Greater Energy Efficiency Could Be An Unlikely Outcome of the Ukrainian Crisis

It seems like an odd “butterfly effect”—a plane shot down over Ukraine could boost energy efficiency?  But it is not as far-fetched as it seems. 

“Fuel switching”—changing power plants over to natural gas from coal—is one of the compliance paths for achieving the carbon emission reductions in the EPA’s proposed existing power plant carbon emissions reduction rule.  Fuel switching is expected to be a popular compliance path because power companies are already taking advantage of the economic attractiveness of cheap natural gas (vs. coal) to convert their power plants.  Natural gas conversions have been a significant contributor to the 15% decrease in carbon emissions since 2005.  

When the Ukrainian crisis first emerged this spring, discussions in Washington turned to accelerating natural gas exports in the event that Russia was either unable (due to sanctions) or unwilling to sell its NG to Europe.  The Energy Information Agency predicts that increased exports of natural gas will lead to lead to increased prices for natural gas domestically.  (See page 6 of the report).  

If the cost of natural gas increases, the comparative economic attractiveness of fuel-switching versus energy efficiency will change as well.  Energy efficiency applications that were previously not cost effective or more costly than fuel switching become more attractive.  As a result, states are likely incorporate more energy efficiency into their compliance plans than relying exclusively or largely on natural gas applications to achieve their emission reduction goals. 

Shari Founds Calliope Communications; Restarts GBLB

I have received a lot of requests for me to re-activate GBLB, which I am excited to do as part of my new venture, Calliope Communications.  

After 14 years in the corporate world, I founded Calliope to focus my work on research, policy development and cause marketing.  My practice will be largely dedicated to energy, environmental and construction issues, but my experience in these fields is also applicable to other highly technical areas involving complex regulatory environments.   

I look forward to (re)connecting with all of you and keeping you updated on the rapidly changing world of buildings and the environment.  

You can find out more about the consultancy at my website or contact me directly at shari@calliope-communications.com.  

Very best regards,

Shari

Pennsylvania Executes one of the First Residential Energy Efficiency Loan Bundling Transactions

After long and diligent work, my own Commonwealth of Pennsylvania announced last week that it had successfully bundled 4,700 residential energy efficiency loans, and obtained $23 million in cash and $8.3 million in deferred payments, for a projected total of $31.3 million.  The press release is available here.

This is a holy grail of sorts.  People have been saying for years that energy efficiency loans should be able to be bundled and sold, a la mortgages and credit card loans. In theory, bundling the loans would allow private capital to invest in pools of energy efficiency loans, as opposed to individual projects, injecting more capital into the market for energy efficiency upgrades and lowering the interest rates.

Although it seemed like a workable idea, few before the Pennsylvania Treasury had accomplished it.  Energy efficiency loans were considered too weird, too complicated, too risky, etc. to be bundled.  Most critically, financial institutions mostly considered energy efficiency loans to be too risky because there was an insufficient amount of data on energy efficiency loan defaults.

In light of these issues, the Pennsylvania transaction still does not really recognize energy efficiency loans as a unique asset class.  By this I mean that the stream of income from the saved energy is not being recognized as part of the transaction.  As far as the investors are concerned, the loans could be for HVAC equipment or Manolo Blahniks, they are all just unsecured consumer loans.  In addition, Treasury still had to put up significant credit enhancements to make the loan pool desirable. 

In addition, the transaction took a long time and had high transaction costs.  A private entity probably would not have had the resources or perservernce needed to cross the finish line.  Future transactions will need to be more standardized, both with in terms of assets and documentation.

Nonetheless, the Pennsylvania transaction and the many lessons its staff learned along the way may be a very important step in accessing greater pools of capital for energy efficiency.   

 

2009 Energy Code Adoptions Required by ARRA--Where are They Now?

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.

Fiscal Cliff Bill Extends Home Energy Efficiency Tax Credits for Businesses and Homeowners

     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.

Spending on Industrial EE Programs Tops $1b

A report released last week by the American Council for an Energy-Efficient Economy (“ACEEE”) showed that overall spending on industrial energy efficiency (“EE”) projects is on the rise. 

The report tracked 2010 spending by utilities, state and federal agencies, public benefit fund organizations, and nonprofit entities that was used for providing industrial energy users with incentives, rebates, grants, loans, technical assistance, energy audits, and assessments, among other services to encourage EE. 

Total spending topped $1 billion. While 2010 spending received a boost to the tune of approximately $228 million in funds from the American Recovery and Reinvestment Act (“ARRA”), the rest came from other sources. Research shows that the largest programs, by far, were run by utilities and public benefit fund organizations, who accounted for $737 million of the $1.1 billion pot. 

The report, however, does not account for private spending which would undoubtedly increase that figure substantially. Industrial users of energy have been very pro-active in implementing EE programs to lower operating expenses and protect themselves against spikes in energy costs. The study also leaves out the millions of private sector dollars that are raised through leveraging public funds. However, ACEEE’s data clearly shows an uptick in total industrial EE program spending.

Pennsylvania and New Jersey both finished among the top 10 state spenders. Pennsylvania ranked third, behind New York and California, at about $65 million, while New Jersey spent just under $28 million, providing the Garden State with an 8th place finish. 

AHRI defeats the City of Albequerque, Complicating Matters for Local Governments

AHRI vs. City of Albuquerque, a case that I first posted on in 2008, finally reached its conclusion last week.  In line with the preliminary injunction she ordered on October 3, 2008, Judge Martha Vazquez of the District of New Mexico decided that Albuquerque's energy code was preempted by Federal law mandating the energy efficiency of HVAC equipment. 

Appliance Magazine reported:

In the latest opinion, Judge Vazquez confirmed her Sept. 10, 2010, rulings:
(1) The prescriptive energy efficiency standards in the 2007 Albuquerque code that are more stringent than federal minimum efficiency standards are preempted and cannot be saved from federal preemption by the availability of alternative code compliance paths.
(2) A particular performance-based code compliance option is preempted because it is based on a standard reference design that uses efficiency levels that exceed federal efficiency standards. Responding to a summary judgment motion filed by the city that essentially asked Judge Vazquez to reconsider her earlier rulings, she declined to do so and denied the city’s motion.

A similar suit was filed by the Building Industry Association in 2010 to enjoin (or, in regular english, stop) the Washington State Energy Code from taking effect. 

