Green Building Law Blog

Spending on Industrial EE Programs Tops $1b

Shari Shapiro — Wed, 11 Apr 2012 15:46:50 -0500

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 8^th place finish.

DOE Releases Green Lease Website, and More Musings on the Split Incentive "Problem"

Shari Shapiro — Tue, 20 Mar 2012 13:46:34 -0500

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.

PennEnvironment Releases Energy Efficiency Study Just When Pennsylvania Needs It Most

Shari Shapiro — Thu, 15 Mar 2012 14:40:47 -0500

PennEnvironment released the "Building A Better America" study today quantifying the benefits of strong building codes and other policies promoting energy efficiency. A press release summarizing the findings is available here, and the study can be downloaded here.

The median home in the United States is forty years old, and in Pennsylvania, even older. Because buildings last so long, the Building a Better America study notes that strong building and energy codes are critical to realizing the benefits of a more energy efficient building stock, like reduced energy use and bringing cost savings to companies and families. Enacting strong building and energy codes locks in energy savings for decades to come.

Likewise, weak or outdated codes create a legacy of inefficient and potentially unsafe buildings long into the future. This is the situation that Pennsylvania now faces.

In 2012, the International Code Council, the body that develops the model building and energy codes, issued updates to the building and energy codes that will make new buildings 15% more energy efficient than ones built to the current codes, and 30% more efficient than buildings built to the 2006 codes.

Until 2011, Pennsylvania's building and energy codes were some of the most up-to-date in the nation. Last year, however, the Pennsylvania legislature made a series of changes to the way building and energy codes are adopted. As a result, in January, the committee that updates the codes voted to reject the 2012 updates to Pennsylvania’s codes. The committee also recommended that the Pennsylvania codes be updated every six years, instead of every three years as they are now.

If the committee’s recommendations are adopted, Pennsylvania will still be using the 2009 codes until at least 2018, and perhaps longer. As a result, the reductions in energy use and energy costs highlighted in the Building a Better America study will not be realized in Pennsylvania.

To make this real, look back. If Pennsylvania still used the 2006 codes, buildings built today would be 30% less energy efficient than ones built to the 2012 codes. As the study says, building energy efficiency is only increasing. If we are still building to 2009 codes in 2018, imagine the missed opportunity for energy and cost savings.

In addition to strong building and energy codes, the study also notes the importance of incentives to advance building efficiency. In 2008, the Pennsylvania legislature enacted Act 129, which, among other things, requires electric utilities to provide energy efficiency and conservation programs sufficient to achieve a 3% decrease in electricity use by 2013.

Most of the energy efficiency incentives in Pennsylvania are Act 129 programs offered by the utilities. However, after 2013, there are no additional set goals for energy reduction in Act 129. Rather, Act 129 requires that the Public Utility Commission set new goals, but only if the benefits exceed the costs. Right now, the Commission is in the process of evaluating the cost-effectiveness of the utilities’ energy efficiency programs, and determining whether to set new goals for energy reduction. The utilities are likely to meet the 3% target, so if no new goals are set, the utilities have no obligation to continue their energy efficiency programs after 2013.

The Building A Better America study proves that good policies, including strong building codes and incentive programs are critical for improving building energy efficiency and saving money.
Because of the imminent changes to Pennsylvania’s energy efficiency policies, to ensure that Pennsylvania realizes the financial and environmental benefits highlighted in the study, businesses, organizations and individuals need to speak out now to ensure that Pennsylvania’s policies stay strong, and provide support to Federal, state and local policymakers that advocate for energy efficient policies.

PA Code Council Votes to Reject 2012 ICC Changes, Delay Code Updates until at least 2018

Shari Shapiro — Fri, 02 Mar 2012 14:32:58 -0500

It has been stated that building energy codes are the “quickest, cheapest and cleanest way to improve energy efficiency in the building sector.”

