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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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I have posted previously about the Destiny USA debacle, wherein the IRS is auditing a "green" shopping center project that failed to meet its sustainability obligations that qualified it for tax exempt bonds.

Now, according to the Boston Globe, a solar manufacturing plant in Massachusetts that received $4.5 million in property tax abatements will have to pay back a portion of the money. 

Yesterday, the Economic Assistance Coordinating Council, the state board charged with overseeing the tax breaks, unanimously voted to cut short Evergreen’s 20-year property tax break, originally estimated to be worth $15 million, and voided another $7.5 million in state tax credits after the company eliminated the hundreds of jobs it promised to create and retain in Devens.

Out of the $4.5 million in property tax breaks they have received to date, Evergreen will only have to repay the current year's value, about $1.5 million, and in addition to the property tax breaks, the now almost defunct solar manufacturer also received over $21 million in other grants, the fate of which is uncertain. 

A question which occurs to me is why didn't the government pull the plug sooner? At this point, it may be all but impossible to recoup the public investment.  To the extent that the public is taking a position in green companies (or any companies, for that matter), someone should be watching to guard the public's investment.  As early as 2009, the writing was on the wall for Evergreen. According to their 2009 Annual Report:

We cannot assure you that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us in amounts sufficient and on terms reasonable to us to support our liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, including our senior convertible notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. We may incur additional indebtedness. If we do so, our increased debt service requirements may adversely affect our ability to meet our payment obligations on our currently outstanding senior convertible notes and otherwise successfully grow and operate our business.

Moreover, Massachusetts rescinded Evergreen's property tax breaks for failure to create jobs, not failure to achieve environmental goals. The state should have known about this situation well before mid-2011. As early as 2009, Evergreen announced it was moving its manufacturing operations to China. According to its 2009 Annual Report:

In addition to our direct expansion into China, we also announced plans to begin shifting panel fabrication from our Devens facility to China using wafers and cells produced at the Devens facility.

[As a side note, Destiny USA had both obligations--to create 1000 construction and 1500 permanent jobs, as well as install its green features.  The IRS may follow suit and rescind the tax exempt status of the Destiny bonds for jobs reasons, thus avoiding the controversy over whether the green aspects were met]

According to the company's website, Vanguard Group, Inc., BlackRock Institutional Trust Company,  and Brigade Capital Management, LLC are the top holders of Evergreen stock. To the extent that Evergreen issued tax exempt paper, it will be interesting to see if these entities enter the fray if the tax exempt status of their investments is rescinded. 

Moreover, if Evergreen declares bankruptcy, it will be fascinating to watch whether the public agencies which granted the incentives will be able to recoup any of their investment, particularly where they are competing with private creditors.  

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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. 

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.

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I covered the messy breakdown of the Carousel/Destiny USA project in Syracuse on Monday.  In short, the Destiny USA project was selected as a green "demonstration" project under the 2004 Green Bonds program.  $255 million in tax exempt bonds were issued on behalf of the project, the revenue of which was supposed to be used to implement the green features of the project.  As of now, none of the green features have been implemented, and the developer has intimated that even if the project is fully built out, the green features will not be included.  The IRS will have to decide whether to rescind the tax exempt status of the bonds for failing to meet the green requirements.

I have written at length about creating effective green incentives and regulations (see my Regulating Green Series here).  For me, the most interesting part of this debacle is what it reveals about a major green incentive program.  The Green Bonds program was developed as a part of the America Jobs Creation Act of 2004.  In theory, the program was intended to: 

 finance environmentally friendly development. The objective is to reclaim contaminated industrial and commercial land (brown fields), and encourage energy conservation and the use of renewable energy sources.

Although the goals of the Green Bonds program were clearly noble, as I see it the program was doomed from the start. No market rate project in 2005 could have met all of these requirements.  Thus, the proponents of the projects had reason to overstate the green components of their projects to access $2 billion in tax free capital for the projects. 

