Over the past three years, Hanley Wood has consulted building and architecture experts under its  Vision 2020 program to discuss the role of sustainability in the future of the design and construction industry between now and 2020. The consensus is that we must change the way we design, construct, and operate our buildings, and we must do it now. So what does this mean?

I recently chatted with  Hanley Wood Sustainability Council members Philip Henderson, the Vision 2020 Economics + Financing section leader and senior financial policy specialist for the Natural Resources Defense Council, and Paul Torcellini, principal engineer at the National Renewable Energy Laboratory and co-leader of this year's Energy Efficiency + Building Science section for Vision 2020, about how to discuss energy efficiency beyond the traditional return on investment (ROI) paradigm.

In our conversations so far this year, we’ve talked about the connection between return on investment (ROI) and energy efficiency in a few different ways. Paul, you mentioned that there isn’t always a traditional ROI structure.

Paul Torcellini: At the end of the day, people either really want to invest in energy efficiency or they want to spend the money on something else. A lot of times it comes to a decision such as “Do I want marble in the lobby or a more-efficient building?”

We have seen that if you put the goals up front and get the entire team on board, there isn’t necessarily a cost for energy efficiency. Unfortunately, however, energy efficiency is historically thought of as a widget in the process, and as a widget, it’s seen as something that you can bolt onto a building in the form of something such as a more efficient chiller or better HVAC systems. This also means that it’s something that can be removed from a project. So, when money gets short, you go down a list, calculate return on investment, and if there’s not enough money, you take things out of the project until you meet budget. However, things such as marble in the lobby rarely come out of a project. When you ask people what is the ROI of marble, they say “Well, it helps us lease the space.” That’s a soft reason that’s hard to quantify, but most times the emotional response tends to win over the logical response.

Philip Henderson: In the utility world, there is myopia around cost-effectiveness because of the regulatory requirements around utility programs—thinking about return in the form of reduced utility expenses as the only value at stake. However, from a lender and owner’s perspective, property value is central, and that taps into Paul’s example of marble and its payback. In a residential framework, people don’t ask about the payback of kitchen cabinets when they’re redoing their kitchen because they know it’s part of the value of the house and they’ll get it back if they sell their house—or they think they will. The question is, “What improvements will raise my property value and also let me enjoy my kitchen more?” Paul, your comments are really critical during the design and build stages, but the same mindset inhibits making repairs and improvements related to increasing efficiency.

Torcellini: A couple of years ago, I went to a meeting in New York City that was held on a vacant floor of a tall building with the classic all-glass façade. There were no lights and the HVAC stopped at the building core, and yet the space was beautifully lit and comfortable. But it struck me that after they leased the space, moves would probably be made that have nothing to do with energy efficiency and that actually go against it. If you put enclosed offices near the center of the floor and have wide, open spaces with higher ceilings, you could daylight the whole space, but instead they probably put offices around the perimeter, which would require ductwork and dropped ceilings. It creates heat loads and heat traps because now they have to light and cool the space, and the problem cascades. None of those typical choices have to do with cost-effectiveness.

Could you give people a corner conference room but leave everything else open? That requires a paradigm shift, but my guess is that you could probably cut energy use in half with some simple moves. Are you going to be stuck in the old model of having walled offices that tend to overheat or get cold? Or are you open to changing the way you think about space?

Henderson: What kind of responses do you get from building owners to those observations?

Torcellini: It varies. The first reaction is “I’m not going to do it because I’m not used to it.” NREL went down this path. We were in a leased building with standard offices on the edge and five-foot-high cubicle walls in the center. In thinking about our new building, the architect said we need to rethink the furniture layout. So we took all the furniture out of one of our leased spaces and put in sample furniture to live with it for a while as a trial. I couldn’t get people to move out of that space. It’s something if you don’t know what it’s like until you try it, but few people want to go out and actually try it. It’s also a challenge to get building owners to lead tenants as opposed to giving them what they’ve asked for.

Henderson: But the tenants have as much responsibility as everybody else.

Torcellini: That’s the lesson. We have to try and catch tenants at that moment of decision. We had folks that said “I don’t like it,” but now that they’ve lived with it for three years, they’re happy. It’s very hard to measure absolute user satisfaction, but we saw it.

If user satisfaction is hard to measure but we see people having better experiences once they transition to a different space, how can we better address this in the design and financial processes? Is it a matter of needing more concrete data?

Henderson: It depends. In the scenario we’ve been discussion, where a building owner has a vacant space and the question is how to get the tenant to build out in a certain way, often a tenant looks at buildings, comes up with a handful of good candidates, and a process is triggered without the tenant anticipating it, where they get on a fast track and things happen at a pace that may be scary to them. They quickly have to move, and they may not be willing or interested in taking a couple of weeks to explore energy models. You’ve got to put this into the timeline in advance. We have to get all professions in the space to focus on this.