Unfortunately, if the January 18, 2012 recommendations of the Uniform Construction Code Review and Advisory Council (the “Advisory Council”) go into effect, Pennsylvania will not adopt the 2012 updates to Pennsylvania’s building and energy codes. The Advisory Council voted to reject the 2012 model codes issued by the International Code Council (“ICC”) in their entirely, except for a few provisions regarding accessibility for the disabled.

The Advisory Council also voted to recommend that the revision cycle for the Pennsylvania Construction Code be extended from three years, consistent with the international model code update schedule, to six years. If both the rejection of the 2012 codes and the extension of the code revision cycle go into effect, the 2009 codes will be in place until at least 2018, and Pennsylvania may miss out on the environmental and financial benefits of the 2012 code updates, and perhaps even the 2015 updates, as well.

This means that much of Pennsylvania’s new construction for the foreseeable future will be less energy efficient than “state-of-the-art” construction, placing owners and tenants at a competitive disadvantage compared to forward-thinking neighboring jurisdictions like New York City, Washington DC, and Maryland.

There is much more to this story. The full article is available here

Performance-Based Energy Code Does Not Eliminate Threat of Preemption

Shari Shapiro — Thu, 02 Feb 2012 21:39:15 -0500

Yesterday, I posted that the District of New Mexico had issued a decision on the remaining open issues in the AHRI v. City of Albuquerque case. The memorandum and order is available for download here.

In the 1970's, the Federal government enacted minimum efficiency standards for certain HVAC equipment, which have been updated periodically since. In 2007, the City of Albuquerque adopted a new energy conservation code designed to achieve greater energy efficiency in buildings. The new Code had both a prescriptive path and a performance path for complying with the new energy efficiency requirements.

The plaintiffs in the AHRI case are HVAC trade associations and contractors. They alleged that the City of Albuquerque's energy code required HVAC equipment that was more efficient than the efficiency standards set by the Federal government. As a result, the AHRI plaintiffs argued, the Albuquerque code was "preempted" by the Federal law setting efficiency standards for HVAC equipment. "Preemption" is when a higher level of government (like the Federal government) prohibits a lower level of government (like the states or municipalities) from regulating the same issue.

In 2008, Judge Martha Vazquez granted the AHRI plaintiffs a preliminary injunction, preventing the new energy code from taking effect. In granting the injunction, Judge Vazquez stated that the Albuquerque Code was, most likely, preempted.

In 2010, Judge Vazquez granted partial summary judgment for the AHRI plaintiffs. She held that the prescriptive paths for compliance with the energy conservation code mandated HVAC equipment with higher levels of efficiency than the Federal standards. At the time, she specifically declined to rule on whether the performance path was also preempted.

The January 25, 2012 decision takes up the issue of whether the performance path was also preempted. Judge Vazquez did not rule on whether the performance path standing alone was preempted. Rather, Judge Vazquez decided that it was not possible to sever the prescriptive and performance paths, and therefore "all provisions of the Code concerning HVAC and service water heating equipment are invalid and unenforceable." She rests her decision on a stipulation by the City that:

Neither Volume I nor II of the Code would have been enacted by the City Council in the absence of the inclusion of the prescriptive compliance paths, and that, accordingly, the prescriptive compliance paths are not severable from the remaining performance-based compliance paths.

Thus, the Court left unresolved whether a performance-based code that requires overall energy efficiency, but does not specifically require more efficient HVAC equipment, would also be preempted.

The District Court for the Western District of Washington addressed this issue in BIA v. Washington State Building Council, and ultimately held that the Washington State Energy Code was not preempted. The Washington State Energy Code did not mandate enhanced energy efficiency of the HVAC equipment. Rather, it allowed for a point system whereby energy efficient HVAC components were one path for compliance with an overall energy efficiency target. The BIA complaint alleged that it was essentially impossible to comply with the energy efficiency targets without installing enhanced HVAC equipment. This is an interesting twist on the AHRI case, because in the Washington code it was possible to comply with the Code without running afoul of federal HVAC energy requirements.

The ultimate lesson from these two cases may be that, with respect to energy efficiency, performance-based energy codes are preferable. However, the fact that there is litigation and controversy around energy codes may make local governments wary of adopting more stringent efficiency codes.

