Torchlight

The Deep Green Quartet

By: Nancy Anderson, Ph.D.

October 30, 2008

Preparing for this last column of the year, I reread 2007's final Torchlight Knocking At Our Door to get my bearings. Back then I quoted Al Gore, "We, the human species are confronting a planetary emergency". Today, that insight evokes not only the grave dangers of climate change but also the deep risks of a global economic crisis. While the financial storm is no reason to abandon our march toward sustainability, it does mean making every effort to ensure that urban-scale green breakthroughs won't be derailed by costs that should have been contained, investments and incentives that are not strategic in nature, and the loss of supporters facing tough economic choices. At the same time, the current financial climate highlights the urgency of getting these breakthroughs right, because failures could take climate action off the agenda for a generation, thus precipitating the planetary emergency.

After losing the PlaNYC 2030 congestion pricing campaign, Mayor Bloomberg is turning his attention to tackling the problem of how to slash the energy consumed by New York's existing building stock. As well, he's looking ahead to the next revision of the City's Building Code (whether or not he's in office in 2010) as an opportunity to make the next generation of buildings green enough to play a major role in meeting the City's goal of cutting its greenhouse gas emissions 30% by 2030. It would be premature to say there's a blueprint for success, but the foundation is being laid. Let's do a site tour.

In last year's final "Torchlight", I called the 2007 Building Code revisions "lite green". Seeking to figure out just how "lite" they were, the Sallan Foundation commissioned Decoding the Code, a research report on the potential of the code to cut energy demand and carbon emissions. The report concluded that "not more than one third of the 30% carbon reduction targeted by plaNYC 2030 from more efficient buildings can be expected from the new code in its present form." This past summer, at the request of the Mayor, the US Green Building Council's New York Chapter (USGBC-NY) established a Green Codes Task Force. By December 2008, it is supposed to plow through the City's building codes, identify obstacles to building greener and issue a report that should offer specific recommendations, including new statutory language, for engendering effective, enforceable, high-performance building practices. [UPDATE: ETA for this report now April 2009.] Membership on this Task Force includes the Mayor's Office and the City Council, developers, architects, engineers, academics, unions, real estate trade associations, environmentalists and civic groups. It is the hope of the USGBC-NY that this work will "raise the bar for other municipalities". The impact of the Green Codes Task Force's work is likely to be greatest when the current building codes come up for their first round of revisions in 2010 and thereafter every three years. Greener codes will translate most directly into future "medium green" impact new construction.

For the present, however, the rise of green construction hasn't had a game-changing impact on the City's recently red-hot development market. Since 85% of the existing mass of its 950,000 buildings will be standing and devouring energy in 2030, only wide-scale energy-efficient building alterations, interior green fit-outs and decreased plug-load demand would be that game-changer. If today's building stock functions in the future as it does today, New York's per capita annual increase in electricity consumption will continue to climb a steady and threatening 1.1% and there's little prospect that carbon dioxide-belching heating fuel consumption will trend down. By any calculation, this scenario is unsustainable. Now, four legislative ideas are emerging from the Mayor's Office and the City Council to rein in the energy appetite and climate impact of those 950,000 buildings. If done right, this could become New York City's "Deep Green Quartet".

• The first bill would require lighting upgrades for residential and commercial buildings that undertake renovations requiring Department of Buildings permits. Since energy efficient lighting technology has seen great improvements, the deployment of newer, efficient bulbs and lighting fixtures would make a cost-effective dent in the current calculation that nearly 20% of the energy used in the City's buildings goes for lighting. This bill's utility for decreasing energy-demand as a result of tenants' interior renovations and reduced plug load energy consumption is clear.
• A second bill would adopt the State Energy Conservation Code into the City's Administrative Code. The big change would be elimination of State language, often called the "50% Rule", which exempts a wide swath of building alterations from needing Building Department permits and, as a consequence, makes it difficult to bring existing buildings up to current efficiency standards.¹ What, if anything, would replace the 50% rule is not spelled out.
• A third bill calls for energy "benchmarking" by property owners. Benchmarking would consist of annual reporting on buildings' total energy and water consumption. City government buildings of 10,000 square feet or more, residential buildings 50,000 square feet or larger or that contain fifty or more dwellings, and commercial buildings 50,000 square feet or greater would have to file benchmarking data. The City estimates there are some 17,000 buildings that meet the size threshold for reporting. By requiring the use of a designated USEPA software program, reported data would be standardized and more informative.
• A fourth bill would have property owners conduct energy efficiency reports (audits) and make retrofit investments. It is an ambitious effort to reduce energy consumption in the existing building stock, but passing the bill could prove to be a heavy lift. As currently drafted, landlords of residential and commercial building that are at least 50,000 square feet in size would have to conduct and file audits with the City every ten years. If an energy efficiency audit finds that a building fails to meet energy conservation code standards, the owner shall undertake retrofits, also called "energy conservation measures" (ECM's) if the cost of such measures can be recouped within five years. Buildings that currently meet code standards will have to undergo periodic retro-commissioning to keep their central systems operating at peak performance levels. The Mayor's Office maintains that, over time, Con Edison and the New York State Energy Research and Development Authority will be able to provide significant informational, technical, and financial assistance for energy efficiency projects required under this legislation. The penalty for failure to file an energy audit with the City would be suspension of permit issuance to the building in question, with the exception of permits necessary for work required by the law. Failure to carry out retro-commissioning or ECM's would result in a monetary fine.

