The European Green Deal’s ambitious climate laws are reshaping the real estate sector, seizing opportunities, and bursting the carbon bubble
The European Parliament has taken significant steps to address climate change by adopting the European Climate Law, which sets a target of reducing net greenhouse gas emissions by at least 55 percent by 2030. This law is part of the European Green Deal, a roadmap for achieving climate neutrality by 2050.
To reach these goals, the EU has proposed the Fit for 55 package, which includes revised and new laws on climate and energy. The package includes updates to the EU’s Emissions Trading System (ETS), the world’s largest carbon market, as well as measures to reduce emissions from aviation, maritime transport, cars, and buildings.
The EU also aims to promote the use of renewable energy sources, phase out fossil fuels, and combat deforestation. Additionally, the EU plans to implement a carbon border adjustment mechanism to encourage decarbonization both within and outside the EU.
The real estate industry is a major contributor to carbon emissions, accounting for 35 percent of global energy consumption and 38 percent of energy-related carbon emissions. According to Zero Carbon Academy, the industry’s carbon footprint is predicted to double by 2060. European property groups face the risk of write-downs unless they quickly reduce carbon emissions from their buildings.
Institutes warn of a “carbon bubble” due to the overvaluation of real estate properties that have not accounted for the expenses of transitioning to net-zero emissions. Decarbonization efforts have primarily been driven by wealthy property owners aiming to attract premium-paying tenants.
Rising interest rates and inflation pose additional challenges to decarbonization. The Carbon Risk Real Estate Monitor (CRREM) provides tools to analyse and mitigate risks related to decarbonizing commercial real estate, while McKinsey suggests opportunities such as local energy generation, green-building materials, and on-site services to add value and support decarbonization.
The World Economic Forum reported COP27 is underway, highlighting the urgency of achieving the UN’s net-zero goal. The pandemic and geopolitical tensions have heightened the need for action on climate change and energy crises, particularly in the real estate sector.
Green real estate is crucial in reducing global carbon emissions, and investors are increasingly interested in sustainable buildings. Christian Ulbrich, Global CEO and President at JLL, emphasises the importance of tenants in driving the demand for green buildings through lease agreements.
Retrofitting existing buildings is vital, as only two percent are currently equipped to support the net-zero goal. Transitioning brown buildings to green ones presents opportunities for energy optimization and attracting green-conscious investors. Real estate stakeholders should seize the chance to rebalance portfolios, constructing new green buildings and retrofitting old ones to accelerate sustainability and enhance resilience.
The Property Report editors wrote this article. For more information, email: [email protected].
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