Imagine a building so energy efficient that it can generate what power it needs with the solar modules on its own roof -- a net zero energy building. It's not a pipe dream. We've been building them in the United States for a decade. The U.S. Department of Energy wants the "ZEB" to be the standard for new buildings. Why is it important to match renewable energy output with the demand for power on a building-by-building basis? And after ten years of zero-energy design, why do we only have eight buildings to show for it? In this month's briefing Denis Du Bois talks with David Orr, who designed and built the largest zero-energy building in the U.S. If you think that's cool, wait until you hear what Orr is doing for an encore.

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Program Notes & Transcript

Buildings consume about two thirds of that -- commercial buildings alone spend more than 90 billion dollars on energy per year. That cost ends up on the bottom line, reflected in stock prices and in the prices of the goods and services we all consume.

Unprecedented efforts are underway to control that cost. Among them is a little-known initiative at the U.S. Department of Energy to develop marketable net zero energy buildings by 2025. It's not out of concern for what we pay for dog food or legal advice. The DOE can see the day fast approaching when there might not be enough energy supply to meet our growing demand -- and that tends to make populations very unhappy.

But imagine an extremely efficient building that generates on site what little power it needs to run.

Your imagination is likely to be the only place you'll see such a thing. It's possible; it's been done. Just not very much.

There are 8 buildings in the United States that qualify as zero-energy buildings. They're all relatively small -- the largest one is the Adam Joseph Lewis Center for Environmental Studies at Oberlin College in Ohio. At 13 thousand square feet, it's pretty small by commercial building standards.

Oberlin College's net zero energy building, the Adam Joseph Lewis Center for Environmental Studies, opened ten years ago and is a net exporter of electricity. (Oberlin College photo)

But back when the Lewis Center was built -- it opened in 2000 -- it demonstrated some major advances in how we design really efficient buildings. And that's what Oberlin College wanted to do when it built its Environmental Studies Center -- to design the most efficient building possible, a building with no net energy demand.

The Lewis Center uses passive solar design, natural ventilation, and geothermal heat pumps for heating and cooling, all to reduce its energy demand. Then it uses rooftop solar power for its electricity.

This small-scale matching of supply to demand, of generation to loads, is what makes zero-energy buildings so fascinating. Today the Lewis Center is a net exporter of electricity. It generates more than it needs, and sells the excess power to the local utility through net metering.

It didn't start out that way. The building didn't operate quite as planned -- few buildings do -- but it was part of the design philosophy to anticipate changes, and with some tweaks, the building achieved its goal -- zero net energy.

The man behind the design and construction of this zero-energy marvel is an Oberlin College Professor of Environmental Studies and Politics named David Orr. He enlisted plenty of help from the Rocky Mountain Institute, the famous green architect William McDonough, and even NASA.

Dr. Orr didn't stop with the Lewis Center. He turned his sights to one city block adjacent to the college, in the small town of Oberlin, and started working to make that a zero-energy "green district." His plan is to renovate or construct 13 acres of buildings that will be energy self-sufficient and carbon-neutral.

In addition to teaching and doing green building, Orr has been writing -- he's the author of a half-dozen books on sustainability.

"Down to the Wire: Confronting Climate Collapse" by Dr. David Orr, Oxford University Press, 2009

Part 1 - Interview with Dr. David Orr

Dr. David Orr, Oberlin College Professor of Environmental Studies and Politics, is our guest. (Oberlin College photo)

Denis Du Bois:
The Lewis Center was an early example of your many contributions to green campus initiatives. Where do you hope the college will go from here?

David Orr:
We are one of, now, 18 or 19 projects worldwide selected by the Clinton Climate Initiative and designated climate-positive projects. So the city and the college have already made that choice. We're going to hold hands and move into the future to try to build a radically different future, and one much better than what's in prospect.

Denis:
Having the college's support to build the Lewis Center, and now the community's support to do what you're doing in the town of Oberlin, must be pretty exciting.

David:
My great passion in life has been moving things across the chasm from idea to mainstream reality, and we've gotten the opportunity here to build a model of a workable system, sustainable system. And that's exhilarating and hugely daunting. I mean, to say I'm in over my head is a huge understatement.

But I'm having fun with it. I mean, it's the idea - it's like a huge puzzle, and I've got all the pieces on the table. If we can get them in the right relationship, we'll make a beautiful picture. Because the question for society, now, is can we live well and live sustainably? And those presently operate at cross-purposes. Living well, for us, means living pretty wastefully.

