This is a highlight from the Building Priorities Briefing.

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Transcript

Denis Du Bois:
Explain for us what's involved in benchmarking a building's energy use.

Cliff Majersik:
Benchmarking establishes how a building compares with comparable peers in terms of its energy efficiency. It involves taking the actual utility bills - the electricity, natural gas, chilled water, any other utilities that the building receives - and normalizing them for variables like weather and occupancy, the number of people and computers in the building, number of hours that the building is used, and for other variables.

Each building type - supermarkets, offices, retail, banks, a variety of commercial building types - has unique characteristics that they benchmark for, as a way to give you an apples-to-apples comparison to other buildings of that type. What you're left with is a 1-to-100 rating that gives you a sense of how energy-efficient your building is compared with other buildings of that building type in a normal year.

Denis:
And you mentioned normalizing the data, then, what is it being normalized against?

Cliff:
It's all based on a survey of commercial buildings, which takes place every three or four years and is conducted by the Department of Energy, and it's the Commercial Building Energy Consumption Survey. And you're seeing how your building compares, on a 1-to-100 scale, against those buildings.

So, a 100 would mean that your building is the top one percent of all comparable buildings, and a one would mean that your building was the bottom one percent.

Denis:
Most if not all of these laws call for using the EPA's Portfolio Manager, a software tool that calculates the score. Even it it's not an Energy Star building, the score is called...

Cliff:
That rating is your Energy Star energy-performance rating, and it is not in any way certified or checked by EPA unless you seek the Energy Star label. In order to get the Energy Star label, your building needs to score a 75 or higher, an energy-performance rating of 75 or higher.

Denis:
And with or without an Energy Star plaque in the lobby, they can still publicize that score, in some cases, they're required to.

Cliff:
That's correct. The rating is yours to tell anybody in the world that you want. Frequently, building owners, especially with high-performing buildings, do want to publicize this to their tenants or to other key parties.

And then, as you alluded to, in some jurisdictions now, they're required to disclose that rating, either to the counter-party of a transaction -- someone that's buying, leasing, or financing the building --- or, in the case of Washington DC, and New York City and probably other jurisdictions in the future, they have to publicly disclose it on a website.

Denis:
And your organization promotes government mandates for this. Why would a government want to make benchmarking obligatory? What's the largest public benefit from this?

Cliff:
There are a number of significant public benefits. The benchmarking is the first step in improving the energy efficiency of buildings. It's not the only way to get there, but it's certainly one of the most logical and effective ways to begin that process.

By mandating this, a jurisdiction addresses one of the critical problems in energy efficiency of commercial buildings, which is the split incentive problem. That, very frequently, you'll have a net lease, or even a gross lease and the landlord -- in the case of a net lease -- the landlord has a lot of control over the energy efficiency of the building, but the tenants bear all of the benefits, or most of the benefits from improvements in energy efficiency of that building.

And so, the landlord feels that they have little incentive to invest in the efficiency of the building, and it can often act as brake on efforts to improve the energy efficiency of these buildings.

And so, in either case, the first step is to just have everybody have a clear sense of how efficient the building is. Then, tenants that want to can shop for the most efficient buildings.

The result is that energy efficiency will be more fully valued by the market. There will be stronger financial incentives to invest in the energy efficiency of buildings. You'll see a general increase in the efficiency of those buildings.

That produces a societal benefit in terms of, not only an environmental benefit of reducing greenhouse gas emissions and addressing the problem of climate change, but also an economic benefit by saving building owners and tenants money so that they can spend more money on things that they really want to accomplish, rather than on energy.

Some of that money may get spent on creating jobs, and pushing the economy forward.

One of the reasons why this is so appealing, especially now, is because it's just a matter of providing information. It doesn't cost governments or building owners very much at all. So, if you're looking at a way that you can drive energy efficiency and benefit the economy and create jobs at a minimal investment, this is about as cost-effective as they come. This is a win-win-win for jurisdictions to benefit their economy, their electric reliability, and the environment.

Denis:
Is there a win for building owners in all this?

Cliff:
Oh, yes. Some of the statistics --- There's a CoStar report that shows a 16-percent property-value premium for Energy Star-labeled buildings. That's a huge number, especially when you compare that to the minimal cost that's typically required to get a building to that place.

It's a minimal upfront cost, and it's very quickly recouped from the energy savings themselves. So it's money to the bottom line. And especially if you're looking to sell or lease a building, it makes all the sense in the world, given the fact that you are seeing these premiums, how they have lower vacancy rates, they have quicker lease-up, they have higher rents, and they sell at a higher per-square-foot price.

Our buildings, collectively, in this country are an untapped goldmine of energy savings. And the sooner that we start digging and start putting that gold into our economy, the better for everybody.

Denis:
If energy efficiency has the advantages, the value, that we're saying it does, why do building owners need a mandate to do this? What isn't happening on its own?

Cliff:
Sure. Well, that's a great question. The first thing is that we should point out that building owners are, in many cases, doing this, and they're doing a very good job. But they're not getting the full benefit that they could if you had public disclosure of energy ratings, because the markets don't have the sales comparisons in order to fully value the energy efficiency of their buildings.

And so, this is addressing these two market failures, which are the split incentives problem and, even more widespread, that market and tenants and others have no idea how efficient one building is compared to another.

If you want to have an educated marketplace that functions properly, it requires information. This is just a "sunshine act." It provides the information that all the players in the market should have to do their jobs right, and that they currently don't have.

And as they say, sunshine is the best disinfectant.

Denis:
Are governments tapping into stimulus funds for programs to go along with this, to fund retrofits or create jobs programs?

Cliff:
Yes. In fact, for instance, in New York City, they've reserved 16 million of their stimulus money to help building owners and operators finance energy-efficiency improvements or retro-commissioning in their buildings. They've also set aside a lot of the money from their stimulus funds, both at the state and city level, to provide training for people to improve the energy efficiency of these existing buildings.

Denis:
You work with jurisdictions on creating legislation like this and getting it passed. Who's coming up next? What jurisdictions are debating this?

Cliff:
There are a number of jurisdictions that are debating it. There is likely to be a bill introduced in the state of Maryland later this month. And there is activity across the west coast.

I think one thing that's interesting is that we're going to see jurisdictions competing with each other to put laws like this in place, because they know that the greenest jurisdiction is going to have a leg up in the competition to attract employers and employees, to attract tenants and capital. And so this is a competitive-advantage issue, and we're already seeing jurisdictions that are seeking to position themselves well to grow their economies by putting in place laws like this.