on organizations - and how it influences their business decision-making. TCFD draws from the Global Reporting Initiative (GRI) described below.
Global All Both
Global Reporting Initiative (GRI) GRI is an independent, international body that helps businesses and organizations to use a common language for sustainability reporting.

GRI standards are developed by the Global Sustainability Standards Board (GSSB).

The organization provides specific, measurable goal setting and accountability for organizations. Reporting is voluntary.
Global All Both
Science Based Targets initiative (SBTi) The SBTi is a partnership between the CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF).

Targets are considered science-based if they align with what climate science has established is necessary to meet the goals of the Paris Agreement.

Science-based targets provide a clear pathway for companies and financial institutions to reduce GHG emissions. This helps to prevent the worst impacts of climate change and future-proof business growth.

The STBi sets robust standards for reducing emissions and reaching net-zero targets, with a direct focus on transitioning to zero carbon and tackling climate change. Reporting decarbonization efforts using this disclosure regime can boost investor confidence.
Global All Both
Global Real Estate Sustainability Benchmark (GRESB) GRESB provides validated ESG performance data and peer benchmarks of real assets for investors, occupiers and managers. This improves business intelligence, industry engagement and decision-making. It also allows organizations to compare their ESG performance score against peers within sectors and geographic regions. It provides transparency and consistency for related ESG reporting. Global All Both
European Public Real Estate Association (EPRA) One of the most widely used and recognized indices of listed real estate is the FTSE EPRA Nareit Global Real Estate Index. It comprises almost 500 real estate companies, with a combined value of €1.4 trillion.

EPRA’s mission is to represent, promote, and develop the European listed real estate sector through activities and services for the wider real estate investment community.
Europe All Both
Task Force on Nature-Related Financial Disclosures (TNFD) TFND develops and delivers a risk management and disclosure framework for organizations to report and act on evolving nature-related risks. Global All Occupiers
Net Zero Banking Alliance The Net Zero Banking Alliance is a U.N.-convened group of global banks that represent about 40% of global banking assets. They reinforce, accelerate and support the implementation of decarbonization strategies by providing a framework and guidelines to operate within. This is supported by peer-learning.

The organization provides a platform for financial institutions to publicly commit to net zero ambitions.
Global Financial Services Occupiers
Sustainable Business & Enterprise Roundtable (SBER) The SBER is a strategic advisory and support service for ESG programs. It helps management teams set goals, drive progress and report results as they lead their organizations to more sustainable high performance globally. Global All Both
06

Report and monitor

Companies are already required to comply with local, regional and national legislation such as New York City’s LL97, Boston’s BERDO, Singapore’s CPA and the EU’s EED. These are all current examples of laws that require companies to demonstrate compliance. In our view, environmental compliance is likely to become increasingly demanding and complex.

07

Provide internal incentives

Outline KPIs and be clear about monitoring responsibilities so that internal stakeholders can drive results toward your goals. Set internal milestones, and make sure all processes are transparent.

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Learn More about:

From a net zero roadmap to a green leasing strategy, create an approach that reflects your organizations' environmental sustainability ambitions.

Phase 2: Continuously improve energy efficiency

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Once you have your strategy in place, the next step is to permanently remove carbon from your portfolio’s assets. But where to start?

Energy efficiency is one of the most important short-term steps. The more energy use is reduced, the less burden on other decarbonization tactics. Energy efficiency creates a practical and immediate reduction in emissions, making it the low-hanging fruit to pick.

Continue to strategically invest in new ways to improve energy efficiency. It goes without saying, the cheapest and greenest energy is the energy we don’t use.

Useful steps to follow:

  1. Collect comprehensive data
  2. Prioritize activities
  3. Allocate capital to scale your efficiency projects

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What is the difference between carbon-reduction, carbon offsetting and carbon sequestration?

Carbon-reduction: reducing the amount of carbon a company produces in its value chain.

Carbon offsetting: when a company continues to produce carbon in its value chain, but compensates for it through buying carbon offsets that fund projects like reforestation.

Carbon sequestration: when emitted carbon is removed from the atmosphere and held in solid or liquid form.

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01

Collect comprehensive data

Without accurate asset data, understanding and reducing energy consumption and carbon emissions is very difficult. Data can be pulled from your company’s facilities management work order system (CMMS) or smart sensors, where applicable. You need such information as the useful life of your assets, their condition and where your portfolio emits the majority of its carbon.