And can we live at the boundaries of natural systems and current sunlight and yet still have great community? And I think frankly the answer is yes, but it's also we'll live better, if we can make this transition, than we ever thought possible.

So on one side there's doom and gloom. Yeah, you bet. If you run the film fast-forward, there isn't much of a human future that's decent, fair, and all that. But if we can begin to move in this radically new direction, I think the future - it will take a while to get there.

And in a way the other side of this, Denis, is that climate change isn't a temporary condition. What we're being told by scientists is we've now launched into an era, no matter what we do now, where climate will continue to change dramatically because of greenhouse gasses we've already emitted, and for that there's no answer. What we can do is to head off the worst that could be ahead.

And that's kind of a somber point, but it happens to be what we're being told by science. So there's not a moment to lose on this, but there is also - we can draw on, I think, 50 years at least of intellectual and technical capital that would enable us to build climate-neutral or climate-positive cities and projects.

Denis:
So in 1995, you were finding a technology revolution, you were finding advisors, you were finding contractors to construct a zero-energy building. Why is it now, 15 years later, we only have eight relatively small non-residential buildings that are net-zero-energy buildings in the US?

David:
That's a great question. I don't think the answer is technology. I think the technology was there in 1995. We were basically off-the-shelf technology and it worked fine. It was a matter of how you integrated the parts into a coherent whole.

I don't think the answer to that question is even necessarily economics. And I'd point to Greg Kats's work in a recent book from Island Press on energy economics.

"Greening Our Built World: Costs, Benefits, and Strategies," Gregory Kats, Island Press, 2009

But Greg, who's a former student of mine, did a study of I think it was 160 green buildings, and the economics all worked out very positively for pretty obvious reasons. If you integrate a green building well enough, for every cost you add, you're subtracting some, ass Amory Lovins and people talk about "tunneling through the cost barrier."

So you get to the point where you're talking about a critical mass, and all of the sudden you can dispense with a whole lot of HVAC equipment, because you spent enough on the shell and glazing systems and efficient use, you could eliminate a whole category of building components.

Denis:
So why aren't we doing more of it?

David:
I think when you get down to the nub of it, I think the resistance is explicable or explainable by politics, the lack of leadership on the issue at the national level, a fair amount of resistance and institutional barriers, building codes, zoning requirements. Some resistance from trade groups, house builders and so forth. But that is beginning to weaken.

I think the answer is, I don't think it's technology, I don't think it's economics, I think it really is the lack of leadership and pretty soft market demand. People were still content to buy the housing or building equivalent of a 1957 Chevy Impala, when in fact, there were buildings that were comparable to a Prius or the hyper-efficient Lexus, or much better cars that are on the way.

But in the housing sector and the building sector, for way too long we were building essentially obsolete buildings. And power was cheap enough to the owners, or the owners could offload those costs on renters. They would simply speculate on a building and assume the real estate market would pick up the inefficiency.

Part 2 - Energy:Minute -- Zero Energy Terminology

Part 3 - Interview conclusion

David:
Well, they may not get to be zero-energy buildings, but I think they can sure be improved in terms of efficiency. And I think retrofits of existing housing, commercial, and even industrial buildings is certainly worthwhile.

The recent retrofitting of the Empire State Building, for example. Here's an old building from the 1930s, but can you improve it with more efficient elevators, windows, heating systems and so forth? And the answer has been, apparently, yes. They can eliminate - I forget what the number is, but it's a quarter, a third, or whatever the number - but it's a substantial fraction of the building's energy consumption.

And there's all that embodied energy in existing structures, so it would be foolish to tear them down and plan to build new in every case, although that may be necessary sometimes.

But there is also going to be a fraction of buildings that we probably will have to abandon and remove, hopefully deconstruct and take the materials into other buildings. But we are likely to see, I would guess, a shrinkage of our spatial footprint, as it will be more profitable, more convenient, and a lot better off for the fabric of public life to condense, consolidate, and move into closer spaces.

And I think the art of doing that is well within the designer's repertoire now, to build really livable, walkable great cities that will be more dense but, if done right, will include rooftop gardens and parks and lots of amenities that people, I think, really do want.

