The failure to convert hotels to become net-zero carbon emitters has a major impact on the bottom line by incurring carbon credit expenses or penalties as well as excess energy consumption levels.

This article analyses current asset performance, future goals and the value at risk from foregoing necessary conversions to net-zero carbon by 2050. Failure to do so results in stranding of assets – a term the real estate industry should understand as a new form of “ecologic” obsolescence.

Asset owners could face impairments (present value) from US$30,000 to US$230,000 (!) per key for an obsolete 5-star hotel– a large part of which can be mitigated while improving the bottom line.

'The combined penalties and savings for a 500-room, 5-star hotel ranges from US$31 million to US$115 million or US$63,000 to US$230,000 per key.'

Green House Gas emissions and reduction targets

Among a global drive to decarbonize the economy, governments across the world have signed up to drastically reduce carbon (or GHG: greenhouse gas) emissions.

The United Nations Framework Convention on Climate Change (UNFCCC) with 197 countries represented, through the Paris Agreement in 2015 and the 26th Conference of Parties (COP 26) in Glasgow 2021 implemented specific measures towards mitigating climate change by restricting temperature rises to well below 2⁰C above pre-industrial levels via the reduction of GHG emissions.

Real Estate contribution to Green House emissions (EU ROADMAP 2050)

Source: https://www.roadmap2050.eu/attachments/files/Corepresentation.pdf

These measures are then implemented across various party geographies. For example, the EU aims to reduce total carbon emissions by at least 80% from 1990 levels by 2050. The above diagram shows the breakdown and reduction targets for seven key sectors.

While industry and agriculture have more modest reduction targets at 40% and 20%(albeit not easy to achieve), buildings are given a 95% carbon reduction target, 45% of which from within the sector via efficiency and newbuilds and 50% via a fuel shift to heat pumps. Such plans represent a significant reduction which require a rethinking for all stakeholders in the real estate industry.

At the corporate level, the science-based target initiative (SBTi - https://sciencebasedtargets.org/) provides companies with an effective and recognized first step to work towards a specific global warming limit in the future. The specific way to lower GHG emissions can then be set within the organization. However, SBTi guidance specific to the building sector is still under development.

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