Here is what this kind of data looks like on our own dashboards:

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Source: Asset data collected across 131 CBRE enterprise account portfolios.

02

Prioritize activities

With accurate data, you can assess and prioritize which assets will need to be replaced, upgraded or retrofitted to achieve carbon-emission reductions. Knowing the age and criticality of your assets allows you to identify which assets need to be replaced immediately, as well as those that are approaching end of life. Then you can plan to replace these assets with energy-efficient systems.

03

Allocate capital to scale your efficiency projects

Urgency is key with decarbonization. But what if you don’t have the up-front capital to rapidly scale efficiency projects? The answer may be to work with a partner who can fund your projects up front and can be repaid with the savings generated.

These are examples of how CBRE and Redaptive partnered to fund accelerated decarbonization projects across three client journeys:

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Digital services company
  • Replaced 139K lighting fixtures with LEDs across five countries and 174 locations
  • Achieved 410M kWh reduction over 10 years
  • Avoided 290K mT of C02 emissions. This is equivalent to the emissions generated by 33K homes in a year, or the carbon that 4.8M trees could offset
  • $55M in gross energy savings over the 10-year term
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Reducing the environmental impact of their electricity use
  • Replaced 5.4K high-risk HVAC assets across 1.3K locations and 26M sq. ft.
  • Reduced C02 emissions by 259 tons
  • Removed the harmful GHG R22
  • Achieved gross savings of $8M over 10 years
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Technology company
  • Retrofit and replacement program for portfolio system chillers
  • Avoided 2.7K mT of carbon dioxide annually
  • Gained $1.15M in utility incentives
  • Two-year simple payback

mT = Metric ton
kWh = Kilowatt hour
mWh = Megawatt hour

Learn More about:

Understand, prioritize, monitor and report on your sustainability data through advanced analytics.

Meet your immediate and long-term green energy and EV charging objectives, guided by our expertise across markets and industries.

Phase 3: Electrify real estate and transportation

The future of buildings and transportation is electric.

In buildings, electrification has the potential to reduce emissions, improve an asset’s bottom line and attract quality tenants. The electrification of fleet vehicles also offers many benefits including lower maintenance costs, improved fleet efficiency and reduced fuel costs.

Useful steps to follow:

  1. Implement building electrification technologies
  2. Electrify fleet vehicles
  3. Deploy EV charging infrastructure

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What is the business case for building electrification?

Financial: All-electric buildings unlock significant cost saving opportunities. When combined with renewable energy generation, companies can protect themselves against natural gas market volatility and equipment replacements leading to lower operating costs over the long-term.

Environmental: Achieving net zero goals is not possible until buildings are entirely powered by renewable energy. With this in mind, electrification of assets must become a priority if owners and occupiers are to achieve their commitments.

Regulation: Governments both local and national are increasingly passing legislation to incentivize building electrification and restricting the use of fossil fuels. Getting ahead of these changes provides organization with an opportunity to build a sustainable competitive advantage.

Have aggressive decarbonization goals? Electrification is a must.

Companies making aggressive net zero pledges for 2040 or earlier will likely need to purchase offsets in order to meet those goals. However, if their targets are aligned or certified with Science Based Target’s Net Zero Standard, offsetting combustible fuels is not compliant. Therefore, time is of the essence for electrification.

01

Implement building electrification technologies

Buildings account for 40% of global carbon emissions. Seventy-five percent of these emissions can be attributed to heating, cooling and lighting.1 Buildings of the future need to find ways to cut down on their energy consumption. Fortunately, advances in technology means electricity can be used much more efficiently.

Due to the efficiency of electric technologies compared to fossil fuel-based alternatives, building electrification can significantly reduce energy demand and CO2 emissions. Here are two interconnected technologies you can implement across your portfolio for maximum impact:

Heating and cooling systems

Heat pumps are a key technology utilized by building owners seeking Net-Zero Energy Certifications.

This cycle is also reversible meaning they can transfer warm indoor air to outside.

Installing a heat pump system may provide significant savings through reducing fuel bills as they are three to five times more efficient than electric resistant systems.

Smart building platforms (IoT)

Smart systems have a critical roll to play in helping buildings to achieve greater efficiencies. With accurate responsive energy management software, you can:

  • Pull exact amounts from the grid and no more
  • Monitor consumption to switch on and off loads to limit usage and lower emissions

Armed with this data, owners and operators can proactively pinpoint opportunities to reduce energy usage, create safer and more productive working environments and lower costs.

