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

Many people, including me, have noted that the National Defense Authorization Act (“NDAA”), signed into law by President Obama on December 31, 2011, prohibits the Department of Defense (“DoD”) from using any appropriated funds to achieve the two highest levels of green building certification offered by the U.S. Green Building Council’s Leadership in Energy and Environmental Design (“LEED”) Program – platinum and gold.  The NDAA, however, does provide that the Secretary of Defense can certify a building under LEED gold or platinum standards if certification imposes no additional cost to the DoD, or if the DoD conducts a cost-benefit analysis of the project and there is a demonstrated payback for implementing energy improvements or sustainable design features.

More interesting, upon further reflection, is that the bill requires that by June 30, 2012 the Defense Secretary must provide Congress with a report on the energy efficiency standards the DoD uses for military construction and repair.  The report must include:

1. A cost-benefit analysis as well an examination of the return on investment and long-term payback of LEED, ASHRAE 189.1 and ASHRAE 90.1-2010; and,
2.  A new DoD policy on energy efficient construction based on the cost-benefit and ROI analysis.

 The methodology for assessing the "cost-benefit" and return on investment of the standards is not specified.  Given that life-cycle costing makes the ROI of energy efficiency and other green features much more attractive, the standard that is used will be significant.   

The proposed DoD "policy" could also be used by Congress as a model to impose on the other Federal agencies, which mostly use LEED-Silver as their building standard.

Look out for a debate in the middle of the year over whether LEED and ASHRAE 90.1-2010 should be scrapped from DoD (and potentially other agency) requirements because they fail the "cost-benefit" analysis. 

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Recently, there has been some momentum behind energy efficiency legislation, both in the House and the Senate.  There is the Shaheen-Portman ESICA bill, an energy efficiency only bill; Conrad's FUEL Act, a broader energy bill; Lugar is prepping an energy bill that incorporates strong energy efficiency language; and now a bill reviving PACE is being prepped in the House.

PACE, Property Assessed Clean Energy, allows the upfront costs of property owners’ clean energy and energy efficiency projects to be financed by local governments, and paid back by homeowners as an increase in  their property taxes. 

The concept behind the PACE program is that the energy savings from energy efficiency and clean energy projects would outstrip the costs over time, but that the upfront costs were a barrier to many people in implementing the badly needed changes. 

Several municipalities and states had implemented these programs, and it sounded like such a good idea that $150 million in the ARRA was dedicated to support them.  Unfortunately, in mid-2010 the Federal Housing Finance Agency, which regulates government sponsored mortgage buyers Fannie Mae and Freddie Mac, and the Office of the Comptroller of the Currency, which regulates national banks stopped the PACE programs in their tracks by refusing to issue mortgages that had a PACE loan in first priority. Go here for the full story. 

Now, there is draft legislation being sponsored by Representatives Hayworth (R-NY19), Thompson (D-CA1) and Lungren (R-CA3) to restructure PACE and allow it to move forward.  According to supporters of the Bill, it is due to be dropped in the House next week before the summer recess.  A draft of the proposed bill and more information is available here.

The PACE bill requires Fannie, Freddie and the other banking regulators not to "greenline" PACE properties by restricting lending or requiring higher underwriting standards.

To assuage the concerns of the banking regulators, the PACE bill:

• Requires homeowners to have at least 15% equity in the home
• Puts a cap of 10% of the value of the home on the PACE assessment
• Requires the homeowner to have a solid history of tax payment
• Requires an energy audit to ensure cost effective energy efficiency projects are undertaken
• Requires that there be no liens, bankruptcy, defaults, etc.
• Prohibits the PACE loan from being accelerated at foreclosure

Notably, the Bill does not take away the first lien priority of the PACE, but only requires payment of the delinquent PACE payments upon foreclosure, not the entire debt.

Notably, the Shaheen-Portman ESICA Act also incorporates PACE-enabling language at Section 202, although it is in the context of credit support for PACE bonds, which does not necessarily solve the PACE lien problem. 

Fannie and Freddie have gotten so far out ahead of this issue, the agencies probably could not dial back their objections if they wanted to at this point.  Only legislation will override their "veto" of residential PACE at this point.   

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On Friday, Senator Barbara Boxer released a 923-page climate change and energy bill.  A draft of the bill had been leaked to the media in late September, and I discussed it here. 

Although the overall bill has swelled from 600+ pages to 900+ pages, there is still just 1.5 pages on the National Energy Efficiency Building Code, first proposed as Section 201of the Waxman-Markey Bill.  In the Waxman-Markey Bill, the House called for: 

1. Establishing a “national energy efficiency building code” for residential and commercial buildings, sufficient to meet each of the national building code energy efficiency targets.

2. Setting energy efficiency targets for the national building code: “on the date of enactment of the American Clean Energy and Security Act of 2009, 30 percent reduction in energy use relative to a comparable building constructed in compliance with the baseline code…effective January 1, 2014, for residential buildings, and January 1, 2015, for commercial buildings, 50 percent reduction in energy use relative to the baseline code; and…January 1, 2017, for residential buildings, and January 1, 2018, for commercial buildings, and every 3 years thereafter, respectively, through January 1, 2029, and January 1, 2030, 5 percent additional reduction in energy use relative to the baseline code.”

3. If consensus based codes provides for greater reduction in energy use than is required under the ACESA, the overall percentage reduction in energy use provided by that successor code shall be the national building code energy efficiency target.

4. Requiring that states and local governments comply with or exceed the national energy efficiency building code, and providing for enforcement mechanisms for states which are out of compliance.

The original Boxer-Kerry draft backed off of the Waxman-Markey structure entirely, simply mandating that the Department of Energy or "other agency head or heads as may be designated by the President shall promulgate regulations establishing building code energy efficiency targets...beginnning not later than January 1, 2014... "

The exact same language is mirrored in the current version of the Senate Bill at Section 163 (starting at page 200 of the current bill).  No structure, no mandatory energy efficiency targets, no requirments that states adopt energy efficiency codes by a certain date.  

This is a fascinating development because of the vast energy savings possible through regulation of new buildings and retrofits of old buildings.  According to a study by McKinsey on energy efficiency,

by 2020, the United States could reduce annual energy consumption by 23 percent from a business-as-usual projection by deploying an array of...efficiency measures, saving 9.1 quadrillion BTUs of end use energy...

The majority of the 900 page bill is dedicated to defining and establishing a cap-and-trade program.  While a worthy goal, I think that the Boxer bill misses the opportunity to grasp low-hanging fruit in energy savings through energy efficient building requirements.

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