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

I have been watching with interest the voracious appetite for the $4500 "cash for clunkers" incentive program which rewards people for trading in less fuel efficient vehicles for new, more fuel efficient ones.  So many people have taken advantage of the program that it ran out of cash within a week of opening, though the $1 billion appropriation was expected to last until November.  Now the Senate is debating whether to pour an additional $2 billion into the program.

Very interesting, but what does this have to do with green buildings, you may ask.  I see it as a very interesting object lesson for structuring green building incentives.  Green building incentives have been very popular, and are often promoted in lieu of mandatory green building regulations.  What is hard, though, is getting the incentives right.  How much is enough to stimulate green building, while maintaining a responsible public fisc?

Las Vegas famously went very wrong with their original green building incentive program, so much so that it threatened to deplete the finances of the state of Nevada.  Essentially, the problem was the same in Las Vegas as it was for the clunkers--too much money was available from the outset with too few requirements, meaning that the program was oversubscribed.  Instead, a step-wise program would have been more reasonable for both LV and the clunkers. 

So, for Clunkers, if the program had started with a $1000 incentive, and been evaluated after 1-2 months, the incentive could have been enhanced.  Now, reducing the incentive will only garner public outrage instead of benefit. 

The lesson for government entities looking to implement incentive programs? Start out with the lowest reasonable incentive, then evaluate the program after a reasonable period to see if it has been successful.  If not, you can create higher incentives or relax the requirements.  

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On Saturday, I spoke at the truly excellent seminar on green building law and policy "It's Not Easy Building Green" put on by the William & Mary Environmental Law and Policy Review Symposium.  Notes on my presentation and others are available here.

Among the topics discussed was the outcome of the Las Vegas tax credit for green buildings which I first posted on in July 2007. 

In short, Las Vegas passed a tax incentive for green buildings in 2005 -- worth up to 50 percent of the property value for up to 10 years -- to projects that qualify under the Leadership in Energy and Environmental Design standards. Projects meeting the silver level of certification were eligible for a 35 percent property tax break.
 

According to Darren Prum, one of the presenters at the ELPR Symposium, developers soon realized that they would receive up to $3 back for every $1 they spent building green, and applied the tax breaks to construction equipment and other ancillary purchases.  Soon, the  green incentive was slated to cost the state $940 million in revenue over the next decade, and threatened the budget of the state of Nevada. 

To escape the budget crisis, a new bill was passsed which lowered the property tax reductions, and limited the abatement to 10 years.  School taxes were also exempted from the abatement, and sticrt anti-smoking provisions were incorporated. Six projects were grandfathered in.  According to Prum, the reduced price tag of the revised abatement was $493 million. 

Like the famous architecture book which inspired the title of this post, there is much that we can learn from the unique character of Las Vegas, especially as Obama tries to put together green incentives as part of the stimulus package.  Here are some teachings from Las Vegas' initial failed attempt at encouraging green building:

1. Proportionaility is key: Ideally, an incentive should be only $1 over the price which makes the project economically desireable.  If a project is already economically desireable, a financial incentive is not the right tool.

2. Green should be green: Although we should not let the great be the enemy of the good, a green project should have to meet the basic components of energy efficiency, water conservation, sustainable site, indoor air quality, and renewable materials and resources. 

3. Regulatory experimentation will not be without failure: Counties with green regulatory schemes have increased 400% since 2003.  With such a great increase in regulation, there will be failures like Las Vegas, and litigation.  This is part of new regulatory regimes, and is to be expected.  

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