Torchlight

When Starting Over Is Not An Option

By: Nancy Anderson, Ph.D.

February 28, 2008

With any luck, a building constructed today can last 50, 80 or a 100 years and its lifespan will literally embody today's money, materials, and norms. Less fortunately, this building also will create a decades-long carbon footprint whose final size will be determined by the structure's energy consumption and resulting greenhouse gas emissions. To cut 16.7 million tons of greenhouse gas emissions per year, PlaNYC 2030 calls both for improving energy efficiency in existing buildings as well as requiring that new construction be energy efficient. Shrinking our carbon footprint by 16.7 million tons translates into meeting fully half of the City's entire carbon reduction goal.

Because the stakes are so high, let's see where we are now. Looking only at existing buildings, PlaNYC predicts that 85% of New York City's current building stock will be standing in 2030. ¹ Since concerns over carbon footprints and climate change are of recent vintage, a walk down any NYC street offers a glimpse of the carbon challenge embedded in our 950,000 standing structures. And it is a challenge because we cannot get anywhere near the City's 30% target for reducing the size of our carbon footprint by the year 2030 if these existing buildings aren't altered or "retrofitted" to become high performance green machines.

Of all New York's older buildings, exactly one has achieved a United States Green Building Council LEED rating. Although overlooked by the New York Times, the New York Mercantile Exchange achieved a LEED for Existing Buildings certification in 2007 ². Additionally, twenty-three existing buildings have earned Energy Star labels. This adds up to twenty-four high performance retrofits. That's a starting point.

Here's a second starting point. To meet the commitments of PlaNYC 2030, City government promises to lead by example and the Office of Long Term Planning and Sustainability has developed a Short Term Action Plan. The City intends to spend up to $80 million by June 30, 2008 to cut 33,992 tons of carbon dioxide equivalent (CO2e) a year. Purchasing more clean vehicles is also in the Plan. These actions might be followed by an ongoing annual commitment of $80 million for cutting deeper into the City's CO2e emissions by additional retrofitting of lighting, heating, ventilation, air conditioning and electric transformers in its facilities as well as upgrading heavy-duty equipment at facilities like its sewage treatment plants. However, there is no binding funding commitment beyond June 30.

The Clinton Climate Initiative, in partnership with the federal department of Housing and Urban Development, has announced an energy efficiency upgrade for the New York City Housing Authority. This is a third starting point. New York's Housing Authority is enormous; it provides some 11% of the nation's public housing and the Clinton Climate Initiative "will help NYCHA structure agreements with energy service companies, banks, product suppliers and green building organizations to enable retrofits to be completed efficiently, quickly and inexpensively".

Undertaking high performance, building alterations — something that McKinsey Global Institute research recommends under the rubric of improving "energy productivity" — is the grandest urban sustainability frontier. But the momentum for large-scale transformation is not yet here. True, City government can "lead by example", pass laws that enshrine PlaNYC's carbon dioxide emissions reduction targets and encourage voluntary participation in LEED. In parallel motion, Energy Star and the New York State Energy Research and Development Authority Energy Smart Program offer invaluable real-world learning laboratories, but a handful of "poster child" conversions or piecemeal system improvements won't scale up to greening those 950,000 existing NYC buildings within a time frame that counts.

The only way to have a scalable, deep and durable impact is changing the rules, not just the options. The rules that matter most in New York are the City's Building Code and the State Energy Conservation Construction Code and it is an article of faith that amending them is never easy. Owners of New York City's residential and commercial properties, their real estate trade associations, as well as lenders, architects and engineers must be willing to work with environmental advocates and government representatives first to shape and then to actively accept new, green rules of the road.

