Green Building Law Blog : Green Building Lawyer & Attorney : Shari Shapiro: Calliope Communications, LLC

The fifty billion dollar (yes, that's $50,000,000,000) Hurricane Sandy Relief Bill (the "Relief Bill") is headed to President Obama's desk for his signature. The Full Text of the bill is available here http://www.gpo.gov/fdsys/pkg/BILLS-113hr152rds/pdf/BILLS-113hr152rds.pdf 

The Relief Bill provides several different opportunities for the Federal government to encourage states to adopt up-to-date building codes by tying distribution of the funds to commitments from the states to adopt the most up-to-date building codes. 

 According to studies by the Multi-Hazard Mitigation Council, for every dollar invested in building code adoption and enforcement, four dollars are saved in recovery costs.  As a result, FEMA has been very public about the critical role building codes play in reducing building damage from natural disasters. 

David Miller, the Associate Administrator for Federal Insurance and Mitigation Administration at FEMA, testified before the House Committee on Transportation and Infrastructure last year on this issue, concluding:

Post-disaster assessments of many communities have shown a direct relationship between building failures, the codes adopted, the resources directed toward implementation and enforcement, and the services available to support those codes.

Tying emergency relief funds to code adoption would not be new.  Department of Energy state energy block grants from the American Reinvestment and Recovery Act (ARRA) were tied to governors' commitments to adopt the 2009 version of the International Energy Conservation Code (IECC) and ASHRAE 90.1-2007, as I posted in greater detail here http://www.greenbuildinglawblog.com/2013/01/articles/codes-1/2009-energy-code-adoptions-required-by-arrawhere-are-they-now/

Two allocations which could logically be tied to building code adoption commitments are the $5.4b allocated to the Federal Emergency Management Agency (FEMA) for the Disaster Relief Fund and the $16b allocated to the Department of Housing and Urban Development (HUD) for "necessary expenses related to disaster relief, long-term recovery, restoration of infrastructure and housing, and economic revitalization..." (Bill at 74)(emphasis added).

However, in tying emergency fund allocations to code adoption, FEMA and HUD should incorporate some lessons learned through the ARRA commitments.  First, the ARRA commitments only related to a one-time adoption of the 2009 energy-related code provisions.  Second, there was no reporting required from the states on their progress with adoption and enforcement of the codes.  Finally, as I posted here (http://www.greenbuildinglawblog.com/2013/01/articles/codes-1/2009-energy-code-adoptions-required-by-arrawhere-are-they-now/), enforcement of the commitments has been weak.  To be effective, any code-related commitments must require regular code updates, and a mechanism for reporting and recapture of funds for failure to fulfill the code commitments.

Hurricane Andrew ushered in a new era of code adoption on the Gulf Coast.  With some encouragement by the Federal government, Hurricane Sandy could have the same effect. 

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A long time ago in a first term far away, there was the American Recovery and Reinvestment Act (ARRA), a.k.a the Stimulus. 

As explained by the DOE, The ARRA section on State Energy Program funding included a statutory provision (Section 410) linking SEP funding to building energy code adoption and enforcement. As a condition of accepting the ARRA funding, the states provided assurances through governor’s letters indicating their state would comply with the terms of Section 410.

All 50 states took ARRA SEP money, and all 50 governors provided commitment letters commiting to do three things relating to building energy codes:

Adopt a building energy code for residential buildings that meets or exceeds the 2009 International Energy Conservation Code (IECC),

Adopt a building energy code for commercial buildings and high rise residential that meets or exceeds the ANSI/ASHRAE/IESNA Standard 90.1-2007, and;

 Develop and implement a plan, including active training and enforcement provisions, to achieve 90% compliance with the target codes by 2017, including measuring current compliance each year. 

In the four years since ARRA, eighteen states still have no energy code at all or have residential codes that do meet the ARRA requirements, and fifteen states still have no energy code at all or have commercial codes that do not meet the ARRA requirements. A map of the status of every state's energy codes is available here.

I have not been able to find state annual compliance reports or a report by the DOE Office of the Inspector General on the building code commitment aspect of the ARRA funding.   So, there is little, if any, data on when or whether states will comply with their ARRA commitments. [NOTE: I would welcome being proven wrong in this area.  If you have data, please send me a link and put it in the comment section].

Given the vast research that building energy codes are an inexpensive way to acheive energy efficiency, it was a really good idea to tie the ARRA finding to energy code adoption.  Unfortunately, lack of enforcement of ARRA commitments appears to be a missed opportunity to move the country forward in this area.

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You are a good green company.  You have dutifully installed a solar array on your facility, and use the energy it produces to power your manufacturing process. 

You proudly proclaim on your website, in your SEC filing or on your product packaging that you "use renewable energy."  You calculate your Carbon Footprint and deduct the emissions that would have been generated using conventional fuel.  

If, like most companies, you have sold the renewable energy credits (RECs) attributable to the renewable energy, you will potentially be in violation of Section 5 of the FTC Act (15 U.S.C. Sec. 45) (“Section 5”), which prohibits “deceptive acts or practices in or affecting commerce.” 

The Federal Trade Commission released the long-awaited fourth edition of the "Green Guides" on October 11, 2012. The purpose of the Guides is to provide a framework for companies to truthfully and non-deceptively market environmental and “green” products, packages, and services. A copy of the Guides is available here.

