Decarbonizing the Built Environment: California's Relentless Push Toward Electrification

Panama Bartholomy: In 2018, building decarbonization really hit the public consciousness. Seminal reports from groups like Rocky Mountain Institute, Lawrence Berkeley National Labs, Synapse, Natural Resources Defense Council, and others laid out the case for building decarbonization. Last year California passed the first two legislatively mandated building decarbonization bills in the history of the country, and the Public Utilities Commission made available over $200 million for the decarbonization of California buildings.

In 2019, we’re going to see the implementation of this great program. Southern California Edison is going to file the first comprehensive building electrification program of any utility in the country, and I think we can expect a lot of activity in the California legislature. We have a big year ahead of us.

Tim, why do we need to decarbonize, and what is the deal with natural gas in this effort?

Tim O’Connor: Environmental Defense Fund’s focus on building decarbonization comes from five years of scientific work to understand the natural gas supply chain and evaluate its ability to impact the climate, as well as our ability to reduce its impact.

In 2012, EDF published a paper in the Journal of Science that looked at the impact of emissions of methane—the primary component in natural gas—on the climate. In that evaluation, it became clear once methane emissions reach a certain point, the climate benefits of using natural gas—whether in buildings, vehicles, or power plants—can be completely undermined, and that in fact, natural gas can be a loser when it comes to climate.

Over five years, we published 39 different published papers in partnership with 150 academic institutions and companies. What we found was that emissions from the natural gas supply chain are much greater than previously thought. In fact, EPA estimates were about 60 percent lower than the actual emissions. On average, about 2.3 percent of our natural gas—from when it’s produced from the ground to when it’s used at its end of life—is leaked into the air. We need to get that leakage to about 0.8 percent in order to guarantee a climate benefit from natural gas.

This has relevance to California because we’re the nation’s second largest user of natural gas, and we import more gas than any other state. We are also doing more than any other state in the nation to control our methane emissions, whether from utility systems or the point of production. And that’s a very expensive proposition.

Late last year, the Public Utilities Commission approved plans allowing utilities to spend $300 million over the next three years to control methane from their systems. That’s not even going to get us a reduction of 18 percent. We’re spending gobs of money to maintain and update our system, and yet we’re still going to have a very leaky system.

We import about 90 percent of our natural gas from places like Texas, New Mexico, the Western slope of the Colorado Rockies, even Canada. With new methane satellites, we can see that places where we import vast amounts of gas are flaring tremendous quantities. In 2017 alone, flaring in the Permian Basin was responsible for about $322 million of waste. That’s gas that we are responsible for because it’s coming into our state.

This is why we passed a bill last year with Assemblymember Chao, AB 2195, which required California to start accounting in its greenhouse gas inventory for methane emissions from the gas that we import. We’re the first state ever to do this.

Natural gas infrastructure is leaky, and the leaks occur stochastically—some big, some small. We cannot have an inherently leak-tight system. There will always be emissions from this system, even if we inspect every piece of pipe every single day. This system cannot be carbon neutral.

Many people have thought that renewable natural gas is a solution. It has a lot of benefits in terms of its delivery. We can get to carbon-negative fuel. But there is a limit to how far we can get: Only about 30 percent of the gas that we use in California can be replaced by renewable natural gas. It is also constrained by the amount of renewable natural gas used by other states. If California creates a model for other states to follow, and Arizona, Nevada, Texas, and Colorado start to develop their own RNG industries, which are going to pull from what’s coming into California.

This is why building decarbonization and electrification are so tremendously important. About two-thirds of the natural gas used in California’s existing building stock goes to residential buildings, and 90 percent of that goes toward space and water heating. If we can create incentives to aid the natural movement toward decarbonization, we could create a turnover in the building stock that would be better for the environment and cheaper for customers, and achieve California’s carbon neutrality goals.

Panama Bartholomy: Sara, address how real estate owners are tackling the challenge of unfracking their buildings.

Sara Neff: The conversation around all-electric buildings may have been going on for a very long time in the environmental community, but it has only recently come to real estate. Kilroy made a commitment to have a sustainable portfolio back in 2010. But until now, it’s always been about efficiency projects—using less energy and gas.

We in real estate are still grappling with what we talk about when we talk about carbon in buildings. It’s not a language we feel comfortable with. We feel comfortable with water and energy, and to a lesser extent with waste streams. Now, in addition to dealing with those aspects of sustainability, real estate is asking: “How do we decarbonize quickly?” That brings us to all-electric buildings, which seem like a new and crazy thing to us.

Now we’re starting to have those conversations in our development projects: What is it going to take to delete the natural gas? In some projects, it’s easy. For example, as a result of conversations at VerdeXchange last year, I held a design charrette to go through our whole LEED scorecard on a project. I asked, “Do we need a gas line?” And the response was, “Nah, we can take it out.” That was the end of it; that building is all electric now. But in some projects, it’s a way bigger deal. I want to give a picture of what that looks like for those of us who care about sustainability in real estate.

First, LEED and carbon could be more aligned, and I say this as somebody who spent many years on the advisory council of the national USGBC. The way that LEED is set up in terms of its energy model is such that it’s not always a benefit to be a lower-carbon project. LEED is cost-based, and depending on how much gas costs versus electricity in your region, it can sometimes punish you. LEED recognizes that this is a problem—they’re not saying this methodology is the right one—but right now, that’s how it’s set up. For those of us who are trying to squeeze out every last LEED point, that’s something that we really think about.

Something else that we grapple with a lot is core and shell versus tenant. As a developer, I control the core and shell of a building. I can deeply influence HVAC systems, glazing, envelope design; I can put solar on the roof. But for anything that happens within a TI space, I just create building standards and hand them off. Telling brokers who are trying to get retail tenants in, “By the way, they can’t have the nice burners on their stoves,” is a conversation that’s currently very difficult.

Another thing we grapple with is confusion. We’re told fuel cells are great, but then we see the carbon savings from switching to natural gas. We don’t know what’s real, what’s bad, what leaks.

Our utilities are also sending us a lot of mixed signals. Within a two-week period, I had one utility ask me to write a letter opposing the all-electric building legislation and another utility ask me to write a letter supporting the legislation. I depend a lot on my utilities for a variety of things—not just keeping the lights on, but also all my rebates, interconnections, finding out about programs first, being a host for emerging technologies. So this is a scary situation.

However, what’s scarier is trying to tackle the embodied carbon of building materials. It’s hard to understand what the biggest impact is, where it comes from. But I think the real-estate industry is figuring out that this is an important, tangible thing that they can do to make an impact on our carbon now.

I am hopeful that we will have more developments that are all-electric. We received some good press on our all-electric building; people got excited, and I think that’s going to motivate us to do more all-electric in the future, which is my goal.

Panama Bartholomy: We’re seeing big movement on both the building code side and on the planning side. This year already we’ve seen two jurisdictions—the city of Hayward and UC Riverside—for the first time put building electrification into their CEQA documentation: in draft EIRs for a downtown plan in Hayward and a residential tower at UC Riverside, putting it in as a proposed mitigation in order to deal with greenhouse gas impacts.

Russell, how do you approach decarbonization at Arup? What’s the market reality of building decarbonization in 2019, and what needs to change to do this more easily and more prevalently? 

Russell Fortmeyer: Arup has been doing carbon footprinting on projects for decades, usually for clients at the high end of the market with very progressive sustainability policies. In all that time, I’ve had one client, in Australia, that adopted an ecofootprint model.

An ecofootprint model is a totalized metric that takes into account operational energy, water, transportation associated with commuters or visitors—all the sorts of impacts that you might get in an EIR in California—as well as the embodied carbon of the building materials, and totalizes all of that into one footprint.

A footprint is basically measured in global hectares of land needed to support the resources for that project. Right now, we consume about eight Earths worth of resources to support our current lifestyle. That is obviously not sustainable. The ecofootprint was created to get us to below the threshold of one Earth. The reason I bring this up, even though not many people use an ecofootprint model, is that California is moving toward a totalized model around carbon.

The Title 24 energy code addresses operational energy, which is indirectly about carbon. The building code for water efficiency indirectly reduces carbon impacts through water consumption—because, of course, water has a very high carbon footprint in California because we pump it all over the state. New legislation like Buy Clean (AB 262) addresses the embodied carbon and global warming potential of materials that go into state-funded infrastructure. That is the first legislation that looks to create a model for regulating embodied carbon, and I think that approach will trickle into real estate.

