Carbon Cost Management: Balancing Carbon and Cost

14th November 2022

Are you ready for carbon accounting?

Between Glasgow’s COP26 in 2021 and Sharm El-Sheikh’s COP27 in November 2022, the demand for good governance and rigour in reporting around climate-related issues has escalated. This isn’t just about governments and legislation; investors need robust information in order to be able to price future risks and opportunities.

Environmental and Social Governance (ESG) is high on the agenda for every board, driven by shareholder and consumer awareness. That extends to the buildings they own and occupy, the assets they invest in and the projects they work on. A UK requirement for all listed companies to produce net zero transition plans by 2023 is likely to be replicated in other countries.

The world’s financers are also committing to net zero goals. The Glasgow Financial Alliance for Net Zero (GFANZ), launched in the run-up to COP26 and collectively responsible for over $130 trillion of assets around the world, has committed to aligning their portfolios with net zero goals. The 450-plus members of GFANZ will be targeting carbon-intense sectors including commercial and residential real estate, transport, oil and gas and power generation.

For COP27, hosts Egypt wanted to focus on adaptation and finance, how organisations are measuring and acting on climate-related risks and opportunities. In the UK, reporting on this became mandatory in April 2022, with over 1,300 of its largest registered companies and financial institutions obliged to disclose climate-related financial information, in line with recommendations from the G20’s Task Force on Climate Related Disclosure (TCFD) [1].

While strides have been made in reducing operational carbon emissions from the built environment, the same cannot be said for embodied carbon, which is a tougher nut to crack. However, net zero targets will require that embodied carbon – the carbon spent on producing, transporting, installing, maintaining and demolishing elements of a building or piece of infrastructure – is reduced.

The last five years have seen proactive clients start to introduce contractual requirements for carbon accounting at tender stage. Some major contractors are taking action independently too – because they understand it gives them competitive advantage.

The challenge for any project with a carbon reduction goal is how to balance the carbon and capital budgets. At what point does investing in carbon-lowering technologies or designs threaten the viability of a project?

There are also issues around creative carbon accounting and ‘net zero’ or ‘carbon neutral’ labels. With a growing emphasis on science-based targets and rigour, it is vital that estimated carbon emissions will stand up to scrutiny.

Why embodied carbon matters

Embodied carbon is the total greenhouse gases associated with materials, including emissions due to materials extraction, product manufacture, transport to site, construction processes, maintenance in use, repair and refurbishment and end-of-life processes[2].

According to the World Green Building Council[3], the built environment accounts for 39% of global energy-related carbon emissions, with 28% coming from operational carbon and 11% from embodied carbon. As electricity supplies are further decarbonised and the energy efficiency of buildings increases, embodied carbon becomes a bigger slice of the carbon pie.

Embodied carbon accounts for a significant proportion of an asset’s whole life carbon, a proportion that varies depending on the type of asset. For instance, embodied carbon may only account for one-third of a data centre’s whole-life carbon[4], whereas for an office building it could be two-thirds[5].

The WGBC’s Whole Life Carbon Vision sets goals for both operational and embodied carbon[6]. These see a 40% reduction in embodied carbon in new buildings, infrastructure and renovations by 2030 and net zero embodied carbon by 2050.

Around the world, national Green Building Councils are following the WGBC lead. In 2021, ten of them published Whole Life Carbon Roadmaps which set out where they are now with built environment emissions, a trajectory to 2050 and recommendations for what policy and industry actions are required to get there. The ten are Croatia, Finland, France, Germany, Ireland, Italy, the Netherlands, Poland, Spain and the UK.

In the US, Federal Government advisory body, the Green Building Advisory Committee (GBAC) has set out plans to move to low-embodied carbon buildings[7]. These include a requirement for environmental product declarations (EPDs) and life-cycle carbon assessments for projects over $3 million.

Taking the lead

There is no doubt that, as more and more companies start to execute carbon reduction plans, tenders will be assessed not just on cost but on carbon emissions too. Some clients are already doing this and even incentivising contractors to come up with ways to cut carbon.

Sweden’s transport authority Trafikverket developed the first version of its Klimatkalkyl tool in 2013, and from 2015 made climate change calculations mandatory for new investments above 5 million Euros. Trafikverket uses the tool initially to establish a baseline and set targets for bidders, with a bonus attached, who then use the tool to help them create low-carbon solutions[8].