1 How smart buildings will pave the way to a decarbonized building sector – Smart Buildings Magazine

02

Electrify fleet vehicles

What you should know about how EVs reduce emissions and help you achieve your climate/net-zero commitments:

Lower Total Cost of Ownership: EVs have fewer moving parts and cost considerably less to maintain.

Provide a Green Solution to Your Clients: Customers increasingly demand sustainable products and services from their vendors. An electric fleet contributes materially to this, in a highly visible manner.

Safety: EVs are generally considered safer than ICE vehicles due to additional testing requirements, lower center of gravity preventing rollover and lack of engine components allowing for additional crumple zone space in the event of a collision.

03

Deploy EV charging infrastructure

Workplaces & Multi-family Real Estate

In addition to reducing emissions and achieving climate goals/net-zero commitments, there are key benefits for implementing EV charging infrastructure at corporate offices and multi-family locations:

Attract & Retain: employees and tenants increasingly switch to EVs, and expect to be able to charge their vehicles at home and at the workplace. Offering EV charging (for free or at a fee) is an opportunity to differentiate your property from others, and will become the norm in the near future.

Comply with Building Codes: even if today installing EV charging is not required, it is highly likely that this will be the case in the future. Get ahead of the curve, and benefit from available incentives.

Provide Charging for Your Community: outside of office hours, you can elect to open up your EV charging stations to the general public, providing a valuable service and earning additional revenue.

Retail: Destination & Fast-charging

At retail locations ranging from shopping malls to restaurants to service providers, EV charging stations deliver multiple benefits:

Increase Traffic & Dwell Time: customers prefer retail outlets with EV charging, to charge up while they’re at your establishment. Studies have shown increased dwell times, which typically translates into higher revenues. Even if offering EV charging for free, the return on investment can be very significant.

Incremental Revenue From On-the-Go Fast Charging: installing DC fast chargers at your retail property can generate revenue in two ways: 1) fast charging networks lease unused parking spaces from you; 2) EV drivers take advantage of their charging stop to visit your retail establishment.

Strong Branding Opportunity: consumers increasingly prefer brands with sustainability values. EV charging provides a highly visible way to communicate your brand values to consumers.

Where to start?

Find a partner who can assist you throughout the entire electrification journey, including:

  • Assess EV charging requirements (quantity and type) and available power at each location
  • Engage with landlords to secure charging sites and/or negotiate lease adjustments to accommodate EV charging
  • Identify and secure available incentives at Federal, State, Municipal and Utility level
  • Engage with utilities to secure additional power, and/or deploy on-site solar and battery storage as required
  • Design, engineering, procurement and construction of EV charging infrastructure
  • Manage charging infrastructure to minimize electricity cost, through smart charging, load management
  • Maintain charging infrastructure to ensure maximum uptime
  • If required, provide financing solutions, to avoid an upfront capital outlay

Image of electric vehicles

Learn More about:

Meet your immediate and long-term green energy and EV charging objectives, guided by our expertise across markets and industries.

Phase 4: Transition to renewable energy and carbon-free fuels

Electrification and renewable energy integration are intrinsically linked as dependent decarbonization strategies. To achieve deep GHG emission reductions, continued integration of renewable energy and carbon-free fuels into the electric power grid is required.

Useful steps to follow:

  1. Which type of renewable energy will meet goals?
  2. Renewable energy markets
  3. Alternative fuel options
  4. Further renewable energy considerations

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01

Which type of renewable energy will meet your goals?

A good rule of thumb in energy transition is that carbon-reduction is more achievable when renewable energy is generated close to where it will be consumed.

The following types of clean energy can be generated close to where they are used, unlike types such as hydropower and nuclear.

  Up-front investment Impact on reducing carbon emissions Realistic for a commercial property?
Solar
Harnesses the energy produced by the sun, even in cloudy weather
$$ High Yes
Solar thermal
The energy harnessed from the sun is converted to heat instead of electricity
$$$ Medium Yes
Wind
Large turbines harness the kinetic energy of the wind and convert it to electricity
$$$$ Medium No, Rarely applicable for an individual site
Geothermal
Extracts heat from the Earth's interior using technology including wells and heat pump technology
$$$ Medium No, Only ground source heat pumps
Biofuels
Organic materials including wood, charcoal, algae and manures produce heat and power. They create GHG emissions, but at lower levels than fossil fuels.
$$$$ High Yes