The foundation of both AHRI and BIA is in essence one of preemption--that the federal government has enacted laws that prevent lesser governmental authorities from passing laws on the same subject, here the Federal regulations governing the efficiency of HVAC equipment preempted state and local energy efficiency laws.

Interestingly, in the Washington case, the court found that the Washington State energy code was not preempted.   This creates a split between the District of New Mexico and the Western District of Washington.  In my next post, I will give more detail on the difference between the two cases.  It will make it more difficult for local governments to know the extent to which they can regulate HVAC energy efficiency, which may make local governments shy away from doing so.

A New Lease on Life or a Nail in the Coffin? Notice and Comment Period on PACE Opens

Property Assessed Clean Energy (PACE) programs allow local governments to loan money to homeowners to do energy efficiency projects.  The PACE loans are generally repaid as a property tax line item.  PACE programs were initially very popular, and more than 25 states passed PACE-enabling legislation.

As discussed in earlier posts, in the summer of 2010 the Federal Housing Finance Agency put the brakes on PACE programs.  The FHFA issued an advisory that Fannie Mae and Freddie Mac should put more stringent evaluation standards in place for mortgages on properties with PACE assessments.  On February 28, 2011, FHFA issued a directive stating that Fannie Mae and Freddie Mac should continue to refuse to purchase mortgages on properties with PACE loans.

In the wake of the FHFA actions, several law suits were filed, including one in the Northern District of California.  The plaintiffs in the California PACE case alleged that the FHFA acted without following the appropriate administrative procedures, and without doing and Environmental Impact Assessment. 

The District Court issued a preliminary injunction requiring FHFA to proceed with the the necessary administrative steps that FHFA had failed to do prior to issuing its greenlining mandates.  

On January 26, 2012, the FHFA began the  "notice and comment" period for advanced notice of proposed rulemaking on PACE.  Specifically, the FHFA's proposed action is to prevent Fannie Mae and Freddie Mac from buying certain mortgages whether or not the particular mortgage has a PACE assessment associated with it:

FHFA's Proposed Action would direct [Fannie Mae and Freddie Mac] not to purchase any mortgage that is subject to a first-lien PACE obligation or that could become subject to first-lien PACE obligations without the consent of the mortgage holder.

The wording of the proposed rule is interesting.  Not only would it prevent Fannie and Freddie from buying mortgages on properties with PACE loans, but also potentially from buying any mortgages in a community that has a PACE program, whether or not the particular mortgage has a PACE loan associated with it. 

The Advanced Notice of Proposed Rulemaking triggers a 60-day comment period, which opened January 26 and closes March 26.  The ANPR seeks comments about both the environmental and fiscal aspects of PACE.  The ANPR is here.

Energy Efficiency Policy Report Published

As I mentioned in a previous post, I led a study this summer analyzing the legal policy and process factors impacting commercial building energy efficiency in Pennsylvania and New Jersey.  The study was commissioned by the Department of Energy-led Greater Philadelphia Innovation Cluster for Energy Efficient Buildings (GPIC). The results of the study and a presentation I gave on the findings are now available through the GPIC site

The purpose of the study was to identify the most significant policy and legal-related process factors effecting energy efficiency (“EE”) in commercial buildings in the Greater Philadelphia area. The research focused on policy areas such as the structure of government, specific laws and regulations, government funded or mandated incentives and other financing mechanisms. Processes included legal-related factors impacting EE transactions, such as contracts, leases, public bidding requirements, and accounting standards.

The study revealed that between Pennsylvania and New Jersey, the state and local governments have implemented almost all of the policy levers that advocates have called for to increase EE. For example, both Pennsylvania and New Jersey have up-to-date building and energy codes. The states have invested hundreds of millions of dollars collected from utility ratepayers in EE incentive programs. New Jersey has experimented with alternative rate structures for utilities. Therefore, the primary recommendation of this study is to conduct further legal and market research to compare the effectiveness of the New Jersey and Pennsylvania regulatory initiatives designed to address the efficiency gap, including the incentive and ratemaking efforts.


Although many policies are in place to promote EE, direct and indirect barriers still exist. For example, until August 2011, New Jersey did not allow sub-metering of multi-family residential buildings, creating a direct barrier to energy management. The indirect barriers are numerous, and include even the structure of government itself. For example, the multitude of governing bodies and the often inconsistent policy goals of each result in a fragmented and sometimes contradictory set of policies regarding EE.


Finally, the study found that market processes necessary for smooth transactions and full valuation of EE construction are immature, increasing transaction costs and making EE investments less valuable. For example, appraisers of EE buildings frequently ignore or undervalue EE upgrades. As a result, owners may not recoup their investment at the sale of the property, or their cost to borrow against their assets may be compromised.
 

 

 I welcome feedback from the GBLB community on the findings. 

The Snowflake Problem: Why Energy Efficiency Projects Are So Damned Hard To Finance

As we all learned in kindergarten, every snowflake is unique.  Now, studies have shown that is not entirely true (see here if you are marginally interested in the science of snowflakes), but close enough. 

Uniqueness may be good for snowflakes, but lousy for financial transactions. At least part of the problem in harnessing private capital to fund energy efficiency projects is the lack of standardization across projects.   Major financial institutions need big pipelines of medium- to large- deals to make the sector worthwhile.  If each transaction is significantly different, it means that underwriting standards, loan documents, due diligence and so forth have to be created from scratch for each transaction.

The solution to the snowflake problem is to standardize the transactions.  It is very tricky with energy efficiency, because each building has different features--age, system types, use, occupants, etc.  Therefore, the technology needed to create the efficiencies also differ. 

To break through the logjam, someone needs to develop one or more reliable algorithms that can be used to evaluate projects quickly, while still respecting the unique features of different projects.  Transactions could be structured around the standardized model, and then tweaked for the particulars of the transaction.  Without a reliable and replicable structure for financing energy efficiency deals, financing will always be limited and expensive.   

Progress on the Green Appraisal Front--Appraisal Institute Issues Green Appraisal Form

On September 29, 2011, the Appraisal Institute issued a Green/Energy Efficiency Addendum to its standard Fannie Mae Form 1004.  The form has sections for including energy efficient appliances, water savings, energy audit results, energy bills and more.  It can be downloaded here

According to the release by the Appraisal Institute, Form 1004 is "the appraisal industry’s most widely used form for mortgage lending purposes. Used by Fannie Mae, Freddie Mac and the Federal Housing Administration, Form 1004 is completed by appraisers to uphold safe and sound lending. Currently, the contributory value of a home’s green features is rarely part of the equation.

One notable omission is a specific reference to LEED certification.  It includes Energy Star, but not LEED, although there is space for listing "other"  certification. 

This kind of standard form for valuing green features gives specific guidance for appraisers on what to look for and include in the audit.  How the information translates into valuation remains to be seen, but it is an excellent step in the right direction.

Energy Efficiency Policy After ARRA--Access to Capital is Not Enough

My loyal readers may have been surprised (or relieved) by my hiatus from publishing.  I was not idle, however.  I led a study on Energy Efficiency Policy in New Jersey and Pennsylvania on behalf of the Department of Energy-funded Greater Philadelphia Innovation Cluster for Energy Efficient Buildings.  I completed the work last week, and it will be released soon. 

I have also been advising New Jersey Governor Chris Christie on developing the 2011 Energy Master Plan for New Jersey.  The draft plan is available here.  The findings of the eight-person work group on clean energy will be made public shortly, and public hearing is being held on October 21 from 9:30-12:30 at the Rutgers Eco-Complex.  Details are available here

My public sector work has given me some new insights into green building and energy efficiency policy, which will be developed in further posts over the next few months. 

Among the most interesting findings is the difficulty in crafting public policy initiatives to break through the “efficiency gap”—the gap between a customer’s actual investments in energy efficiency and those that appear to be in the consumer’s best interest.

Most policy efforts are aimed at eliminating the "first cost" barrier to energy efficiency.  In other words, providing grants or loans to minimize the upfront investment required for energy efficient systems.  

Making these programs work to achieve scale and realize significant energy savings has proven devilishly difficult.    With the influx of ARRA funds, state and local jurisdictions have invested $650 million in loan programs for energy efficiency projects, with loans generally provided to customers at low- or zero- interest rates. 

The author of a May 2010 nationwide study of state, utility and municipal loan programs by the National Renewable Energy Laboratory concluded:

Despite the advantages of state, utility and municipal loan programs, participation to date has been modest, and they appear to be incapable of driving a large scale transition to a clean energy future by themselves.

A study just released in September, 2011 by the ACEEE which reviewed 24 financing programs nationwide concluded that participation rates were generally low across programs, and do not generally track energy savings.  The report concluded:

While several programs have many years of experience and have issued thousands of loans, this market has yet to come to scale. 

So, it is clear that transforming the energy efficiency environment will require more than providing low cost capital from government sources for at least two reasons.  First, because government capital and capital deployment mechanisms are not robust enough to create scale, and second, because the barriers to energy efficiency are not merely financial.  Psychological barriers, cultural barriers, resource barriers and technical barriers also play important roles.  [This report nicely summarizes the various barriers to energy efficiency investment by sector.]

From my research, policymakers must focus on better stimulating private capital deployment and integrating financing with tools to address other barriers to energy efficiency. Understanding consumer motivation, providing resources to address the less concrete barriers to energy efficiency, and partnering with private capital sources to bring financing to scale  should be the goals of energy efficiency policies going forward.

New Mexico Court Strikes Down Surcharge For Revenue Lost To Energy Efficiency

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.   

I *Heart* New York [Code Enforcement]

Contributions to this post were made by Nadia Washlick, a Cozen O'Connor intern.

One of the most under-discussed and under-valued aspects of green building law is regulatory enforcement.  Most of the discussion among experts, myself included, tends to analyze new laws and new incentives as they develop.  Frequently, these new legislative and regulatory initiatives pay little attention to the implementation and enforcement requirements that are required for realizing the energy efficiency and environmental benefits the regulations were intended to foster. 

New York's Greener, Greater Buildings Plan compliments its sweeping new regulatory initiatives with recognition of and attention to code compliance and enforcement.

Released in 2007 and designed by Mayor Bloomberg, PlaNYC has brought together over twenty-five city agencies to collectively equip the city for one million more residents, bolster the economy, fight climate change, and enhance the quality of life for all city residents.  Most importantly, these agencies are working hard to enforce the regulatory changes necessary to achieve these goals. 

The City Counsel believes that focusing on buildings will help achieve most of these broad citywide goals as buildings account for almost 80% of greenhouse gas emissions, 94% of electricity use, and 85% of potable water consumption. In December of 2009, the City Council passed four laws known as The Greener, Greater Buildings Plan (GGBP). Collectively, these laws require energy efficiency upgrades and energy transparency in large existing buildings, including annual benchmarking, energy audits, retro-commissioning, lighting upgrades, and sub-metering of commercial tenant space.  The City Council believes that these laws will reduce GHG emissions by at least five percent citywide by 2030. In addition, GGBP will save New Yorkers more than $750 million per year in energy costs and create around 18,000 construction-related jobs, thus helping to bolster the economy. 

 

Needless to say, PlaNYC is attempting to transform the construction industry in New York City. This daunting task requires developing new regulatory procedures, defining new terms, and codifying these procedures. The New York City Green Codes Task Force, led by Urban Green Council, was established to develop new regulations, amend current laws, and provide new rules for enforcement. The task force consists of more than 200 experts in design and construction and has the duty of developing rules to enforce these new laws.  It has already developed over a hundred proposals to modify City codes and regulations that impact buildings or hinder green building practices, twenty-two of which have since been adopted.   Furthermore, the task force now requires progress inspections during the construction period, as well as energy analyses and drawings from engineers and architects before construction begins to prove the designs meet current energy code requirements. The task force aims to achieve 90% energy code compliance by 2017 through both stringent enforcement and energy code training for designers.

 

 

New York City was recently ranked number seven on a list of the nation’s top ten most “climate ready” cities. In coming years, the city’s ranking is likely to rise as PlaNYC comes into effect. With such rigorous enforcement, it is no wonder why PlaNYC has been deemed “the most comprehensive set of efficiency laws in the nation.” If successful, the plan will surely be a blueprint for other cities hoping to achieve climate readiness. 

 

Picking up the PACE

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.   

 

Is Energy Efficiency Still the Red-Headed Stepchild of US Energy Policy?