According to the IRS Guidance (available here) $2 billion in AAA tax exempt bonds were authorized by the Federal government to be awarded to four demonstration projects.  To qualify for the bonds, the four projects in aggregate had to:

1. Reduce energy consumption by more that 150 megawatts annually compared to conventional generation;
2. Reduce daily sulfur dioxide emissions by at least 10 tons compared to coal generated power;
3. Expand by 75% the domestic solar PV market in the United States as compared to the expansion of that market from 2001-2002, which was 14.424 megawatts (which means an aggregate increase of approximately 11 megawatts, or an average of almost 4 megawatts of PV power per projects);
4. Use at least 25 megawatts of fuel cell energy generation.

In addition, each project had to be at least 1,000,000 square feet or 20 acres and: 

1. At least 75% of the square footage had to be LEED certified;
2. The wood had to be certified under the Sustainable Forestry Initiative or the American Farm Tree System;
3. Reclaim a brownfield site

Beyond the green features, the projects also had to create at least 1000 construction jobs and 1,500 full time equivalent jobs. 

In addition to the requirements of the Green Bonds, the Destiny USA project entered into a Memorandum of Understanding with the EPA (available here and summary below from Syracuse.com) committing to: 

1. Using green building design, construction and operation principles to obtain the highest levels of certification from the U.S. Green Building Council's Leadership in Energy and Environmental Design
   program;
2. Retrofitting more than 100 construction vehicles with diesel particulate filters and using clean fuel, which will reduce emissions by nearly 85 percent;
3. Implementing techniques to reduce idling of vehicles during construction
4. Becoming partners in EPA's Energy Star and WaterSense programs,
   which require the use of energy- and water-efficient appliances;
5. Using over 3,000 tons of coal ash in place of using newly-manufactured Portland Cement, which will reduce greenhouse gases by over 3,000 tons.
    

As a policy measure, the green bonds were destined to be ineffective.  For a green incentive to be truly beneficial, it needs to set out goals that stretch its recipients to higher levels of sustainability, but not so pie-in-the-sky that they create an incentive to greenwash their projects.  This is a tough balance to strike.  Doing so requires that the regulatory bodies have a good understanding of the state of the green market that they are looking to incentivize. It is not enough to throw public money at any project claiming to be green.  The result is projects like Destiny USA, which give a bad name to green building and public financing of green projects. 

By contrast, good investment in green projects can bring real benefits.  I analyzed the investment of ARRA funds in green projects.  Per public dollar, these investments were among the most efficient ways of creating jobs of all of the ARRA money spent. (See my analysis here).  As Congress debates the value of continuing public investment in green projects and renewable energy, the debate must not only be about whether, but how, the support will be crafted and implemented.  The road to green is paved with good intentions. 

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The wild west is alive and well, and in New Jersey. 

I have a client there who consults with farmers who own wide swaths of land and with renewable energy companies that are looking to develop solar farms on that land.  He describes the phenomenon as a "land grab," where the renewable energy companies are trying to tie up the land available for large scale renewable projects, and landowners are trying to find the best deal for their land.  The land grab is fueled, in part, by the favorable incentives New Jersey provides for solar projects, and a renewable energy portfolio standard of 22.5% by compliance year 2020-2021.

California--the site of the original gold rush--is primed to see another one.  On September 24, California regulators raised the state's renewable energy portfolio standard, the requirement that power companies obtain a certain percentage of their power from renewable sources,  to 33 percent by 2020.  California's renewable energy portfolio standard was already 20%. 

The fever for gold in them there hills (and valleys and rooftops) could soon spread nationwide.  Sens. Jeff Bingaman (D-N.M.), Sam Brownback (R-Kan.), Byron Dorgan (D-N.D.), Susan Collins (R-Maine), Tom Udall (D-N.M.), and Mark Udall (D-Colo.) introduced the Renewable Electricity Promotion Act on September 23, which would: 

install a renewable portfolio standard (or renewable electricity standard, in D.C. parlance) requiring states to generate at least 15 percent of their electricity from renewable sources by 2021

 DSIRE has a nice map with all the portfolio standards for states nationwide.