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

Shari Shapiro — Thu, 02 Feb 2012 16:27:10 -0500

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

Shari Shapiro — Thu, 02 Feb 2012 15:40:57 -0500

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.

DOD Budgeting Rules May Impede Green Building

Shari Shapiro — Fri, 20 Jan 2012 14:51:14 -0500

In April 2010, the Department of Defense (“DOD”) issued a memorandum (“memo”) that altered the structure of the defense budgeting cycle, beginning with fiscal year (“FY”) 2012 budget. These changes were ostensibly made to offer more stability to the budgeting process, which prior to the memo involved a more complicated two-year budgeting process where major funding changes were supposed to be made in even-numbered years and smaller adjustments were supposed to occur in odd-numbered years. However, as then Deputy Secretary of Defense Willy Lynn stated, “everyone involved just ignored that second year.”

The new rules replaced the two-year cycle with single-year budgets, which were intended to more accurately reflect current defense needs and budgeting realities caused by the economic slowdown. A second requirement of the memo, however, could have the unintended consequence of hindering DoD green building projects.

The memo requires that the Pentagon’s annual Program/Budget Reviews, or Future Years Defense Program (“FYDP”), to focus on a five-year period each cycle. Readers may recall my earlier post on the recently enacted National Defense Authorization Act (“NDAA”), which among other things, prohibits the DoD from using appropriated funds to achieve LEED platinum or gold certification unless the Secretary of Defense can certify that the LEED project in question will result in no additional costs to the DoD, or if a cost-benefit analysis reveals that the project will produce a financial payback.

A potential concern to proponents of DoD green construction projects could be the imposition of a five-year “horizon” to determine the financial benefits of energy improvements or sustainable design features. While the NDAA does not specify a time window to be used in conducting cost-benefit analyses, defense officials may be discouraged (under Congressional opposition to seeking LEED gold or platinum certification) from proposing green projects that will have a payback period beyond the five-year FYDP cycle.

Congress requires the Department of Defense to do a cost-benefit analysis of LEED and ASHRAE 90.1-2010

Shari Shapiro — Wed, 04 Jan 2012 16:14:07 -0500

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

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

A cost-benefit analysis as well an examination of the return on investment and long-term payback of LEED, ASHRAE 189.1 and ASHRAE 90.1-2010; and,

A new DoD policy on energy efficient construction based on the cost-benefit and ROI analysis.

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

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

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

Energy and Environmental Provisions of the 2012 Omnibus Spending Bill (Better read this sitting down)

Shari Shapiro — Fri, 16 Dec 2011 11:48:52 -0500

As the last days of the year wind down, Congress scurries around to finish its unfinished business, almost always with "surprises" for the regulated community.

The House appropriations committee issued a final version of the 2012 Omnibus spending bill last night. It has, of course, significant implications for energy and environment spending, particularly spending related to climate change.

The omnibus bill cuts spending on climate change programs, prohibits the appointment of a Federal "Climate Change Czar" and cuts spending on climate change research.

Most stunning, of course, are changes to EPA funding. The summary of the omnibus bill issued by the House appropriations committee states that EPA funding has been reduced by almost 19% in 2011:

The conference agreement funds EPA at $8.4 billion, which is a $233 million reduction below the FY 2011 enacted level and $524 million below the President’s request. Overall, funding for EPA has been reduced by $1.8 billion (-18.4%) in calendar year 2011.

The conference agreement cuts $14 million (-6%) in clean air and climate research programs; $12 million (-9.5%) in EPA’s regulatory development office; and $14 million (-5%) to air regulatory programs. In addition, the bill includes:

A 33% reduction to the EPA Administrator’s immediate office;

A $101 million reduction for the Clean Water and Drinking Water State Revolving Funds, which received $6 billion in “stimulus” funding;

A $78 million reduction for EPA operations/administration, which includes $41 million

(-5%) in cuts to EPA’s regulatory programs;

A $14 million (-6.2%) reduction for uncoordinated climate and other air research; and

An elimination of $4 million in funding that EPA has used to delay the processing of Appalachian mining permits.

