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

Utilities are often dismissed or ignored in most discussions of energy efficiency and green building  I find this quite remarkable.  First, many state laws mandate that utilities engage in energy efficiency efforts.  Second, as utilities are directly connected to the energy consumer, utilities are often n the best place to advocate for energy efficiency and deliver energy efficiency programs.

The problem is that utilities are not usually incentivized, and are often disincentivized, from promoting energy effiiciency.  Historically, utilities have made money by selling electricity or natural gas, and recovering a return on their sales and investment in infrastructure from ratepayers.  The trouble with this scenario is that it does little to incentivize utilities to promote energy efficiency.  If the utility promotes conservation, thus selling less energy and reducing investment in infrastructure, they will make less money.   

Some energy efficiency advocates are beginning to promote different utility rate structures which pay the utilities for the lost revenue attributable to energy efficiency, so that the utilities are made whole for thheir investment. An article on energy efficient rate making is available here.

These new rate structures are not without their challenges.  For example, the Public Regulation Commission of New Mexico put in place a rate scheme which allowed utilities to collect one cent for each kilowatt hour of electricity that was saved through energy efficiency programs.  The average increase on a residential customer was 17 cents a month. 

On August 3, the New Mexico Supreme Court struck down the surcharge, holding:

The PRC did not inquire into any of the utilities’ revenue requirements, nor any of
the traditional elements of the ratemaking process. At the evidentiary hearing, the utilities merely presented evidence on what the impact of [the surcharge] would be. Without inquiring into a utility’s revenue requirements, we fail to see how the PRC could adequately balance the investors’ interests against the ratepayers’ interests when adopting [the surcharge]. The PRC’s adoption of the adder rates was arbitrary and unlawful in that they were not evidence based, cost-based, nor utility specific.

The full opinion is available here.

Energy efficiency advocates seeking to use utility ratemaking as a mechanism for promoting energy efficiency must pay careful attention to ratemaking regulations, and realize that attempts to change the historical rate structures will face opposition from many sides, including consumer advocates.   

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A few weeks ago, the EPA released its Sustainable Design and Green Building Toolkit for Local Governments. The Toolkit:

is designed to assist local governments in identifying and removing permitting barriers to sustainable design and green building practices. It provides a resource for communities interested in conducting their own internal evaluation of how local codes/ordinances either facilitate or impede a sustainable built environment, including the design, construction, renovation, and operation and maintenance of a building and its immediate site.
 

The toolkit can be downloaded here.

The Toolkit was developed by EPA Region 4, and we are very excited to have Karen Bandhauer, an Environmental Scientist at EPA Region 4 for an interview about the Toolkit.
 

GBLB:  Why did you develop the Toolkit?

KB: The Toolkit was the result of a relationship between the EPA and Roswell, GA. The city approached EPA wanting to develop green, protect natural resources and provide resources for its residents. The Roswell representatives told us that there had been some innovative projects that came into their permitting pipeline, and had run into permitting problems because of green features. They realized they were creating barriers to projects that they wanted to have in their community. The asked us whether we could help them create some resources to help communities identify the barriers in their codes to developing green. Some funding became available through the internal EPA innovation work group, about $50,000 in seed money for innovative projects. This project was put forward as an innovation project in 2008 by Region 4. That got it started. The project ended up being a partnership with Smart Growth and Green Building at [EPA]  headquarters.

GBLB: What does the Toolkit contain?

KB:  The Toolkit has three parts:  an assessment guide that allows users to tak a look at their codes and ordinances under the categories of the LEED process [sustainable sites , water efficiency, energy and atmosphere, indoor air quality, materials & resources]. The assessment tool identifies objective and rationale for each category, and then questions for communities to identify gaps in the current regulatory system, then a list of potential tools and techniques [for addressing those gaps].

There is also an assessment tool—green, yellow and red—to determine how well the community is promoting each practice. Green is where the tactic is either mandatory or incentivized, yellow is where the practice is typically allowed, and red is where the practice is hampered or prohibited [by the current regulations].