Today, Senator Kent Conrad (D-N.D.) introduced a "comprehensive energy bill" entitled the "Fulfilling U.S. Energy Leadership Act" or "FUEL."  The bill is available for download here

According to his press release:

Senator Kent Conrad today introduced comprehensive energy legislation intended to lessen America's dependence on foreign oil, reduce gas prices, and strengthen the national economy.  [The FUEL Act] is a blueprint for a national energy policy that would support domestic oil and gas production, including an environmentally responsible expansion of offshore activity, while also investing in the development of renewable fuels. The bill also promotes more alternative fuels and clean sources of electricity, including clean coal, and nuclear energy.

Regardless of the other positive things the FUEL Act may contain to achieve all of these ends, the bill has almost no provisions that address building energy efficiency, and mostly they simply extend the incentives already in place until 2016.  The only provisions for building energy efficiency in the FUEL Act are Section 601 and 611-614:

Section 601--Authorizing $4.9 billion for the Rural Utilities Service to provide interest-free loans to rural electric cooperatives to provide low interest loans to qualified consumers to implement energy efficiency measures.

Section 611--Increasing to $3.00 and extending through 2016 179(d), the commercial energy efficient property tax credit;

Sections 612-614--Extending through 2016 the existing tax credits for energy-efficient homes and appliances;

According to a McKinsey report, energy efficiency is one of the most cost-effective ways to minimize the dependence of the United States on foreign oil and reduce greenhouse gas emissions. Increasing building energy efficiency in the United States by 23% by 2020 would :

  • Reduce end-use energy consumption by 9.1 quadrillion BTUs, roughly 23% of projected energy demand;
  • Eliminate more than $1.2 trillion in waste—well beyond the $520 billion upfront investment (not including program costs) that would be required;
  • Result in the abatement of 1.1 gigatons of greenhouse-gas emissions annually—the equivalent of taking the entire US fleet of passenger vehicles and light trucks off the roads.

Despite these facts, it appears that energy efficiency is still the red-headed step-child of energy policy.  It is true, appliance standards, building codes, loan guarantees for energy efficient buildings and other solid energy efficiency proposals are not as sexy as electric vehicles or as viscerally connected to what people pay at the pump.  On the other hand, a cost-effective and achievable 23% reduction in fossil fuel usage should be at the forefront of national energy policy.  

I hope there is a larger strategy at play.  To the extent that Conrad's bill may get bogged down in politics about fossil fuels, subsidies, domestic drilling and so forth, it may be an advantage that many of the energy efficiency policy proposals contained in ESICA, the energy efficiency bill introduced last month by Senators Shaheen and Portman (described in further detail here) were not rolled into the FUEL Act.  If the FUEL Act does become the leading energy policy, I recommend incorporating the programs in ESICA to make the FUEL Act a more complete energy package.   

Annals of the Obscure--Accounting Rule Changes May Adversely Impact Energy Efficiency and Renewable Energy

I have tried to make simple and clear many complex legal topics before, including class action law suits and IRS tax-free bonds, but never have I faced this great a challenge. 

Apparently, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), which are in charge of setting new accounting standards for companies, have set in motion a rulemaking process which would require companies to list leases as assets and liabilities on their books.  These leases would include Power Purchase Agreements, Sale-Leasebacks of renewable energy installations and ESCO contracts. 

By putting these transactions "on the books," it has a variety of implications, including increasing the debt ratio of many companies, and increasing the disclosure and transaction costs associated with those efforts.  These implications may mean that companies are less willing to do renewable energy and energy efficiency transactions, and ESCOs and other companies have a harder time benefitting from the transactions. 

 The folks over at the National Renewable Energy Laboratory have done a detailed analysis of the rule changes here and Forbes had a more user friendly (if less detailed) piece here

 

How Is Energy Efficiency Like Dry Cleaning?

According to an AIA study, between 2006 and 2009, municipalities with green building programs increased by 50%.  Many programs sponsored by municipalities, states, utilities and the federal government are designed to promote energy efficiency and green construction. 

Although green building has increased exponentially, only a small segment of companies have done energy efficient upgrades to their facilities. Why isn't every business looking to take advantage of incentive programs and the low cost of labor generated by the depression in the construction industry to green their facilities and implement energy efficiency measures?

My answer is that energy to businesses is like dry cleaning to lawyers.  Every lawyer needs clean suits, so the dry cleaning bill is part of the household budget.  Most people who use dry cleaners do not really know what happens at the dry cleaner  to get their clothes clean, or what the cost of the actual dry cleaning process is.  It is very difficult to get comparative prices for dry cleaning, so it takes research to find out whether you are paying your dry cleaner too much or could get a better deal elsewhere.  Switching from the dry cleaner you've always gone to requires figuring out which new dry cleaner to go to, new hours, etc., all with little guarantee that the cost and service will be as good or better than the dry cleaner they currently use.  And, at the end of the day, the potential savings from switching dry cleaners relative to the entire household burget is marginal.  In the presence of all of the transaction costs and with no particular event to motivate change, most people conclude that it is simply not worth the effort.  

Energy is very similar.  All businesses use energy and pay energy bills.  Few really understand where energy comes from and how it is priced.  Switching to more energy efficient systems, net meters, etc. requires commmitting corporate resources to figuring out which ones to invest in and believing that the energy efficiency measures will have a positive impact on energy usage.  And, at the end of the day, the potential savings from more energy efficient facilities relative to the entire corporate budget is, in most cases, marginal.  In the presence of all of the transaction costs and with no particular event to motivate change, most companies conclude that it is simply not worth the effort.

To each actor, the savings are small, but in the aggregate, incremental saving in building energy usage would have a significant impact on greenhouse gas emissions and fossil fuel use.  The dry cleaning example starkly highlights the disconnect between the individual benefit and the group benefit.  According to the ABA, there are 46,276 active lawyers in Pennsylvania.  Let's say each lawyer dry cleans one suit per week on average. 

 

Per Household  
Lawyers 1
Weeks 52
# of Suits cleaned per week 1
Cost of suit cleaning  $10.00
Total suits 52
Total annual cost of suit cleaning $520.00
10% cost reduction $9.00
Total revised annual cost of suit cleaning $468.00
Total Annual Suit Cleaning Savings $52.00
   
Pennsylvania Aggregate  
Lawyers 46,276
Weeks 52
# of Suits cleaned per week 1
Cost of suit cleaning  $10.00
Total suits 2406352
Total annual cost of suit cleaning $24,063,520.00
10% cost reduction $9.00
Total revised annual cost of suit cleaning $21,657,168.00
Total Annual Suit Cleaning Savings $2,406,352.00

Most households are not going to bother with the high transaction costs of switching dry cleaners for a total savings of $52.00 per year, which in the scope of the whole household budget is a rounding error, but $2.5 million in annual savings for lawyers overall is real money. 