My summary of this Deep Green Quartet is provisional because none of the proposed bills is in final form and substantial changes likely will be made before or after they are formally introduced at the City Council. Should these four bills become law, getting them up and running will consume time and resources as the climate clock ticks and our energy consumption climbs and the tough economic climate won't make any of this easier. Nevertheless, this seems like the right time to start a wider public discussion.

The benchmarking bill could be more far-reaching through including provisions to leverage market interest in energy efficiency by stipulating point-of-sale access to a property's electricity, fuel and water consumption data. Think of this as a carbon-consumption right-to-know law. For residential co-ops or condos, building management should provide such consumption data (excluding electric use within residential units) to prospective buyers. For commercial and residential renters in buildings obligated to undertake benchmarking, the European Union offers a model of building labeling that could be adapted for use in New York City. The Council should also draft a companion bill that would make energy consumption information available to prospective buyers of 1-4 family homes. Overall, costs of compliance would be close to zero for sellers and owners, while buyers and renters would benefit from the ability to compare fuel consumption costs on different properties.

The energy efficiency report and retrofit bill is the most far-teaching of the quartet because it has the potential to set into motion a wide array of game-changing, energy-conserving actions in buildings that might otherwise continue on their current consumption trajectories. By game-changing, I mean efficiency investments on a scale large enough to foster markets for greener goods, services and jobs. If compliance leads to widespread operational improvements and installation of energy-savings equipment and building systems, its impact will be felt at a large enough scale to slash New York's overall electricity and fuel oil consumption. Simply put, it makes good sense to think of the this bill and its companions in the Deep Green Quartet both as investments in the City's future well-being and as power tools for cutting its carbon footprint starting now.

It is distressing, therefore, that the worrying term "low-hanging fruit" crops up in discussions of the audit and retrofit program's likely impact. Typically, energy efficient lighting is cited as "low-hanging fruit"; sounds good, but what about the rest of the building? As drafted, this bill is unlikely to stimulate any big work on building envelopes, major mechanical systems or boilers. Why? Because the provision that limits energy retrofits to instances where building owners, based on their own calculations, can achieve a five-year return on investment (ROI). This formulation invites two avoidance schemes. The first scheme entails "data distortion"; pegging the action threshold to a five-year ROI is an invitation to calculate six-year ROI's for contemplated energy retrofits. One solution under discussion is to allow for the cost-averaging of several energy-efficiency options to get to the five-year number. That might be a workable idea, but it's not enough. The bill should also establish threshold numerical energy efficiency gains for the ECM's selected by the property owner to ensure that some "tree-top fruit" is picked. Finally, an easy, low-cost way to increase an owner's greening incentive — without actually requiring any specific retrofit investments — would be adding a statutory requirement that building audit results become part of the information disclosure which is part of every property sale or finance application. Surely, a high-value real estate asset is one where operating expenses are kept down through attention to tip-top building systems maintenance and where these systems are up-to-date.

The second avoidance scheme built into the current bill is to encourage investments that aim no higher than current code requirements. Energy efficiency codes reflect the inherent lag of professional consensus that is several years old. Spending money now for building upgrades entails decisions that means money won't be available for something else next year. Thus, it would be good public policy and prudent investment to encourage building owners to exceed code requirements.

As drafted, the audit and retrofit bill also risks a wave of residential market dislocation. Since it would apply to an estimated 9,000 large residential buildings, the impact on housing affordability cannot be ignored. Some have proposed ECM requirement exclusion in rent-regulated buildings in order to forestall rent increases associated with work counted as a major capital investment (MCI). Before going down that road, bill drafters should set interim numerical energy efficiency targets based on the building's total size and occupancy rate. If that target can be met with fast-track retro-commissioning and regularly scheduled operating and maintenance improvements, (which could include technical training for building maintenance staff partially paid for with systems benefit charge and/or utility funds) the building owner would have five years before undertaking ECM's. Parallel programs to encourage installation of energy-efficient domestic appliances would be a great way to help bring down overall energy consumption and reduce tenants' utility bills. In these ways, MCI costs can be planned for in an orderly manner. Equally important, smart, aggressive education programs for tenants must be established and regular outreach must become routine practice.