Denis:
Looking beyond the United States are there any really exemplary zero energy buildings in the world?

David:
No. And I'd be reluctant to say that any building -- if you look at the fabric around it, the structures may be hyper-efficient and may, as in the case of our building, get to be a net energy exporter, but buildings require lots of other energy that typically is not on the accounting page to transport people and goods to and from, to maintain, repaint, reappoint exteriors and so forth.

I mean, there are lots of ways that, having built something, you've got to maintain it, because the laws of entropy tell you it's going to fall down or collapse if you don't do it.

So every building is a claim on future assets and resources. So in that sense, there may be no such thing as a zero-energy building. But the question is, can we make them a lot smarter than we have made them up to this point? I think the answer is quite clearly yes.

Denis:
What would you like to see happen from here? Should we continue investing in more zero-energy individual buildings, or should we just beyond that to the green neighborhood and green city concepts?

David:
I think both. Yeah, I think that what we've got underway here is a downtown block. We're planning and have begun renovation on one major component of that, what's called the Allen Art Museum, one of the great art museums of higher education in the United States.

We are at a decision point whether we build a new hotel or renovate an existing hotel, but all of the decisions we're trying to organize and we'll eventually have to make have to do with how this comes together at the scale of a block and a larger corridor of four or five blocks in the downtown of a small American city located right in the middle of the Rust Belt.

And so the questions have to do with can we integrate, now, as designers - can we do what, clearly, we're going to have to do? Can we begin to create models of the integration of green buildings, advanced energy systems, of ecological landscaping, economic renewal, green jobs, education, arts and amenities, zero-discharge, climate neutrality? And then also in our case we're adding a 20,000-acre green belt around the city for farms, forestry carbon sequestration, and growing biofuels.

Denis:
You're packing a lot of sustainability measures into a single model...

David:
And then if you ask, "What are some of the benefits of doing this?" You start with, well, you've built a robust economy that is a lot less likely to suffer as markets go up or down. You've created a lot of jobs and local employment. You've created an interesting, accessible downtown corridor, again, right in the middle of the Rust Belt. We're 70 miles from Detroit, 35 from Cleveland. And this is an area that does need lots of rejuvenation.

And then one of the nice features, too, is this becomes a model of carbon neutrality. One of the big problems is, how do you make a carbon-neutral society? Well, I don't know what for sure, but I believe that we can make a carbon-neutral city and reduce the problem to the scale that we can get our mind around.

Part 4 - Taking larger steps toward a NZEB standard

On the technology front, various parts of the DOE are working on proving out and getting to market an assortment of components, like energy-efficient lighting and heating systems.

It takes more than technology to make "zero" the new standard. It will take changes in the way building happens in America. Changes in building codes, zoning regulations, and urban density -- and changes in attitudes about space, energy -- and the risk of doing things differently.

When it opens in the summer of 2010, NREL's Research Support Facilities will be the largest ZEB in the U.S. at 200,000 square feet. (RNL computer rendering)

That's why examples like the Lewis Center are so important. Opening in the summer of 2010 is the Research Support Facilities building on the DOE's National Renewable Energy Laboratory campus in Golden, Colorado.

RSF is a 200-thousand-square-foot facility that will be the largest net-zero energy building in the U.S. Even larger examples are rising out of the ground elsewhere in the world, including a 71-story skyscraper in China.

Each one brings us a step closer, as another zero energy building, or block, or city, makes it from the cool comfort of the architect's office to the harsh light of day, where we can examine it, debate it, and learn from it.

###

By Denis Du Bois at Energy Priorities

"Zero energy" is a term we'll see applied to more and more buildings. It means the building produces as much energy on site as it uses. But that's not the whole story. There are many variations. Learn what they mean, in a minute.

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Energy:Minute Podcast

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Transcript

To be purely zero energy means not purchasing electricity or fuel, because all necessary power is generated on site all the time.

The term "net zero energy" means the building achieves that balance for the year, even though it buys grid power on some days, and on other days it sells excess energy back.

Then there's the question of where the purchases energy is measured. For a "net zero site energy" building, the purchased energy is measured at the meter. For a "net zero source energy" building it's measured at the generating station, so it accounts for the inefficiencies of transmission and distribution.

In a "net zero energy cost building," the purchases and credits from imported and exported energy are a wash. It's a purely financial metric, driven largely by local utility rates.