Greener building and energy efficiency codes will ensure that energy efficiency investments in existing real estate are made both routine and regular. Tax codes will also play a vital role. In "Seizing the Opportunity (For Climate, Jobs, and Equity) In Building Energy Efficiency" Joel Rogers calls for "removing barriers to these investments... by aligning the treatment of energy costs and building improvements under federal tax law" and "developing markets for the 'secondary' value of greater efficiency (e.g., emission trading markets, efficiency trading markets, forward capacity markets)." The escalating cost of a status-quo level of building energy productivity is already manifest in a continued dependence on $100-a-barrel imported heating oil and ever-more-expensive natural gas consumed by local electric power plants. Looking further down the cost column, construction costs for new power plants, like almost all construction today, is spiraling up; increased electric power generating capacity will offer no relief from the bite of costly construction and commodities. These trends must impact any cost-benefit calculations for changing the rules. One catchy way of thinking about this is that the cheapest megawatt of power is the one that buildings never need. The same metric applies for heating homes and offices.

Next, let's consider the societal benefits that are built into such classic collective needs or public goods as electric grid security and reliability. Everyone agrees that new policies and plans are essential for providing relief to New York's strained energy grid. Grid relief is an obvious benefit as is finding least-cost ways of getting there. None of this, however, guarantees stakeholder agreement, availability of financing or timely action. Therefore, reducing aggregate electricity demand can't be relegated to the optional list because the reliability of the entire power supply system will be at risk at current rates of increasing power demand — and that's before another estimated million people move to New York City by 2030 and every home gets a flat-screen TV.

Whether we can ratchet down demand and protect the grid by increasing energy efficiency without constructing new power plants is a discussion for another day. For now, let's consider who could join the winners' circle in a city of mature, high performance buildings underpinned by green housing and energy efficiency code innovations. Landlords and tenants of renovated affordable housing would stand to gain with lower monthly operating and utility outlays. Provided that first costs can be contained or subsidized and that the work is done right, lower operating expenses free up more funds for mortgage payments, something of real value to lenders and underwriters. Despite New York's well-known dearth of affordable housing, high construction costs and its complex construction realities, there are a number owners, architects and contractors who are undertaking green, high performance building alterations, even if listing them all and understanding how they are performing isn't possible today.

Other potential winners are owners of commercial buildings with single tenants because carrying out building-wide mechanical systems or building envelope upgrades to reduce energy demand adds bottom-line value. This value only increases as energy costs shoot up in absolute terms, whatever their percentage of the operating cost calculation. Greening commercial buildings with multiple tenants or residential condos and co-ops is a more challenging task, according to Chris Garvin ³, a green architect with Cook + Fox, but that's where legal changes will be needed to create non-discretionary standards that are aligned with smart, targeted subsidy programs and the right tax code incentives. Either the Rogers or the Clinton Climate solutions outlined above could be applicable to these types of building, ownership and occupancy profiles. Among resources currently on tap, NYSERDA will work with commercial and industrial building owners and operators to help them become more energy efficient and reduce electric consumption at peak demand times. As well, both the availability and sales of Energy Star office equipment is growing.

A new generation of green-collar workers and businesses will make up a third group of winners. A New York City Apollo Alliance report finds that, "An environmentally sustainable NYC brings with it the prospect of economic benefits and good jobs: green collar jobs. For sustainability to generate widespread prosperity... Green collar jobs must provide family sustaining wages, safe working conditions and chances of advancement." A related "green collar" job initiative, Green For All, was recently launched in Oakland California under the auspices of the Clinton Climate Initiative. Green For All seeks "a national commitment to job training, employment and entrepreneurial opportunities in the emerging green economy — especially for people from disadvantaged communities". Without the support of and tangible benefits to urban Americans who may not now rate fighting climate change as a top priority, we won't have sufficient velocity to overcome the inertia of business as usual and the clamor of other issues pressing for resources and solutions.

