NAIOP supports incentive-based approaches to achieving energy efficiency.
Even before his inauguration, President Biden’s designated chief of staff made clear to incoming White House advisers that action on climate change would be an immediate priority. While any quick action would have to be based primarily on executive orders that would not require legislation, the clear signal was that President Biden and his administration intends to pursue an ambitious agenda to address climate change and provide for the clean energy future he outlined during his presidential campaign.
An overarching goal of the plan is to achieve a carbon-free power sector by 2035. But the plan encompasses more than simply shifting the country to renewable energy sources. It also includes proposals aimed at increasing the energy efficiency of the built environment, both commercial and residential. For commercial real estate specifically, Biden would seek to upgrade and retrofit four million buildings to increase their energy efficiency.
Coupled with a weatherization program primarily aimed at the residential sector, the Biden campaign claimed it would create one million construction, engineering and manufacturing jobs for Americans to produce, install, service and maintain high-efficiency LED lighting, electric appliances, and advanced heating and cooling systems.
In his campaign materials, Biden also promised to pursue legislation that would require a net-zero emissions standard for all new commercial buildings by 2030. The goal would be to cut the carbon footprint of the national building stock in half by 2035.
A closely divided Senate and lingering partisanship will no doubt complicate achieving all these goals in legislation, particularly on issues that have an impact on the energy industry. But on commercial real estate matters, there is substantial opportunity for consensus on policy approaches that make for increased energy efficiency in buildings.
NAIOP has long held that improving the energy efficiency of commercial buildings, if done through incentive-based approaches that recognize the differences in local markets, makes sense from economic, social and environmental perspectives. The association has worked with Congress on bipartisan measures aimed at modernizing the process for updating energy efficiency building codes. It has supported legislation, such as the Energy Savings and Industrial Competitiveness Act (S.2137), sponsored by Senators Rob Portman (R-OH) and Jeanne Shaheen (D-NH). This would ensure that energy-efficiency building codes are developed subject to the federal rule-making process, allow for industry input, and whose standards include technical feasibility and reasonable payback periods for energy-efficient investment.
Voluntary efforts, such as the Energy Star program administered by the Environmental Protection Agency (EPA), can also be an important factor in achieving the Biden administration’s goals. The Energy Star labeling system helps consumers identify energy-efficient microwaves, televisions, doors and windows, and other items. And of particular importance to the commercial real estate industry, the program features Portfolio Manager, an online tool used to track energy and water consumption in buildings. Data from the program helps building owners and architects assess energy use relative to similar buildings in the program. Furthermore, buildings that meet certain EPA criteria for energy efficiency are deemed “Energy Star certified,” making them more attractive to tenants and investors.
While modernizing energy-efficiency building codes and continued funding and improvements to voluntary programs such as Energy Star are important elements of an overall policy to increase energy efficiency, additional incentive-based tools must be developed for substantial progress to occur. To that end, a broad coalition of real estate industry associations, including NAIOP, is working with energy-efficiency and environmental-advocacy groups to establish a new category of energy-efficient qualified improvement property eligible for accelerated depreciation of 10 years, rather than the 15- or 20-year depreciation periods for other improvement property.
The previous Congress introduced legislation establishing a 10-year cost recovery period for such improvement property, and that will be a focus of NAIOP’s public policy agenda in the current Congress. According to an analysis by the American Council for an Energy-Efficient Economy, the proposed incentive would help save businesses and households a cumulative $15 billion on energy bills and reduce the equivalent of the carbon emissions from 22 million cars and light trucks in a year.
Government at all levels and industry can work together to develop practical approaches to increase energy efficiency in commercial structures. NAIOP will be an important voice as the Biden administration and Congress debate legislative and regulatory proposals that will undoubtedly shape the future of commercial real estate.