A "net zero energy emissions building" uses only emissions-free power sources, like wind or hydroelectric, or it buys offsets or credits to compensate for any carbon-emitting power it does buy.

That doesn't make the building carbon neutral, which is a whole other story. For more on that, listen to the Energy:Minute titled "The Meaning of Zero."

###

By Denis Du Bois at Energy Priorities

The Obama administration has approved a $8 billion loan guarantee to support the construction of two nuclear reactors in Georgia. It's the first step in a play to expand nuclear power as a way to control greenhouse gas emissions and bolster domestic energy production.

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Does the need for new sources of low-carbon energy now outweigh the costs and risks associated with nuclear power?

Commentators in the New York Times' editorial section, "Room for Debate," answered this question.

The columns are by contributors from Oxford, American Enterprise Institute, Union of Concerned Scientists, Milken Review, Cato Institute, and myself. We generally agreed: no.

A Comeback for Nuclear Power? New York Times "Room for Debate"

###

By Denis Du Bois at Energy Priorities

What do Seattle, Austin and New York have in common? They've all enacted regulations to expose energy-wasting buildings. Owners of large buildings will have to disclose their energy scores to prospective buyers, tenants and lenders. Similar laws have been passed in three states -- and more are on the way. In this month's briefing we explore what's driving these mandates, and how they affect building owners and tenants. Some building owners are making improvements now, to raise their energy scores before they're made public. What's the business case? We'll learn about that, as well as where are the best places to look for low-cost and no-cost ways to boost a building's efficiency score. (podcast) (transcript)

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Guests

• Cliff Majersik, Executive Director of the Institute for Market Transformation
  
• Jack Beuttell, Global Sustainability Manager for Hines
  
• Ash Awad, Vice President of Energy for McKinstry

Owners of large buildings will have to disclose their energy scores to prospective buyers, tenants and lenders, under new laws in 6 state and local jurisdictions. (EP photo)

Program notes & transcripts

New rules require owners of large buildings to measure their energy use through a process called benchmarking. It uses the preceding 12 months of energy consumption to calculate a score for each building.

But that's not the part that has the attention of owners. The laws go on to require public disclosure of those energy scores whenever a building is sold, leased, or refinanced.

That's not unheard of. Europe is well ahead of the U.S. when it comes to building energy performance labeling.

California led the way here in 2007 and gave owners almost 3 years to get ready for disclosure. It was soon joined by the District of Columbia, Austin Texas, and New York City. Seattle is the latest jurisdiction to enact a mandate, which strengthens a 2009 Washington state law.

Part 1: What's behind the new rules for energy benchmarking and disclosure

To help us understand what's behind these new requirements, our first guest this month is Cliff Majersik, LEED AP, executive director of the Institute for Market Transformation. His nonprofit organization focuses on market-based solutions to advanced green building and energy efficiency; it's based in Washington DC.

» Transcript

Part 2: Why some owners are making improvements years ahead of the disclosure deadline

HANDBOOK

Energy Efficiency Guide for Existing Commercial Buildings: The Business Case for Building Owners and Managers Understanding the economic benefits of energy efficiency has become a necessary skill for owners and managers of buildings. A new publication from leading industry organizations provides guidance for the business case to achieve energy savings. "Energy Efficiency Guide for Existing Commercial Buildings: The Business Case for Building Owners and Managers" provides the rationale for improving and sustaining energy efficiency in existing buildings. The guide is available from ASHRAE online.

But many owners have been benchmarking their portfolios of buildings for years. And they're making improvements, to raise their energy scores before they're made public.

In many cases, it's the tenant who pays the electric and gas bills -- so, what's the business case for a landlord to make buildings more efficient, when it's not required by law, and doesn't directly save them money?

Our second guest will shed some light on that question -- Jack Beuttell, LEED AP, is Global Sustainability Manager for Hines, a real estate investment, development and management firm based in Houston.

» Transcript

Part 3: The 5 layers of energy-efficiency opportunities in buildings

But where do they begin? How do they know it'll work? And how do they pay for it?

Here to answer those questions is Ash Awad, Vice President of Energy for McKinstry, a Seattle-based firm that designs, builds, operates and maintains commercial buildings nationwide.

» Transcript

Part 4: Take-aways for owners and tenants

That gives owners time to improve their energy efficiency scores. Start by benchmarking your portfolio. The EPA's Portfolio Manager tool is free, and you don't have to wait for a law requiring you to use it. You'll find it at EnergyStar.gov.

