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Nancy Anderson, Ph.D.Torchlight

How To Get What We Pay For

By: Nancy Anderson, Ph.D.

March 09, 2007

Now that the world's pre-eminent climate scientists have confirmed in the Intergovernmental Panel on Climate Change (IPCC) 4 Report that global warming is here, that it's caused by human activities and it will produce severe consequences if unchecked, there's no doubt we should be drastically diminishing our greenhouse gas output. We have not been lacking in ideas about how to proceed. Over the last decade there have been many efforts to confront what we are doing to our global climate, under such banners as "sustainability", "energy independence" and "carbon neutrality". First there was the UN Framework Convention that led to the Kyoto Protocol. Then, in 2005, the European Union launched an Emissions Trading Scheme to cap and trade carbon emissions. Nine northeastern US states have agreed to join the Regional Greenhouse Gas Initiative, which will launch in 2009. At the municipal scale, the US Conference of Mayors is pledged to a goal of carbon neutrality, while some 40 cities will be holding a second meeting in NYC in May 2007 to swap ideas about combating climate change.

The full impacts, meaning the complete array of costs and benefits of these and other public and private sector initiatives to reduce the emissions of greenhouse gases, will take decades to determine. But we don't have to wait decades to discover the impacts of every good idea, sometimes we don't know simply because no one's looked.

Consider the New York State Green Building Tax Credit law that was designed to transform the markets for building developers and their supply chains as well as to alter the behavior of building managers and tenants. The initial law was passed in 2000 (TC-1); it provided for $25 million in tax credits to support large-scale residential and commercial high performance construction. It got off to a slow start, but all the funds were committed before the State renewed the statute in 2005 (TC-2), making an additional $25 million in tax credits available. Developers and tenants alike were awarded tax credits during the first five-year program. A range of building types were supported — including an apartment building in Harlem, an office building in mid-town, an apartment building in Battery Park and another, which rehabilitated an historic building on Roosevelt Island. TC-2 caps the total tax credit that can be awarded to an eligible building at $2 million over a specified time period and the awarded credit can be used by the developer or tenant during any consecutive five years from 2006–2014.

TC-1 specified that qualifying projects may include fuel cells, photovoltaic models, and green refrigerants for new air conditioning equipment among other technical innovations. It capped energy use in new construction of a "base building" at 65% of the state building code standard and at 75% for renovated "base" buildings. For new construction, tenant space energy use was capped at 65% of the use permitted under the energy code and a cap of 75% was imposed for tenant space in renovations. The tax credit program, in keeping with both United States Green Building Council Leadership in Energy and Environmental Design (LEED) requirements and the consensus on best green building practices, required tax credit recipients to properly start up the building systems and to monitor their spaces. This requirement makes sense because it serves as a mechanism for generating good data about those green building designs and operations that have been supported through public policy.

Unfortunately, the data trail starts to dim right here. TC-1 requires tax-credit recipients to maintain records on their buildings' annual energy consumption and indoor air quality monitoring results, among other things. These records must be maintained "for any taxable year for which the green building credit provided for under this section is claimed" and this information must be provided to the New York State Department of Environmental Conservation (DEC), in a form and at a time "prescribed by DEC". Following the data trail deeper through DEC's regulations, once the tax credit period has expired, the tax credit recipient no longer has to maintain any performance records.

As a practical matter, it is possible that DEC requests, receives, reviews and retains these records. But there are no public accountings and the data trail is even dimmer. This data dead-end is a costly missed opportunity for good policy making. The purposes of the State's law can be validated only if the data is actually submitted to the State. In turn, the State must aggregate, analyze and publish the results. Only then will we have useful knowledge, based on real experience, on which to assess and improve our public policies. For now, let's look the record and see what have we accomplished with the $25 million in tax credits granted between 2000 and 2005.

But first, consider this message posted by New York State Department of Environmental Conservation.

Important Notice: It is anticipated, that based on the delay caused by having to update the regulations, DEC will not be able to accept Period two applications for the initial Credit Component Certificates until the updated regulations are promulgated.

Put bluntly, TC-2 implementation is on hold and the delay is stretching into a second year with no end in sight.

What is going on here? How could a law providing tax relief to energy efficient, high performance builders, which was reauthorized in 2005, not be operational in 2007? A January 27, 2007 headline in Crain's New York Business blared, NYC Developers Resist the Push to Go Green and cited the jejune but persistent view that going green costs too much money. As evidence, the article points to the small number of buildings designed to meet LEED standards, but it is silent about the impact of the $25 million in tax credits distributed to developers as a result of the State's initial green building law, which was intended to be an exercise in market transformation. It is possible that developers just didn't know about the State's green tax credit. Maybe they didn't find the available tax credit financially attractive or found that the transactional costs paperwork, were too onerous. We don't know.

