The Emperor’s New Clothes or the Next Big Thing? - Web3 Applications in Real Estate Decarbonization

Abstract

The building sector’s decarbonization progress made to date has not been enough to achieve the target of limiting global warming to 1.5°C1. To avert a catastrophic climate disaster, mobilizing capital at the requisite scale and speed is urgently needed. However, as things stand, the investment in building decarbonization is unlikely to increase radically in the next few years. One of the biggest challenges is the financial barrier of decarbonization's demand and supply side. This barrier will lead to significant investment gaps and a subsequent market failure to deliver the net zero carbon emission target. With the rise of the voluntary carbon market and carbon data disclosure mandates, an emerging cohort of Web3 startups is helping corporations track, tokenize, and transact energy or carbon impact. This phenomenon inspired us to revisit monetizing carbon value in commercial real estate to bridge the decarbonization financing barrier. We identified four challenges to make this idea work: 1) measurement and verification, 2) streamlined automation, 3) stakeholder incentive alignment, and 4) fixing the failing carbon market. We examine if Web3 decarbonization solutions can tackle those four challenges in monetizing building decarbonization. By looking into Web3 applications in decarbonization data management, tokenization, and marketplace, we unpack the unique capabilities and potentials of Web3 solutions and how they are different from the status quo to accelerate decarbonization in commercial real estate. The findings are a mixture of "the emperor's new clothes" and " the next big thing ."Web3 startups are immature – most are at or before proof of concept. Nonetheless, Web3 technologies can play a role in providing improvements to carbon data management, aligning stakeholders' incentives, and increasing efficiency in the energy or carbon markets.