Existing technology can reduce half of built environment emissions by 2030: McKinsey & Company

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According to a recent analysis by McKinsey & Company, the built environment sector has the potential to achieve emission reductions of over 50 per cent by 2030 using available technologies. The analysis highlights various business prospects throughout the value chain that could lead to cost-effective decarbonization, as outlined in their latest report titled Building value by decarbonizing the built environment.

After evaluating more than 1,000 possible ways to reduce emissions in the built environment, McKinsey has identified the top 30 strategies that can effectively decarbonize buildings. Many of these strategies are already economically viable compared to traditional practices, and others are projected to reach cost parity or close to it by 2030 through industrialization.

To capitalize on the economic advantages, industry participants will likely need to take decisive actions. This includes ramping up the production of technologies and materials, establishing service-oriented companies, streamlining supply chains, and fostering the necessary operational expertise across the value chain to implement solutions on a large scale. For instance, a significant portion of operational emissions in the built environment—approximately 60 per cent—emanates from space cooling, space heating, and water heating. Heat pumps offer the potential to mitigate up to 60 per cent of heating and cooling emissions for most types of buildings. However, the current heat pump supply chain faces challenges such as manufacturing and supply chain constraints that need to be addressed by providers.

“The report highlights potential pathways to decarbonize the built environment and presents many proven and available technologies and solutions that companies in the ecosystem can implement today, and often cost-effectively,” said Erik Sjödin, partner at McKinsey & Company. “We have aimed to focus on some of the largest opportunities that industry players could realize by scaling production, building future operating models, and developing skills and expertise across the value-chain.”

Brodie Boland, partner at McKinsey & Company said, “The built environment is a crucial sector for decarbonization, and companies in this sector have a unique opportunity to capture value and build businesses, while enabling the transition to a low-carbon world.”

McKinsey’s analysis has unveiled a range of business opportunities spanning the value chain, all aimed at facilitating cost-effective decarbonization within the built environment.

Firstly, there is potential to significantly reduce carbon emissions by industrializing the production of green materials. This involves decarbonizing the production processes of existing materials and ramping up the output of new eco-friendly alternatives, such as natural-fiber insulation and engineered wood.

Secondly, the industrialization of energy-efficient building technology is crucial, given that approximately 60 per cent of emissions in the built environment stem from space cooling, heating, and water heating. Heat pumps have the capability to mitigate up to 60 per cent of heating and cooling emissions for most building types. However, current challenges in the heat pump supply chain, including manufacturing and supply chain bottlenecks, need to be addressed through industrialization, strengthened supply chains, and the implementation of operational excellence practices.

Streamlining services to offer comprehensive packages of efficient energy and electrification upgrades represents another avenue for stakeholders, aiming to reduce transaction costs associated with decarbonization efforts.

Moreover, design and engineering firms are well-positioned to drive decarbonization by expanding their service portfolios and cultivating design capabilities that leverage green technologies to create both environmentally friendly and cost-effective structures.

The electrification of onsite construction equipment, if industrialized, offers potential cost-effectiveness by 2030. Continued expansion of electric construction equipment offerings by major manufacturers could capitalize on this opportunity, with Original Equipment Manufacturers (OEMs) leading the way and enhancing battery technology.

Additionally, McKinsey estimates that adopting offsite construction methods could reduce construction time by approximately 20 per cent. Modular construction in European and US markets has the potential to yield annual savings of up to $22 billion, presenting exciting prospects for companies looking to overcome barriers to widescale modular construction solutions.

Establishing credible and verifiable green credentials is crucial for scaling green solutions. Verified credentials can foster a stable demand environment, thus empowering investors and entrepreneurs to confidently expand these solutions.

Addressing the financing challenge requires innovative approaches, such as energy-as-service financing, a broader range of green insurance underwriting, and investment opportunities for transitioning brown-to-green real estate and infrastructure.

In conclusion, McKinsey’s analysis underscores a diverse range of opportunities that industry players can leverage to drive cost-effective decarbonization in the built environment. Each avenue offers unique potential and calls for strategic action.

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