As the urgency of the climate crisis increases, so do new standards for greenhouse gas (GHG) emission reduction. Because buildings are responsible for approximately 38% of global GHG emissions, they require as much attention as industry and transportation. New construction accounts for only 1% to 2% of total building square footage annually, so improving existing building performance, not influenced by more stringent energy codes, is critical to achieving emissions reduction targets. Over the past decade, many municipalities have initiated energy benchmarking ordinances, a first step in raising awareness of existing building energy usage. More recently, building performance standards (BPS) have been adopted, mandating performance improvements in existing buildings.
In January, the President Joe Biden and Vice President Kamala Harris Administration initiated the Building Performance Standards Coalition. The initial membership includes 30 municipalities, from Seattle to Savannah, and two states, Colorado and Washington, with more expected to join. The purpose of the coalition is to normalize practices and facilitate coordination and consistency in new policies. Federal agencies will lend their support, and the initiative has been endorsed by multiple labor unions and non-governmental organizations.
What is a building performance standard? A BPS sets mandatory requirements for building performance, which may include limits on energy usage, GHG emissions and peak demand, and may also mandate electrification (eliminating on-site combustion equipment). Some include metrics like resilience, public health (e.g., indoor air quality), water use and waste. A BPS may only apply to buildings over a certain floor area and may have exceptions for certain building types. Some phase in on a fixed timetable while others are tied to triggering events in a building’s life cycle (change in ownership, major equipment replacement, etc.). The energy or GHG requirements may be direct, setting a specified threshold; performance-based, requiring a percentage improvement over their base performance; or prescriptive, specifying measures to be implemented.
New York City’s Local Law 97 (LL97) is one of the first BPS in the United States, and one of the most aggressive standards globally. LL97 sets energy efficiency requirements and carbon emission caps for most commercial and residential buildings larger than 25,000 square feet. The caps begin to phase in in 2024 and gradually become more stringent, with an interim goal of 40% reduction by 2030 and ultimately reaching 80% in 2050. Building owners will face financial penalties for noncompliance. Other municipalities will be following New York City’s lead.
There are several challenges associated with implementation and compliance with BPS including alignment with energy codes, the need for consistent metrics, and the split incentive of costs and benefits.
- While some jurisdictions are experimenting with outcome-based energy codes, energy code compliance is based on prescription requirements or modeled performance. Energy code compliance generally leads to more efficient buildings, but actual energy performance depends on the careful installation of building enclosure assemblies (air barriers, insulation, etc.), proper commissioning and operation of systems, non-regulated equipment, and occupant behavior. Even a building that complied with the most stringent building code could fall short of a new BPS due to deficiencies in any of these factors. Jurisdictions must align energy code requirements and enforcement with the BPS that new and renovated buildings will need to meet in the future.
- To support successful adoption, the energy and carbon compliance metrics in BPS must be consistent with data that building managers are able to track for their buildings. They also must recognize the unique energy profiles of different property types and be normalized for different operational parameters (programmatic activities, hours of operation, etc.) to prevent compliance from being disproportionately burdensome.
- Bringing existing buildings into compliance with BPS will require capital investments, which could provide an attractive return on investment for owner-occupied buildings but introduces the barrier of split incentives for commercial and multifamily residential properties. Tenants typically pay utility costs and would benefit from lower energy bills but building owners typically must pay for improvements to reduce energy use and GHG emissions. Financial mechanisms are needed to equitably match costs and benefits.
Building owners will want to leverage available resources to support required performance improvements. In additional to traditional incentives offered by utilities and state/local governments, other financial innovations are emerging. One increasingly available resource is Commercial Property Assessed Clean Energy (C-PACE) financing. Currently 28 states have active C-PACE programs, and 10 more have PACE-enabled legislation. C-PACE provides low-cost, long-term financing for energy efficiency upgrades and renewable energy systems in new construction and retrofit/renovation projects. Loans are repaid along with property tax bills, and transfer to new owners when properties are sold.
A newer innovation is “Energy Efficiency as a Service,” which functions like a renewable energy power purchase agreement (PPA), providing energy-efficient enhancements to buildings with no up-front cost for the owner. The service provider who finances the performance improvements is paid back through the energy savings, and the arrangement is structured to eliminate the split incentive. This service was modeled in the Bullitt Center project in Seattle.
Another emerging resource for energy efficiency and GHG reductions in new and existing buildings are green banks, which are public or quasi-public financial institutions that provide long-term, low-interest funding. Green banks use public funding to attract private capital to invest in energy efficiency and clean energy projects. Sometimes they use on-bill financing, allowing building owners to make loan payments with their utility bills. According to the Green Bank Network, green banks now exist in six U.S. states plus Washington, D.C., and Montgomery County, Md., as well as national green banks in five countries. Finally, the Federal Section 179D incentive is a commercial building tax deduction that covers expenses for energy upgrades like efficient lighting and HVAC equipment and building envelope improvements.
Building owners need to plan for building performance standards, both those already in place, and in locations likely to adopt them soon. This includes both existing properties as well as new buildings, which will become existing buildings subject to BPS. Fortunately, there are an increasing array of resources providing low-cost, long-term financing for building performance improvements supporting both economic and climate goals.
Alan Scott, FAIA, LEED Fellow, LEED AP BD+C, O+M, WELL AP, CEM, is an architect with over 30 years of experience in sustainable building design. He is the discipline leader, sustainability with Intertek Building Science Solutions in Portland, Ore. To learn more, follow Scott on Twitter @alanscott_faia.