There are, however, different answers for residential, new commercial, and repairs and improvements to existing buildings. We’re in the early stages of a new multifamily project and it’s interesting because there are subsectors to the market. The affordable housing subsector is very important because the properties are notoriously under-maintained and terribly inefficiency in ways that contribute to other important values such as health. The financing in capital structure of these properties is very complicated and it’s very difficult to come in with new money. The best tactic may be to start with properties that are already going to recapitalize and come in at the moment when they are putting together new capital to then add extra capital for efficiency improvements and repairs. Those funds get blended into the total capital. It’s much harder to come into the middle of a loan and add new money—and debt—for the owner to produce savings that will accrue for the tenant, even if it adds value to the property. It’s a harder sell.

Market-rate multifamily has to go back to property value, and we have to work on the underlying mechanisms that allow an owner to get better rent from more efficient properties. There’s a lot of experimentation around how to give an owner a portion of the reduced electricity expenses or gas savings that will occur, but it makes more sense in the long term to give prospective tenants better information about expected energy use and then work on correcting how total rent is consensualized.

Torcellini: I agree. If you’re borrowing money on a 30-year note, you’ve got 30 years to figure out how to make things pay for themselves and you can do a lot in that time. In single-family residential, you can come out with very low utility bills, but we have no good way to value that as it relates to being able to borrow extra money, which means that people tend to borrow as much as they can. That’s an issue in itself. But I think Phil is talking about getting the value of energy efficiency back to an owner or whoever is making the decisions, and that’s a challenge.

Henderson: The 30-year conventional mortgage is a little deceptive, but from a lender’s perspective, they expect to refinance or pay it off in 7 to 10 years, so at the sale, it does refocus you on how you are going to get the money back that you put in. But Paul’s point holds in that if you think about value over the life of the loan at the beginning, you make better decisions.

Torcellini: You also have to assess what it is worth for you, which is not total cost. If you’re investing in a kitchen, it may pay dividends in the form of pleasurable cooking and that’s a different calculation than total cost.

Henderson: It’s an emotional response. People can come up with numbers to justify that they can do something, but the reality is that they just want a new kitchen.

How can design professionals—the builders and architects—change the way they’re operating to tap into that emotion and use it for green building measures such energy efficiency?

Henderson: Architects can just do it as part of their everyday course of action. They make lots of decisions without the owner being involved, and a lot of owners, especially those with smaller buildings, don’t know how to look at a set of plans and visualize what the space will look like. They rely on the architect so the question is whether the architect is making energy-efficient decisions or not.

I periodically wander through new subdivisions to see what is going on. In one, I found find two houses that were identical in floor plan across the street from one another, with one on the north side and one on the south side. The one on the north side, facing south, had no overhangs, while the one on the south side, facing north, had overhangs on its windows. The builder as trying to provide the same floor plan but vary the exterior look so that every house was not exactly the same, but if they had just reversed the overhangs to put them on the house facing south, they would have made a huge difference on the homes’ solar gain and achieve the same effect. My guess is that no one thought of that.

How to you motivate design teams and people that are making the purchasing decisions to think about these things? How do you motivate people to make decisions that align toward the normal goals of the building as well as energy goals?

Can that also be built into financing mechanisms so that energy efficiency goals are specifically tied to getting funds?

Henderson: What you’re referring to is the Qualified Allocation Plan process under the Low-Income Housing Tax Credit (LIHTC). That’s a really big element of affordable housing—$12 billion a year or so. The Treasury distributes the LIHTC to states, and the states then allocate it to developers for both new construction and renovations of a certain size. Most states say that in order to complete for these tax credits, you have to meet certain standards such as the Enterprise Green Communities Standard, which is commonly used, or LEED.

The Federal Housing Administration recently implemented a requirement that states that for a new home to be eligible for a mortgage, it has to meet the 2006 IECC. That’s a big deal because suddenly you’ve got a new compliance obligation. Now builders have to certify that homes are built to conform to code. There are all sorts of reasons as to why a house built to code will retain its value better or appreciate better than an otherwise comparable house.

We’ve tried to press lenders in other ways such as changing underwriting procedures or choosing a model that includes energy expenses, but there are often objections. However, property standards are different and I think there’s a lot of room to expand this kind of policy. This could translate in the multifamily realm to require a building to be benchmarked and maintain a certain performance score, such as an Energy Star score above 40 or 50. Anyone falling near the margins would have to find improvements to make to get the building up to par.

The idea of benchmarking brings up the concept of real-time energy management, where a building is equipped to be monitored consistently and the data is actually collected. How could that affect energy-efficiency initiatives and financing?

Henderson: Most commercial buildings larger than 50,000 square feet will have some form of a building automation or management system that tracks set points and allows the owner, operator, or engineer to adjust them.

My work in this space is focused on what owners and operators can do to better manage the building using new information sources such as smart meter data. What can a utility do to help owners and operators who don’t have full-time engineers or advanced automation systems in place? It’s a lot cheaper in the build stage to install submetering so that tenants are aware of, and perhaps billed for, their actual energy usage and an owner can watch specific equipment with greater precision. This is the main tie I’ve seen to the design phase.