The Guides address green marketing in general and specific applications, including renewable energy (Section 260.15).  In one of the more controversial aspects of the Guides, the FTC advises that:

If a marketer generates renewable electricity but sells the renewable energy certificates for all of that electricity, it would be deceptive for the marketer to represent, directly or by implication, that it uses renewable energy.

Guides at § 260.15(d).

The FTC has concluded that renewable energy stripped of its carbon reduction and other environmental benefits is just energy. Thus, even if a company has a renewable energy installation on its facility, and uses the energy from that facility to power its manufacturing process, if it sells the renewable energy credits, it still would not be able to represent that it used renewable energy. In addition, any carbon offsets or emissions reductions could not be included in the company's calculation of its environmental impact.

This counter-intuitive result was roundly criticized in comments on the Guides:

Most commenters agreed that it would be deceptive for a marketer to represent that it uses renewable energy if it sold all the renewable attributes of the energy it uses. Most who addressed this issue, however, disagreed with the Commission’s proposed guidance. They argued that, even when a firm sells RECs, it should be able to market its role in generating renewable energy.

The FTC, in its response, defended its position regarding RECs, but said that a company hosting a renewable energy facility and selling the RECs would not be violating the FTC Act if it describes fully and accurately its role in the transaction.  Most companies, however, are not doing this. 

There is some evidence that the FTC is increasing its enforcement of false environmental claims. The FTC brought claims against four national retailers, including Amazon, Macy’s and Sears, that were allegedly selling textiles as made of bamboo when they were actually made of rayon. The companies settled with the FTC on or about January 3, 2013, paying a total of $1.26 million in penalties for the false advertising.

The FTC brought claims against Sherwin Williams and PPG for deceptively marketed their paints as free from volatile organic compounds (VOCs). According to the FTC, the base paints were VOC free, but tinted paint (which most customers buy) contained VOCs. The FTC settled the claims in October, 2012, and the companies were forced to change their marketing practices.

Given the frequency with which the Renewable Energy/REC rule is broken, it would be impossible for the FTC to police all of the violators.  However, In the context of other green marketing claims, the FTC may scrutinize a companies' representations about renewable energy and greenhouse gas reductions.  For companies that make public disclosures in Securities and Exchange Commission filings, this could be of even greater concern.

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     On January 1, 2013, the U.S. Congress passed last minute legislation known as the American Taxpayer Relief Act of 2012 to avoid automatic increases in income taxes for millions of Americans, as well as draconian cuts to the budget of the federal government, that many feared would plunge the nation’s economy back into recession. 

        Also included in this eleventh-hour legislative compromise were reinstatements of two business and personal tax credits applicable to energy efficient residences and appliances that had expired on December 31, 2011. The Act extended the tax credits through December 31, 2013, and made them retroactive to December 31, 2011, meaning that the credits are now available for both 2012 and 2013 projects. 

26 U.S.C. §45L Business Tax Credit for New and Renovated Energy Efficient Residences

            The Act reinstated and extended the 26 U.S.C. §45L business tax credit of up to $2000 for contractors or developers that construct or significantly renovate “dwelling units” (apartments, condos or single-family homes) that meet certain energy efficiency standards.

Importantly, the credit is calculated based on the “dwelling unit,” not the building. IRS guidance on the credit defines “dwelling unit” as “a single unit providing complete independent living facilities for one or more persons, including permanent provisions for living, sleeping, eating, cooking, and sanitation, within a building that is not more than three stories above grade in height.” Therefore, contractors and developers of low-rise multi-family properties can claim a credit for each individual unit, and attached townhomes each qualify for an independent credit.

            In addition, the credit had previously applied only to residences acquired before December 31, 2011. The credit is now available for homes built and acquired from December 31, 2011 through December 31, 2013, which includes those built and acquired either in 2012 or 2013.

            In addition to extending the credit, the Act changed the baseline of energy efficiency required to qualify. Previously, §45L required a 50% reduction in energy usage as compared to the 2003 edition of the International Energy Conservation Code (IECC). The Act amended the baseline energy standard to reference the 2006 edition. 

            The 2006 edition of the IECC contains several structural changes to make the code easier to apply, and adjusted some of the technical requirements. However, as determined by the Oak Ridge National Laboratory, the revisions did not change significantly the level of energy efficiency from the 2003 edition.  Therefore, although it is important to be aware of the technical changes, properties that would have qualified for the prior version of the §45L credit will likely meet the energy efficiency requirements of the new standard.  This will disappoint many critics of the §45L tax credit, who have argued that it is not stringent enough from an energy efficiency perspective.

            The Act also freezes the credit to the standard “in effect on January 1, 2006,” the 2006 edition of the IECC. Updating the baseline energy efficiency standard to more current editions of the IECC, which are up to 30% more energy efficient than the 2006 edition, will require further legislative amendment, and is therefore unlikely to occur in the near future.

26 U.S.C. §25C Individual Tax Credit for Energy Efficient Residential Improvements and Appliances

            The Act also reinstated the 26 U.S.C. §25C individual tax credit of 10% (up to $500) of the cost of certain energy efficient existing property improvements, like insulation, windows and door, and energy efficient heating, cooling and water heating appliances. 

            As with the §45L credit, the §25C credit, the Act extended the availability of the credit to improvements placed in service between December 31, 2011 and December 31, 2013, meaning that improvements placed in service in either 2012 and 2013 are now eligible.

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