Carbon March Tempo Quickens: California Cap-N-Trade Plans Announced

The photo by Mick Montara is not a sci-fi special effect. Its the sun seen through the thick wildfire haze in mid-daytime here in NoCal yesterday. No kidding! The haze blanketing many cities comes from over 100 wildfires that we are having here in California.

And a day of severely reduced air quality is also an ominous backdrop for yesterday’s announcement of a proposed carbon cap-and-trade program by the California Air Resources Board (CARB). It’s not a done deal yet, but for the first time, we are all getting a peek at California’s announced implementation plans for the famed AB 32 greenhouse gas reduction legislation.

The Plan
Over multiple coffees, I’ve perused several stories plus an in depth legal analysis of the plan (only received via email; will send subscribers a copy if you email me). The basic gist for commercial property owners is this:

• Excessive emissions will cost you: Businesses which exceed their emissions allowances will have to buy those emissions on the open carbon market. Over the years as the caps are reduced to achieve compliance with set targets, businesses purchasing emissions credits may have to pay more. That’s the state’s vision.

• Property is high on the state’s hit list: Buildings and appliances combined rank #2, behind auto fuel efficiency, in targeted emissions reductions. Total reductions of 26 million metric tons of CO₂, or 15% of total 169 million metric tons of targeted reductions are expected by 2020. All of that is to be achieved by property owners increasing the energy efficiency of their buildings and appliances as well as a new vehicle miles traveled-angle: new housing developments being located so that driving commute times are reduced. Wow. Oh, and more efficient use of water will reduce  emissions by 5 million metric tons CO₂per year.

• But there’s a financial opportunity for emissions outperformers: Businesses which successfully reduce their CO₂ emissions below what is required will be able to sell credits back to the open market. Of course, it’ll be awhile before we all know what that’s really worth.

• And cap and trade strengthens renewable energy: These measures also push expansion of renewable energy markets as a source of clean energy. If you’ve been following the latest kidney punch to the solar industry by the Bureau of Land Management, you’ll agree that this plan starts to position clean energy well during a time when they are not getting any respect from the federal government.

Don’t like it? Well, here’s CARB’s “we mean business” quip:

“If the combination of existing rules and new cap-and-trade regulation fall short of the goal, the state could impose a carbon tax.” said Mary Nichols, chairwoman of the California Air Resources Board. “We look at this (carbon tax) as a back stop”.

Fossil-fuel Spinial
Of course, Big Oil is not relaxed about this at all. CARB has tagged them to reduce, by their own estimates, 60 million metric tons of emissions, or 35% of total targeted reductions. Predictably, they’ve gone on the spinial (spin and denial) offensive with a transparent barrage of FUD (fear, uncertainty and doubt):

“What the air resources board is finding out is that this is extremely complicated. I’m not surprised that we only have a road map, with the details to be filled in later, said Cathy Reis-Boyd, COO of the Western States Petroleum Association…She also said that fuel prices could rise even higher if the plan is not implemented in a way that ensures that refineries can buy credits when they need them.”

Anywho, the cap and trade plan is still subject to public comment and has many features which remain to be worked out. So prepare for more updates here down the road.

It is significant for the Green Journey because it provides a compelling backdrop for green building. In California, it is no longer just the right thing to do; regulators are now in the midst of restructuring away a percentage of your profits if you don’t start now.

Last note: If you want a copy of the legal analysis I received for your own review — and you’re a subscriber — please email me and request a copy.

Future-proofing Tip: Use Green Building Rating System Critiques

I have posted before about future-proofing being the hot buzzword for industry pacesetters. Property owners now dedicate an increasing amount of time to (re-)positioning their teams and portfolios for the expectations of a sustainability-conscious world.

But while everybody gets the catchy phrase, how does ‘everyday future-proofing’ actually happen?

I recently met with a group of executives, who detailed their process of moving their firm towards being a socially responsible corporate citizen. They talked about how sustainability has injected elements of excitement and risk into today’s real estate industry. They were happy about ‘going green’, but also expressed frustration about being on a ‘hamster wheel’, since the good green building initiatives they were currently implementing could easily be superceded by “bigger, better, faster” improvements to building science and the regulatory environment.

