India needs a plan to decarbonise its buildings and the construction industry

Given the contribution of embodied carbon to the overall emissions by India’s building construction industry, the country needs to develop a plan to decarbonise building and have targets for GHG emission reduction.

While there are limited standards and reporting frameworks for addressing embodied carbon even in developed markets because the emphasis is on operational emissions, there is an urgent need to innovate and transition to low carbon emitting technologies and construction methods to be able to tackle embodied carbon as there is to develop standards and reporting methods. India has a very rudimentary framework for management of operational carbon metrics and needs to urgently develop and implement building performance management and measurement tools, to achieve its coveted objective of net-zero by 2070.

To overcome this while traditional asset backed lending models may of course be explored where the borrowers are credit worthy and where asset valuations support, India could also explore an off-balance sheet model that helps shift energy efficiency projects from being an expensed asset that must be procured and maintained (and will depreciate) to one that is an operating expense. The extent of Government support by way of grants and subsidised funding to support decarbonisation of select asset classes such as housing, is to be further assessed. There may also be innovative models such as the one used by the National Wealth Fund, UK where sovereign guarantees are used to derisk exposure to private borrowers and can help attract private capital into areas seen as risky.

This has a twofold benefit: it helps crowd in private capital and take on risks at a pricing which otherwise would not be possible and it helps develop and test the market so with time, borrowers would be able to borrow at attractive pricing without the need for a sovereign guarantee.

Though India has low per capita annual emissions at 1.8 tons of CO2e compared to the USA at 14.7 and China at 7.6 in part thanks to being among the most populous countries, in absolute terms, it is the third-largest emitter country globally and hence has a central role to play in any global strategy to mitigate GHG emissions.

In India, the real estate and construction sectors account for 32 percent of total national GHG emissions, covering both operational and embodied carbon with buildings projected to emit upto 7x more carbon by 2050 (against to 2005 levels).

Moreover, the situation with respect to the building construction in India is different from the UK where 80 percent of buildings that will exist in 2050 have already been built and hence the emphasis is on improving energy efficiency of existing stock to decarbonise the sector.

In India it is estimated that operational emissions (emissions by virtue of using / operating a building) contribute to 60% of overall emissions from the built environment with 40% contribution from embodied emissions.

As per a study, 50–70 percent of embodied carbon emissions is before completion. Of this, 85–90 percent of embodied emissions are from manufacturing, 7–10% from transportation and 3–5% during construction.

While India has taken steps towards reducing operational emissions by establishing the Energy Efficiency Services Limited (EESL), this entity has already completed energy efficiency projects in over 10K+ buildings across India and has effected savings in the 30-50% range.

There is however clearly much more to be done both in terms of improving the manufacturing processes to use low carbon emitting technology and materials and in driving nation-wide efforts to deliver decarbonisation. For any decarbonising drive to succeed in India, domestic properties / homes would need to be the focus as these constitute 75% of buildings; commercial buildings account for roughly 1.2bn. sq.ft.. Further research effort may be needed to determine the spend on improving energy efficiency of buildings, the nature of interventions and a financing structure which can ensure that retrofits are viable and property owners are incentivised to invest in these measures.

(The author is a senior banker and sustainable finance expert of Indian origin based out of UK. Views are personal)