Let's return to the question of how to mobilize an army of energy-efficiency early adapters and examine four of the best ideas in circulation. Portland, Oregon is considering how to offer incentives to owners whose buildings exceed energy code requirements and are models of cost-effective, ahead of the curve green building. Conventional buildings would have to pay something under this "feebate" scheme while buildings that performed well-above Energy Code requirements could receive valuable zoning bonuses or other incentives to "rebate" owners' energy-efficiency expenses. New York City's retrofit bill should aim for similar high-performance results. Offering faster depreciation allowances through New York City's tax code would be an additional sharp tool to encourage early adoption of ECM's.

Here's a third powerful idea — the "Dutch" auction. In a plain-vanilla auction, an item goes up in price with each bid, until a winner is declared. A "Dutch" auction is the reverse, with the first high bidder getting the most of the thing desired and lower, later bidders leave empty-handed. An energy efficiency "auction", where a limited number of building permits would be available in the early years of the program, would offer the first generation of energy retrofitters with the most ambitious goals greater incentives and support than the second, third or fourth generations. Succeeding generations of greener, more energy-efficient buildings would be the beneficiaries of the early adapters real-world experiences. A very valuable collateral benefit to City government of the "Dutch" auction idea would be getting the time to scale up the institutional and professional systems necessary to ensure proper and timely program administration and oversight. Building owners would similarly stand to benefit because a phased-in retrofit schedule would neutralize the risk of a skill gap that could arise when demand for specialize professional expertise needed for audits and retrofits exceeds supply. If the full effect of the law is phased in over a period of several years, the supply will have the time to grow.

The fourth idea for early adapters' incentives, and it's one that's already in limited use, is a service provided by energy services companies (ESCO's). Typically, ESCOs develop, install and arrange finance for projects designed to improve the energy efficiency and maintenance costs for a wide range of facilities. In Berlin, Germany ESCOs bid competitively for the work. ESCOs must guarantee energy savings to the building by deploying innovation, state-of-the-art technology, ideas and value for the money. The winning ESCOs pay upfront for the retrofits and building owners pay them back over an agreed time period. In New York, the Clinton Foundation in co-operation with the Housing Authority and the federal government is using an ESCO model to pay for energy-efficiency work at the Authority's apartment houses. Unlike the Portland or "Dutch" auction ideas, the ESCO idea is not best suited for legislative mandate but it is a good way to get building owners active on the ECM front.

Turning to the economic growth opportunities liked to setting our building stock on the high-performance track, a 2008 report by the Center for American Progress, "Green Recovery: A Program to Create Jobs and Start Building a Low-Carbon Economy", outlines paths to "strengthen the US economy over the next two years and leave it in a better position for sustainable prosperity." It identifies "The most obvious option for rapid green investment in communities is a large-scale building retrofit program, which would rely entirely on known technologies". The report also identifies existing federal programs that could be conduits for energy-efficiency investments and argues that Congressional action should "include measures to ensure state and local government participation" in retrofitting public buildings."²

At the urban level, our Deep Green Quartet could provide the impetus to achieve lift-off for a vibrant green collar local economy. Energy auditors, installers, architects, engineers, product designers, wholesalers and retailers will all be needed to make our real estate — the local industry that cannot move off-shore — into a resilient, energy efficient metropolis, while preserving New York's standing as a world capital city. Thinking big, the "City Economist" calls on Mayor Bloomberg, a world-class example in his own business ventures of how to harness entrepreneurial opportunity, to use the powers of his office and his example and encourage the current bumper crop of Wall Streeters wondering what to do next to go green! "The [current] displacement could help advance the Mayor's PlaNYC 2030 agenda by encouraging green entrepreneurs-profit-oriented or nonprofit, like Solar One and GreenEdge NYC-to make the Big Apple into the Green Apple." If by 2030 New York City is to house and sustain an additional one million residents and remove itself from the list of the world's most unequal cities, green collar opportunities in the building sector will play a vital role.

To close out for 2008, let's cheer the New York City Housing Authority for fulfilling green commitments made with the Clinton Foundation and HUD by moving ahead with plans to undertake extensive capital repairs to exterior facades and roofs as well as upgrades for a menu of mechanical, electrical and plumbing systems in many of its 2,694 apartment buildings. Still ahead — and this is true for any high performance building — are the challenges of "greening" maintenance staff and tenant practices and making the availability and purchase of very energy efficient appliances the "new normal". Another cheer goes to New York City for kicking off energy audits in several municipal buildings.³ Raise a third cheer for an industry report that finds, even in the dismal national housing market, "40% of builders said they had an easier time marketing homes that were built to green specifications".⁴ At the same time, let's keep a watchful eye on a lawsuit in Albuquerque New Mexico that seeks to overturn the city's green building law. Plaintiffs, which include HVAC and water heating equipment trade associations and local building contractors, assert that local energy efficiency requirements in the city's statute are pre-empted by federal appliance efficiency standards and, therefore, the law be tossed out by the court. Stay tuned in 2009.

Footnotes