The UK’s National Highways has been asking suppliers to log the carbon they produce for some time but, in March 2022, the authority announced its first ever procurement aimed to reduce carbon: the £1.9m Lower Thames Crossing contracts will include an ambitious low-carbon baseline and incentives for further reduction[9]. There is also an industry-driven move in the UK to introduce an additional section to the UK building regulations – Part Z – which would mandate the assessment and reporting of carbon on projects over 1000m2.

Other countries are taking similar approaches. Rijkswaterstaat (RWS) in the Netherlands requires contractors to be certified to one of five levels on a CO2 Performance Ladder and establishes a baseline for carbon using its DuboCalc tool. New South Wales in Australia requires contractors to be Infrastructure Sustainability Council of Australia (ISCA)-rated for large projects and sets carbon baselines. In the US, California demands EPDs for energy-intensive materials with the California High Speed Rail project asking contractors to set carbon baselines and reduction targets, although there are no penalties or incentives in place[10].

The real estate sector is also starting to rise to the challenge, with certain players introducing targets for embodied carbon reduction. The International Property Federation (IPF), in its February 2022 report Pathways to Net Zero Carbon Emissions in International Real Estate, recommends setting internal prices on embodied carbon to drive reductions and decision making[11]. Data centre owners and trade associations operating in Central Europe have signed up to the Climate Neutral Data Centre pact which pledges to make data centre climate neutral by 2030[12].

Some major contractors, primarily based in Europe, are driving the move to embodied carbon reporting and reduction. Several have set their own ambitious net zero carbon targets and some have developed or are developing in-house tools to help them offer carbon-conscious options to clients at the design and procurement stages of projects.

For smaller contractors, carbon accounting and management is more challenging. The UK’s Part Z, for instance, while it is backed by over 100 large construction players, has been criticised by associations representing smaller companies who say that the additional cost required would make schemes unviable[13].

Challenges in counting the carbon

Calculating the embodied carbon in a building or other asset is based around Lifecycle Carbon Assessments (LCAs), a way to account for the environmental impact of a product or asset over its entire lifecycle.

One of the biggest challenges in calculating embodied carbon is the raft of assumptions that must be made. These include where materials or components will be made, what source of power will be used, what maintenance or renewal of that component will be required over an asset’s life and what will happen to it at the end of the building’s life.

Requiring specialist knowledge and experienced assessors, carbon calculations can be lengthy and costly to carry out. There are several tools for calculating embodied carbon, operational and whole life carbon in construction, but they still require specialist knowledge to ensure that results are robust; the old adage of rubbish in equals rubbish out applies. Without rigour, it is impossible to make meaningful comparisons between potential solutions.

A granular approach helps improve accuracy. Building systems must be broken down into their component parts to give an accurate carbon picture. As in cost consulting, grouping items together leads to more assumptions and hence less accuracy.

One of the questions around estimating carbon emissions for construction projects is when to carry the calculations out. The biggest carbon savings can come from very early decisions – steel or engineered timber, tunnel or bridge. However, changes to materials or suppliers down the line can make significant differences to the answer too.

Forms of procurement come into play here. If core supply chain members are involved early, more specific information can be used earlier in the process.

Carbon accounting systems should be flexible – and accurate – enough to allow for the carbon impact of capital cost-driven decisions to be assessed as the project progresses. A value engineering exercise could lower the capital cost but increase the carbon cost, and hence the offsetting bill.

Clients must also look at how they measure carbon, and how they incentivise contractually. It could be that a component or system has a lower embodied carbon than an alternative one, when measured up to practical completion. But over the whole life of a building or asset, it emits more carbon because it has to be replaced or renewed more often.

To offset or not to offset

Although definitions of net zero carbon vary, the idea behind net zero is that a building or piece of infrastructure makes no net carbon emissions over its entire lifecycle. This encompasses both embodied and operational carbon.

An asset might not reach net zero until some years down the line. For instance, a housing development that generates enough renewable energy for some to go into the grid, might ‘pay back’ the embodied carbon required for its construction decades down the line.

But there is another way that ‘net zero carbon’ can be attained: by offsetting. This takes two forms: purchasing other companies’ carbon credits for unused emissions allowances or paying money towards an activity which will offset the carbon a project will emit. Offsetting projects could include reforestation, renewable energy or energy efficiency programmes.

The offsetting or voluntary carbon market is a fast growing one. According to Deloitte it is currently valued at $300million but is set to grow to $50billion, as organisations pay to meet the net zero carbon goals[14].

One of the potential problems with carbon offsetting and the voluntary market is that it is not well regulated. There are concerns that the offsets being purchased may not be doing as much as is claimed or may even be causing other environmental or social damage. The Integrity Council for Voluntary Carbon Markets (ICVCM) has been established to help address those issues[15].