Clients now ask us to do embodied carbon models; in fat, we’re doing a comprehensive materials strategy for Kilroy right now. What we find is that the materials side can have dramatic impacts on where your carbon model lands in terms of embodied carbon for a building. That said, when you take into account the life cycle of carbon, it’s actually the operational side that has the biggest impact. That’s why a lot of our work has been in electrification of buildings.

On the residential side, the market tends to work it out. The biggest challenge right now is with our institutional clients. We work with Kaiser Permanente, for example. They are dealing with massive amounts of heat demand, especially hot water for sterilization and reheating—huge components in a hospital. Right now, the market is telling us that huge institutional clients are not ready for that operational cost impact.

Kaiser also has a whole legacy portfolio of hospitals with huge natural gas demands. But I’m working on a new hospital for them right now, and electrification is on the table. We’re looking at many alternative technologies to address sterilization.

We’re at an inflection point in California: We’re making purchases now of technology whose lifespan falls reaches the period when we’ll have decarbonized the economy. Today, going to a client like Kaiser Permanente and saying, “Let’s put in a combined heat and power plant and sign you up for 30 years of natural gas purchases,” is already off the table. Over the past decade, I’ve seen a huge transition toward understanding that we might have to pay a bit of a premium now, but it’s a long-term investment.

I think that we have an opportunity here if we can get the regulatory agencies together. I would like to see us create a totalized carbon model that pulls in operational impacts from the building code as well as emerging embodied carbon models, so that we can start comparing apples to apples on projects as opposed to the disparate models that we have now.

Panama Bartholomy: Jeff, talk about Subterra’s work partnering with developers interested in building decarbonization. What are the biggest barriers in that space, and, given that not all developers build to own, what needs to happen to drive building decarbonization? 

Jeff Addison: At Subterra, we build, own, and operate low-carbon district energy systems for real-estate developments across North America.

“Build and own” means we pay for it, so the developer saves cash upfront. “Operate” means we deliver that thermal energy back to the development for 30 years at a fixed cost. That’s how we make our money back: We have a long-term horizon.

I want to talk about a tangible, real-world example. We did a very big mixed-use project with 2,000 units of residential, office, and retail. It’s 1.9 million square feet with eight total towers. We came to the developer and said, “Instead of building a conventional HVAC system, let us put in a low-carbon system to save the environment.” We chose to do a geothermal exchange system—that’s our bread and butter—that had 306 boreholes and went down about 600 feet, and we used wastewater heat recovery for domestic hot water as well.

Why did the developer decide to do this with us? First, zero capital costs: We’re paying for it. They save almost $17 million in cold, hard cash. About $15 million of that is actual equipment costs. On top of that, there are benefits that vary by municipality if you use zero-carbon or low-carbon system—like added density, which developers can monetize to increase their savings.

Also, this system uses 72 percent less energy for heating and cooling compared to the conventional system—using a natural gas boiler, chiller, cooling tower, etc. It also represents a 3,277-ton reduction in GHGs. And, most importantly to getting projects done, there is no impact to the critical path.

Now, let’s move on to the end user: What is it like for the people living there? We took a snapshot of an average bill for an 800-square-foot apartment, and it’s $3 less on average for the end user. Not only does this save the environment and save the developer money, but the end user is saving as well. That’s fantastic, and it helps with the marketability—getting people to want to move there—because that price is locked in for 30 years (subject to inflation.)

It’s encouraging to see a lot of big companies realize: “This is a viable business plan. If we don’t go with a low-carbon district energy system, we’re actually choosing to emit 3,277 tons every year into the environment.” There’s no reason why they shouldn’t do this, and they don’t want to be the company that’s known for making the choice to emit GHGs.

However, we’re finding on the development side that a lot of developers have a very short timeframe. For example, a condominium developer might say: “We buy the property, we build, we sell, we’re out. We’ve made our money; we’re done.” They have a process that’s very easy, and they’re hands off after five years.

Trying to break that cycle and show them that they can actually go green, and that it makes financial sense, is really hard. Those two things haven’t gone together for a long time. Our biggest barrier is getting people to come around to this business model.