DOE Releases Green Lease Website, and More Musings on the Split Incentive "Problem"

The Department of Energy and several interesting partners (both BOMA and NRDC, for example) have launched a website consolidating green lease resources.  It is available here.  A number of public agency versions of leases, as well as some guidance documents are included.

Much is made of green leases, and the "split incentive problem" that is seen as a barrier to green building, and which green leases are designed to address.  The frequently cited example of the split incentive problem is where the tenant pays for utilities, as in a triple-net lease.  The landlord does not have an incentive to invest in energy efficient or green capital improvements because they will not see the benefits of the energy savings. Another example is which party will be responsible for maintaining green featuress of tenant space.

My feeling on this topic has always been that it is illusory. 

All lease negotiations, at some level, address the conflicting interests of landlords and tenants.  If energy and/or sustainability was an important enough issue, the parties will negotiate a solution. 

In other words, put lawyers in a room with enough diet coke, and there will be a drafting solution to the split-incentive problem. Indeed, the varied resources on the DOE site are a testament to the fact that enough diet coke exists to solve the green lease issue in several different ways.

So, I think the "split incentive" problem is really one of priority.  Energy costs represent about $1 per square foot, in a $150+ per square foot lease.  Thus, they will not rise to the top of the make-or-break lease terms. 

This is not to discount the value of the resource that DOE has put together, but rather to put it into context.  The green lease resources reduce the transaction costs associated with including green/energy efficiency terms in a standard lease.  If the poor lawyers don't have to draft the provisions from scratch, and the parties do not have to negotiate from a blank slate,  they are more likely to be included. 

PennEnvironment Releases Energy Efficiency Study Just When Pennsylvania Needs It Most

PennEnvironment released the "Building A Better America" study today quantifying the benefits of strong building codes and other policies promoting energy efficiency.  A press release summarizing the findings is available here, and the study can be downloaded here

The median home in the United States is forty years old, and in Pennsylvania, even older. Because buildings last so long, the Building a Better America study notes that strong building and energy codes are critical to realizing the benefits of a more energy efficient building stock, like reduced energy use and bringing cost savings to companies and families. Enacting strong building and energy codes locks in energy savings for decades to come.

Likewise, weak or outdated codes create a legacy of inefficient and potentially unsafe buildings long into the future. This is the situation that Pennsylvania now faces.

In 2012, the International Code Council, the body that develops the model building and energy codes, issued updates to the building and energy codes that will make new buildings 15% more energy efficient than ones built to the current codes, and 30% more efficient than buildings built to the 2006 codes.

Until 2011, Pennsylvania's building and energy codes were some of the most up-to-date in the nation. Last year, however, the Pennsylvania legislature made a series of changes to the way building and energy codes are adopted. As a result, in January, the committee that updates the codes voted to reject the 2012 updates to Pennsylvania’s codes. The committee also recommended that the Pennsylvania codes be updated every six years, instead of every three years as they are now.

If the committee’s recommendations are adopted, Pennsylvania will still be using the 2009 codes until at least 2018, and perhaps longer. As a result, the reductions in energy use and energy costs highlighted in the Building a Better America study will not be realized in Pennsylvania.

To make this real, look back. If Pennsylvania still used the 2006 codes, buildings built today would be 30% less energy efficient than ones built to the 2012 codes. As the study says, building energy efficiency is only increasing. If we are still building to 2009 codes in 2018, imagine the missed opportunity for energy and cost savings.

In addition to strong building and energy codes, the study also notes the importance of incentives to advance building efficiency. In 2008, the Pennsylvania legislature enacted Act 129, which, among other things, requires electric utilities to provide energy efficiency and conservation programs sufficient to achieve a 3% decrease in electricity use by 2013.

Most of the energy efficiency incentives in Pennsylvania are Act 129 programs offered by the utilities. However, after 2013, there are no additional set goals for energy reduction in Act 129. Rather, Act 129 requires that the Public Utility Commission set new goals, but only if the benefits exceed the costs. Right now, the Commission is in the process of evaluating the cost-effectiveness of the utilities’ energy efficiency programs, and determining whether to set new goals for energy reduction. The utilities are likely to meet the 3% target, so if no new goals are set, the utilities have no obligation to continue their energy efficiency programs after 2013.

The Building A Better America study proves that good policies, including strong building codes and incentive programs are critical for improving building energy efficiency and saving money.
Because of the imminent changes to Pennsylvania’s energy efficiency policies, to ensure that Pennsylvania realizes the financial and environmental benefits highlighted in the study, businesses, organizations and individuals need to speak out now to ensure that Pennsylvania’s policies stay strong, and provide support to Federal, state and local policymakers that advocate for energy efficient policies.

PA Code Council Votes to Reject 2012 ICC Changes, Delay Code Updates until at least 2018

 It has been stated that building energy codes are the “quickest, cheapest and cleanest way to improve energy efficiency in the building sector.” 

Unfortunately, if the January 18, 2012 recommendations of the Uniform Construction Code Review and Advisory Council (the “Advisory Council”) go into effect, Pennsylvania will not adopt the 2012 updates to Pennsylvania’s building and energy codes. The Advisory Council voted to reject the 2012 model codes issued by the International Code Council (“ICC”) in their entirely, except for a few provisions regarding accessibility for the disabled. 

The Advisory Council also voted to recommend that the revision cycle for the Pennsylvania Construction Code be extended from three years, consistent with the international model code update schedule, to six years. If both the rejection of the 2012 codes and the extension of the code revision cycle go into effect, the 2009 codes will be in place until at least 2018, and Pennsylvania may miss out on the environmental and financial benefits of the 2012 code updates, and perhaps even the 2015 updates, as well.   

This means that much of Pennsylvania’s new construction for the foreseeable future will be less energy efficient than “state-of-the-art” construction, placing owners and tenants at a competitive disadvantage compared to forward-thinking neighboring jurisdictions like New York City, Washington DC, and Maryland. 

There is much more to this story.  The full article is available here