Torcellini: There are several layers to this discussion. One is that you can take an energy-efficient building and operate it poorly, but it is hard to take an inefficient building and operate it as an efficient building. Design offers the potential to make the building energy efficient. There are many things you can do with design that help, and some are as simple as making stairwells accessible and encouraging people to use them. In a lot of buildings, finding the stairs is near impossible and if you do find them, you may lock yourself out of your floor. Are the stairs dingy and concrete because they were only designed as a means of egress or are they inviting to use?

Another layer is how we use vacancy or motion sensors. If you make people find a light switch when they want the lights on in a space, it connects them to that energy use and they may be more likely to turn off the lights when they leave the room. If they forget, there’s a sensor that turns the lights off. However, we have cases where people are installing motion sensors on a one-hour trigger, where after an hour of no movement they shut off the lights. But if security is walking through the building once an hour, the lights are then on 24 hours a day. Meanwhile, people are claiming victory for putting in motion sensors. That’s an engineering failure and a failure of understanding how a building is used. Could security come in and turn on a portion of the lights, and then turn them off when they leave?

We have gone into a mode that operates as if the only way to be energy-efficient is to remove people from the process and operate the space 100 percent by computer. That doesn’t work because you can’t anticipate how the building will change or you may have a sensor fail and suddenly the whole efficiency plan doesn’t work. If you put people back into the loop, you give them some responsibility.

Henderson: Your observations are spot on. I’ve noticed a trend among the largest building owners to use outside people to look at meter data and identify faults such as pumps that are left on over the weekend, garage lights that were manually turned on, or broken sensors that give the building management system bad data. There’s a pool of building owners who aren’t doing this, which raises the question of what utilities can do to deliver real-time or granular information from its meters. Is there a service or software that could throw up red flags when data fits into a pattern that is predefined as an anomaly? What I hear from the field is yes, this is an opportunity, but we also have to design it for people because the fact is that automation breaks, and those broken pieces are exactly what we’re looking to find.

Torcellini: So the next piece is whether there is a place for automation within the context of the human interface. I can think of an example in the auto industry where there is a new generation of six-cylinder vehicles that, thanks to a software change, drops out some of the cylinders when the car is coasting. It’s embedded in the car’s computer and shows a 5 to 10 percent increase in efficiency. Another example is the operating system on your computer. Most of us wouldn’t sit around and do machine-level computer programming in order to use a computer. Instead, we rely on this interface that helps us communicate with the computer to complete a task. We need to get buildings to this level.

We also need to think through our system interfaces. It’s interesting that getting people to program their programmable thermostats seems to be near impossible, and that a huge percentage of setback thermostats have a hold button activated. How do you involve the user, get utility data to them, and engage them for a long period of time? We now have wi-fi enabled thermostats where people can adjust the temperature in their house on their way home via their smart phone. But even with a fancy interface or technology, the question remains as to how often people will look at it. Think about the Prius where the energy flow and average miles per gallon is on your dashboard and in your face all the time. Do people pay attention to it? It has changed the way I drive. How do you get the info in front of people on a building level?

Henderson: There are a lot of people trying to figure out what works. The one that seems most applicable to a vast swath of buildings that can’t devote a lot of manpower to energy management is an alarm-based monitoring system where each day, the building’s operators get a set of charts on yesterday’s energy usage. But the question remains: what do you do with that data? They won’t look at an email every day. They need alarms and real action.

There’s potential to figure this out. Maybe it’s benchmarking 2.0, where measurement is reported monthly and you can see how your building compares to peer buildings on its average daytime energy use per square foot, and you receive an alarm if you’re in the bottom quartile.

Torcellini: I know of an early adopter that invested a lot of money in metering and diagnostic software that would spit out alarm reports for a large number of buildings. At first, things hummed along, but then they started getting alarms, up to 1,000 a day across their portfolio. However, they had no way of prioritizing or understanding the faults, so that’s a note of caution.

Henderson: The risk of being overwhelmed by alarms is very real. But we’re at an interesting point in time where the industry has a lot of innovators who are trying to figure out what works. We’re still trying to figure out where to send the data. The utility may send its bills to accounting, but the person who handles the thermostat is three departments or levels away. There’s still a lot left to solve.

Stay tuned for future conversations between the 2014 Hanley Wood Sustainability Council participating in our Vision 2020 program. Scroll over points in our on-going timeline to learn more about the path ahead in green building. Track our progress all year as the Hanley Wood Sustainability Council shares its perspectives on initiating, tracking, and ensuring progress toward these sustainable priorities and goals. This year's program will culminate in an exclusive Vision 2020 Sustainability Summit in conjunction with Greenbuild International Conference and Expo in New Orleans, and with a special Fall edition of ECOBUILDING REVIEW.