How failed US climate legislation hurts commercial property investors

“Absent very unlikely changes in federal law, this task will fall to fifty state legislatures, governors, and utility commissions,”

Yikes.

If you know any nationally-active real estate investor who’s leery of climate legislation, tell them that now -  even with climate legislation dead for 2010 - is definitely not the time to relax. Then pass along this story from Monday’s New York Times, laying out how the lack of a unified national climate and energy policy is only expected to make the US’s already feudalistic energy policy patchwork even more complex for building owners. After they read it, give them a Tylenol for their headache.

In a nutshell, US energy policy has always been driven regionally by ideology, state self-interests and political winds of the moment. In former times, readily available, cheap fossil fuel meant that buildings and businesses felt no impact. In current times, fragmented policies can make already costly energy more expensive because it will push the job of coordinating for the highest energy efficiency directly onto the real estate industry.

The Times doesn’t mention any detriment to commercial real estate by name, but you can figure with buildings being responsible for 76% of US electricity use, that these forces can be particularly brutal on a nationally-active investor with assets “in the wrong place at the wrong time”.

Not only does the current retreat from climate legislation point to sharpened regionalist state energy policies, experts fully expect those states with traction on renewables and energy efficiency, to march ahead with various regional carbon cap-and-trade regimes.

So, in addition to managing building efficiency without adequate public support in some regions, investors will have stay abreast of regional cap-and-trade programs that other states do belong to.

Real estate investors are must be vigilant in monitoring regional energy policy developments

Today, with national climate legislation off the table for 2010, the risks associated with the currently fragmented patchwork of energy policies are becoming even more fragmented against a more volatile national and global energy market. Commercial real estate investors need to remain vigilant over the evolution of regional energy policy within the areas where they are active to avoid ‘risk creep’ within their portfolios.

They should not rely on arguments such as “energy is cheap during a recession”, “energy futures are currently flat” or think of energy costs in historic terms. The Times story lays out how US regions have already set on very different paths to manage their energy needs, and the current regulatory, ideological and economic winds can provoke radically different policy responses in the different regions - which can mean differing cash flow results for the investors’ efforts.

5 Proven Policies to Bail Out Mother Nature and Boost Green Building

Even as the Federal government invests in energy efficiency and conservation, by announcing the award of $3.2 billion in block grants (including $1.9 billion to cities and counties) last Friday, environmental leaders are looking ahead and pushing for more sweeping action — calling on a “climate bailout” in today’s NYTimes Op-Ed.

You heard it — a climate bailout.

Friedman’s op-ed shares the perspective of Hal Harvey, head of ClimateWorks, about his five top policy picks that would help the US to decisively address the energy-climate challenge that we’re only just starting to collectively understand.

The main point about all of these suggestions is that they already are in place somewhere, so they’re proven. No need to reinvent the wheel.

We like thinking about how commercial real estate capital markets would view real estate risk and returns of green buildings if these policy recommendations actually became national laws.

But first, here they are:

1. Building codes: California’s Title 24 saves Californians $6 billion per year via higher standards for building energy efficiency.
2. Vehicle fuel efficiency: The European Union’s fuel efficiency standard averages 41  miles per gallon.
3. Nationwide renewable portfolio standard: He favors a mandate that utilities be required to buy 15 to 20 percent of their energy from renewables by 2020.
4. Decoupling: Already working in California, power utilities make money by helping people to save energy rather than by encouraging them to consume it.
5. Charge for carbon: People should not be allowed to pollute for free.

Of course, the article enjoys the luxury of an op-ed; it does not map out how anyone will pay for any of these policies’ upfront costs. Or how long it would really take for any of these ideas to be adopted nationally.

Nonetheless, for the commercial real estate community, the fact that most of these policies are already being implemented in some form already, should mean that they can spread a bit easier than many might think.

And if a real estate investor has not prepared by adjusting their overall strategy and retrofitting their existing buildings to as good a standard as possible, more forces are very hard at work to eventually make their existing property business obsolete.

Photo credit: Flickr/Lolliepop

Banks, Climate Change & Green Real Estate: Money Talks

Mindy Lubber, head of Ceres, talks about how the big US banks are taking responsibility to reduce the negative effects of climate change. You’ll notice that she mentions the banks being signatories to the Carbon Principles and changing the way they go about financing coal-fired power plants.

This is good to keep in mind because people often get confused about why some of the big banks advertise their corporate social responsibility, as if its a global policy applicable to all lines of business, but still have no committed capital, specific products or policies earmarked for green commercial real estate.

No, I’m not saying that they are greenwashing. Certainly tightening due diligence and financing guidelines for coal-fired power plants is a good thing.

The Green Journey take on it is caveat emptor**, but in a proactive, not a lazy or disaffected, sense.

Keep in mind that any company — not just banks — advertising their social responsibility can (and often do) “choose locally” and “talk about it globally”. Yes, they can pick out a few business areas to be more green, ignore the others, claim to be totally socially responsible, and then use that to enlarge their corporate reputations, win awards, and make more money. All of which keeps watchdogs like Ceres in business in the first place.

How to navigate this space? Its up to all of us to give credit where credit is due, and at the same time ask more pointed questions about their business policies regarding sustainable real estate and then vote with our wallets.

Notes:
** Means ‘you’re on your own, dog’. Thousands of years ago in Latin, it meant ‘let the buyer beware’.

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.

Galley Eco Capital Joins the Business Council on Climate Change Business Partnership. Takes Action To Reduce Greenhouse Emissions.

Galley Eco Capital has a history of taking action to protect the environment. They now join a list over 82 BC3 member companies dedicated to taking action to address global climate change, while maintaining a competitive bottom line. “Participating in the BC3 is a natural step in our commitment to both grow our business and be environmentally responsible” says Lisa Michelle Galley. “We are excited to work with other members of the BC3 to develop innovative, profitable business approaches that also directly address the growing threat of climate change.”

The BC3, a collaborative partnership with the Bay Area Council, the San Francisco Department of the Environment and the United Nations Global Compact, is poised to make the San Francisco Bay Area a model of commercial climate stewardship by inspiring leadership on the pressing issue of climate change, and giving business leaders the tools to reduce their GHG emissions. The BC3 recognizes that the business community has the power to significantly impact climate change, and it functions as an avenue for communication between companies that have stepped up to the plate to address this challenge. The BC3 seeks to inspire others to do the same, and to build a business movement for climate stewardship.

“The Bay Area has always been an engine of business innovation and growth combined with social responsibility and companies like Galley Eco Capital are a reflection of that environment and culture” said Andrew Michael, Bay Area Council Vice President of Sustainable Development. “They and other visionary BC3 members are proving that the protection of the environment is clearly aligned with the protection of profits and market share.”

The BC3 is built around five “Principles on Climate Leadership” which relate to the areas of: Internal Implementation, Community Leadership, Advocacy & Dialogue, Collective Action, and Transparency & Disclosure. These principles are founded on the belief that private business can shift practices to realize economic growth while maintaining environmental sustainability.

“The addition of new members gives us a great opportunity to redefine how business is conducted in the Bay Area,” says Jared Blumenfeld, Director of the San Francisco Department of the Environment, “and to show that we can surpass the status quo.” For additional information on the Business Council on Climate Change, contact: bc3@sfgov.org or for information on Galley Eco Capital visit: www.galleyecocapital.com

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