Creating a high performance winners circle requires the right kind of institution-building. As Rogers observes, large-scale participation by owners and tenants will require a way to lower the risk of failed installations and steep transactional costs. He proposes an organizational solution. It consists of an energy efficiency "coordinating entity" to coordinate upgrade projects, a power utility that bills energy consumers and would charge for energy efficiency services in its regular billing, an energy customer who pays for the retrofitting, a bank that would loan money to the "coordinating entity", a certified energy auditor to make specific project recommendations and verify that the work was done right, and a certified contractor to perform the work. The Clinton Foundation Climate Initiative ⁴ offers a slightly different version of this solution that relies more on energy service companies and less on third party verification.

Still ahead is development of smart public policy that aligns with and amplifies the impact of code amendments in order to reduce the costs of compliance while increasing the benefits of high performance retrofits. Without such alignments, competing capital needs, as well as the fear of new or untested technologies and a lack of skilled, certified contractors will scare off all but the bravest owners and tenants. Let's also acknowledge a nearly universal preference for avoiding building code applicability when possible; owners and architects have been known to exercise considerable ingenuity to ensure that their proposed alterations fall below the legally defined threshold for building alterations. It's clear now that the greatest value of greener energy and building codes will lie in the inclusiveness of their application. And, as always, competent and honest code enforcement is a must whether it applies to greener buildings or worker safety.

Code writers face the challenge of crafting statutory wording that will govern which alternations are covered or exempted from code requirements. State, City and high performance stakeholders must consult and work together on this fine print. A final point to acknowledge in this context is the well-known split incentive problem where "the builder pays but the tenant benefits". But even here, a mix of greener code requirements, tax incentives and a transforming market place as energy efficient buildings achieve greater market cache, would go a long way toward making energy efficient retrofits into Rogers' "killer app".

So, with so much to gain by greening our existing buildings stock, what other barriers or distractions should we anticipate? Here too, it will be the fine print that matters most. The prime task of building codes everywhere is setting minimum standards for public safety and health. Relevant energy-use standards are found in the New York State Energy Conservation Construction Code (ECCC) that lays out requirements for design of building envelopes as well as the mechanical, electrical, hot water and lighting systems for residential and commercial properties. A critical part of the ECCC is its requirement that mechanical and electrical systems meet the American Society of Heating, Refrigeration and Air-Conditioning Engineers (ASHRAE) 90.1 standard. Now, a more advanced high performance standard, ASHRAE 189 of 2007, has a goal of achieving at least 30% better energy efficiency than the 90.1 standard. It's a safe bet that inertia in the real estate and financial industries, lack of trained contractors and workers, materials and equipment without a performance record will all press against rapid adoption of greener codes and reference standards.

Advocates of greener codes must take care to see that they apply to the widest possible range of building alterations in order to realize their potential impact on energy efficiency, operating savings and carbon emissions cuts. An allied new law should be enacted that would establish a centralized high performance building data registry and make use of a widely accepted, system of measurement and verification. Such a registry can be a powerful tool for understanding how well new code provisions are working to maximize a building's energy productivity and where further code improvements may be required.

Now it becomes evident where the performance and data driven models found in Energy Star's National Energy Performance Rating and labeling programs or NYSERDA's Energy Smart programs as well as the Rogers and the Clinton Climate Initiative models could really shine. These are our learning laboratories and data banks filled with the results of real world measurement and verification. Energy Star, by definition, is for existing buildings because applicants must submit extensive data on actual energy performance in order to receive an Energy Star label. ⁵ The Star is awarded for real performance, not design aspirations. The Rogers and Clinton models share the fundamental insight that lenders are repaid out of actual saving achieved by energy retrofits. Projects that are poorly designed, badly executed or inadequately operated won't generate the revenue stream to ensure loan repayment. This creates a real incentive to get it right.

Let's end with the Rogers paper, Seizing the Opportunity. "We should be aiming to make building energy efficiency as basic a norm of civil behavior as obeying traffic lights, not driving drunk and not blowing cigarette smoke in a baby's face. It's pretty basic". Rogers is right.

Footnotes