Then look for cost-effective ways to reduce energy waste, using the 5 layers of opportunity Ash Awad described. Start with the no-cost measures, then those that might qualify for funding or performance contracts.

Once you've improved your scores, trumpet that success to your tenants and investors.

Help occupants feel like they're part of the solution -- part of achieving energy efficiency in their buildings -- as Hines does with their Green Office for Tenants program.

And if you lease space, ask the owner or manager about your building's energy rating. Let them know you want improvements that reduce energy waste.

You might not have much leverage until your lease is up for renewal; at that point ask about a green lease.

And when you shop for space, be sure you're comparing all the factors that affect your total cost per square foot -- including energy efficiency scores.

###

By Denis Du Bois at Energy Priorities

Why are cities and states mandating that building owners measure energy consumption -- and disclose the scores publicly? Denis Du Bois interviews Cliff Majersik, LEED AP, executive director of the Institute for Market Transformation. His nonprofit organization focuses on market-based solutions to advanced green building and energy efficiency. He explains what's behind the new benchmarking requirements.

This is a highlight from the Building Priorities Briefing.

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Transcript

Denis Bois:
Explain for us what's involved in benchmarking a building's energy use.

Cliff Majersik:
Benchmarking establishes how a building compares with comparable peers in terms of its energy efficiency. It involves taking the actual utility bills - the electricity, natural gas, chilled water, any other utilities that the building receives - and normalizing them for variables like weather and occupancy, the number of people and computers in the building, number of hours that the building is used, and for other variables.

Each building type - supermarkets, offices, retail, banks, a variety of commercial building types - has unique characteristics that they benchmark for, as a way to give you an apples-to-apples comparison to other buildings of that type. What you're left with is a 1-to-100 rating that gives you a sense of how energy-efficient your building is compared with other buildings of that building type in a normal year.

Denis:
And you mentioned normalizing the data, then, what is it being normalized against?

Cliff:
It's all based on a survey of commercial buildings, which takes place every three or four years and is conducted by the Department of Energy, and it's the Commercial Building Energy Consumption Survey. And you're seeing how your building compares, on a 1-to-100 scale, against those buildings.

So, a 100 would mean that your building is the top one percent of all comparable buildings, and a one would mean that your building was the bottom one percent.

Denis:
Most if not all of these laws call for using the EPA's Portfolio Manager, a software tool that calculates the score. Even it it's not an Energy Star building, the score is called...

Cliff:
That rating is your Energy Star energy-performance rating, and it is not in any way certified or checked by EPA unless you seek the Energy Star label. In order to get the Energy Star label, your building needs to score a 75 or higher, an energy-performance rating of 75 or higher.

Denis:
And with or without an Energy Star plaque in the lobby, they can still publicize that score, in some cases, they're required to.

Cliff:
That's correct. The rating is yours to tell anybody in the world that you want. Frequently, building owners, especially with high-performing buildings, do want to publicize this to their tenants or to other key parties.

And then, as you alluded to, in some jurisdictions now, they're required to disclose that rating, either to the counter-party of a transaction -- someone that's buying, leasing, or financing the building --- or, in the case of Washington DC, and New York City and probably other jurisdictions in the future, they have to publicly disclose it on a website.

Denis:
And your organization promotes government mandates for this. Why would a government want to make benchmarking obligatory? What's the largest public benefit from this?

Cliff:
There are a number of significant public benefits. The benchmarking is the first step in improving the energy efficiency of buildings. It's not the only way to get there, but it's certainly one of the most logical and effective ways to begin that process.

By mandating this, a jurisdiction addresses one of the critical problems in energy efficiency of commercial buildings, which is the split incentive problem. That, very frequently, you'll have a net lease, or even a gross lease and the landlord -- in the case of a net lease -- the landlord has a lot of control over the energy efficiency of the building, but the tenants bear all of the benefits, or most of the benefits from improvements in energy efficiency of that building.

And so, the landlord feels that they have little incentive to invest in the efficiency of the building, and it can often act as brake on efforts to improve the energy efficiency of these buildings.

And so, in either case, the first step is to just have everybody have a clear sense of how efficient the building is. Then, tenants that want to can shop for the most efficient buildings.