These are some other provisions in the omnibus bill that impact the green building community:

Funding for CBECS may be restored--Funding for the Commercial Building Energy which was defunded this year may be restored, paving the way for updating the baseline building energy data at the heart of Energy Star. Division B, Title III on page 44 provides $105,000,000 for the Energy Information Administration.
New energy efficient lighting standards won't go into effect-- The omnibus bill includes a rider which would prevent the new energy efficient lighting standards from going into effect on January 1st, and actually rolls back standards in effect since 2008 for floodlights.
Innovative Technology Loan Guarantee Program has $0.00 appropriated for 2012. The loan guarantees are for eligible clean energy projects (i.e., agreeing to repay the borrower’s debt obligation in the event of a default), and by providing direct loans to eligible manufacturers of advanced technology vehicles and components.
Appointment of Administration “Czars” for climate change and urban affairs prohibited.

A full version of the final bill is available here, a summary from the appropriations committee is here.

Congress Introduces New "Energy Efficiency" Legislation

Shari Shapiro — Thu, 17 Nov 2011 15:21:07 -0500

Contrary to common belief that nothing is really happening in green building at the Congressional level these days, I provide the following two counterexamples. Of course, neither of these efforts are designed to promote energy efficiency or green building, but that doesn't mean that nothing is happening.

An amendment to the Senate Appropriations Bill for Energy and Water introduced by Senators Wicker (R-MS), Boozman (R-AR), and Inhofe (R-OK) would essentially eliminate the use of LEED and Energy Star for DOE green building programs. According to the NRDC:

This rider would prevent the Department of Energy (DOE) from using strong green building energy rating standards. The amendment limits DOE to using only green building standards that are developed and approved in accordance with American National Standards Institute (ANSI) rules. Such a requirement would effectively limit DOE to using only the National Association of Home Builders (NAHB) and Green Globes building standards.The amendment would disallow the use of many other strong rating systems, including LEED, EPA Energy Star Portfolio Manager, and EPA Energy Star Homes, which have substantially increased the number of environmentally-friendly buildings in our country.

In other news, Rep. Charles J. Fleischmann [R-TN-3] introduced a bill yesterday in the House H.R.3441 to repeal the Department of Energy's home weatherization assistance program. The DOE weatherization assistance program provides funding to states to weatherize the homes of low income households to make them more energy efficient. According to the WAP website:

During the past 33 years, WAP has provided weatherization services to more than 6.4 million low-income households. Families receiving weatherization services see their annual energy bills reduced by an average of about $437, depending on fuel prices.

According to a recent release from the National Association for State Community Services Programs, the WAP received $5b in funding from ARRA, which weatherized 534,208 low-income houses through August 2011. This made the WAP seventh out of approximately 200 federal programs funded by American Recovery and Reinvestment Act (Recovery Act) in jobs created or retained, with 14,090 jobs for the third quarter beginning July 1 and ending September 30, 2011.

The bill is not yet available from the GPO, but it can be followed on Thomas through this link.

Energy Efficiency Policy Report Published

Shari Shapiro — Wed, 16 Nov 2011 11:10:29 -0500

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

Shari Shapiro — Tue, 18 Oct 2011 13:32:14 -0500

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

Shari Shapiro — Thu, 13 Oct 2011 10:52:37 -0500

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

Shari Shapiro — Tue, 11 Oct 2011 07:49:03 -0500

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.

[High]rising Star: DOE Preparing to Launch an Energy Star-like System for Commercial Buildings

Shari Shapiro — Thu, 01 Sep 2011 12:28:13 -0500

For several years, property owners have become increasingly aware of the potential for energy efficient buildings to decrease operating costs, improve occupancy, and demand higher rental prices.

Theoretically, all of the benefits of energy efficient buildings should yield a higher property values for green buildings and lower values for non-energy efficient buildings. However, real estate appraisers often fail to properly value the energy efficiency features, meaning that the building will be appraised for the same value as another building without the investment in energy efficient systems, features, etc.