Fortunately for many firms with this type of anxiety, the American Institute of Architecture has just published “Quantifying Sustainability”, a report in which they have issued new position statements about the Green Globes, LEED NC-v2.2 and SBTool 07 rating systems. It’s a not-too-dense ten pager and a quick read – if you can squint through the 6 point font they are using.

Here are the Cliff Notes from the AIA report:

• On Green Globes: the AIA recommends that Green Globes ratings systems adopt more specific and stringent requirements for energy reduction and building operational performance since these are the two most important dimensions of carbon production. Green Journey Notes: Making recommendations about requiring items which are at the heart of carbon production is a slap.

• On LEED NC-v2.2: The AIA calls for more implementation of Life Cycle Analysis, and would like to see the greater use of renewable energy and a requirement for greater carbon reduction for certified projects. Green Journey Notes: While the report says that the AIA is neutral about all ratings systems, they did take the time to refer to LEED as “providing a measure of environmental achievement” and said that the recommended changes would “continue to make this system an effective resource for architects”. None of the other rating systems evaluated received this level of praise. Second of all, the USGBC has already announced, and we’ve already posted here,  that the next upgrades to the LEED rating system incorporates all of these suggestions in some form of another. I am guessing that this paper was written before the USGBC’s announcement of the changes.

• On SBTool 07: The AIA recommends that this system would be a stronger tool if there was an increase in the number of required items vs those that are simply encouraged and if project documentation were required. Green Journey Notes: Ouch!

So how can this intel improve “everyday future-proofing”?

• Rating system weaknesses can contain clues: revealed by the critiques are direct pointers to the most likely changes that you will see to those ratings systems. They are also a comment about what will define good industry practice in the near future. So there’s your content for potential future proofing. Here’s the core of where you can mine your ideas about staying ahead of the curve in a sustainable world.

• Beware of minimum compliance: Just trying to achieve the minimum certification level leaves your firm open to the risk that your buildings could easily fall outside the newer standards of acceptability, once any ‘tweaks’ are made to the rating system.

• The endgame is low and no carbon: Understand the difference between a single asset checklist process and achieving concrete energy and operational performance targets across your portfolio that are tied to quantifiable carbon reductions. As you can see from the AIA’s position on ratings systems, this is the tough measure that they are applying which means that this the the industry standard they are driving towards, even if the current ratings systems might not reflect it.

Energy Efficiency German-style & LEED Grows Legs

Last week, I moderated an energy efficiency symposium that brought together German and American building and energy experts. The Germans were here to sell us a few building energy products and services. The Americans were there to look and buy. After a few great presentations and some hefty debate from an engaged audience, I started synthesizing clear differences between how Germans and Americans approach high performance buildings.

So here’s a few statistics and slides from the presentations, to give you a picture of the current state of energy consumption, how its being reduced in Germany as well as some thoughts on why Germany and the US are achieving different results. Go here to the German American Chamber of Commerce Website to see all the presentations in full.

Germany & Japan Use less Energy to Create the Same Economic Value as the US Fred Pollack, an architect with Van Meter Williams Pollack helped frame the current state of energy consumption in the US with the following statistics from the International Energy Agency:

Energy Consumption, in $/Gross Domestic Product as of 2006:

• USA = 3.2 kwh/ $GDP
  
• Germany=2.4 kwh $GDP (25% less than the USA)
  
• Japan=1.5 kwh / $GDP (53% less than the USA, 37.5% less than Germany)

So Germany and Japan can create the same unit of economic value as the US for 25%-53% less energy than the US. When you add to that, the current fact that the dollar’s value has weakened sharply against both the Euro and the Yen over the past year, then the idea of the US economy’s exposure to energy price risk becomes even more concerning.

