Beyond Energy Efficiency: Cutting Carbon Property’s New Frontier

Under Australia’s freshly-minted 2035 climate change targets , the property sector has just taken on a hefty new responsibility. With a national goal of reducing emissions by 62 to 70 per cent below 2005 levels, and the built environment as one of six priority industries to lead the charge, expect major changes to the way property is planned, built, and operated. Globally, building and construction are responsible for 39 per cent of all emissions, and another 28 per cent produced in the operational phase, according to the World Green Building Council. The Built Environment Sector Plan, released as part of the targets in September, puts emphasis on a handful of aspects of built form, including energy efficiency and electrification, to make up the lion’s share of the reductions. But one of the most important—and perhaps least mature— is cutting embodied carbon . That means the manufacture and transport of concrete, cement, steel and everything else that goes into a shed or a skyscraper—the 39 per cent that comes out of building and construction. Technically, embodied carbon refers to the indirect supply chain emissions (or scope 3 emissions) generated by all the materials and activities involved in a project. Materials and Embodied Carbon Leaders’ Alliance (MECLA) project manager Alexander Barnstone says that the 2035 timeframe doesn’t leave the property sector any time to hesitate. “If you’re a financier and you’re going through a contract negotiation right now, and the project life span just for development is seven or eight years, you’re locking in carbon now that’s going to show up in your accounting in 2032,” he says. MECLA has been leading a project in collaboration with property investors to uncover how capital markets and private investors can help cut embodied carbon in real estate and infrastructure. “Construction companies are very much thinking about embodied carbon, and what they need to be doing in order to reduce it in their supply chains and projects,” Barnstone tells The Urban Developer . “The finance community, when it comes to embodied carbon, is not as advanced. And we’ve heard from multiple stakeholders in the construction sector that if they start to get asked by financiers, they will have more impetus to drive these low-carbon outcomes in projects.” While the target may be new for Australia, work is not starting from scratch. In 2019, the WGBC suggested that a 40 per cent reduction in embodied carbon by 2030 was possible, largely through simple design changes. ▲ The 20-storey Sara Kulturhus at Skellefteå, Sweden, is built of mass timber and stores 9000 tonnes of carbon, more than it will emit in its lifetime. Increasing adoption of materials such as cross-laminated timber, modern methods of construction and factoring in the circularity of materials (for post-demolition use) can also make relatively easy and quick contributions, according to the Built Environment Sector Plan. Green Building Council of Australia chief impact officer Jorge Chapa says the new Green Star Buildings 1.1 rating tool makes it easier to take embodied carbon measures into account. It incorporates the NABERS Embodied Carbon mechanism (available for use now, with star ratings to be released in the future). Chapa said that Green Star 1.1 contains “very nuanced technical updates, but essentially, industry has evolved a fair bit in its understanding of how to measure upfront carbon emissions, and that’s allowed us to refine the guidance”. Separating carbon reductions from stored carbon, in relation to timber, is one example of the granularity users of the new tool can achieve, according to Chapa. A new circularity credit will also reward developers who are thinking about sustainable lifecycles of buildings and materials— the adaptation, reuse, or decommissioning of projects—from the very beginning. “That allows us to have a clear set of targets on reducing emissions, which is ultimately the key goal, but also recognise other co-benefits of some materials that exist,” Chapa says. “It is an evolution of how we think industry will move. The same way that operational energy consumption has changed over time, as to how it’s measured and accounted for; embodied carbon is continuing on that same trajectory.” Regulatory moves will drive data and profit Under Australia’s mandatory climate disclosure requirements, which took effect this year, some entities will need to begin reporting their scope 3 emissions from July 1, 2026. But those reporting requirements will trickle throughout the industry, as larger listed companies begin asking their suppliers and partners for more data. “We do expect now everyone to deal with the upfront carbon reductions, because that is mandatory. People don’t have a choice,” Chapa says. “If it’s not something that you’re dealing with now, it’s something that you will have to deal with at some point in the future. I don’t know when, but at some point it will be a mandatory requirement.” At MECLA, Barnstone thinks that reducing embodied carbon is “a very large, systemic question that needs a level of collaboration and engagement across various stakeholders and supply chains in order to drive it”. “Accounting for and getting the data you need to understand embodied carbon is hard enough for organisations that are in the construction sector. When you take a step outside of that, then there’s a whole other data flow that has to be considered.” The finance sector has an untapped role to play. “Equity investors have quite a role in asking for particular sustainable outcomes. There’s an advocacy role and an ask that they can start to build in,” Barnstone says. “When it comes to debt, it’s a little bit more linear. It’s more about how you structure that debt, if you can create sustainability-linked loans that have embodied carbon reduction asks within them. “And there’s, of course, a series of complications with regards to the accounting of it: what type of benchmarks do you want to use to measure, and how do you monitor it?” ▲ A rendering of the University of Tasmania’s Forestry building, designed by Woods Bagot ( also pictured at top ). A $350-million green bond issued by the University of Tasmania provides an example. With a 20 per cent reduction in embodied carbon (compared to similar buildings) attached to the bond, UTas was able to construct its new Forestry building, designed by Woods Bagot. Woods Bagot associate Phoebe Settle says that the design was “looking ahead 50 to 100 years and thinking about how the choices we make now are going to play out then”. MECLA is looking for collaborators with similar stories of embodied carbon reductions driven by finance, and leading to better project outcomes, with the objective of providing guidance to the rest of the sector. “I don’t think that you have to frame wanting to address embodied carbon as some sort of moral driver,” Barnstone says. “There’s genuine profitability in being at the forefront of this emerging market. Because the truth is that it’s not easy to figure out how to take these new steps, and if you do, then you have a unique value proposition that competitors don’t have. “I think that there are people who see it very much as a market opportunity, not as some daunting task, but as a chance to really drive change. And there’s plenty of goodwill in the network.”

Beyond Energy Efficiency: Cutting Carbon Property’s New Frontier

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