Building Codes

Improving the energy efficiency of commercial buildings makes sense from both an economic and social perspective. Developers employ differing strategies to reduce a building’s total energy usage, depending on the local market. In contrast, arbitrary federal or local mandates imposing energy efficiency targets for commercial buildings oftentimes are based on assumptions having little to do with existing technical capabilities or economic reality.

Issue

Becoming more energy-efficient is an important consideration in today's commercial real estate industry. Developers and their tenants understand that it makes economic sense to develop properties that lower their energy costs, thereby keeping them competitive in the marketplace. Most of the greenhouse gases that are released into the atmosphere come from coal-fired power plants during the production of electricity. Because a large percentage of the nation's electricity usage occurs in commercial buildings, increasing energy efficiency of commercial buildings has become a goal in the ongoing debate over energy usage and climate change.

In the real estate industry, local economic conditions determine the levels of efficiencies and costs that can be absorbed in a given market. Not all markets are created equal, however, and establishing nationwide, one-size-fits-all energy mandates for every building type and geographic scenario will eliminate the incentive to develop new properties in areas where the markets cannot absorb the increased costs. Furthermore, time is needed to bring all markets to a level of sophistication where more sustainable technologies and methods become the norm and are available within a reasonable cost.

Status

Senators Rob Portman (R-OH) and Jeanne Shaheen (D-NH) have been working on energy efficiency legislation for several years, and introduced legislation this Congress called the Energy Savings and Industrial Competitiveness Act. Their bill was passed by the Senate Energy and Natural Resources Committee with broad, bipartisan support, and was incorporated into the Energy and Natural Resources Act of 2017 (S.1460), a package of several energy-related reforms. S.1460 is awaiting further action in the Senate.

Position

NAIOP supports legislation [S. 385, sponsored by Senators Rob Portman (R-OH) and Jeanne Shaheen (D-NH) ), and its identical counterpart in the House - H.R. 1443 (McKinley-Welch)] that include provisions ensuring that energy-efficiency building codes are developed subject to the federal rule-making process, thereby allowing for industry input, and whose standards include technical feasibility and reasonable payback periods for energy efficient investment

Talking
Points

  • Most developers cannot implement energy saving measures with more than a 5-year payback, making the prospect of tying up capital for energy-saving investments with a longer payback period difficult to justify to investors.
  • Pursuing increases in energy efficiency by modifying existing building codes is effective only to a certain point. Energy codes generally regulate a building’s envelope (roof, wall, and floor insulation), and the mechanical and lighting systems. However, much of a building’s energy use falls outside the purview of codes and will therefore not be affected by code changes.
  • Efforts to encourage states to update their building codes should remain voluntary and not be tied to federal funding requirements.
  • Attempts to mandate owners to disclose a building’s energy usage to the public (energy benchmarking) are ill-conceived because most of the energy used in buildings is actually controlled by the tenants, rather than the owners or managers. It is therefore unfair to penalize an entire building because a single tenant might have higher energy demands.