If energy efficient properties are appraised below their actual value, it can lead to a reduced resale value, lower rents, and poorer financing options than the owner would realize if the appraisal took into account the value of the property’s green attributes.

On August 8, 2011, the Department of Energy issued a "Request for Information" seeking input from stakeholders on a "Commercial Building Asset Rating Program"--let's call it "Highrise Star." The goal of Highrise Star is to create an Energy Star-like system for commercial buildings. The program would establish common inputs for calculating energy efficiency, select a modeling tool to evaluate the inputs for individual buildings and output a rating with which to compare the energy efficiency of different buildings.

The goal of the new program is primarily to address the issue of valuing energy efficiency (it does not address other green features like water usage, etc.) discussed above by providing a common metric for comparing the energy efficiency of commercial properties, and providing a reliable and common system for evaluating commercial building energy efficiency.

The devil is in the details, of course. The RFI proposes several different models for valuing energy, evaluating energy efficiency, and conveying the information. If the DOE program is created, the commerical real estate community could soon be using a 100 point scale, like LEED, or a star system like the Energy Guide labels on appliances. The robustness of the inputs and the energy model is critical to accurately evaluating building energy use, the simplicity of the input system will determine whether commercial building owners will use it to rate their facilities, and the representation of the "score" will determine whether users will actually understand and act on the information.

Many will ask "Where does this leave LEED?" The proposed commercial building program is much less ambitious than LEED, in that it focuses exclusively on energy use. However, if every building has a "[High]rise Star," commercial building owners may be less likely to seek LEED to verify the green-ness of the facility. Since Highrise Star will be free, the incentive to invest in LEED may be significantly reduced. The ultimate test will be one of reliability--if Highrise Star is seen as robust, reliable and easy to use, LEED will have its work cut out for it to compete. If it is viewed as too "easy" to achieve high marks for energy efficiency or if the interface is too cumbersome, then LEED will not be so directly effected.

In any event, since government programs are often VERY slow to be developed, it may be a while before [High]rise Star comes on line.

Judge Dismisses Gifford Claims Against USGBC, But Energy Efficiency of LEED Buildings Unresolved

Shari Shapiro — Wed, 17 Aug 2011 09:39:33 -0500

Yesterday, Judge Sands dismissed Henry Gifford's suit against the USGBC. A copy of the Order is available here. In a major win for the USGBC, Judge Sands dismissed Gifford, et al's Federal claims with prejudice, which means they cannot be brought again, Because the Federal claims were dismissed, the Judge also dismissed Gifford, et al's state claims for lack of jurisdiction.

Particularly gratifying for me is that Judge Sands dismissed the case for exactly the reason I anticipated in my prior posts on the case that the plaintiff in this case lacked standing to bring the case. The posts are available here and here.

In summary:

To the best of my research, Mr. Gifford is not a LEED AP, and indeed, from his website and publications, he has outspokenly denounced the USGBC and LEED. Mr. Gifford does not appear to own any property certified LEED. In short--the USGBC's actions have not harmed him or his career, if anything, has been enhanced by the USGBC's position.

Similarly Judge Sands held:

With the exception of Gifford, each Plaintiff designs and consults on specific elements of individual buildings, including heating and cooling systems, moisture and mold remediation, and architectural design. Plaintiffs do not allege that LEED certified buildings do not require such services or that those services must be provided by a LEED-accredited professional in order to attain certification. Because there is no requirement that a builder hire LEED-accredited professionals at any level, let alone every level, to attain LEED certification, it is not plausible that each customer who opts for LEED certification is a customer lost to Plaintiffs.