There is aslo a resource guide attached to each section which has tools, information and case studies. The resource guide has a compendium of policy tools, best practices and other materials. In some cases it might be an example of a community that has put in a model ordinance, it might be an example of a best management practice guide or a green roof technical specifications. It allows the user to get a good sensse of the existing information in the field without having to spend a lot of time searching around for it.

The last section is a guide for developing an action plan. We had not originally envisioned this section for the project, but the City of Roswell gave us feedback that they wanted advice on next steps. This is a step by step guide for changing the regulatory environment. It helps communities identify things they need to look for and address if they want to implement the changes to their regulations.

GBLB: What are some of the barriers that play out in communities?

KB: A lot are the ones you hear about, and some are community specific. One of the things that we heard about was barriers in the code to installing waterless urinals, reuse of greywater. Others were “unintended consequences”—some communities prohibit groundwater wells which prohibit geothermal. Or specific ordinances which require tree planting, but if there is a drought, there might be issues better addressed by native planting. Or street widths, which [were put in place for fire safety] but might matter in terms of building sustainable communities.

Other barriers are institutional or process oriented—specific to historical legacies like union involvement. We wanted to walk [communities] through from their environmental objective to how they could implement codes and ordinances to achieve those objectives. We tried to flip it—here’s the outcome you are trying to achieve, here are things that you can do through your permitting process to try and achieve them.

In no way is EPA trying to tell localities how to do their permitting process, but to give them resources to help them look at their codes and ordinances, and save some time and money in the process.

GBLB: Who is the intended audience?

KB:  Local government officials, and it could also be useful for developers and other private entities who are looking to develop green projects. We hope it will provide a resource for communities to bring their codes and ordinances in line with sustainable policy efforts.

GBLB: What is the status of the Roswell project?

We have completed the pilot project, and they have provided excellent feedback.
In addition, we held a Lean Kaizan event in Roswell [to identify potential efficiencies] in their land disturbance permitting process. If they wanted to incentivize a specific thing, communities can identify process improvements, allowing them to provide incentives without taxing additional resources. Roswell is continuing to work on that. We are going to work with them over time to promote the project as well as improve it.

GBLB: Have they made any changes to their code yet?

KB: Not yet. Now that the Toolkit is done and the Lean project is done, we will see where they want to take it.

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I have discussed many issues related to regulating green here at GBLB (for the Regulating Green best practices series, go here).  Some communities seeking to regulate green building, clearly with the best of intentions, have gone astray.  The most vivid examples of this were the Las Vegas green tax credit which threatened to bankrupt Nevada and the Albuquerque regulation which the City Solicitor failed to analyze for federal preemption issues.  But small communities are not immune from regulatory snafus: 

Recently, I came across a density bonus regulation for Madison, New Jersey.  The regulation reads as follows (emphasis mine): 

Maximum dwelling units per acre: 12 units per acre base density, with bonuses as follows:

(a) Incorporation of green building/design techniques to achieve at least a Silver level LEED-certified project: bonus of 10% over base density. (NOTE: The applicant shall demonstrate the ability to achieve this standard prior to receiving preliminary approval and shall commit to providing those systems, site improvements and design features consistent with Silver LEED certification.)
 

This regulation would be acceptable if the word "qualify" were substituted for "achieve."  There is simply no way for an applicant to demonstrate their ability to achieve a certification which is in the hands of a third party agency at the outset of the project.  Moreover, what design professional would be able to provide this type of guarantee? 

The Madison, NJ example demonstrates the importance of a good understanding of the LEED system (or other certification system) before utilizing it in regulatory drafting.  Design professionals need to be aware of the obligations they are assuming when a project seeks to comply with local regulations.  Finally, project owners need to ensure that they can comply with the local regulations, or seek legally binding representations by the government entity ensuring that their efforts to comply are sufficient. 

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I had a stimulating (if decaf) coffee with my friend the Green Skeptic this afternoon.  Conversation drifted to how Philadelphia managed to avoid being too overbuilt in the real estate bubble.  Everyone here always complains about how the archaic and endless zoning process and the expensive union labor force hamstring development in Philaldelphia.  And there is no doubt that these factors preclude easy and rapid development and redevelopment of Philadelphia's urban core. 

