Trevor Dryer is a recognized fintech expert and co-founder of Carbon Title, the platform helping the real estate industry decarbonize.
The building industry has a serious carbon problem. We need to build 3.8 million more housing units in the United States just to keep up with the rate of household formation—that means doubling our construction output.
But, to cut emissions to meet the 2030 net-zero target, we need to slash per-project emissions by about 75%. The building industry is one of the biggest culprits when it comes to carbon emissions, accounting for 38% of global greenhouse gas emissions.
Today’s solutions—using greener building materials, decreasing operational carbon, and using carbon offsets—all focus on “doing less bad,” as the World Economic Forum describes.
Carbon insets, however, are a way to do more good. Carbon insets are a vehicle to fund projects within the construction supply chain to help green materials get produced at scale more quickly, which can then be used to build, creating a virtuous cycle of carbon reduction.
In addition to being an investment in the future availability of these materials, insets also serve as an alternate type of carbon credit that can be applied to help a company achieve its climate goals.
Construction’s Carbon Problem
Innovation in green construction materials has never been more exciting. CarbonBuilt is creating low-carbon masonry blocks to replace carbon-intensive concrete, while CarbonCure has found a way to inject captured CO2 into cement during the mixing process, removing it from the atmosphere. Brimstone boasts the world’s first carbon-negative Portland cement. Elsewhere, Nucor is working on more sustainable steel.
However, many of these materials are new to the market and struggle to scale. Green building materials are usually more expensive than the traditional stuff. Although construction companies can see the business case for using low-carbon materials, most are not willing to pay a premium to do so.
The building industry’s next best option is to buy carbon offsets. But only so many builders will feel they can afford to pay extra for reforestation, sustainable agriculture, or renewable energy. Nature-based offsets also feel abstract and disconnected from the builders’ world and do nothing to help them reduce emissions on future building projects.
How Does Carbon Insetting Work?
Carbon insets help close the gap between the cost of producing climate-friendly building materials and the lower market price of traditional building materials. Insets allow developers and builders to invest in their own supply chain to spur the production of green building materials for their use. It’s a win-win for the planet and the industry.
How do insets work? CarbonBuilt, for example, could sell its low-carbon masonry at the same price as traditional concrete despite it costing more to produce, thereby increasing adoption. The cost difference would be sold as an “inset,” similar to a carbon credit, which will ensure that CarbonBuilt maintains the margin they need to continue innovating and scaling production.
The developer who bought the carbon credit benefits in two ways: in the present and future. They can apply this credit to their current project to zero out its embodied carbon emissions. That’s the present benefit. But the carbon inset also benefits the developer years into the future by granting them an option to buy the underlying building material on their next project. They’re securing future access to low-carbon building materials at scale, in other words.
As low-carbon building materials become more widely available, their prices will naturally drop to the market price of the dirty stuff. Eventually, there will be no more need to buy carbon insets since low-carbon prices are exactly the same as market prices. It’s a race to the bottom —but in a good way!
For many companies, insets are more palatable, too. Investing directly in a piece of the supply chain resonates better with investors and consumers than a traditional carbon offset. At the same time, it accelerates the availability of the low-carbon materials needed to build better. Carbon insets are a simple, elegant solution to bring green building materials to price parity with other traditional options. And, their potential impact can’t be ignored.
What Is The Potential Impact Of Carbon Insets?
Carbon insets can measurably reduce an existing project’s carbon footprint and deliver demonstrable financial value for the property in the future.
Green building materials are currently more expensive: estimates range from only 1%-3% more according to RMI to 10%-20% more expensive, according to conversations I’ve had with industry insiders. So the extra cost is non-trivial, but so are the potential benefits. Green building materials can reduce embodied carbon as much as 46%, again according to RMI. Plus evidence keeps growing within the building industry that green buildings are substantially more valuable—the so-called “green premium.” According to a 2022 JLL report, green certifications result in a rent premium of 6% and a sales premium of 8%. The reverse is true, too: Buildings with poor sustainability scores are losing value in what’s known as the “brown discount.” An ESG data intelligence firm found that 66% of UK properties with poor sustainability ratings have already seen a decrease in the capital and rental value of their portfolios. The green premium will eventually disappear as green buildings become the norm, but the brown discount will get much steeper over the same timeframe.
Carbon Insets Will Accelerate The Decarbonization Of New Buildings
We can’t stop building the homes, schools, hospitals and office buildings we need, but we can take steps today to decarbonize one of our dirtiest industries and reduce carbon emissions as rapidly as possible. Carbon insets offer a tool that’s viable today to scale up the green construction supply chain faster and in a more measurable way. Insets support green building today and enable more green building tomorrow, starting a flywheel the construction industry—and society—urgently needs.
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