When it comes to energy security, Germans have been walking another road, at a faster pace, for decades. Historical context frames these ideas and you’re probably familiar with the American version. Both Germany and the US experienced severe energy price shocks during the 1970’s. This experience kick-started Germany’s national policies that mandated decreases in building energy usage. That success has supported a steady walk to some of the cornerstones of Germany’s great track record in lowering its fossil fuel dependency: the wildly successful feed-in tariff, the creation of the low-energy and Passivhaus standards as well as the Plus-energy House.

Dr. Manfred Hegger, Professor with the Technical University of Darmstadt put up a slide summarizing how residential energy consumption in Germany has decreased as new legislation was enforced and innovative construction methods developed. Click directly on image to see an enlarged version.

Reduced energy consumption in Germany is more closely associated with investment value preservation. The German presenters kept stressing how their ideas and products contributed to “investment security”.  Americans currently talk about greening buildings in terms of lowering operating expenses, but the idea of investment security isn’t spoken about so widely. So I could see that German owners have developed the thinking that, to the extent a building is energy inefficient, the owner is exposed to energy price risk from the open market — a very bad deal. Bear in mind that Germany has 1) MUCH higher energy prices (gasoline in Germany now = ~$8/gallon) 2) a slower rate of economic growth than the US generally and 3) correspondingly lower interest and cap rates. So value appreciation through opportunistic rental rate increases like we can do here in the US (sometimes) is less likely.

Conversely, slow rental rate growth combined with volatile, already high energy costs greatly exposes a property to quicker value erosion. So Germans are combating real value deterioration via lowering building energy consumption. Energy has been relatively cheap in the US and American owners, while cost conscious, have focused on growing the top line and reducing first costs, but only now are thinking about risks to the building value from escalating energy costs.

Germans use an energy budget to drive the design and construction process, not just “optimization”. An energy budget is the maximum amount of energy a building is permitted to consume. Period. For example, in Germany, the low energy residential house standard basically restricts maximum heating usage to 30-20 kwh/sqm/yr (USA:8,000-6,000 kBtu/sf/yr). In the commercial property market, the concept has evolved to the point where an owner simply will not pay for a building that exceeds its agreed energy budget. It is the architect’s job to make sure that every building part and system works together to achieve the energy budget in addition to creating the building’s aesthetics. Over the years the energy budget of German commercial buildings has been reduced as innovations in building science were introduced. Architects and engineers distinguish themselves by the smaller scale of the systems that they
install into a building, not how much.

The Germans pointed out that the building is also usually cheaper, when it is dependent on smaller systems. They also had the strong opinion that American design and construction professionals still focus on “optimizing” using established building codes as benchmarks as opposed to obtaining the greatest absolute reductions in energy usage. And this optimizing mindset leaves too much room for tolerating more energy consumption out of buildings than is truly necessary. Their experience is that current building science and technology can deliver buildings that operate with greatly reduced energy consumption and systems at reasonable costs, if we Americans were to utilize an ‘energy budget’ mindset.

Measure Actual Energy Performance, Not Just Energy Modeled. One of the strengths of the discussions was that the German speakers had a great deal of actual data comparing the energy efficiency regulations implemented over the years with the actual energy decreases achieved. This supported the advice of Dr. Norbert Fish, Professor at the Technical University at Braunschweig, that one really can’t know a building’s actual energy consumption until its been tested during the first 1-2 years of operation. His slide below shows how widely the actual energy consumption of high performance buildings can vary.

LEED Gets Lots of Praise and is Growing Legs Andrea Traber, President of the USGBC Northern California Chapter, gave an update on the upcoming changes to LEED. I posted about this before and you can also find info about upcoming changes on the USGBC national website here.

The German participants were complementary about the LEED system as a way to provide a cohesive language to discuss the green building domain and its components. They also noted that they were seeing international investors, particularly Americans, approaching them in Germany and trying to relate green building performance there in terms of equivalent LEED ratings. So there was lots of interest in LEED generally, since it is starting to move through the investment market. After the event, I talked to a few German product manufacturers who said that they realized that in order to better market their products to US property owners, they were going to have to translate their products contribution to energy reduction into LEED-relevant performance data, since this has become the official language of the green building community in the US.

Photo Credit: Flickr/Popaver - Passivhaus.