Pick the low hanging fruit: something as simple as seeing on a utility bill how one's own energy efficiency compares with the norm can have a dramatic impact on usage, as Dirk Brounen reports

Making buildings greener has rapidly turned into one of the key challenges of global real estate markets. Given that buildings are responsible for around 40% of CO2 emissions every year, real estate markets are a focal point in the sustainability policies of governments.

But the race to reduce energy consumption is not running smoothly.

It seems that every new policy initiative is welcomed by a debate on definitions, standards and expenses. Although, it is clear that the problem of greenhouse gases needs to be resolved with the help of the real estate industry, it is still hard to align the long-term ideological aspirations with the operational dilemmas that face real estate professionals daily.

We all know by now that we are facing challenges that cannot be avoided. Although there is still an ongoing debate as to the true magnitude of the worst-case scenarios of climate change, there is little doubt about the existence of CO2 and the opportunities to reduce these emissions by more efficient ways of using and producing energy.

However, sustainability does feature in the annual reports of today's real estate entrepreneurs; on paper, we all seem to be very eager and willing to ensure that our operations are as ‘green' as they can be. At the same time it seems that we have difficulties with walking the talk.

For instance, considering the implementation of energy certificates across member states in Europe, almost half have failed to launch a national energy label plan. That is remarkable, since the Energy Performance of Buildings Directive (EPBD) of the EU, which introduced the need for labels, was signed more than eight years ago. It seems that when it comes to action, we swiftly get stuck in the trade-off between what is needed in the long run and what is more convenient today.

But there is a way out: us. The sustainability debate in real estate has mainly been on the thermal-quality aspects of the building. Engineers from all around have been competing for novel ways of insulating buildings and improving the efficiency of heating and cooling installations. But what about the behaviour of the property user?

It is impressive that the car industry continues to succeed in introducing new more economical petrol engines. But much of these savings are based on paper assumptions. We assume that people drive prudently. But real people often don't. Research shows that by adjusting our behaviour as consumers we can create larger energy savings than many technical innovations can account for. But changing behaviour is hard, very hard indeed.

That's why the sustainability race has a clear need for psychologists, next to clever engineers. Psychologists can teach us a trick or two on how effectively to influence the behaviour of consumers - in this case by triggering more energy efficient behaviour.

It turns out that instead of telling people to do the right thing, it is much more effective to play mind games - ‘nudges' - with your customer. In the Home Energy Report of OPower, a US-based consulting firm, an experiment with nudges yielded an energy use reduction of around 2% a year. The trick here was simple. ‘Smiley faces' were added to the utility bill, indicating to the consumer whether their energy use was high or low relative to others.

It seems that we do not mind paying our utility bills, but we do dislike the feeling that we are paying more than other people. Hence, consumers with sad smileys on their bills, indicating that they were using more than average, swiftly adjusted their energy consumption in the subsequent period. This turned out to be a very effective way of reducing energy consumption, without spending any money on insulation, solar panels or heating systems.

The race for a more sustainable real estate world is on. We can win it if we can combine technical innovations with adjusting our behaviour. The end result of greening real estate - the lower CO2 emissions - will likely be a combined effect of innovating the technical specifications of objects and resetting the standard behaviour of the tenant. For the latter to be achieved, we will need to turn our attention to the nudges that psychology has to offer.

Dirk Brounen is professor of real estate economics at Tilburg University