Building a green consensus

There can be few more fear-inducing sounds for any sector than the anticipatory rutting of frisky regulators. Yet in the US the recent introduction of sustainability regulations for new buildings comes close to a textbook case study in how to legislate without provoking undue industry alarm.

Keeping the threatening noises to a minimum has enabled federal, state and municipal legislatures to pass - and, incrementally, to continue to pass - legislation on green building that sabre-rattling would likely have shut down in the hiatus between draft and ratification. Local governments have extended regulations from public to private buildings, and recently into housing, with barely a murmur. (And there can hardly be a sweeter sound to regulators’ ears than silence.)

The lesson from the US? Regulate (a) gradually, (b) proportionately and (c) with copious inducements.

All-singing, all-dancing regulation isn’t the only way to achieve a critical mass of sustainable building. Less high-profile regulatory moves, including the local upgrading of building codes, are edging the market towards greater acceptance. “The fact that it’s been done quietly is tremendously important,” says Leanne Tobias, principal at sustainable real estate consultancy Malachite. “Local governments have presented it as adopting more modern standards.”

Bottom-up regulation may be a paradox but in this case it seems to be working, with federal progress met at least halfway by state and metropolitan-level activity. Local, incremental legislation has created two significant advantages. First, it has offered proof of concept - specifically, reassurance over the extra cost and hassle burdens developers will face when green building becomes, as it surely will, mandatory. Second, regulations covering green building in specific cities such as New York, Boston, Seattle and Chicago have given the marketplace time to digest what might otherwise have been unpalatable.

The US approach is not simply about geographic gradualism; regulation has also homed in initially on specific categories of real estate to be greened - to date, largely new public buildings. The benefit, according to Tobias, is the aggregation of market knowledge. “Design firms and developers, in particular, are becoming conversant with green building techniques as a result of the growing knowledge-base and capabilities,” she says.

“It starts with one city, then another picks it up,” she says, “then another and another”. The apparent tipping point came with regulations introduced in the District of Columbia. Because of its “substantial size”, she says, “you saw more attention paid to it”. There is always tension between cooperation and coercion. Yet it seems green building incentives in the US are having a significant impact.

The 2005 Energy Policy Act (recently extended to 2007) mandated tax deductions for green improvements. Most green buildings - those that reduce energy use in the building envelope, heating or lighting by just under 17% of the American Society of Heating, Refrigerating, and Air Conditioning Engineers’ (ASHRAE) standard - are eligible for partial tax deduction of $0.60 (€0.46)/ft2.

The most advanced sustainable buildings - those that make a 50% reduction in heating, cooling, ventilation and lighting - will qualify for a complete tax deduction of $1.80/ft2. In addition, the House of Representatives will this year consider a bill to include energy conservation incentives (that is, tax breaks).

But the sweeteners come not just in the tax breaks. There’s also money to be made in the business of sustainable construction. In January McGraw Hill Construction (MHC), in a report co-sponsored by the Green Building Council, found that education construction, at $53bn for 2007, was the fastest-growing for green building. “The momentum is coming on two fronts,” says Tobias. In addition to escalating regulatory requirements for new buildings, federal tax breaks for new environmentally responsible buildings provide an incentive for progressive (or merely prescient) developers. Accelerated depreciation applied to buildings constructed using modular techniques does the same.

Neither incentives nor regulatory requirements would be possible, claims Tobias, were it not for a critical mass of public and political concern. The California Public Employees Retirement System (CalPERS), with its partner Hines, set up the Green Development Fund last year in the belief that the “real estate industry is ready for green” - and that, notably, so were investors.

Although it’s difficult to put numbers on trends in public discourse, Tobias and others claim to be seeing growing green concern within the US. “Al Gore [with his 2006 climate-change documentary, An Inconvenient Truth] has raised public consciousness,” she says.

But the main driver has been less concern over climate change and the rest of the environmental agenda than global threats to energy supply. The nudging of the liberal consciences has nothing on scenarios ranging from uncertainty (the Gulf) to threatened cut-off (Venezuela) in the production and previously secure pipelines of oil to the US. As the post-OPEC crisis period showed us in the 1970s, there’s nothing quite like a soaring per-barrel oil price to press the hitherto unconcerned into the environmental cause. The risk is, of course, that the crisis passes - and with it the bottom-up momentum (and public support) for green regulation. It’s a possibility, acknowledges Tobias, though she’s still optimistic.

“People have found it harder to run their cars, and to heat and cool their homes. They experienced a palpable increase in energy costs to consumers. As a result, people saw just how fuel-dependent we were and, given an adverse shift in supply, how vulnerable our economy is,” she says. “Even the Bush administration has said it is looking to other energy sources. The built environment is the leading consumer of energy, so you have an increased interest in fuel-efficient buildings. There’s a growing political consensus.”