But, we speculated, did Philadelphia's "Can't Do" Attytood (as they say here) have the unintended benefit of preventing too much over-development that has been seen in places like Phoenix and Miami?  [Today's New York Times even had a story about how Bloomberg's emphasis on development and streamlining permitting may not even have benefited New York. ]

What does all of this Starbuck's infused musing have to do with green building? It stands as a cautionary tale--how fast is too fast?  

In St. Louis, Missouri's "First Green Development" was razed to the ground due to foreclosure:

five banks have started foreclosure proceedings on the project, which was started in August 2006 and appeared to be abandoned during construction.  

Expedited permitting processes for green buildings are an increasingly common non-financial incentive for green buildings, especially for cash-strapped municipalities that can not offer financial incentives or tax credits.  As we seek to encourage green development, does it make sense to ensure that the regulatory process is deliberate enough to prevent overbuilding? Or is that not the appropriate role for building regulation? 

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Of the 87,900 government units in the United States as of June 30, 2002, 35,356 are special purpose local government entities. 

According to the Census, special purpose entities are defined as 

[I]ndependent, special purpose government units (other than
school districts). They exist as separate entities, have substantial fiscal independence, and have administrative independence from general purpose governments or function for multiple governments.

The number of special purpose entities is the fastest growing government class, with the number of special district governments rising nearly three-fold, from 12,340 in 1952 to 35,356 in 2002. 

Many of these special purpose entities touch green building considerations in some way

Almost one-fifth of all special district governments perform a natural resources function, including such activities as drainage and flood control, irrigation, and soil and water conservation. The next most frequent function performed by such units is fire protection, followed by water supply, and housing and community development.

Despite the growth in power and importance of these special purpose entities, very little attention has been paid to how to "green" the functions under their authority. Moreover, there is clearly a great need to integrate the efforts of entities in charge of water, housing, development (not to mention transit agencies) with the overall efforts of traditional government units to incentivize green buildig practices.  Finally, as the census definition recognizes, these entities are often independent from traditional government entities with their own fiscal allocations.  Often their jurisdictions overlap (and are sometimes at odds with) traditional government entities.

If we can effectively harness the power of these special purpose entities to assist in the greening of our communities, it will be a great point of leverage.  Particularly where these entities form an intergovernmental function, there is an opportunity to create green regions, not just green communities. 

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I am involved in getting green building legislation passed in Philadelphia.  Basically, the bill would tie a 10 year tax abatement to LEED certification.  The greater the level of certification, the higher the tax abatement.  The bill is modelled on many other cities' incentive systems, and certainly does not go as far as Boston, Washington DC or several other cities in requiring green building practices.

What has been interesting about the process of shaping this bill and lobbying for its passage is the Realpolitik which comes into play when trying to get legislation done.  This is one of my favorite topics--where the real world intersects with theory.

In theory, everyone should be on board with green building practices.  Save the environment, save money in utilities, get federal, state and local incentives and have a great marketing tool.  In addition, most studies now report that the cost of green is down, in some cases not costing any additional resources beyond standard construction costs. 

But the reality of policymaking is a whole different ballgame.  Turf battles exist even where all the participants are supportive of green building.  Who created the legislation and who will get credit for its passage will effect whether a piece of legislation passes or dies in committee.  Special interest groups, like the affordable housing community, residential developers, mixed-use advocates and others come out  either because of cost considerations or inapplicability to their building typology.  Finally, the best bill may not be the ultimate bill that is passed--compromises made for political reasons will effect the content of the ultimate legislation. 

What is the solution? 

1. Understand the Realpolitik aspects of the process going in.  We do not live in an ivory tower, we live in a democracy with co-equal branches of government.  Engaging the power players in your jurisdiction will matter.

2. Reach out to interest groups early.  These groups should include the affordable housing community, residential developers, large development companies, contractors, the Building Industry Association if your area has one, etc. 