Others question the integrity of carbon offsetting altogether. They see it as a way for organisations to sidestep their responsibilities around carbon – rather than something to be used as a last resort.

From both a financial and a climate-change perspective, it is important that carbon reduction measures go as far as they can before carbon offsetting is used. As governments look to accelerate carbon reduction, the cost of carbon offsetting is rising. By keeping a close eye on where the tipping point is – the point at which the cost of additional carbon reduction measures equals the cost of offsetting – projects have the opportunity to lower carbon footprints further without increasing capital cost.

Transparency and rigour is vital, since claims of carbon neutrality and carbon zero are already coming under much closer scrutiny, a trend that will continue. Any companies found guilty of cheating, or ‘carbon washing’, will face a backlash from investors, customers and other stakeholders.

Towards net zero

Embodied carbon calculations will become vital, as public and private sector organisations get closer to their corporate carbon zero goals. It is not a matter of if, but when.

To make informed decisions about investments in lower-embodied carbon materials and products, it is necessary to understand the relationships between carbon and cost. Clients need to incentivise contractors to reduce the carbon footprints of new and refurbished assets.

Even where tenders don’t mandate it, contractors can offer carbon costing alongside traditional costs to provide foresight for their customers. Those companies who are already starting to do this will gain competitive and reputational advantage and be better placed when carbon accounting becomes the norm.

LCA standards

There are several standards which apply to Life Cycle Assessments (LCA):

  • BS EN 15978:2011 Sustainability of construction works – assessment of environmental performance of buildings – calculation method
  • ISO 14044:2006 Environmental management — Life cycle assessment — Requirements and guidelines
  • RICS Whole Lifecycle Carbon Assessment Professional Statement (1st edition 2017)

Soben Carbon Cost Management

Soben’s Carbon Cost Management service is designed to help organisations achieve net zero carbon affordably and sustainably. We combine industry-leading carbon insights with experienced cost management to go beyond carbon accounting and provide practical carbon cost management advice. With a greater level of granularity than the basic carbon calculators on the market, Soben provides precise and transparent embodied carbon calculations. Our accurate baselines and actionable strategies will reduce your carbon footprint, demonstrating the impact of carbon savings.

 

Data Centres: balancing carbon and capital costs

Given the huge energy demand of data centres, reducing their operational carbon remains an important goal for the sector. However, with net zero targets in mind, operators are looking for ways to reduce embodied carbon too.

Decisions that can reduce operational and embodied carbon:

  • Reuse: can an existing building be upgraded or repurposed? What about servers and other equipment?
  • Location: cooler climates to reduce cooling demand; proximity to renewable energy
  • Energy sources: EU operators want to be using 100% clean energy by 2030
  • Reduce: larger data centres reduce space needed per compute
  • Technology: AI to make better use of facilities; power usage effectiveness (PUE) improvements; new cooling systems
  • Heating: could waste heat be plugged into a district heating system?

CPD Webinar: Reduce carbon, without compromise

Do you want to find out more about the importance of accurately calculating the cost of embodied carbon in your assets? Join our next CPD webinar on 30 November and 1 December to hear from Soben’s new Head of Sustainability, Dr Bonahis Oko. She’ll be sharing practical tips on how to create transparent sustainability strategies that balance carbon efficiency with cost effectiveness – plotting a course to net zero without sacrificing predictability.

Register now using the links below:

APAC Webinar: Wednesday 30 November at 3pm AEST / 1pm SGT

EMEA and Americas: Thursday 1 December at 4pm GMT / 11am EST

Authors

Dr Bonahis Oko

Head of Sustainability Soben

Andrew Gallacher

MD, Specialist Services EMEA Soben

About the authors

Dr Bonahis Oko

Dr Oko is an expert in designing and delivering sustainability strategies and solutions across a range of industries. A Chartered Environmentalist, keynote speaker, and prominent  sustainability thought leader, she was previously Head of Environment, Carbon and Sustainability at Bouygues Energies & Services UK, where she was responsible for delivering the net zero carbon policy and sustainability strategy. Soben’s new Head of Sustainability, Dr Oko leads Soben Carbon Cost Management – a new service designed to provide accurate, strategic advice, to help organisations achieve net zero affordably and sustainably.

 

Andrew Gallacher

Andrew has over 20 years of front-end contracting and consulting experience across all construction and engineering sectors. Andrew is a results-focused leader with a passion for sustainability in the built environment. With a keen eye for detail, Andrew works tirelessly leading his teams to ensure that clients are properly rewarded for the work they do.

Tags: