The new era of net zero as a service: How the engineering and construction industry can lead it

The built environment and construction accounts for 39% of global energy related CO2 emissions, and worldwide construction is poised to accelerate in the near term. The E&C industry clearly has a big role to play. The industry is intensifying efforts to help customers decarbonize assets and make them more resilient by using lower-carbon-content materials, designing for energy efficiency, leveraging renewable energy for cleaner power sources and providing options for materials and alternative means and methods for construction. 

Still, the most profound way E&C firms can help their customers develop projects with more transparent reporting, sustainable methods and cleaner materials may be by offering net zero as a service (NZaaS) — enabling the monitoring and disclosure of greenhouse gas (GHG) emissions (as well as monitoring other emissions, including hydrogen) on projects and portfolios. This includes quantifying emissions produced not only through an asset’s operations but also those across its life cycle, including embodied carbon of materials like concrete and steel, human capital, suppliers, equipment and facilities contributing to a project’s build. PwC believes that such new services are potentially the most important transformation of E&C firms, given the societal and regulatory push to decarbonize, as explored in our report on the future of the industry.

Emissions reporting: Ready for prime time

This is a timely moment for E&C firm leadership. As of March 6, 2024, the SEC requires publicly-traded companies to disclose climate-related risks that could materially impact their business strategy, results of operations or financial condition. This includes material carbon Scope 1 and Scope 2 emissions. The new SEC climate disclosure rules join existing regulations, including Europe’s Corporate Sustainability Reporting Directive (CSRD) and California’s disclosure requirements. In February 2022, the Biden administration established the Buy Clean Task Force to guide the federal government in purchasing of low-carbon materials, which will likely be favored by construction projects funded by the 2021 Infrastructure Investment and Jobs Act.

We expect these new rules to have a ripple effect as companies will increasingly expect and even require suppliers to report their Scope 1 and Scope 2 emissions. And while the SEC rules don’t require Scope 3 emission disclosures, other global regulations do. Suppliers should consider collecting and sharing Scope 3 emissions data to go after market share as companies start to favor working with organizations that have a lead on sustainability.

The SEC’s recent decision to stay the regulations, pending judicial review, has created some uncertainty and inconsistency in the regulatory landscape for climate-related disclosure. However, this does not mean that E&C firms can afford to relax their efforts to provide NZaaS to their clients. It remains a critical service offering that can help E&C firms differentiate themselves in the market, respond to customer needs and expectations, and contribute to global decarbonization goals.

The carbon ledger: The foundation of NZaaS

A core purpose of building carbon ledgers is to monitor and track emissions from three different sources: Scope 1, Scope 2 and Scope 3. These ledgers help facilities disclose and report their emissions. The responsibility for collecting complete, verifiable and accurate carbon-ledger data, as well as determining calculation methodology, can be assigned to a facility’s owner/operator and outsourced to a contractor, or third party. This is similar to how electronic data and documents are provided by engineering and construction firms following industry standards like the Capital Facilities Information Handover Specification (CFIHOS). By implementing project-specific carbon reporting requirements that extend to contractors and suppliers, a standardized reporting framework can be established similar to an owner-controlled insurance program (OCIP). In this case, an owner-controlled emission reporting program will facilitate the delivery of a project with a standard reporting framework to drive a holistic, accurate and reliable carbon ledger.

The carbon data ledger must provide reliable information that can be integrated with enterprise-wide financial systems to enable investor-grade reporting. Standards are under development to facilitate consistency in reporting, including those recently published by the Open Footprint Forum. The launch of their Open Footprint Data Model Standard aims to provide a common data model for Scope 1, Scope 2, Scope 3 and Product Carbon Footprint. This has been an industry-wide collaboration of approximately 90 companies over the course of four years.

Doing so can be enormously complicated, requiring emissions data from vendors (suppliers and manufacturers, construction equipment providers, logistics providers) and industry-proxy or estimates for each component of a project’s facility. Carbon ledgers can also identify a broad range of net zero needs, including energy efficiency improvements and the integration of cleaner power and fuel and carbon capture and sequestration technologies.

E&C firms are positioned to offer carbon ledgers to customers, or net zero as a service (NZaaS), not only for the projects they are contracted to build but for facilities built for owners by others as well. Net zero services have the potential to be expansive when integrated with advanced project data sets, and they can include carbon footprint reduction alternatives, sustainability tradeoffs and benefits, and carbon offset strategies through real-time project optioneering. They can also impact strategic decisions for customers, such as considering climate-risk mitigation plans or net zero design alternatives that could help evaluate which projects should move forward and which should be deferred. Generative AI may make it easier to offer net zero services. GenAI, for instance, can perform advanced analytics to support data-driven decision-making, performance monitoring and financial analysis, among other capabilities.

Weaving a carbon digital thread throughout operations and procurement

The carbon emissions digital thread can run from the initial carbon-emissions data collection and the analysis of that data at several layers, such as product, project and asset. Adopting this digital thread often requires treating the project or asset as a product, including a bill of materials to which carbon-emissions data attributes can be linked.

The carbon ledger can be built within existing project digital tools or integrate directly with them, linking the emissions tracking to project data structures such as the WBS (work breakdown structure), the digital twin/tag centric databases or procurement systems.

Scope 1 emissions: Turning climate-related risks into opportunity

Scope 1 emissions are direct emissions from owned or controlled sources. E&C companies already offer many services to measure and reduce these emissions, but new opportunities are still arising.

• Baselining: Many engineering firms conduct building-level energy models to satisfy compliance requirements. By leveraging this baseline data, in addition to the right equipment (such as submeters and a well-designed BMS), E&C companies can provide valuable comparative baseline and ongoing actual performance data both in terms of energy and emissions.
• Energy-efficient design: Engineering firms commonly design buildings and infrastructure to reduce energy use by, for example, optimizing insulation, using energy-efficient appliances and incorporating renewable energy sources.
• Construction process improvement: Construction companies can — and many do — reduce emissions from construction activities by using energy-efficient equipment, improving logistics to reduce fuel consumption and using low-carbon materials.
• Carbon capture and storage: A newer opportunity for industrial clients, E&C companies can design and build facilities for capturing and storing carbon emissions.

Scope 2 emissions: Paving the way to compliance

Scope 2 emissions are indirect emissions from the generation of purchased energy. Similar to Scope 1, many E&C companies already offer some services to reduce these emissions, with opportunity to expand.

• Energy efficiency upgrades: E&C companies can retrofit existing buildings and infrastructure to improve energy efficiency by, for example, upgrading insulation, installing energy-efficient lighting and conducting retro-commissioning to optimize HVAC systems.
• Renewable energy infrastructure: E&C companies can design and build infrastructure for generating renewable energy such as wind farms, solar power plants and hydroelectric dams. This can help clients reduce their reliance on energy from fossil fuels.
• Renewable energy procurement: Where new renewable energy infrastructure is not feasible, E&C companies can help clients identify and procure RECs and offsets to support achievement of net zero.

Despite the financial opportunity, addressing energy demand is often overlooked. Using currently available technologies, an estimated 31% reduction in energy intensity can be achieved by 2030. However, only 10% of CEOs say their companies have completed efforts to improve energy efficiency.

PwC regularly supports client decarbonization efforts. To aid companies in identifying fit-for-purpose energy reduction strategies, PwC developed an Energy Value Framework. When implemented effectively, following the framework can help companies create and preserve value.

PwC also has a proprietary decarbonization lever database with 800+ levers that can help clients identify carbon reduction opportunities that fit their operational needs, are applicable within their geography and climate, and can provide a reasonable payback.

Scope 3 emissions: Especially tricky for E&C firms’ long, complicated value chains

Measuring and reporting emissions across an asset’s entire value chain (capturing, monitoring and verifying the end-to-end carbon emission footprint of a project — or a resulting product — at each stage of an asset’s life cycle) can prove challenging. Most E&C firms already report Scope 1 and Scope 2 emissions, but this falls short of reporting an asset’s total value-chain emissions, greater than 40% of which are covered in Scope 3.^₁ For E&C firms, estimating Scope 3 emissions can be particularly difficult due to the relatively recent development of tools, databases and skillsets required to conduct these analyses. As such, calculating Scope 3 emissions demands resources they often lack, and that can lead to underreporting (or failing to report) this data. This is potentially problematic for many E&C firms, given that Scope 3 emissions can account for most of a project’s total emissions. Outsourcing data calculation and collection to a third party is one alternative, but outsourcing can raise similar concerns about whether the data is complete and accurate.

Many tools and resources have been developed in recent years to aid E&C companies in tackling Scope 3 emissions for their buildings. For example, robust databases of environmental product declarations (EPDs) have been developed, which can be leveraged to identify both manufacturer-specific and industry-wide embodied carbon data. Alternatively, the spend-based method can be used where supplier-specific or average product data is not readily available.

While Scope 3 emission accounting is still relatively new, the necessary resources and skills in the market are rapidly developing. E&C firms that are building the capabilities to successfully support their clients with Scope 3 emissions will likely not only have a competitive advantage but also could enhance the preparedness of owners and operators as the new era of NZaaS plays out in the near and long term.

Closing the gap

E&C firms are uniquely positioned to develop NZaaS, helping owners and operators achieve their net zero targets. Leading E&C firms are using advanced tools to provide precise emissions data, opening up new business opportunities. They’re also incorporating energy-efficient designs, renewable energy infrastructure and carbon capture technologies into their projects. These firms are not only gaining a competitive advantage but also contributing significantly to global decarbonization efforts.

Key takeaways 

• Engineering and construction (E&C) firms that can offer asset owners accurate emissions measuring and reporting (carbon ledgers) can unlock new business models and revenue streams while helping lead in the race toward greener infrastructure.
• E&C firms should incorporate emissions reporting into the processes already in place for financial reporting to help meet investor-grade standards. 
• E&C firms should decide on the sources and key metrics for every stage of design development. 
• Providing accurate and complete Scope 3 emissions could be a big opportunity for E&C firms to increase competitive advantage, as some companies will increasingly need that data. 
• On April 4, 2024, the SEC issued an order staying its final rules on climate-related disclosures until the completion of litigation challenging the agency’s authority to adopt the rules.
• This stay was not unexpected. The SEC anticipated legal challenges, and those legal challenges are working their way through the court system. Most companies are still experiencing pressure to disclose more about their environmental impact and associated greenhouse gas emissions, whether from other climate disclosure regulations in California and Europe (from both CSRD and CBAM), or from customers who are increasingly expecting more from their suppliers on climate disclosure.

Sara Kingman contributed to this article.

^{_{1. Brightworks Sustainability, WAP Sustainability and World Resources Institute, “Sector Supplement for Measuring and Accounting for Embodied Emissions in the Built Environment,” 2021.}}