What does this mean? 

Where green buildings are concerned, higher renewable energy portfolio standards will mean that utilities are looking for additional sources of reneable energy, so it will pay for large scale projects like big box stores, hospitals and manufacturing facilities to incorporate solar into their designs.

Also, because the real estate market has been largely dead for big projects, open space that might have once been yet another shopping mall or housing development may be more likely to go to solar farms and other large scale renewable energy projects. 

But, optioning land for renewable energy projects does not mean that all the renewable energy potential will be realized.  For example, Goldman Sachs, no stranger to the speculation business, has tied up land in Nevada for solar farming:

A Goldman Sachs & Co. subsidiary with no solar background has claims with the BLM on nearly half the land for which applications have been filed, but no firm plan for any of the sites.
 

For the policy makers, the key will be to incentivize projects coming to fruition, not to facilitate  pyramid scheme of tying up land with the hopes of flipping it to later developers of power projects. The task is to balance spurring the growth of the renewables market without creating a solar bubble in the process.  

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Yesterday, I wrote about Senator Merkley's new set of incentives to encourage green commercial building retrofits, and left you with the question of whether these new incentives will actually change behavior. An interesting article came out today on CNN.com which highlights a barrier to incorporating green building technologies into building projects:

Appraisals for newly built green homes do not fully reflect the cost of green technology, and the lower appraisal values mean buyers often cannot get the full financing they need from banks.

In essence, according to this articel, the cost of incorporating the green features is not covered by a commensurate increase in the purchase price, causing homeowners to avoid incorporating costly green technologies, even if they represent savings in the long run. 

This is the perfect opportunity for designing a targeted grant or financing incentive.  The government agency could look at the difference in the appraisal of homes without green technologies, homes with green technologies, the cost of those technologies and the ultimate payback, and design an incentive to make up the difference.  A great example would be providing financing for green renovations at a lower rate than standard renovations.  Unfortunately, most incentives are not designed around barriers to entry and cost data, but are essentially throwing some non-targeted amount of money at the problem without analyzing would be the best amount and struture to really change behavior.

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Last week, Senator Jeff Merkley of Oregon introduced S.B. 3079, the Building Star Bill, to:

To assist in the creation of new jobs by providing financial incentives for owners of commercial buildings and multifamily residential buildings to retrofit their buildings with energy efficient building equipment and materials and for other purposes.

In essence, Building Star provides rebates for retrofitting commercial and multifamily buildings in existence as of December 31, 2009 with energy efficient components, like insulation, window, doors, HVAC equipment, etc.  the rebates are structured as follows:

• For energy audits and commussioning studies--$.05 per square foot of audited or commissioned space or 50% of the cost of the audit or commissioning study.
• For energy efficient building operations and maintenance training--$2000 per individual trained and certified
• For service on space heating equipment--$100 per unit serviced
• For service on cooling systems--$2 per ton of namepate cpacity of the serviced cooling system and 50% of the total service cost
• For installation of qualified energy monitoring and management systems--the lesser of $.45 per square foot of building space covered by the system or 50% of total installation and commissioning costs
• For upgrades of qualified energy monitoring and management systems--the lesser of $.15 per square foot of building space covered by the system or 50% of total installation and commissioning costs
• For HVAC testing, balancing and duct sealing--$.75 per square foot of duct surface tested, balanced and if necessary, sealed

The Building Star incentives can be combined with other incentives, like the existing deductions for energy efficient buildings. 

The Building Star program also provides for a loan program administered by the states to provide loans for energy efficiency upgrades.

So the question becomes, will this incentive program be significant enough to cause building owners to invest in these energy efficiency measures. 

