1970s Oil Crisis

Energy efficiency and sustainable building design were unheard of ideas for a long time. The idea of energy efficiency and other concepts only came to prominence around the 1970s. In the 70s, the United States faced a severe energy crisis. Unlike today, the US was heavily reliant on the Middle East for oil back then. After OPEC placed an embargo on the US, an energy crisis erupted in the sector that consumes the most energy: commercial buildings. New research and a motivation for energy efficiency started to take hold in universities and businesses. This rise gave birth to a new standard and laid the groundwork for green buildings that we see today (Carla, 2010).

Global Warming Awareness 1980-2000s

From the late '80s onward, scientists and researchers began to notice the shift in global warming. In 1997, the UN signed the Kyoto Protocol, which was the first binding international emissions reduction goal. Throughout the 1990s and 2000s, mounting scientific evidence, including reports from the Intergovernmental Panel on Climate Change (IPCC), increased public and political awareness. High-profile events and new research brought climate change into the mainstream conversation and made it a growing political issue. This growing awareness gradually shifted the conversation from pure energy efficiency (saving costs) toward reducing greenhouse gas emissions as a core environmental priority for ESG standards.

Certifications & Regulations 90-2000s

By the 2010s, green building certifications and energy efficiency metrics, took hold such as LEED, ENERGY STAR, and Green Globes. These programs encouraged energy efficiency and sustainable design, but remained optional. Since the beginning of these certifications, their use has grown tremendously and has become commonplace in new buildings.

Aggressive emissions reductions goals 2010s-Present

Starting around 2015–2019, local governments (particularly cities) implemented increasingly aggressive emissions reduction goals. This new wave of policies shifted the industry from “encouraged improvement” to “required compliance,” with clear targets, reporting requirements, and financial penalties for buildings that failed to meet greenhouse gas reduction standards. Many cities have enacted laws with "net zero" goals that aim to help the city be carbon neutral by a certain year. However, achieving this remains a difficult task and an increasingly divisive political issue. For example, it's estimated that Local Law 97 in New York will force nearly 46% of eligible commercial properties to be out of compliance, resulting in millions in fines. Some owners and investors see this law as an effective tax aimed at addressing the city's financial difficulty, rather than an environmental law with true motivations. However, other cities such as Boston, San Francisco, Washington D.C., and others are also implementing their own forms of carbon caps for commercial buildings. What began as certifications for top performers evolved into enforceable building performance laws designed to drive widespread decarbonization across the commercial real estate sector.

Global Warming

Scientific knowledge of global warming has changed from a growing worry to a huge deal that's impacting businesses. Buildings are one of the biggest contributors to greenhouse gas emissions, accounting for over 37% worldwide, according to landmark IPCC studies, international accords like the Kyoto Protocol and Paris Agreement, and rising public awareness (UNEP, 2023). Significant decarbonization in the built environment lagged well behind the science, despite decades of knowledge. As a result, emissions from residential and commercial structures kept increasing, giving rise to the current pressing issue. Since construction and operations of commercial buildings contribute some of the most to carbon emissions, this sector is in the crosshairs of legislators and environmental groups trying to tackle this issue.

Energy Volatility

Energy markets have grown increasingly unstable due to geopolitical conflicts, supply disruptions, and have accelerated the shift away from traditional fuels. Major price spikes, such as those experienced in 2022 and 2026, highlight how vulnerable building owners are to unpredictable utility costs. For commercial property portfolios, energy expenses often rank among the top three operating costs. This volatility transforms energy efficiency from a nice-to-have sustainability feature into a critical financial risk management strategy for protecting margins and long-term profitability.

The Fossil Fuel Ecosystem

There are four big problems with a city or country that continues to rely on fossil fuels. Perhaps the biggest reason is the cost. The cost of solar energy alone has decrease by 99.6% since the 1970s (Roser, 2020). The cost of other clean energy sources have also drastically fallen over time. At the same time, the cost of extracting and producing fossil fuels has stayed the same. Secondly, the utilization of clean energy is usually region-specific. For a country that prioritizes autarky in a world of global energy shocks, this is especially important. Many countries are turning to clean energy, because it's not as susceptible to geopolitical shocks that are associated with the scramble for fossil fuels. The Russia-Ukraine War and the Iran War have highlighted the difficulty economies can face by being heavily reliant on these resources. Finally, fossil fuels are a finite resource. Current estimates say the world's current reserves of fossil fuels would last ~50 years (Energy Institute, 2025). Adjusting for new technologies and the discovery of new reserves, an aggressive case could be made for ~80 years. However, no matter how you slice it, the world's energy is reliant upon a collection of resources that will be gone in this century; the question that comes next is, where will we get our energy, and how can we transition?

What can be done?

Energy Retrofitting

The principal way of reducing or complying with these regulations is through a process known as energy retrofitting. This involves upgrading existing buildings with energy-efficient technologies and systems to reduce operational carbon emissions, lower energy costs, and meet increasingly strict regulatory requirements. A typical energy retrofit aims to reduce energy consumption by 15-25%. Deep energy retrofits, which are more comprehensive and often involve complete renovations, reduce energy consumption by 40-60%.

Despite many contractors willing to help owners reduce their costs, the path towards achieving this remains challenging. The cost of a building undergoing a retrofit often does not justify the savings and compliance it will bring. Being able to quickly understand the return on investment and cost is crucial to making effective decisions. However, as this process becomes streamlined and more efficient with technology, the ROI case for retrofitting will continue to improve. In 2009, the Empire State Building underwent a deep energy retrofit and was able to achieve a 38% reduction in energy use, annual savings of approximately $4.4 million, and an incremental payback period of just three years (Harrington & Carmichael, 2009). This shows that with efficient and effective processes, retrofits can justify the bottom line.

Sustainable Building Design & Development

In order for buildings to never have to worry about retrofitting or meeting other energy requirements, this portion can be done in the design and development phase. This presents a much easier solution that is far more cost-effective. Around 70% the dynamics of the energy efficiency comes from the design and development of the building (Carla, 2010). For developers and investors alike, investing in architects and engineers who make this a priority justifies this at a financial level. One of the certifications that can be important to look at is the LEED Building Design + Construction (BD+C), which is shown to be very effective. Other certifications include: ENERGY STAR, or Passive House; optimizing building orientation and passive design strategies; selecting low-carbon materials; integrating high-performance mechanical systems; and planning for future adaptability and resilience.

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