Let's consider a very different hypothesis about the reason for the delay — lack of interest by developers. In response to a question regarding the apparent lack of concern about the current status of TC-2, one New York real estate insider speculated that today there's enough market demand for high performance building so that tax break incentives are no longer needed. This rosy view does not easily equate with the dour view expressed in the Crain's headline about NYC developer resistance to going green, or the still miniscule number of buildings with a LEED rating.

Whatever their accuracy, either view leads to a related reason we should find out what's going on. A February 5, 2007 Crain's New York Business story spotlighted the continued "torrid" growth in New York City residential construction in 2006, but there's no solid evidence that this building market is being "transformed" by the Green Building Tax Credit law. This means we are perpetuating an environmental problem because what is built today will determine energy and fuel consumption levels, as well as their associated greenhouse gas emissions, for fifty years or more. We've got a building surge that is "torrid" in more ways than one — but since it's not on the cutting edge of energy efficiency and high performance it's not capturing the intended value of the State's tax credit policy.

In light of what we know, or more precisely what we don't know about how buildings that used the TC-1 credits performed, it's hard to predict what we should expect from the 2005 reauthorization. TC-1, of course, reflected the knowledge and best practices of its time. Since then, we have witnessed an explosion of high performance building and the maturing of conceptual frameworks like the LEED rating systems. It seems only reasonable that the qualifying threshold for the tax incentives offered by TC-2 be set at a level that meets current best practices in order to support market transformation and to appeal to a range of building developers.

It is possible the delay in delivering on the 2005 law means that the State is reviewing and updating its technical program yardstick or that a bigger, better tax incentive programs would do the trick. The federal Energy Policy Act of 2005 sets uniform national standards for qualified energy efficient buildings and provides for tax benefits measured by the square foot. Surely, state green tax policy can be fruitfully aligned with available federal tax credits to help make high performance building New York's "new normal".

At last, we're ready to return to the record for an assessment of TC-1. Although getting a clear, comprehensive understanding of its value of is not possible at present, some promising anecdotal evidence is available. A recent Sallan Snapshot, written by the Full Spectrum Team, offers some data glimpses about the Harlem apartment building that received a green tax credit. According to the Full Spectrum Team, "We start by instructing our design team to reduce energy consumption by 50% below the state energy code and reduce the cost of construction below the regional index by 20%". Now, each household saves "more than $1,500 per year in energy cost and — the green tax credit — creates a $10,000 average tax credit for each resident". On a larger scale, the Battery Park City Authority, with several high performance apartment and office buildings under its jurisdiction, plans to systematically gather green performance data that will be made public. With some data already on hand, the Authority's Chairman, James Gill, posted a letter-to-the-editor in response to the Crain's story NYC Developers Resist the Push to Go Green. According to Mr. Gill, Nymex laid out $185,000 to retrofit its property and has projected annual energy cost savings of $250,000.

Evidence of evidence-gathering is a good sign. We need more of it, a lot more. It is precisely the self-reported material like that provided by the Full Spectrum Team and the Battery Park City Authority which underscores the importance of the law's own record-keeping provisions. Still, TC-1 says nothing about how this data must be put to use or what we should expect from the mandated report due out in 2011 and although the law provides that a "first draft" of this report be issued by April 1, 2005, its whereabouts are unknown.

Let's end with a regular theme of these Torchlight columns, advocacy for evidence-based environmental policy. As a case study, New York's Green Building Tax Credit law earns a very low grade on any test of evidence-based public policy. TC-1 might have been a great success, but no one can say for sure. Today, there is a rising call for gathering the necessary evidence to make the case in every policy arena. From the perspective of uniform and benchmark professional standards, the US Green Building Council has developed any array of high performance criteria. In an effort to close the data feedback loop, post-occupancy evaluations, which makes use of both objective performance data, such as energy consumption, as well as the subjective views of building occupants, are coming into use now. LEED for New Construction, Version 2.2 requires building owners to survey occupants in order to achieve a LEED point for "thermal comfort". At the University of California's Berkeley Center for the Built Environment, researchers are using internet-based programs to administer green building occupant surveys, and these show promise for reducing the cost while increasing the accuracy of such data gathering.

But New York State neither requires nor supports such things. Presumably, the necessary evidence exists in someone's files to determine whether tax credit recipients met the programmatic and numeric performance goals of TC-1, but it's all been left to gather dust. This is a bad way to carry out a well-intentioned law because we are in urgent need of good evidence and better environmental policy-making since hot times and torrid real estate markets call for cool minds and steady hands.

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