Emerging Climate Legislation

Oct. 13, 2009

A look at how various components, including cap and trade, could impact the commercial buildings sector.

The Obama administration has made it clear that advancing clean energy and reducing greenhouse gas (GHG) emissions are priorities. As the administration sets forth new policies relating to GHG reporting and potentially moves toward cap and trade legislation, various market segments, including the commercial buildings sector, are beginning to assess the potential impacts and benefits.

The energy used in homes and commercial buildings is often generated by burning fossil fuels, which emit GHGs. Reducing energy consumption in the building sector is therefore critical to the reduction of GHGs—particularly given that the U.S. Environmental Protection Agency (EPA) reports that commercial and industrial buildings in the United States account for 45 percent of our national GHG emissions. The EPA estimates that over the next 25 years, GHG emissions from buildings are projected to grow faster than any other sector, with the largest amount of emissions coming from commercial buildings. Starting from the design phase, new buildings present a major opportunity to improve energy efficiency and reduce GHG emissions.

On June 26, 2009, the U.S. House of Representatives passed the American Clean Energy and Security Act (ACESA). This legislation sets a federal renewable portfolio standard, energy efficiency mandates, and economy-wide GHG reduction goals, including 3 percent reductions from 2005 levels by 2012, and up to 83 percent reductions from 2005 by 2050. The Senate hearings on the bill will resume in the fall and it is possible that the bill will pass in late 2009 or early 2010.  

The main provision in the legislation that relates to the buildings sector mandates new energy-saving standards for buildings and appliances. Specifically, it requires new buildings to be 30 percent more efficient by 2012 and 50 percent more efficient by 2016. ACESA encourages reductions in GHG emissions by advancing energy production from sources that emit little or no GHG emissions, and reducing energy use through energy efficiency.

The bill also contains energy efficiency provisions that cover grants, standards, rebates and other programs for buildings, lighting and commercial equipment, water-using equipment, wood stoves, industrial equipment, and health care facilities. Other provisions include:

  • a state building retrofit grant program, with grants for retrofits of residential and commercial buildings
  • a voluntary building energy performance information program to display relative energy performance and raise public awareness
  • a residential High-Performance Zero-Net-Energy Buildings Initiative, with the goal of enabling residential buildings without net emissions to be cost-effective by 2020

In general, although ACESA places more energy efficiency restrictions on the commercial buildings sector, more funding and incentives will be available to help meet the new requirements.

The cap and trade component of the legislation places a cap on total GHG emissions, and requires regulated entities that emit GHGs to hold allowances (permits) which can be sold or traded. The overall cap is lowered over time with the long-term goal of reducing overall GHG emissions by 83 percent by 2050. Compliance options include pursuing internal reductions, buying allowances or purchasing offsets.

According to an EPA analysis of ACESA, the majority of the value generated from the allowances is intended for investment in projects and technology advances that reduce GHG emissions and contribute to a low-carbon economy. Energy efficiency funding is estimated to receive 3 percent to 6 percent of the total allowance value, which, depending on the price per ton of GHGs, could generate $85 to $174 billion between 2012 and 2050. This represents a significant amount of funding that could be available to the buildings sector.

Critics of the cap and trade legislation claim that it will lead to higher energy prices, that companies will build less, and that unemployment in the construction industry will dramatically increase. However, several recent studies from a number of sources, including the EPA, the Congressional Budget Office and others, indicate that negative economic impacts will not occur and that this type of legislation should lead to innovation, emerging markets for clean energy and energy efficiency, and the opportunity to create local jobs that contribute to a low-carbon society.

Given that a percentage of revenue generated will be allocated to states to establish State Energy and Environmental Development (SEED) accounts to spur renewable energy and energy efficiency programs, opportunities for public/private partnerships may be a benefit to the commercial buildings sector. In terms of jobs, a provision in the legislation establishes a green construction careers demonstration project. The concept is to promote middle class careers and quality employment practices in the green construction sector among targeted workers, and to advance efficiency and performance on construction projects.

The current administration has further demonstrated a commitment to reducing emissions and saving energy by placing strict reporting requirements on federal stimulus funding. The majority of the federal agencies distributing stimulus funds require recipients to monitor and track progress against the administration’s goals, including GHG emission reduction, job creation, energy savings on a per dollar invested basis, and installation of renewable energy technologies.

These requirements may create additional incentives for the building industry to develop new construction with a green building design perspective. The more that the builders and architects can demonstrate the long-term sustainability benefits of their project—the environmental, economic and social benefits—the more likely they will be able to secure funding for the project as well as secure tenants to occupy the building. This is also good practice in preparing for compliance with the ACESA legislation.

It is widely recognized that buildings have a significant environmental impact on energy, water, waste, land use, materials, GHG emissions, and air quality. Buildings are also an essential part of our society, and as new mandates are placed on buildings to be more energy efficient, incentives and resources must be provided to help meet those goals. Whether or not the legislation passes in its current form, or if major changes occur through the Senate version, it is clear that an emphasis will be placed on energy efficiency and GHG emission reduction in the buildings sector.

Jeannie Renné-Malone leads HDR’s National Climate and Greenhouse Gas Management program and is a member of HDR’s Sustainable Solutions Leadership team. She is an experienced program manager with an extensive background in sustainable development, climate change, and renewable energy program development and direction. Renné-Malone has extensive experience collaborating with local and federal government officials, NGOs, private industry, and technical institutions to analyze technology options that address environmental and energy issues. She has developed climate action plans and GHG emission reduction programs to help cities and organizations incorporate sustainable measures into their short- and long-term planning.

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