The result is that energy efficiency will be more fully valued by the market. There will be stronger financial incentives to invest in the energy efficiency of buildings. You'll see a general increase in the efficiency of those buildings.

That produces a societal benefit in terms of, not only an environmental benefit of reducing greenhouse gas emissions and addressing the problem of climate change, but also an economic benefit by saving building owners and tenants money so that they can spend more money on things that they really want to accomplish, rather than on energy.

Some of that money may get spent on creating jobs, and pushing the economy forward.

One of the reasons why this is so appealing, especially now, is because it's just a matter of providing information. It doesn't cost governments or building owners very much at all. So, if you're looking at a way that you can drive energy efficiency and benefit the economy and create jobs at a minimal investment, this is about as cost-effective as they come. This is a win-win-win for jurisdictions to benefit their economy, their electric reliability, and the environment.

Denis:
Is there a win for building owners in all this?

Cliff:
Oh, yes. Some of the statistics --- There's a CoStar report that shows a 16-percent property-value premium for Energy Star-labeled buildings. That's a huge number, especially when you compare that to the minimal cost that's typically required to get a building to that place.

It's a minimal upfront cost, and it's very quickly recouped from the energy savings themselves. So it's money to the bottom line. And especially if you're looking to sell or lease a building, it makes all the sense in the world, given the fact that you are seeing these premiums, how they have lower vacancy rates, they have quicker lease-up, they have higher rents, and they sell at a higher per-square-foot price.

Our buildings, collectively, in this country are an untapped goldmine of energy savings. And the sooner that we start digging and start putting that gold into our economy, the better for everybody.

Denis:
If energy efficiency has the advantages, the value, that we're saying it does, why do building owners need a mandate to do this? What isn't happening on its own?

Cliff:
Sure. Well, that's a great question. The first thing is that we should point out that building owners are, in many cases, doing this, and they're doing a very good job. But they're not getting the full benefit that they could if you had public disclosure of energy ratings, because the markets don't have the sales comparisons in order to fully value the energy efficiency of their buildings.

And so, this is addressing these two market failures, which are the split incentives problem and, even more widespread, that market and tenants and others have no idea how efficient one building is compared to another.

If you want to have an educated marketplace that functions properly, it requires information. This is just a "sunshine act." It provides the information that all the players in the market should have to do their jobs right, and that they currently don't have.

And as they say, sunshine is the best disinfectant.

Denis:
Are governments tapping into stimulus funds for programs to go along with this, to fund retrofits or create jobs programs?

Cliff:
Yes. In fact, for instance, in New York City, they've reserved 16 million of their stimulus money to help building owners and operators finance energy-efficiency improvements or retro-commissioning in their buildings. They've also set aside a lot of the money from their stimulus funds, both at the state and city level, to provide training for people to improve the energy efficiency of these existing buildings.

Denis:
You work with jurisdictions on creating legislation like this and getting it passed. Who's coming up next? What jurisdictions are debating this?

Cliff:
There are a number of jurisdictions that are debating it. There is likely to be a bill introduced in the state of Maryland later this month. And there is activity across the west coast.

I think one thing that's interesting is that we're going to see jurisdictions competing with each other to put laws like this in place, because they know that the greenest jurisdiction is going to have a leg up in the competition to attract employers and employees, to attract tenants and capital. And so this is a competitive-advantage issue, and we're already seeing jurisdictions that are seeking to position themselves well to grow their economies by putting in place laws like this.

###

By Denis Du Bois at Energy Priorities

Many building owners have been benchmarking their portfolios for years. And they're making improvements, to raise their energy scores even where they're not made public by new disclosure regulations. What's the business case for a landlord to make buildings more efficient, when it's not yet required by law, and doesn't directly save them money? Denis Du Bois interviews Jack Beuttell, Global Sustainability Manager for Hines, a real estate investment, development and management firm.

This is a highlight from the Building Priorities Briefing.

Tweet this: http://tinyurl.com/epa-bmk

 GO to the Briefing

Transcript

Denis Du Bois:
Our next guest is Jack Beuttell, Global Sustainability Manager for Hines, a real estate firm based in Houston.

Jack, you're in charge of sustainability for a company that owns hundreds of buildings. Give us a sense, if you would, of the size of your portfolio.

