On September 23, as part of Climate Week NYC, McKinsey Sustainability and the Global Infrastructure Initiative hosted a roundtable to explore new research from the McKinsey Global Institute on the physical challenges that need to be tackled to advance the energy transition in the built environment.
The session brought together experts across various sectors including real estate, finance, engineering, and government to discuss net-zero strategies in the construction and operation of buildings and infrastructure. Several key themes emerged:
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The energy transition in the built environment requires addressing physical challenges and adopting new technologies.
While much research has been done on the economic, financial, and societal aspects of the net-zero journey, a new study by the McKinsey Global Institute turns to the physical realities of the energy transition: the technologies, supply chains, and infrastructure needed to run the low-emissions energy system of the future. The study identified 25 interconnected challenges that need to be addressed for the energy transition to succeed.
Some of these challenges require progress in deploying established technologies, such as ensuring the efficiency of heat pumps for buildings. Other challenges require the acceleration of known technologies—for example, managing seasonal peaks in heating electricity demand, which could increase by as much as four times in colder regions if a building’s heat is fully electrified. A third type of challenge would require new technologies to close performance gaps and resolve large interdependencies between sectors, such as producing low-carbon cement and steel.
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There is a need for policy-driven demand to prompt building decarbonization.
Participants discussed the need for demand-driven systems to accelerate the energy transition in buildings. “Where there isn’t demand for change, the market either needs economic incentives to act or face a looming physical threat that creates demand,” said one participant. Another participant encouraged public-sector leaders to push the supply chain with their purchasing power to make decarbonization more economically viable. The effectiveness of such regulatory action is also key—for example, any fines for noncompliance should be significant enough to incentivize action without disproportionately penalizing owners that can least afford to pay.
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Energy efficiency is central, but other areas require attention as well.
The discussion also encompassed other green-building metrics, including demand response and embodied carbon. On demand response, “The more we can do on the demand side to become a systemic part of the energy system, [the better],” said one leader. This requires key solutions in standardization and uniformity across digital systems, so that data flows can inform energy flows.
Embodied carbon is also an important carbon-footprint metric, albeit one that is less often discussed. “Unless the bank gives me money, I can’t decarbonize my buildings—I only focus on energy efficiency,” said an executive from one major real estate operator. “Electrification is not the only solution. I talk about embodied carbon, but tenants and banks don’t.”