Green Building Law Blog : Green Building Lawyer & Attorney : Shari Shapiro: Obermayer Rebmann Maxwell & Hippel Law Firm : Environmental, LEED

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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