3. Build a coalition of supporters. Political supporters, industry supporters, academic supporters, etc.

4. Recognize that you will not please everybody.  Put in the strongest bill you can, with the best support you can.

5.  Finally, don't let the great be the enemy of the good.  Do not let the holy grail of a perfect bill supported by all constituencies stand in the way of getting something actually passed which  advances the agenda of benefitting the environment through green building practices. 

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Throughout the Regulating Green series, I have tried to identify strategies which will lead to great green regulations.  I gave a presentation to municipalities in Southeastern PA who are considering green regulations.  In preparing for the presentation, I identified a few additional considerations for green regulations.  Here are some of the thoughts I shared: 

1. Avoid improper delegation of authority

Delegation of a power normally exercised by government authorities to a private agency is considered an improper delegation of authority.  Requiring green certification by a third party entity (like the USGBC) in order to get a Certificate of Occupancy would be subject to this challenge.  This challenge probably would not apply for incentive based programs or for municipalities' own buildings.
 

2. Develop a sound rational relationship between the regulatory means and the ends

In enacting land use regulations, the means a municipality uses to regulate must bear a a real and substantial relation to the ends sought.  Thus, green regulations should include a clear intent, be supported by external authority, and implement  rational regulatory mechanisms that tie to the original intent of the regulation.
 

3.  Ensure that your regulations are not void for vagueness

Regulations violate due process if a regulation fails to give a person of ordinary intelligence fair notice that contemplated conduct is forbidden or encourages arbitrary enforcement, or both.  Green regulations which include language like "LEED or equivalent standard" might not withstand a vagueness challenge.

4. Be careful of imposing arbitrary and excessive fees

If the cost of compliance with the regulation is too high, it may amount to a virtual taking of the property of the persons being regulated. This standard is high--the value of the property must be reduced to almost nothing for a taking to occur.  But, regulatory license fees must be reasonably related to the costs associated with the services being provided.  If a municipality imposes a fee for standard projects (i.e. projects which are not green), there could be a challenge that the license fees are not related to the services being provided.
 

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Guest post contributed by Holly McCarthy, who blogs at Organic Coupons. She invites your feedback at hollymccarthy12 at gmail dot com
 

Although the economy has taken a turn for the worse in recent months, one thing is for sure: the world will continue to see construction and development in all corners for many years to come. As the population continues to grow, new areas will need to be developed and old ones will need to be renovated or razed to make room to build up. At any rate, stricter laws must be enacted in the United States if we hope for the world to follow suit.

The US has gone through many building booms and continues to grow and develop in areas of highly concentrated populations. As we continue to build bigger and better we must keep in mind that uses sustainable resources and materials is the right way to go.

Plenty of products are now being developed and produced that will not leave a heavy carbon footprint or fail to decompose once put in a landfill. Recycled materials are being used and considered for use in a variety of building applications and energy efficiency is a key factor in the design of new buildings.

Cities and states have long made sure that builders and contractors are doing their part to maximize space without making a significant impact on the surrounding areas. It only makes sense that we look at the world through the same lens. Why would we want to build something—even if it’s beautiful—if it’s going to make a huge mess for someone else to clean up?

It is time to call for action regarding the production of building materials and enact laws that will make sustainability something that is finally considered when the blueprints are being drawn, not when the building is being scrapped.

Rejuvenation of cities is also possible through green roof initiatives, where owners of buildings are offered incentives for helping to reduce temperature and carbon dioxide levels in major cities by encouraging the growth and cultivation of ecosystems atop the large and small buildings. A simple solution can definitely yield some positive results.

Green building standards will one day be the norm; they are quickly becoming something that tenants and investors are looking for as well. Now all we need are the laws that will make what we know is that right to do mandatory.
 

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One of the primary considerations in regulating green in whether to incorporate a third party green building standard, like LEED, National Association of Home Builders Green, Green Globes, etc. into the regulations.  In addition to determining whether to include a third party standard, regulators must also consider which standard to use and whether to mandate certification.  There are pros and cons to each choice which regulators concerned about crafting great green regulations should carefully consider.