With respect to Gifford's Lanham Act "False Advertising" claim, I wrote:

In alleging a violation of the Lanham Act, the Federal act prohibiting false advertising, the Amended Complaint states: USGBC's misrepresentations have an will continue to deceive consumers, voters, taxpayers, developers, municipalities and legislators at the local, state and federal levels. However, fraud requires "reasonable reliance" on the false statements. The difficulty here is that, although more plaintiffs have been added, they are still not plaintiffs that were "duped" by the USGBC's representations. Judge Sands concluded that the USGBC and Gifford, et al are not competitors:

Judge Sands similarly held that Gifford, et al cannot prove reliance:

Even if Plaintiffs were to amend the [First Amended Complaint] to include the proffered allegation that a single developer, Steve Bluestone, chose a LEED certified consultant rather than Gifford, Plaintiffs would not establish the required causal nexus: that Bluestone did so in reliance on the alleged false statement contained in a 2008 press release.

This order may not be the end of the Gifford v. USGBC story. Gifford may appeal, and he retains the opportunity to file his state claims in New York state court. Moreover, since the Judge did not resolve the merits of the claims, the debate over whether LEED buildings save energy is likely to rage on.

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

Shari Shapiro — Fri, 12 Aug 2011 15:04:50 -0500

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]

Shari Shapiro — Tue, 26 Jul 2011 13:08:37 -0500

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.

A Long Way to the Courthouse: the Region 7 EPA Headquarter Controversy

Shari Shapiro — Wed, 20 Jul 2011 08:40:36 -0500

Yesterday, the City of Kansas and the County of Wyndotte sued the General Services Administration for moving the EPA Region 7 headquarters from an older LEED building in the Kansas City central business district to a former Applebee's headquarters in Lenexa, Kansas. The complaint is available here.

This is a fascinating suit in that it highlights the paradox of a green building on an unsustainable site. Lenexa can only be described as a typical midwestern sprawling suburb, and the proposed new EPA headquarters is in an office park. A Google earth map of Lenexa is available here and the proposed building is available here.

The lawsuit alleges that the GSA violated two executive orders mandating that Federal facilities be sustainable and located in urban cores.

EO 12,072 requires:

Federal facilities and Federal use of space in urban areas shall serve to strengthen the Nation’s cities and to make them attractive places to live and work” and mandates that such Federal space “shall conserve existing urban resources and encourage the development and redevelopment of cities.

and Executive Order 13,514 which mandates, among other things, that

the head of each Federal agency to “advance regional and local integrated planning by . . . (iii) ensuring that planning for new Federal facilities or new leases includes consideration of sites that are pedestrian friendly, near existing employment centers, and accessible to public transit, and emphasizes existing central cities. . . ."

The GSA defends its decision to move from a green building in the central business district to a suburban office park on two grounds--it is cheap and it is green:

GSA spokeswoman Angela Brees said she could not comment on the lawsuit, but reasserted the agency's claim that the Lenexa building was the cheapest available, even when considering the cost of moving to a new office. [The building] also scored highest on technical criteria that include sustainability and design, she said. The owners of the building, which has been given a Silver rating by the U.S. Green Building Council's Leadership in Energy and Environmental Design program, have vowed to upgrade it to meet LEED Gold standards and get a Platinum rating for operations and maintenance by the time employees arrive.

Putting aside the environmental implications, I would argue (and the Complaint alludes to it as well) that the Lenaxa decision does not hold up on a purely economic basis, let alone an environmental one. The new site is located outside of the central business district, and has little access to transit. This means that every time an EPA employee has to go to a meeting, the courthouse and to other businesses in the course of their official duties, they must do so by car.

Currently, the Federal government reimburses private vehicle travel at $.51 per mile. Previously, the distance from the EPA headquarters to the Kansas City Federal Courthouse was .6 miles. The distance from the Lenaxa facilitiy to the Federal courthouse is 21 miles.

According to the New York Times, the Applebee's HQ rent is more than the current rent. On top of that, based on the above calculation, the taxpayer will be paying a $20 surcharge for every trip of an EPA Region 7 lawyer, paralegal, witness to the courthouse. Of course, it will also mean the same $20 surcharge for any other trip of any Region 7 employee travelling to the Kansas City CBD on official business.

Utilmately, it appears that this will not be a green decision, in either sense of the word.