Proptech and Decarbonization in Commercial Real Estate

Bennett Jones LLP

Bennett Jones LLP

"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."

CBRE's Decarbonizing Commercial Real Estate report

Decarbonization in the commercial real estate sector is top of mind for building developers, owners and operators, as it has garnered increased policy momentum at all levels of government in Canada. Stakeholders must ensure their properties become considerably more energy efficient in order to achieve the new set standards, through upgrading or retrofitting older building supply and by implementing energy programs for new builds. The next phases of net-zero in real estate, such as embodied emissions and the circular economy, are being scrutinized by policymakers, too. The push for decarbonization will only gather steam going forward.

Property Technology (PropTech) remains an important tool in implementing decarbonization, and venture capital firms are accelerating fundraising in PropTech in a variety of worldwide jurisdictions in response. Investing in PropTech (and climate tech) with a focus on reducing emissions can trim a building's carbon footprint and offer opportunities for returns.

The resulting new legal and regulatory issues must be heeded along the way.

Decarbonizing With PropTech

Digital Twins

Key to meeting any performance targets for a building will be the ability to efficiently store, organize and access the data generated by the building systems through the use of digital twins (defined as "virtual representation of real-world entities and processes, synchronized at a specified frequency and fidelity" by the Boston-based Digital Twin Consortium).

Digital twins are different from many smart building technologies currently used, since the latter are often siloed with narrow application, whereas digital twins can offer comprehensive, intelligible data to users in real time as it relates to an entire portfolio of properties, and they feature predictive modelling capabilities. They are incredibly complex, and incredibly powerful, and not surprisingly, their use poses novel questions relating to data ownership, sharing and protection, cybersecurity and liability. 

Electric Vehicle Charging (EVC)

Increased use of low carbon transportation options is also critical to decarbonization efforts, and the transition to net-zero transportation will not be possible without improved access to electric vehicle charging (EVC). Most EVC occurs at home and at work. In multi-unit residential buildings, like condos, townhomes and apartment buildings, putting at-home infrastructure in place is beginning to make manifest a multitude of issues.

Costs can vary dramatically based on the specific electrical and physical attributes of a building. Due consideration for how installation of charging infrastructure will affect energy demand is necessary. Installation itself must be compliant with a number of codes, standards and regulations, zoning and parking bylaws, public utilities acts and measurement statutes. Employing third party EVC providers to install systems that allow for multiple users to charge their vehicles at once—together with the use of load sharing agreements— are commonplace. Metering options are varied and add another layer of complication.

Grid Interactive Efficient Buildings (GEBs)

Fundamental to the shift to net-zero in Canada and other jurisdictions is decarbonization of the electrical grid, which itself presents a multitude of challenges. Digitalization is revolutionizing the way that buildings interact with the electrical grid as it exists today. Grid-interactive efficient buildings are ones that respond to grid needs by leveraging energy efficiency, energy storage and other smart technologies; they optimize the consumption of energy by managing when it is consumed—shifting it towards non-peak times. While the benefit for any specific building varies due to local utility pricing structures, these types of buildings ultimately benefit the grid and all of its customers by reducing demand and enhancing its reliability, and their number are predicted to grow.

Regulatory Frameworks In Canada

Governments across Canada are creating and implementing net-zero emissions strategies for new and existing buildings.

The federal government's proposed Canada Green Buildings Strategy aims for a net-zero emissions and climate-resilient buildings sector by 2050, with an interim goal of 37 percent emissions reduction from 2005 levels by 2030. The federal government is currently reviewing public and industry feedback to help finalize this strategy. Toronto, Vancouver and Montreal have all released plans as well, with net-zero targets by 2040.

Building developers, owners and operators need to follow decarbonization policy closely to understand what requirements are voluntary, what is mandatory, where policies overlap and what all of it means for their specific portfolio. There are carrots for the industry through funding and subsidies – and sticks to avoid.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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