Likewise, potential aggregate building energy efficiency savings in 2030 has been estimated at nearly $170 billion. But for an average business, the cost savings are negligable as a percentage of overall corporate spending.  For example, according to a Washington State study, the average annual small business energy costs attributable to buildings was about $5000. Even a 10% reduction in building energy costs would only result in a $500 annual savings. Another study puts the potential savings somewhat higher, at $2800.00, but most small businesses would still conclude that energy efficient upgrades are not worth the institutional investment.       

So how do you change the individual corporate decision making process with respect to energy efficiency? 

The ultimate answer is to internalize the environmental and health costs of energy into energy prices, so the cost to the individual corporation and the percent of their overall budget attributable to energy is higher.  In other words, raise the price of energy.   

In the absence of energy price changes, which is not a politically palatable solution right now, there are still things that can be done to incentivize energy efficient construction:

  • Reduce transaction costs
  • Increase price transparency
  • Provide uniform metrics for quantifying savings
  • Construct motivating events 
  • Incentivize aggregators

I will address these five interim solutions in later posts, but I would love to hear feedback from the GBLB community on other ideas for motivating energy efficient construction.

HUD Announces Energy Efficient Home Loan Pilot Progran

Today HUD announced a pilot program to finance $25 million in home efficiency upgrade loans:

Backed by the Federal Housing Administration (FHA), these new FHA PowerSaver loans will offer homeowners up to $25,000 to make energy-efficient improvements of their choice, including the installation of insulation, duct sealing, doors and windows, HVAC systems, water heaters, solar panels, and geothermal systems.
 

Under the Pilot Program, HUD, through FHA-approved lenders, will insure loans for homeowners who are seeking to make energy improvements to their homes. 

This pilot loan program is interesting in the wake of the PACE controversy, wherein property tax-based financing of home efficiency improvements were rejected by Fannie Mae and Freddie Mac, among others.  More information on the PACE controversy is available here.

A big issue with the PACE structure was that the PACE loans were superior in priority to the mortgages. Will the FHA Powersaver loans be subordinated to the mortgages on the homes? The guidance does not say.

Little Energy Bill Likely To Include Energy Efficiency Code

Kerry and Lieberman are due to unveil their long awaited--and until Lindsay Graham's recent exit, nominally bipartisan--cap-and-trade bill this week.  But in a less heralded move, Harry Reid indicated that he could do a smaller energy bill which would likely include national energy efficiency codes.  According to EENews (subscription required):

The "smaller" proposal Reid referred to centers around legislation (S. 1462) the Senate Energy and Natural Resources Committee approved last June. The bill, which won the votes of four Republicans, would impose a national renewable electricity standard, overhaul federal financing for "clean energy" projects, establish a suite of efficiency measures, mandate new federal electricity-transmission siting power and allow wider oil and gas leasing in the eastern Gulf of Mexico.

So, even if cap-and-trade fails, this year may be a big one for federalizing green  building regulations. 

What would you do to make your home more energy efficient for $57,000?

A study out of the Government Accountability Office (GAO) reports:

As of 31 December 2009, according to data available to the Department of Energy, about 9,100 homes had been weatherized out of a planned 593,000

The pricetag for weatherizing 9,100 homes? Over $57,000 per home. 

According to the Home Energy Saver website, sponsored in part by the Department of Energy and Environmental Protection Agency, the average cost of the top 10 home energy upgrades is just $3,960, a difference of over $46,000 per home. 

Part of me doesn't care. According to Keynesian thinking, just spending stimulus money and fast, it doesn't matter how, is key to stoking the economy.  But there is part of me which envisions the thousands of additional homes which could have been weatherized had the government been more efficient in its spending. 

What The Christie Election Means For Green Building In New Jersey

On Tuesday, Chris Christie (R) was elected as Governor of New Jersey.  His predecessor, Jon Corzine (D), instituted a number of programs through the state's administrative agencies to promote sustainable practices and green building.  So, what does this change in administration mean for green building in New Jersey, a leader among states in promoting green practices? 

Christie campaigned hard on issues like "controlling spending" and lowering New Jersey property taxes. He also proposed:

  • Immediate freeze on proposed new agency rules and regulations.
  • Sunset provisions for all new programs after 4 years. 

This will mean that anything in the pipeline of the administrative agencies will be frozen, and new green programs will be automatically sunsetted.

Christie seems to be pro-renewable energy, campaigning that he will:

  • Renew NJ and the Choose New Jersey Energy Campaign. Consolidate all renewable energy manufacturing efforts and have New Jersey undergo a brand makeover to market and sell New Jersey’s resources to energy producers, innovators and developers.
  • Incentivize energy manufacturing with tax credits. 100% of the corporate business taxes or the insurance premium tax for any wind turbine and manufacturing facility that locates in New Jersey.
  • New Jersey will create higher-paying clean energy production jobs in the next four years. Commit to a 5/1 ratio of higher-paying, clean energy production jobs to lower paying, efficiency jobs. While New Jersey has one of the strongest renewable portfolio standards in the country, according to the US Energy Information Administration, the state actually ranks 43rd when it comes to generating renewable energy. 

The most interesting of these is "Commit to a 5/1 ratio of higher-paying, clean energy production jobs to lower paying, efficiency jobs." 

It is energy efficiency jobs which are predominantly blue collar, easy entry to work jobs.  And according to a recent McKinsey study, the economic and job vaue of energy efficiency has huge potential:

[B]etween 2009 and 2020, energy efficiency retrofits could generate between 500,000 and 750,000 direct, indirect and induced jobs through 2020.

Moreover, the low hanging fruit for energy savings and environmental stewardship--not to mention social equity--comes from energy efficiency, not renewable energy. According to the CleanTechies blog:

 A study done by a Lawrence Berkeley National Laboratory scientist claimed that commissioning all of the nation’s commercial buildings would yield the greatest energy savings per dollar spent of any option, including wind and solar energy production. Commissioning involves fine tuning a building’s existing energy systems to improve performance and eliminate wasteful energy use.

 Hopefully, a candidate who campaigned on the concept of fiscal responsibility will realize the value of investment in energy efficiency programs before putting all of New Jersey's eggs in the renewable energy incentive basket.  Stay tuned...