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I will make an admission.  I took tax in law school, and, it was the academic equivalent of having my left arm sawed off without anaesthesia.  Why? Mostly because things which should have been clear seemed hopelessly obscure.  Now I deal with advising clients on incentives available for sustainable projects, and the tax code and I have had to battle to a stalemate.  At least, I battle, and the tax code just sits there impentarably.

One of the features which is particularly difficicult is the relationship between 26 USC 45, which deals with tax credits for producing renewable energy (the "production tax credit" or PTC), 26 USC 48 which deals with tax credits for investing in renewable energy equipement (the "investment tax credit" or ITC) and the Renewable Energy Grant created by the ARRA.  All three of these relate to businesses which have installed renewable energy technologies, like solar, wind and geothermal.  It should be clear and easy to understand which ones apply to your business and what the incentive will be.  As with all things related to the tax code, however, it is not.

I am going to attempt to clear up some of the obscurity, but, as with all information on this blog, it is for informational purposes only, not legal advice; and you should consult your legal and financial advisor to provide you with proper advice for your business.

The incentives are mutually exclusive--The PTC and the ITC cannot both be taken, and they can be swapped for the REG, but you cannot take the PTC/ITC and the REG.

In plain english, it appears that the PTC is designed for renewable energy sources where the power is designed to be sold to others as a Renewable Energy Credit, and the ITC is designed for renewable energy sources where the power is used on-site.  The Renewable Energy Grant allows companies which have invested in either type of renewable energy capacity to receive cash, as opposed to a tax credit, which is helpful particularly if the company has no tax liability or a tax loss. 

 There are some resources available to help you sort through this morass.  The DSIRE database has quick summaries of available state and federal incentives.  The Utah Clean Energy site has a nice summary of the renewable energy features of the ARRA.   The DOE site has a useful summary of renewable energy incentives for businesses as well.

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Most people are thinking about taxes this week.  Today is tax freedom day, the day on which most Americans have earned enough money to pay their taxes for the year, and Wednesday is tax day. In the spirit of this week, a post about taxation. 

How do you influence people to use reusable grocery bags instead of plastic ones? 

There are a few options:

1) Ban customers from using plastic bags

2) Ban stores from providing plastic bags

3) Give away or subsidize reusable bags to customers

4) Give away or subsidize reusable bags to stores

5) Educate stores and/or customers on the benefits of reusable bags

6) Charge customers a tax for the privilege of using plastic bags

7) Charge stores a tax for the privilege of using distributing plastic bages

The first two are traditional, command-and-control regulations.  "Thou shalt not....".  Historically, this had been the model of environmental regulation.  3 and 4 are incentives.  During the Bush Administration, market based incentives and voluntary programs were very much in vogue for environmental protection. 

I believe that all four have their place.  For big, intractable problems with clear environmental consequences, command-and-control is the only way to go.  Incentives are best utilized to correct for market failures, like making solar or wind power more affordable because carbon is not priced in the cost of petroleum.

But I think five through seven--education and taxation are underutilized tools of environmental policymaking.  Miley Cyrus sporting a reusable shopping bag in the new blockbuster film is a way of educating and influencing public action.  Make the reusable tote the new "it" bag.  The green building equivalent is providing education on green building practices, and for government agencies to build green and widely promote their efforts.

Taxation is another great way to influence public choices. By taxing a plastic bag, even a small amount, people are penalized for their anti-social behavior.  We do it with cigarettes, why not plastic bags? Or stick construction? By making alternatives available at the same price as the tax--a 50 cent tax for each plastic bag, and a reusable tote at the same price, people will be more likely to choose the reusable bag. Combined with education on better choices, a penal tax is a very strong policy lever. Portland has sort of done this with the feebate structure, charging builders who want to build traditionally, and remitting that fee for green construction.  But I have yet to see a green building program which taxes builders for traditional construction.  The tax could be tied to the increased public resources needed to service traditional buildings--stormwater management, electricity, etc.

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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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