In June, Philadelphia passed legislation requiring nonresidential building owners to measure and report their buildings’ annual energy use. Similar legislation exists in New York City; Washington, D.C.; and San Francisco; as well as the states of California and Washington. eco-structure asked Andrew Burr, director of building energy performance policy at the Institute for Market Transformation in Washington, D.C., what this legislation means for building owners.
What is motivating cities and states to require building owners to disclose their energy use?
It’s important to understand that many large cities are conducting greenhouse gas (GHG) inventories, and in these large cities a majority of emissions are coming from buildings. These numbers are passing over the desks of mayors, and so, when one of those mayors says, “I need to address energy and climate in my city,” it’s very hard for him or her to make their best effort without focusing on buildings.
Are they conducting these GHG inventories on their own initiative?
Yes. It’s been very instructive for cities as to where to focus their attention.
To go back to your question of what is the motivator, I’d say it’s really the need to scale up the demand for energy-efficient buildings. If we’re ever going to reach scale, it’s not going to be the cities that are bankrolling it, and it’s not going to be an incentive program. The demand has to come from the market.
A lot of cities are looking at other markets, like the auto and food industries, to see what has worked to drive demand for better products—for fuel-efficient vehicles and healthier food. The big piece there is that people are well informed about gas use when they buy a car, and they’re well informed about how healthy food is when they buy it. But when it comes to energy and buildings, it’s very opaque. Owners often don’t know how their buildings are performing and, in some cases, they don’t even have a legal right to gather all of the energy consumption data within the building. So real estate consumers—the tenants, businesses, investors, lenders—don’t know whether a building is using energy efficiently and costing less to operate or whether it is an energy hog.
In terms of the type of information being collected, are there certain dominant metrics, such as a building’s energy use intensity (EUI)?
One of the three big things is the building’s energy performance score, the one-to-100 score generated by Energy Star’s Portfolio Manager. All of the jurisdictions are using the Portfolio Manager tool, which is good because you don’t want 10 cities using 10 different systems. The other two elements are the EUI and [level of] GHG emissions.
How is data collected?
The EPA [Environmental Protection Agency] has built in capability in Portfolio Manager for owners or account holders to simply click a button and send their info to the city. It’s a pretty easy process.
The DOE [Department of Energy] has built a cloud database that cities can use. Once a building owner sends the city their building information, the information will populate this database. It allows the cities to store a deluge of building information that’s coming in, and avoids the need for each city to build its own IT infrastructure to house this data. The other thing it does is provide a standard taxonomy. It sets things up nicely for the day when we can begin evaluating cities against one another.
Going back to the idea of cars and fuel-use data, how do you see building performance data being disclosed to the general public?
There are two models. The one we like is a public disclosure where the city collects the information and posts it online. It maximizes visibility and really increases accountability—or it will over time—on the part of the owner or the building stakeholder.
The other model is basically the European model of a transaction disclosure where the benchmarking and disclosure is triggered by a sale, lease, or financing of a building. The data typically goes to the transactional counterparty, so if it’s a lease, it goes to the prospective lessee; if it’s a sale, it goes to the prospective buyer. It’s a little less transformative, I think, but it does dovetail very well with other real estate disclosures.
What happens if building owners don’t comply?
The cities have set up structures that allow them to enforce [compliance] and to fine owners that are not in compliance. But it’s important to understand that the cities have not wanted to fine owners, especially in the first year or two. They’re making very good efforts to work with owners through the process, to help them benchmark, to educate them about what benchmarking does, and to provide some amnesty to make sure that everybody is on the same page. If cities are fining a lot of owners because owners are not complying, then nobody wins, and the cities understand that.
Do you think this type of legislation will spur more retrofit or renovation work?
It’s still very early to tell. What we are seeing is job creation in several of these markets including NYC, where small businesses are growing like hell. They’re the first ones to tell you it is impossible for them to sell energy-efficiency services in a market that knows nothing about how buildings perform. But we are seeing the service providers hiring, which says to me that, yes, retrofit and renovation work is on the way.
By service providers you mean people doing what kind of work?
People who audit a building, and people who come in and assess opportunities. These could be HVAC providers or energy management providers like dashboarding firms. They’re telling us that the benchmarking and disclosure legislation is opening up huge new markets for them.
What kind of effect do you think this type of legislation will have on the real estate market? Will it lead to the equivalent of miles-per-gallon stickers for buildings?
I think in 10 years we will think of building-energy disclosure in much the same way as we think of disclosures in other markets. This won’t be a novel concept for much longer.
I do think this will add accountability on the part of the owners to operate their buildings better. It’s going to put more emphasis on the owners to engage tenants. In big multitenant buildings—think of any large office building in any large city—the tenants are using most of the energy. We’re seeing a lot of owners working very successfully with their tenants on ways to have the building use less energy. The tenants pay [smaller] bills, and the owner gets a good energy rating. It’s a win-win.
Is it possible to do this type of legislation on a federal level?
They [real estate industry professionals] would like to see more standardization in terms of the processes. The industry very fairly doesn’t want to have to comply with 10 different laws in 10 different cities with different reporting deadlines. That’s something where you would need to think about a national or federal solution.
You could see federal guidelines for a benchmarking and disclosure program and perhaps federal dollars that flow to states or cities that set up a program in a standardized way. That seems to me to be the most efficient way to harmonize the requirements, but also allow cities and states to maintain some flexibility.
Looking at the jurisdictions where legislation has been passed, has there been any pushback?
This is not something that all property owners are comfortable with. The thing we hear from owners a lot is, “Don’t penalize us for how our tenants use energy.” And I think there’s validity to that.