Boxer Climate Bill Redraft Adds Nothing To Energy Efficient Building Code Provisions

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.

 

Boxer-Kerry Punts On National Energy Efficiency Building Code

Yesterday, a draft of the Boxer-Kerry senate version of the Waxman-Markey climate change bill was leaked to the media. I have previously posted about the proposed National Energy Efficiency Code in the Waxman-Markey bill and in the first proposed senate bill ACELA

Both of those proposed Energy Efficiency Codes had specific energy efficiency targets, timelines, adoption and implementation plans, and enforcement, though they differed somewhat in the specifics. Not so the Boxer-Kerry Bill.  What had been pages of turgid regulatory prose in the prior two bills has been condensed to a mere page and a half--Section 174, starting on page 113 of the draft bill for those of you following at home. 

The most interesting part is that all specifics have disappeared.  No mandated energy efficiency savings, no specifics for implementation timeline, no enforcement, nothing.  Just a mandate 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... 

There is also a section requiring the suitable administrator to "promulgate regulations establishing national energy efficiency building codes."  The entire specifics of the regulations are as follows:

Such regulations shall be sufficient to meet the national building code energy efficiency targets...in the most cost-effective manner, and may include provisions for State adoption of the national building code standards and certification of State programs.

Many have argued that the Waxman-Markey and ACELA bills went too far--making the energy efficiency requirements too high, and requiring to fast an implementation timeline.  I would argue that the Boxer-Kerry draft does not go far enough--it simply does not provide the stick required to urge rapid development and adoption of a national energy efficiency code.  It also leaves a lot of room for further politicking at the administrative agency level.  What do you think?

 

Valuing Green--CBRE Makes The Financial Case For Building Green

CB Richard Ellis, the worldwide behemoth of real estate services, issued a report which addresses "the economics of sustainable buildings." Their conclusion? Basic level of certification adds between 2-3% to the cost, higher levels of accredidation add 5-7% of construction costs.  This is fairly in line with other cost estimates which have been issued.  However, there were some other interesting conclusions from the report:

  • Although developers will reap some rewards in terms of higher rents and enjoy higher rates of rental growth,the rates of rent additionality is about the same as the excess development costs (2-6%), so the additional rental value is essentially a wash.
  • Improvements in energy savings can be between 10-50%, a major number. 
  • Residential customers will pay some premium for green, but not necessarily the actual cost of the green improvements
  • Extra value will need to accrue from the investment markets for the lower risks and higher valuations of green buildings.

How should this study effect decisions making at the policy and business level?

  • The potential market benefits from greening buildings have not solidified--this means that incentives can still be powerful tools to motivate green projects.  The incentive may be the tipping point.
  • Energy savings, and measurement of the realization of energy savings, is an important factor in "pencilling out" green improvements.  From a policy perspective, this puts even more value on reporting and disclosure of building performance measures.
  • Policy measures need to be different for commercial and residential sectors to motivate green.  There may need to be different levels of incentives applied to motivate different segments.

The Dangers Of Energy Myopia

My new friend Timothy Hughes over at Virginia Land Use & Construction Law Blog had a nice piece highlighting the flaws in the New York Times analysis of the Nathaniel R. Jones Federal Building and US Courthouse (Youngstown, OH) which it used as a primary example of LEED buildings failing to live up to their green claims.  Most interesting in his expose was the fact that the Jones Federal Building did not purport to have energy efficiency as its primary goal:

 A review of the GSA study on its website reveals a few interesting facts that the Times left out of the article:

The GSA study was of 14 first wave green GSA buildings ; 8 were LEED certified, 2 were LEED registered, one used Green Building Challenge, and three were designed with an emphasis on energy efficiency
The Federal Building project did not seek any credits for energy efficiency under EA Credit 1. Similarly, the project did not seek points for additional commissioning, measurement and verification, or green power
While the Federal Building project did not receive the 75 score required to qualify for Energy Star, it did in fact reach a 58 despite the fact the building did not even try for the energy efficiency credits. Every other GSA project contained in the study qualified for Energy Star
 

I perceive this as an example of Energy Myopia, which we have seen in recent green building regulation, particularly the Waxman-Markey Bill.  Section 201 of the Waxman-Markey bill calls for an energy efficient building code, as described in greater detail here. It does not, by definition, address water efficiency, site selection, indoor air quality, or materials usage, the other components which most green building rating systems, particularly LEED, encompass.

Why is this? There are a few factors at play.

First, energy efficiency is important.  With carbon emissions causing global warming, and coal fired power plants producing lots of carbon emissions, reducing energy use is critical.  However, with global warming, many are arguing that water efficiency is at least as paramount.  Moreover, saving water through reduced use literally makes more water available for other uses--it is a direct resource saving, in a way that the impact of building energy savings is not. 

The second reason that energy has been the focus is the same reason people rob banks--because that's where the money is.  As I wrote earlier here, of the entire ARRA allocation of $60 billion for "green" programs, the EPA was allocated exactly $0 for green building, and a measley $7 billion over all.  By contrast, the DOE was allocated $32.7 billion, with $5 billion for weatherization alone.

Third, energy savings is comparatively easy to measure. How do you measure the environmental savings of selecting an urban infill site instead of a suburban greenfield? In vehicle miles saved? Runoff averted? Stream quality? It is easier for proponents of green buildings and critics alike to use energy savings as a proxy for environmental friendliness. 

It is critical for green building regulations to encompass the mulit-faceted environmental impacts of the built environment, and to look holistically at the environmental impacts of so-called "green buildings." 

Later this week...Why Holistic Green Building Regulation Is Hard And What To Do About It.

Listening To Retail: ICSC's Take On Energy Efficiency

In an earlier post, I criticized the International Council of Shopping Centers (ICSC) for a letter sent to their members critical of the National Energy Efficiency Code provisions (Section 201) of the Waxman-Markey Bill (a summary of those provisions is available here). 

Yesterday,  I had the opportunity to speak to Kent Jeffreys, Staff Vice President in the Office of Global Public Policy of ICSC about their position on Waxman-Markey and the future of retail energy efficiency. Here are selections from our conversation:

GBLB: You were critical of the Waxman-Markey National Energy Efficiency Code proposal.  Why? 

