The Carbon Risk Real Estate Monitor (CRREM) has gained significant traction in the real estate industry, particularly for its role in reporting Greenhouse Gas (GHG) emissions and assessing these against national climate targets. CRREM evaluates the operational carbon performance of a building, which encompasses the carbon emissions linked to its energy consumption, and compares it to the decarbonisation trajectory specific to its location and type of building, all in alignment with the 1.5°C Paris climate change limit. This tool serves a critical function by evaluating the 'stranding risk' associated with real estate assets or portfolios.

Stranding risk occurs when the carbon emissions of an asset surpass the allocated fair share, which is calculated from the performance and electricity grid capacity of a particular country. This can result in escalating expenses, including higher energy costs, expenditure to upgrade and meet new regulatory efficiency standards, and even potential reputation and legal risks for the asset and owner.

An updated iteration of CRREM, CRREM Version 2, was published earlier in 2023. This aligns it with the guidelines put forth by the International Energy Agency (IEA) and the Science-Based Targets initiative (SBTi), offers a more detailed breakdown of building types, and expands its geographical coverage to include regions like the USA and Australia.

One notable change is that, while the carbon targets for 2050 remain quite consistent, the baseline for most pathways has undergone a reduction. As such assets will need to prioritise short-term interventions to prevent the risk of stranding. In response to data indicating that the real estate sector has exceeded its allocated carbon budget, the baseline year was adjusted from 2018 to 2020.

In addition, the electricity emission factors in the UK have been revised, resulting in a steeper decarbonisation trajectory, as shown above. This aligns with the rapid progression of a fully decarbonised grid that has been predicted by the IEA to be realised by 2040, and could potentially mitigate the impact of more challenging targets for buildings that primarily rely on electricity as their main energy source. Transmission and distribution losses, which were included in CRREM Version 1, are now excluded to align with the SBTi. 

In CRREM Version 2, the Energy Use Intensity (EUI) pathways (measured in kWh/m2/year) have been revised for each building type. These changes vary by country, but they all reach a plateau between 2030 and 2040 – this occurs as the carbon-budget aligned pathway converges with the anticipated level of renewable energy capacity.

It's important to highlight that there has been a significant change in the definition of EUI targets. Previously, these targets were calculated based on a building's net-energy demand, which accounted for the total energy consumed minus the energy generated on-site. However, they’ve now shifted to being based solely on building energy use, regardless of whether it’s supplied by the grid or on-site generation. This approach emphasises the promotion of energy efficient buildings rather than focusing solely on low-energy consuming buildings, which can lead to a cleaner overall grid. It also leads to a situation where the influence of on-site renewable solutions, like PV panels, is considered when determining carbon intensity targets but not when assessing energy-related targets. Consequently, this approach has the potential to discourage the adoption of such technologies.

What do these changes signify for your assets?

In the case of assets fully dependent on electricity, with the introduction of CRREM Version 2 we observe improved performance and a later stranding date, primarily attributed to the reduced carbon emission factors associated with electricity. Conversely, for assets heavily reliant on fossil fuels for heating or hot water, the risk of stranding is amplified, resulting in earlier stranding dates, as shown below. 

Further information

Contact Alexandros Chalkias and Eve Farrugia

In Plain English: calculating and reporting emissions