1. Third Party Standard, Proprietary Standard or Hybrid?

 There are three regulatory models currently being used to determine whether a project is "green".  One is to reference a third party standard like LEED or Green Globes--if a project meets LEED Silver criteria, it receives a 10% tax credit.  Another mechanism is to create proprietary green criteria--setting out targets for energy efficiency, water usage, etc.  Finally some government entities, like Boston, use a hybrid model, tacking on specific green targets on top of a third party rating system. 

The third party rating system is easy and inexpensive, but gives local regulators the least control.  What if the third party sets a requriement which is illegal or preempted? What if the third party sets a requirement which is inappropriate or impossible for your local conditions?

The proprietary system requires the most in house expertise.  The regulators in charge of setting the green targets must understand sustainability and legal drafting very well to make this work.  Also, the system must be updated to keep pace with the rapidly changing innovations in the green building industry. 

The hybrid model works well to include local considerations into the  green criteria, but does not solve the issue of lack of control over the rating system.

2. Which Third Party standard? 

The Leadership in Energy and Environmental Design (LEED) rating systems from the US Green Building Council, a non-profit organization, is the most common rating system incorporated into green regulations.   Energy Star, a government sponsored system, is also common.

Some regulations, in an attempt to be neutral, state that projects need to meet LEED "or equivalent" standard.   Which standard is equivalent to LEED may be difficult to determine, but NAHB Green and Green Globes are the likeliest candidates. Nonetheless, LEED is still the baseline against which the other standards are measured, so LEED becomes the de facto standard.  

3. Certification or no? 

Finally, local governments need to consider whether certification as "green" by a third party is a requirement of the regulatory scheme.  For example, many municipalities make access to tax credits contingent upon acheiving LEED certification.  For voluntary financial incentives, this is not as big of a legal pitfall, although the monetary and transaction costs association with certification may reduce the number of green projects being undertaken.  However, mandating certification by a private third party could run into legal hot water.  For example, the USGBC is under no legal obligation to certify buildings within a specified period of time, or at all.  If the developer could not get a certificate of occupancy without the certification, the developer might sue the city.  Municipalities have gotten around this by having projects submit third party rating system checklists for review by building officials, without requiring certification.  This requires adequate capacity for understanding the green building criteria within the relevant government entities.

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1.  Have a clear intent

In Going by the Book, authors Eugene Bardach and Robert Kagan state, “A regulation requirement is unreasonable if compliance would not yield the intended benefits…” In other words, a regulation should have a clear intent--like increasing the number of high performance buildings or reducing greenhouse gas emissions or improving indoor air quality--and compliance with the regulation should acheive the intent. 

2. Evaluate extreme outcomes

Las Vegas instituted a tax cut for green buildings so sweeping and easy to qualify for that it threatened to cut a giant hole in the state's budget.  In planning regulatory mechanisms, regulators must look at a likely scenario of compliance and an extreme case to ensure that all outcomes are considered, and the extreme case is prevented. 

3. Carefully analyze utilizing third party green building criteria and certification systems

Many local governments incorporate third party green building criteria (and in some cases, certification) like LEED, NAHB-Green, Green Globes, etc. as the core of their green building regulations.  I will do a full post on this topic as part of this series, but regulators need to examine the pros and cons of choosing a third party system as a component of their regulations.  

4. Create measurement and verfication mechanisms

In conjunction with point number 1 above, compliance with the regulations should be measurable and verifiable.  Looking to decrease greenhouse gas production? Require reporting on energy usage.  Looking to increase green buildings in your municipality? Require receipients of tax credits to indicate what green components the credit enables them to add that they would not have done in the absence of the credit. 

5. Develop valid enforcement mechanisms

Washington DC has come under major criticism for requiring a performance bond which is forfeited in the event that a building fails to comply with the green requirements of the DC green building act.  Essentially, this is not what a performance bond has traditionally been used for, and the surety industry has expressed significant concerns over providing bonds for this purpose.  Another mechanism DC could have used was to levy fines, or withdraw (or refuse to issue) occupancy permits, if the project did not meet its green requirements.  