Currently, one type of renewable energy is practical and commercially viable for real estate owners and occupiers: on-site solar photovoltaics (PV). Energy from the sun is the single most abundant of all energy resources that can be harnessed; it's captured during the day when emissions from the grid are at their highest. Solar PVs are now more affordable, as the cost has decreased dramatically in the last decade. According to the International Renewable Energy Agency (IRENA) the cost of Solar PV module prices have fallen by 90% since the end of 2009.1

1 Power Generation Costs– International Renewable Energy Agency

02

Renewable energy markets

What are renewable energy markets? How do they work? And what is the best way to procure from them? There are two options:

Physical Power Purchase Agreements (PPAs)

If you don't want to invest in generating your own renewable energy, you can buy it from a specialist company using PPAs. Under these agreements, the energy vendor sets up and maintains the renewable energy technology—for example, a wind farm or solar energy array—and the energy purchaser agrees to buy the power on a per kWh basis. These agreements typically run for 10-20 years and can include an "escalator" that increases the unit price of electricity over time.

If you enter into a PPA to reduce carbon, you must retain the Renewable Energy Certificate (REC) to verify the amount. An REC is a tradable certificate that acts as proof that one MWh of electricity has been produced from a recognized renewable energy source. When you negotiate a PPA, you should also decide if you want to include escalators.

Virtual Power Purchase Agreements (vPPAs)

A vPPA is a form of hedging with an agreed baseline price per kWh. The renewable energy provider sells power into the local wholesale market. If they sell it for more than the baseline price, they pay you the difference. If they sell it for below the baseline price, you pay them the difference. This means that it's vitally important that you understand your downside risk—and that you work with finance colleagues to align your company’s accounting.

Support from a specialist consultant can help you to understand your risk profile and demand capacity. They can also identify credible projects—for example, those close to load centers.

Getting started with PPAs and vPPAs

A good first step is to talk to an intermediary, rather than engaging directly with a project developer. This allows you to enter into negotiations with a clear understanding of your risk profile and demand. An intermediary should also be able to recommend developers, based on your profile.

03

Alternative fuel options

Renewable natural gases (RNGs) and biofuels are captured from decomposing organic materials. RNGs are processed and cleaned in agricultural, landfill, food waste, wastewater treatment and anaerobic digestion (AD) facilities before they're injected into the natural gas pipeline.

  • Left alone, these organic materials can produce methane, which has a global warming potential 25 times greater than carbon dioxide. Methane also has a relatively short atmospheric life, which means its impact is felt most locally.
  • Using RNGs prevents methane’s release into the atmosphere, thus achieving short-term reductions in GHGs. They are also useful to companies that need to offset methane emissions.
  • RNGs can be used for electricity generation, heating and cooking, bioplastics and vehicle fuel. Another bonus: they're distributed using existing infrastructure, such as pipelines and heavy-duty vehicles.
04

Further renewable energy considerations

As you begin your transition to clean energy, you are likely to see these terms:

Energy Attribute Certificate (EAC)

This certificate shows that electricity has been generated from renewable sources. Having EACs allows companies to credibly report that they’re either:

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Using renewables
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Reducing the environmental impact of their electricity use
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Reducing lower Scope 2 emissions

EACs are available as:

  • Renewable Energy Certificates (RECs) in North America
  • Guarantees of Origin (GOs) in Europe
  • International RECs (I-RECs) across the rest of the world

However, it's important to remember that if you're aligning and certifying your targets with SBTi, EACs are not allowed for offsetting combustible fuel emissions. This is why electrification should remain a key component of your decarbonization strategy.

Green energy tariffs

Utility companies offer these programs in regulated electricity markets. The tariffs allow large commercial and industrial customers to buy bundled renewable electricity from specific projects, at a special rate.

Some programs allow companies to choose a market-based rate. In others, the company engages directly with the renewable generation project. Alternatively, the utility company can facilitate the purchase of green electricity through a power purchase agreement.

Learn More about:

Transition to clean energy sources to meet your decarbonization targets.

Phase 5: Decarbonizing your supply chain

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To decarbonize, it is important to plan to reduce and offset emissions in your supply chain.

However, supply chains are complex systems including suppliers, manufacturers and distributors, each contributing differently to GHG emissions.

To reduce carbon emissions in your supply chains, you need to understand how each moving part within it contributes to climate impact.

Useful steps to follow:

  1. Remember – supply chain emissions are Scope 3 emissions
  2. Measure the carbon in your supply chain
  3. Source sustainably
  4. Build alliances

How does an organization’s value chain differ from its carbon footprint boundary?

