In 2023, the SET Alliance was selected by the Circular Buildings Coalition alongside 9 other organisations to conduct a Blueprint Project dedicated to creating a more circular built environment in Europe. The Circular Buildings Coalition is an initiative of the Laudes Foundation, Metabolic, Circle Economy, the Ellen MacArthur Foundation (EMF), World Green Building Council (WorldGBC), World Business Council for Sustainable Development (WBCSD) and Arup to accelerate circularity in the built environment in Europe.
It aims to address four main challenges to scale action in Europe through developing system analysis, hosting thematic round tables, advocacy, developing blueprint projects, and providing support to novel and proven solutions through regranting.
The main systemic challenges facing a more circular built environment are:
- Financing Mechanisms
The financial sector is currently not prioritising investments in the development of the circular building industry. Key causes for this situation are a lack of well-established circular business cases, the perceived risks of circular construction, a limited presence of financial incentives for circular construction, and the lack of appropriate instruments to steer and monitor the impact of investments. This is true for investment funds looking at residual value, risk management, and value retention in the long term, as well as commercial developers, land owners, and public actors looking to minimise cost in the short- and medium-term.
- Markets & Supply chains
A market that is already under strain from extensive regulation, increasing resource costs, and supply chain failure, is rich with barriers to innovators that are trying to create the solutions that are needed to achieve circularity in their supply chains.
- Ownership models
There is a lack of a track record of financially sustainable ownership models that align the interests of investors, building users, and developers with long-term climate and circularity goals. In the lion’s share of the construction industry, the ownership of buildings and infrastructure (and the products and materials these are made of), does not lie with the organisation that designed and developed them in the first place. This leads to a split incentive, making sustainable and circular design difficult and financially less attractive. Developing and designing while taking the total costs of ownership (rather than the costs of construction alone) into account is rare, and as a result reuse of buildings, products and materials at end of life is the exception rather than the rule.
To enable the transition to a circular building sector in Europe, new types of ownership models need to be developed and tested that supplant the current models. At the same time, new ownership models should provide a means to better address the needs of the building’s owners and users over time. These ownership models may pertain to land tenure, entire buildings, or building components/construction products. The coalition aims to identify and ‘amplify’ ownership models that facilitate circular design, operations, and management of the built environment.
- Policy
The construction sector is still suffering from outdated rules and regulations that do not address circularity in the built environment, perpetuating old construction models with little regard for their environmental impacts.
Blueprint Project
The SET Alliance Blueprint Project proposes the development of contract guidelines focused on circularity and Product-as-a-Service models dealing with the ‘services’ layer of buildings. This layer is recognised in the ‘6S’ conceptualisation of buildings to refer to mechanical, electric and plumbing systems and equipment used for applications like heating, ventilation, cooling, lighting, or elevators. This layer in particular has been identified by the CBC as having the highest potential and suitability for the use of PaaS. However, there remain challenges hindering widespread adoption, and uncertainty surrounding the circularity of solutions and reduction of environmental impacts.
The use of Product-as-a-Service (PaaS) models for clean and energy-efficient heating, cooling, energy storage, lighting or other energy-intensive assets in buildings, is increasingly recognised as an alternative ownership model to accelerate decarbonisation and the circularity of the built environment. In the EU, buildings account for 40% of energy consumption, and across Europe meeting climate targets requires accelerating renovation projects and in particular the transformation of the residential sector. According to research, 85-95% of the existing building stock will still be in use in 2050 and 75% remains inefficient. This represents an opportunity for innovative business models and practices to drive decarbonisation and enhance the circularity of the built environment in Europe.
The creation of PaaS contract guidelines in the European context serves as a solution to facilitate a better understanding of the actual state and potential of PaaS models for services in buildings, creating opportunities for meaningful collaboration and knowledge-sharing activities with different stakeholders involved in PaaS for buildings, and supporting the process of PaaS project development in Europe.
Through past initiatives such as Cooling-as-a-Service (CaaS) and Efficiency-as-a-Service (EaaS), we have seen that the creation of useful tools can support the acceleration of the market for PaaS. The PaaS model has the potential to address challenges related to the ownership and use of systems in buildings including the issue of split incentives and responsibility for the performance of different equipment across a building’s life cycle, in particular during the operation and maintenance phase. A better understanding of the different enablers for PaaS projects for the services layer of buildings, the stakeholders involved, and the role of contracts in addressing different issues, may also help to facilitate the use of the model in other layers (e.g., stuff or skin).
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White paper: Key takeaways
The white paper brings to light several critical insights and conclusions. Firstly, that circularity, and the reduction of environmental impacts, is not an inherent property of PaaS models and requires stakeholders to consider and embed aspects into contract development. Secondly, the paper outlines the importance of partnerships: realising the potential for more circular PaaS models requires a collaborative ecosystem. The successful implementation of PaaS, concerns several key stakeholder relationships between the provider and the customer but also financiers and sub-suppliers. This represents an interconnected web of contracts that require multiple stakeholders to align.
Another key takeaway is the need for ongoing and concerted efforts to raise awareness of the potential for circularity and the reduction of environmental impacts through the use of PaaS models. There is still a lack of awareness of how PaaS models work and their potential to enhance circularity, in comparison to other business models and forms of ownership of equipment within buildings. Stakeholder involvement and buy-in as part of the guideline creation process will be essential to driving this topic forward, as well as messaging and materials that highlight success stories and address common questions or objections.
To read more, check out the full white paper here.