KJ: One of the problems with the overall bill is that it is one size fits all when it comes to energy efficiency. For example, how do you measure the energy efficiency of a mixed use facility? Different code standards apply, and energy consumption is determined by tenant mix—a Best Buy and grocery store are different from a yoga studio and a shoe store. Waxman-Markey's adherence to the measuring stick being the building creates problems for shopping centers.

The bottom line is that the commercial building sector would like to see the same consideration that the utilities had—their deadlines were pushed off until 2020. There are a few facts that stand in the way of rapid adoption of a stringent new code. For example, many states don’t have energy codes at all. Other states have adopted different levels of ASHRAE. Waxman Markey refers to 2004 as the baseline. Then it says exceed 30% by 2010—which is tomorrow when it comes to new building construction. It is aggressive. We think it will be be problematic.

There are ways to achieve it. Talking to the technical folks, some are already exceeding ASHRAE by 20% or more. This requires certain design changes. If you start taking out windows, you can add more insulation. Most folks can move forward at 30%, we just don’t think they can do it by 2010. It is a bit unrealistic.

That is why we encouraged our members to talk to their members of congress about how they are increasing the energy efficiency. In the real world, we cannot make them all adopt cutting edge technology. The real world problems that we run into—if they have not been totally focused on energy efficiency, they are going to get a rude awakening if the bill passes in its current form.

The second step in the Waxmna-Markey Section 201, 50% by 2015, we actually don’t know how to do. You would have to change what ASHRAE addresses in order to calculate 50%, including operations, for example. 2015 is actually not that far away. At the very end, the coal burning utilities pushed their deadlines back by arguing technologically and economically that they couldn’t meet it.

These goals were picked in terms of political effectiveness, not technological. In the House, they were unwilling to even talk to us. Therefore, we couldn’t support the overall bill.

GBLB: What efforts did you make to try to work out these issues?

KJ: I went and met with people with folks from Wal-Mart, Target, developers, and let the staffers ask questions. The letter we sent out to our members was intended to inform about the fact that this will change the way they do business. Member of congress don’t know how this will impact their local communities. If you make it impossible for retailers to keep up with the times, in some communities it means jobs are not created, new projects and major renovations will not happen. I don’t really know the ramifications for the nation, but right now, no one is building anything because you can’t borrow money. We did not conduct a study to figure out how much 30-50% energy efficiency would cost—NAIOP figured out it would take 20 year payback. Then you have to figure out how you are financing it. We want members of congress to consider this. Right or wrong, the members of congress did take into consideration the cost for utilities.

There are things we support in the bill, like the REEP program. We tried to make this program more comprehensive.

GBLB: How would you suggest regulating your industry to create more energy efficiency?

KJ: The 40% “responsible” for GHG emissions by buildings—there is an underlying assumption that reduction by buildings lead to a 1 to 1 reduction of emissions. Direct emissions from commercial buildings is more like 4% than 40%. The initial responsibility means that we should be able reduce emissions by that much which is not realistic.

Until we address the generation issue—buildings are not the source of emissions—focusing on buildings is a false hope. If you look at California, the typical shopping center is more energy efficient, because of that experience, developers are adopting those procedures nationwide. But it’s going to take time. If 201 goes into effect, there will be no effect on overall GHG emissions. It will be swamped by other factors.

We would be happy to work with congress on a natioanl net metering standard, there is a patchwork of regulations right now. This would have very direct impact on reducing energy use—if there were economic incentives.

GBLB: What about the part of your letter which criticizes Waxman-Markey on the basis of creating additional code bureaucracy--"there is no trained inspection force to oversee a national building code, so it will require the federal government to retrain state employees and, no doubt, hire a huge number of new inspectors"? 

KJ: I think it is a critical flaw that congress passes a law and leave it to the states to implement. The states are strangled—they can’t run deficit spending. I don’t think that the federal government’s grant to the states for training and enforcement is sufficient. If the federal government thinks that the states will be able to enforce this code by 2010, with this amount of funding, they are sadly mistaken. Some states are really good and others are incompetent. You can’t say it is an anti-government notion—you have got to provide the resources to the states to get this done. The answer is for Congress to slow down and reconsider what it has done, or if you are going to pass the bill as written, give the states more money.

What if the states think implementing energy efficiency evaluation is too hard? Then they may say everybody passes and you get no increase in energy efficiency.  You need standards which are realistic and can be enforced and implemented by the public. 
 

How Is The USGBC like Google?

Over the past couple of weeks, the USGBC announced that it was incorporating energy and water usage reporting requirements as a precondition for acheiving LEED v3 and Google announced that it will debut a cloud-based operating system some time in the next 18 months.  The answer to how these two entities are similar is simple: both entities announced good ideas perhaps before their time.

Let's take a closer look at the reporting requirements for LEEDv3.  Projects can comply with the performance requirement in one of three ways:

1.  The building is recertified on a two-year cycle using LEED for Existing Buildings: Operations & Maintenance.
2.  The building provides energy and water usage data on an on-going basis annually.
3.  The building owner signs a release that authorizes USGBC to access the building’s energy and water usage data directly from the building’s utility provider.

Currently, accessing energy and water usage data can be very difficult, particularly without submetering.  In addition, I would expect that public utilities would be loathe to turn over water and energy usage data to a third party. Finally, the turnover of operations in buildings from owner to management company and in some cases to the tenants will create layers of reporting and data gathering issues which are intense.  For example, a building is submetered to tenants.  What if one tenant chooses to report, and another does not? 

The reporting issues go beyond the merely logistical.  Ongoing reporting and monitoring by the USGBC will create a new body of work for an institution which has already come under fire due to backlogs in certification.   Not only will the USGBC's new certifying sister agency have to certify new projects, but monitor old ones ad infinitim.  It will create additional issues for states and municipalities which have incorporated LEED standards into their green building regulations and incentives.  What happens to a 10 year property tax abatement if the project loses its LEED certification after 2 years due to failed energy savings? Additionally, as Chris Cheatham points out, there are new legal liability issues which emerge, like risks of suit to architects and engineers. 

All this is not to say that the USGBC should not incorporate ongoing energy reporting into the LEED process.  Like Chrome OS, the idea is a good one.  I believe that a green building that does not perform should not be allowed to continue to benefit from the LEED moniker.  There are a few things which could make it work better:

1. Create differrent levels of certification as time elapses--LEED at construction, different from LEED at 5 [years] or LEED at 10 [years], which reflects the ongoing achievement of green goals.  This eliminates the issue of "decertification", while providing ongoing incentive to report and maintain buildings to the LEED standard.