A value chain includes all the processes and activities a company needs to deliver their product or service.

A carbon footprint boundary describes where an organization’s responsibility for carbon emissions starts and stops. To calculate its carbon footprint, an organization has to understand how each activity and process along its value chain creates emissions—and what percentage of these emissions it has the power to influence.

Find out more about carbon footprint boundaries in the value chain.

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01

Remember – supply chain emissions are Scope 3 emissions

Usually the largest category for companies, Scope 3 emissions are produced throughout their value chain and can include emissions produced making their suppliers’ products or created when customers use their products and services.

Some ways to reduce Scope 3 emissions include:

Graph-icon
Reduce the amount of goods and services you buy
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Buy fewer carbon-packed products
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Buy from companies that have decarbonized
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Make products that make less carbon
02

Measure the carbon emissions in your supply chain

Measuring emissions in upstream supply chains is a complex data challenge that many companies are only beginning to tackle. Companies may use one or a combination of these methods below to measure emissions in their supply chains depending on their emissions accounting maturity:

Proportional spend

Organizations calculate their approximate emissions, based on their location and categories with an emissions factor data set. Companies using these tools are essentially best-guessing their Scope 3 emissions.

Custom carbon factors

Companies calculate the carbon emissions for every individual product purchased or service used. This method produces more accurate Scope 3 calculations.

03

Source sustainably

To source sustainably, companies can use a supplier sustainability assessment rating service like EcoVadis. Services like these can rate, benchmark and score across the supply chain so that you can purchase from sustainable companies. Setting these standards for your business will incentivize procurement to set criteria and give preference to companies adopting sustainable business practices.

04

Build alliances

Strengthen your supply chain by forming alliances with companies who are also decarbonizing, which creates a lower emitting ecosystem and more transparent suppliers.

Phase 6: Offsetting your carbon balance

After fully implementing other tactics, the last step is to explore credible, high quality carbon offset opportunities.

Key considerations:

  1. Understanding carbon offsets
  2. How to use carbon offsets
  3. Example of offsets at work
  4. Risks associated with offsetting

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01

Understanding carbon offsets

Carbon offsets are investments in projects that either take carbon out of the air or prevent new carbon emissions. Examples of offset projects include forestation, where trees take carbon out of the air, and sequestration, where technology removes carbon from the air.

02

How to use carbon offsets

You have a net-zero target to meet, and you've identified and attempted to reduce every possible source of carbon emissions. So how do you decarbonize? Enter carbon offsets. They allow you to invest in ways to remove from the environment the carbon you can't help emitting.

Ways to incorporate carbon offsets into your decarbonization approach:

  • As part of a defined strategy with a set scope and percentage of emissions you will offset
  • With a short, medium and long-term plan for purchasing offsets
  • With ongoing monitoring and reporting on the performance of any offsets you purchase
03

Example of offsets at work

This is a straightforward example of how offsets work:

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Company X takes all necessary steps to permanently remove carbon emissions from their operations and portfolio, including:

  • Fuel switching and electrification
  • Producing their own renewable energy

But they still haven't quite reached their emission reduction targets.

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Company X closes the gap by purchasing offsets equal to the shortfall in their carbon reduction efforts.
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This investment provides funding for certified projects that conserve and restore forests, generate clean and renewable energy, or increase energy efficiency.
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These projects reduce carbon dioxide and other GHGs by removing existing gases from the atmosphere or preventing new emissions.
04

Risks associated with offsetting

Purchasing offsets is not necessarily straightforward, and you need to do your research.

Key considerations:

  • Durability
    How long will the projects capture and hold carbon for? Be sure that the project has longevity.
  • Transparency
    Many organizations offering carbon offset projects lack transparency. If you cannot access key information about the project, it will be impossible to decide if it aligns with your goals. For this reason, look for certified schemes.
  • Accountability
    Many carbon offset providers fail to provide enough information about the environmental impacts of their projects. So unless you want to guesstimate environmental impact, look for a provider that shares complete information.
  • Cost of offsetting is likely to rise
    As demand for offsetting increases, costs are likely to increase as lower cost projects are used up.
05

Who issues carbon offsets?

Numerous carbon offset providers are available. However, the industry lacks governance and transparency. An intermediary can help you navigate the sector and purchase credible carbon offsets.

Remember, purchasing carbon offsets should be a final action after all other tactics—efficiency, fuel switching, electrification and renewable energy technologies—have been exhausted.

When you're looking to offset, we recommend pursuing:

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