If Tobias is right and the momentum is towards greater greening, what could stop it? Very little, it seems. In Europe, perhaps a better question is: what could kickstart it? Could EU member states do worse, drawing on the US model, than pick and choose their regulatory preferences? It’s unlikely to work. The US may be doing it city by city, but its regulatory thrust is in a fairly clear direction. In Europe, the regulation on building will in theory cover the region, but it will be up to member states to incorporate it into national legislation and, worse, implement it. Despite what seems anecdotally to be a US perception of European consensus on these issues, there isn’t one. For every Denmark, you have accession countries, some of which have execrable records on environmental issues.

In any case, for all its softly-softly approach and an avalanche of incentives, US regulation requires, rather than requests, developers to abide by bulked-up standards. Not so the EU.

“Green buildings are like green light fittings - they’re voluntary,” says Randall Bowie of the European Commission energy directorate. An action plan currently in discussion includes proposals that impact on the construction sector, notably to try to develop minimum sustainability requirements for new buildings. The proposed measures would integrate the system for measuring sustainability and require states to inspect and certify buildings.

But none of this will happen any time soon. “The Directive has a long transposition,” says Bowie. In fact, it isn’t clear what will happen. On the surface, the EU Buildings Directive covers both commercial and public buildings. In Europe, as in the US, there is a need for a threshold for renovated buildings and building components; likewise, the threshold may be amended in 2009 to include residential.

(Work on the plan starts in 2009, though Bowie says at least one preliminary study on sustainability will begin this year and several more next year.) The idea is that by 2015 all houses will be built according to the new standards. Bowie suggests the European Commission might accept minimum efficiency levels based on the US model. “The US has applied a federal guideline based on climate zones,” says Bowie. “Europe could do the same.”

“At the moment, member states set the levels,” he says. “The problem is that they might not set them high enough.” He points out that warmer southern European countries often achieve less energy efficiency - an illustration of the need for better enforcement of building codes, for example - and cites Belgium, which enforces only 3% of building code strictures. If in the US regulation and incentives have both aimed at increasing the sustainability of new buildings, in Europe, unsurprisingly, regulation is closer to an indication of the market’s absorptive failure.

“If the market can adjust to it, regulation might not be required,” says Bowie. “The strategy is being developed within the European Commission. Then we’ll see how the market takes it up.” But the difficulty in Europe is getting buy-in even from regulators. “We need to work to get agreement,” says Bowie.

“We have to get the calculations right, and to draw the boundaries correctly.”

Divergent US and EU approaches to standards reflect their distinct regulatory approaches. In the US, the trend has been not towards wholesale revamping of construction standards but towards extending the existing Leadership in Energy and Environmental Design (LEED) standard into new categories - into private construction, for instance, and latterly into housing. Only where they have to - in dealing with schools, for instance - do standard-setters start from scratch.

Admittedly, the European situation is in some ways more complex. LEED covers construction of
public buildings in Nashville and Newark alike. Europe has Breem in the UK and Haute Qualité Environnementale (HQE) in France but no pan-European standard to speak of.

So what chance of a single standard that applies across the US, or Europe, or both? What chance, for that matter, of a global green building standard? Despite the obvious advantages - notably, consensus - a single, cross-market standard isn’t necessarily a good idea, according to Tobias.

Even in the US, Tobias says there’s an urgent need for work on standards that will bring costs down for practices that currently add $50,000-100,000 to the cost of a building. Wider adoption will bring costs down more or less automatically. But it’s still the case that only top-tier builders are adopting. Smaller builders need incentives to do the same. Housing developers likewise.

Next will come retro-fitting existing building stock to make it more energy-efficient. “The dominant standard might not be right,” says Tobias. “It may be that different segments need different standards - let alone different markets. There are probably numerous paths to sustainability and I don’t want to see a US or a European standard imposed in place of meaningful local standards.”

Washington’s next step

lthough smaller conurbations such as Pasadena, California and Montgomery County, Maryland, have already adopted the standards for private buildings, The Council of the District of Columbia’s passage of first-stage green construction legislation in December will make Washington a metropolitan outrider for rules requiring private developers to adhere to Green Building Council standards. Soon to be ratified, the bill will apply only to buildings measuring more than 50,000ft2, though it covers both new-build and renovation. Housing projects will have to meet similar standards; a new set of school building standards is in development.

Industry rebellion is unlikely. First, Washinton DC has offered a manageable timeline: the new rules will apply to construction and renovation projects from 2012. Second, it has avoided restrictive box-ticking: rather than adopting specific criteria to meet sustainability standards, buildings ratchet up credits across criteria including site selection, materials, and energy and water efficiency.