Carbon-Emissions Data to Inform the MBS Market

Blog post
5 min read
Cyril Pecoraro, Joy Zhang, Michael Ridley
March 8, 2023
  • U.S. real estate investors may increasingly seek data on residential emissions to help estimate the financed emissions of their holdings in mortgage-backed securities or property loans.
  • Our estimates of carbon emissions for residential properties in each U.S. state indicate strong regional differences in absolute emissions and in the drivers of these emissions.
  • Residential Scope 1 emissions are higher in the Northeast; Scope 2 emissions are higher in the Midwest, due to high grid-emission intensities, and in some Southern states, due to higher electricity consumption per square meter.
Impact investors and those with net-zero commitments who have exposure to the U.S. property market may be seeking state-level data on residential emissions. It could be used to meet three requirements. First, to help understand the emissions in either their property loans or mortgage-backed securities (MBS); second, to track how these emissions change over time; and third, to accelerate the reduction in the emissions they are financing in the most efficient manner. With this in mind, we collected and analyzed state-level data on Scope 1 and 2 emissions at the household level. In the exhibit below, we estimated average carbon emissions (measured in kilograms of CO2 equivalent per square meter, or kgCO2e/m2) for residential properties in each U.S. state, a first in property-emissions analysis. Properties in the Midwest have higher emissions per square meter than those on the West Coast.1
Higher emissions in the Midwest than other regions
U.S. residential real estate's CO2-equivalent emissions (Scopes 1 and 2) per square meter by U.S. state (kgCO2e/m2). Data as of Feb. 14, 2023. Source: MSCI ESG Research
Residential properties' emissions are reported in two scopes:
  • Scope 1 emissions stem from the use of oil or natural gas for heating and cooking
  • Scope 2 emissions come from electricity consumed in the property2
Scope 2 emissions can be disaggregated into emissions due to the carbon intensity of the power source used and how much electricity is used in a residence. The quantity of energy used for heating and cooking (Scope 1 emissions) partly depends on the temperature experienced in each state and the thermal efficiency of a building. Scope 1 emissions were higher in Northeastern states and Alaska than in the rest of the country. One cause of this is that heating demand in many Northeast states is often met using oil-fired boilers.3
Higher Scope 1 emissions in Alaska and the Northeast
Data as of Feb. 14, 2023. Source: MSCI ESG Research
Scope 2 emissions were higher in the Midwest and South compared to other regions. To understand why, we disaggregated Scope 2 figures (kgCO2e/m2) into grid emission intensity (measured in kgCO2e per kilowatt hour) — i.e., how "dirty" the electricity grid is — and electricity use (kWhr/m2). This disaggregation reveals that the Midwest's relatively high Scope 2 emissions were due to high grid-emission factors (left-hand chart below), while the higher Scope 2 emissions in Southern states were due to relatively high use of electricity per square meter (right-hand chart below).
How Scope 2 emissions and intensity varied by state

Grid emission intensity

Electricity-use efficiency

Data as of Feb. 14, 2023. Source MSCI ESG Research
This state-level residential emission data is likely to be of increasing interest to investors as state-level initiatives are introduced over time to try to lower residential emissions.
Further Reading
Total Portfolio Footprinting to Transform Green-Bond Emission Accounting Measuring Climate Impact with Total-Portfolio Carbon Footprinting
Michael Ridley
Michael Ridley
Executive Director, MSCI Research
Joy Zhang
Joy Zhang
Managing Director, MSCI Research
Cyril Pecoraro
Cyril Pecoraro
Senior Associate, MSCI Research

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1Presenting data per square meter means it is independent of property size. These emission factors do not capture emissions from construction.2As laid out by the Greenhouse Gas Protocol.3”Oil-fired boilers and furnaces.”, U.S. Department of Energy, Energy Saver, February 2023.

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