California’s New Energy Efficiency Challenge

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California Governor Jerry Brown, sworn in for an unprecedented fourth term, recently revealed an ambitious new plan to address the impacts of climate change over the next 15 years. The Governor’s bold initiatives include a plan to double the efficiency of California’s existing buildings by 2030.

The energy, industrial and transportation sectors often garner most of the focus and attention in climate-change conversations because they collectively account for approximately eighty percent of the country’s greenhouse gas emissions. But commercial buildings also account for a significant percentage of emissions, a point not lost on California’s governor.

According to the U.S. Environmental Protection Agency’s Inventory of U.S. Greenhouse Gas Emissions and Sinks (published in April 2014), approximately five percent (5%) of greenhouse gas emissions in the United States are generated by the operation of commercial buildings. This figure increases when emissions from electricity generation are included, given the significant electricity consumption by commercial buildings for lighting, heating, air conditioning, and operating appliances. The U.S. Department of Energy estimates that commercial buildings on a national basis account for thirty-five percent (35%) of domestic electricity consumption.

In California, the energy used in buildings accounts for the second-largest contribution to the state’s greenhouse gas emissions. In fact, when electricity-related greenhouse gas emissions are distributed across economic sectors, unlike its industrial-sector counterpart, the commercial building sector has shown a marked increase in greenhouse gas emissions since 1990. Without significant changes in existing policy, the U.S. Green Building Council estimates that emissions from commercial buildings could grow at 1.8 percent per year over the next 15 years.

In addition to electricity consumption, commercial buildings generate greenhouse gas emissions through on-site fossil fuel combustion, waste management, and suboptimal system performance. When combined with the reality that (1) the substantial majority of existing buildings in California and across the country will still be in use more than 50 years from now and (2) it is economically infeasible, and in many cases socially undesirable, to tear down California’s existing commercial building stock and start from scratch, the task in reducing the state’s carbon footprint and greenhouse gas emissions becomes even more daunting.

Notwithstanding the foregoing, even small efficiency upgrades can produce meaningful reductions in harmful emissions when measured over the life of an existing building. While the specifics of the Governor’s most recent proposal have yet to be released, California does have some experience with establishing policy for energy efficiency upgrades to existing buildings. Governor Brown previously issued 2012 Executive Order (B-18-12), and its associated Green Building Action Plan, which directed state agencies and departments to take immediate steps to green the state’s buildings, reduce greenhouse gas emissions and improve energy efficiency. These efforts may provide a framework for the anticipated 2015 legislative proposal mandating that the state double the energy efficiency of its existing building stock.

Specifically, the requirements of Executive Order (B-18-12) included reductions in greenhouse gas emissions and water use, and the incorporation of clean, on-site power generation, such as solar photovoltaic, solar thermal, and wind, and clean backup power supplies to replace the dirtier diesel generators in use at many commercial sites today. In addition, the Order set a target of zero net energy consumption for fifty percent (50%) of the square footage of existing state-owned buildings by 2025, and zero net energy consumption from all renovated state buildings after 2025.

What this all means for real estate developers, investors, operators and users remains to be seen. However, one thing is certain: While technology and innovation offer many potential solutions on how to quickly embrace energy efficiency on a broad scale, the Governor knows that policy (incentives and penalties) is what makes it actually happen. Stay tuned!

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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