2. Phase it in--This ensures that the reporting requirements can be complied with, and allows utilities and others to come to grips with the concept of releasing to third parties energy data.  As it stands, projects registering for certification now must comply. 

How can you envision the reporting requirements working more effectively? 

The Importance of Aligning Intent With Outcome

In today's News-Tribune of Tacoma, Washington (admittedly not on my usual roundup of morning papers) there was anop-ed piece by a conservative columnist calling for Washington (state) to roll back "green" requirements for schools because they are not creating the energy savings promised when enacted. 

The 2005 law calls for schools to be designed, constructed and certified to LEED Silver standard.  At the time, the Governor Gregoire's press release stated:

According to the State Board of Education and Superintendent of Public Instruction’s office, use of sustainable building designs result in:

  • 20% annual savings in energy costs

  • 20% reduction in water costs

  • 38% in waste water production

  • 22% reduction in construction waste

  • A potential reduction in student absenteeism

  • A potential 5% decrease in teacher turnover rates

  • A potential 5% to 26% improvements in standardized test scores

In an ideal world, meeting LEED Silver standards would result in the predicted energy, water and other efficiencies.  But that is not always the case.  Many factors contribute to efficiency, including construction, operations and maintenance. Further, measurement and verification of energy usage is more art than science--which schools are being compared? by what methodology? Finally, what are the overall environmental implications of the building--were fewer new resources used, for example?

 Many municpalities and companies are using LEED as a shorthand for high performance building to circumvent the difficulties of determining individual targets for resource efficiency and creating long term verification plans. This is shortsighted.  By creating laws which use LEED as a substitute for rigorous environmental standards, well-intentioned municpalities and companies open themselves up to the criticism of the News-Tribune critic--that we shouldn't implement (or we should rescind) green building laws because they don't create environmental efficiency. 

Obama Stimulus Plan and The Rule of The First Dollar

I look at a lot of green building regulations, and I have devised the rule of the first dollar--regulators should be putting the first dollar of tax payer money into the most cost-effective initiative, to ensure that those initiatives that have the greatest cost-benefit calculus get funded first and most robustly. 

This week Obama has come out with some of the details of his green financial stimulus plan. In Obama's speech yesterday, as well as in his Obama/Biden plan unveilied during the campaign, he proposed

  • modernizing more than 75% of federal buildings
  • improving the energy efficiency of two million American homes

He also outlined the benefits of these programs

[S]aving consumers and taxpayers billions on our energy bills.  In the process, we will put Americans to work in new jobs that pay well and can’t be outsourced – jobs building solar panels and wind turbines; constructing fuel-efficient cars and buildings; and developing the new energy technologies that will lead to even more jobs, more savings, and a cleaner, safer planet in the bargain. 

Energy efficiency efforts work with the rule of the first dollar--according to Energy Star estimates,

Compared with standard homes, ENERGY STAR qualified homes use substantially less energy for heating, cooling, and water heating-delivering $200 to $400 in annual savings. Over the average 7 to 8 years you may live in your home, this adds up to thousands of dollars saved on utility bills.

In this study, the RAND Corporation analyzed California's energy efficiency initiatives and concluded that

In California, improvements in residential energy intensity and energy prices have reduced the average energy expenditures per capita in real terms since 1980...Low-income households derive the greatest benefit from reduced energy expenditures.

RAND also noted

The most important benefit for California is the impact of energy efficiency improvements on air pollution emissions. If energy intensity in the state had remained at 1975 levels, air emissions from stationary sources in the state would be approximately 50 percent greater than current levels.

Energy efficiency measures equalled savings and environmental benefits.

The analysis with respect to greening federal buildings is similar.  According to the Alliance to Save Energy

The federal government is the nation’s single largest energy consumer and energy waster. In 2005, the federal government consumed about 1.6 quadrillion Btu (quads) of energy at a cost of $14.5 billion. This is 1.6% of all energy used in the U.S. American taxpayers pay about $4 billion annually just to heat, cool, and power the 500,000 federal buildings and facilities.

So, each dollar saved on energy on  public buildings is a taxpayer dollar saved, and a reduction in the quantity of resources requried to heat, cool, and power those facilities.

The analysis on the tax cuts, however, is not as sanguine.  According to Nobel-Prize winning economist Paul Krugman

First, if the government spends money, that money is spent, helping support demand, whereas tax cuts may be largely saved. So public investment offers more bang for the buck. Second, public investment leaves something of value behind when the stimulus is over.   

Krugman argues that tax cuts in the first year may be beneficial in providing a quick hit to the economy, whereas public works projects take time to get started, but Obama's proposal of 40% tax cuts seems like too much. Obama can see similar upfront benefits from providing food stamps and unemployment benefits, for example.  Alternatively, he could provide vouchers for energy efficiency improvements through private vendors. 

In short, green is green, tax cuts not so much.

Tiny Rays Of Light--Good News For Green Building

Over my first few cups of coffee this morning, I had an odd sensation.  What could it be? That slightly warm feeling eminating from my heart--oh, now I remember, hope! That's what it is.  Not a lot of hope (although as I write this the dow is up 133 points), but certainly a few rays...

1. Industry organizations and utilities are embracing energy efficiency measures, including enhancing building code requirements.  According to Greenerbuildings.com

Environmental and energy groups, including the association that represents almost 70 percent of the country's utilities, are urging swift passage of a stimulus package that includes provisions for energy efficiency programs that they say would help jumpstart an economic recovery through the creation of green jobs.

Most significant from a green building law perspective, is that these groups are advocating for block grants to state and local governments to "be contingent on adoption of regulatory changes that make building codes tougher — and "major investments" in energy efficiency projects by utilities easier. "

2. As I predicted in my post Pink is the New Green, energy efficiency is at the top of the legislative agenda. It is being incorporated into the stimulus package, and local municipalities are embracing it as well.  Washington DC updated its building codes to ASHRAE 90.1 2007 and included some new green provisions. 

3.  The Bicycle Commuter Act passed--A benefit originally proposed seven years ago by .S. Rep. Earl Blumenauer, D-Ore. provides $20/month to those who commute primarily by bicycle.

Of course, we are still waiting to see what the green provisions of the economic stimulus package will be, but these actions are very positive signs of change in our national zeitgeist.