6. Check for state and federal preemption 

Last year, the HVAC industry associations sued the City of Albuquerque to prevent the city's green building code from taking effect.  They argued that the energy efficiency requirements in the green building code was preempted by federal standards for HVAC equipment.  In the course of the litigation, it came out that the city attorney had not checked for federal preemption. 

In addition to federal standards, many states have state-wide building codes which may preempt local municipalities' ability to require construction to conform to more stringent standards.

7. Anticipate litigation

The first envrionmental legislation was passed in the early 1970s. There is still litigation on the interpretation of sections of the Clean Water Act and the Clean Air Act.  The purpose of the judiciary is to interpret and clarify regulations, and this process is a normal part of new regulatory schemes.

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In the past five years, green building regulation has been on a meteoric rise. Green practices are being incorporated into state an local building and zoning codes and ordinances. According to the AIA, 14% of US cities with populations in excess of 50,000 people now have green building programs in place, and the number of counties with green building programs has grown nearly 400% since 2003. In addition, federal statutes were passed requiring federal agencies to build green, procure recycled materials, reduce energy consumption and prevent pollution.  The regulatory schemes fall into one of three basic types: command-and-control regulations, financial incentives and non-financial incentives.  

Command and Control Regulations

These laws mandate that buildings comply with a green building standard of some type. Command and control regulations often reference a private green building standard, like LEED, but may also include local green building requirements on top of the referenced standard.

Command and control regulations come in two basic types, zoning ordinances and building code changes. One model for instituting a command-and-control regulation is to pass a zoning ordinance which requires that a proposed project meet the referenced green building standard, in order to obtain zoning.

 In 2007, Boston made several amendments to the Boston Zoning Code to require all projects over 50,000 SF to be designed and planned to meet the “certified” level using the USGBC’s LEED systems modified with Boston-specific credits.

The advantage of a zoning code based regulation is that the project team can determine how to achieve the green building standard. In addition, local governments have almost exclusive control over their zoning.

Another approach is to revise the building code to require green building practices. On July 17, 2008, California adopted a green building code applying to all new construction statewide, with targets for energy efficiency, water consumption, plumbing systems, diversion of construction waste and use of environmentally sensitive materials in construction and design. 

 Some advantages to amending the building code to include green building requirements is that more buildings are generally impacted by changes to the building code, and the system of inspection for compliance with building codes is already in place.

Financial Incentives

Municipalities can also provide financial incentives to promote green building practices. These financial incentives can take almost any form: tax rebates, fee waivers, cash payments, etc. 

Portland, OR recently instituted a unique “feebate” structure whereby buildings built in a conventional manner pay a specified fee for their permits, building s built to LEED Silver standard get the fees waived and get access to green building resources, and buildings built to LEED Gold or higher actually get a rebate from the government. 

The advantage to financial incentives is that they use the market to encourage green building, as opposed to mandating green building practices.  However, there has been little data collected regarding whether financial incentives cause developers to go green where they would not have otherwise.  In other words, the value of the financial incentives in stimulating new green building projects has not been adequately studied.  

Non-Financial Incentives

The third common type of green building regulation is the non-financial incentive. Some local governments allow for increases in floor to area ratio, building height or density for building green. Others expedite the permitting process. 

Using non-financial incentives has the advantage of being inexpensive for cash-strapped local governments, and harnessing some of the same market based value of financial incentives.  It is also a good gateway for entry into regulating green buildings for local governments who want to proceed in a step-by-step fashion.

TOMORROW: To LEED or Not To LEED: Pros and Cons Of Integrating Third Party Certification Into Green Building Regulations

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Today I will introduce the first of a new series on Green Building Law Blog focusing on mechanisms for regulating green building successfully.  This series incorporates many themes I have been covering here on Green Building Law, but is intended to be a more in depth look at the topic.  

Please feel free to contact me with any comments or suggestions for the series at shari.shapiro@obermayer.com.

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