Jack Beuttell:
Hines is a real-estate investment, development, and property-management firm. We operate in 17 countries and about 70 or 80 cities in the United States. We own and manage a vast portfolio. Our managed portfolio is approximately 120 million square feet in the US. It's primarily office product, but we also manage some other product types, including sports stadiums, biomedical facilities, and other product types: retail, some industrial.

Denis:
Now, these disclosure requirements we've been talking about don't kick in, in some cases, until 2011. But I understand you're not waiting.

Jack:
Yeah, that's correct. We've been a partner with Energy Star since 1999, when Energy Star expanded its program to the commercial real-estate sector. And in DC, our entire portfolio has been benchmarked for a number of years, and most of the properties there hold the Energy Star label.

Portfolio-wide, in the United States, we benchmark -- or strive to benchmark -- 100 percent of the properties we manage. There are some exceptions, for various reasons, to that rule, but that is certainly our policy, and we have achieved Energy Star labels in approximately 75 percent of that managed portfolio.

Another percentage of that portfolio has achieved or is pursuing LEED certification. We've got approximately 182 LEED certified, pre-certified, and registered projects. And that represents about 95 million square feet, which is substantial.

Denis:
What indication do you have that benchmarking scores or certifications like Energy Star mean anything to the occupants and tenants in the buildings?

Jack:
I think Energy Star says that there's a vast awareness of the Energy Star brand in the United States. I think it's the number-one household brand in the United States according to "Good Housekeeping." So they're familiar with the brand, with their refrigerators and other residential appliances, so that carries over into their workspace.

So there's brand recognition with the Energy Star label. And as more and more people become aware of issues relating to sustainability and energy efficiency, those people are asking questions to their employers. The employers are asking questions to building managers. Of course, that rises to the building owners, and that's how the pressure is applied. That is, in part, why Hines pursues the Energy Star label.

Denis:
What are some of the other business reasons behind making the investment to get Energy Star ratings or to get LEED certification for a building?

Jack:
Hines has pursued the Energy Star label, historically, primarily for energy efficiency reasons. Obviously, there is tremendous value in understanding how a building performs in terms of its energy consumption profile. And there is that old adage: you can't manage what you can't measure.

So Energy Star and other benchmarking tools help property managers and owners like Hines understand how a building is performing relative to itself, historically, and also relative to other buildings. Multiple academic studies corroborate that sustainable office properties, or those with a LEED or Energy Star or comparable label, have higher occupancies, rental rates, and transaction values, and, in some cases, returns.

We have pursued these labels for two primary reasons. One, because investors are asking us about it. These labels are indications to our investors that we are developing or managing consistent with a class-A approach to real estate.

On the other hand, tenants are beginning to ask for these things, and there is growing awareness among tenants on the importance of sustainability, and the impact of certain strategies in the office space on occupant health and productivity.

Denis:
So here you are. You have a head start on raising the Energy Star score on your buildings. Are you concerned that a mandate for rating all buildings will take away some of the market advantage you've created for yourselves?

Jack:
There's probably a little concern there. I mean, we never really know what's coming out of the government and how it will affect us. In many cases, we can't control that, so the best strategy is simply to improve energy efficiency as best we can now.

In some cases, we actually think that disclosure and these various rating systems that are coming out will actually benefit Hines, because they highlight -- they show more transparently -- how well Hines is performing versus its competitors. So, in many cases, we feel like it will actually help us.

Denis:
So are Energy Star and LEED certifications the ultimate goal here? Have you thought about what comes after that in terms of improving the sustainability of buildings?

Jack:
The one thing that Hines is focusing on is energy consumption in the tenant space. Historically, we have done a very good job at designing, constructing, and delivering top-rated, green, sustainable office properties to the market.

We've also done a very good job at operating properties, and that's evidenced by our success, both in the LEED and Energy Star programs.

The sort of third aspect to energy consumption or energy efficiency in office properties is what I like to call the last frontier, and it's what happens in the tenant space. Typically, building managers and owners have little to do with what happens in the tenant space after the tenant signs a lease. Hines is working on strategies to partner with tenants, developing tools to help educate them on what they can do in their space to enhance the sustainable features and operations of that space.

One of the things that Hines did in 2009 was release a program called Green Office for Tenants, and it was based on a program we developed initially for our tenants. The program is complementary with the LEED for Commercial Interiors and Energy Star Bring Your Green to Work programs, which are two very successful and important programs.

Our program looks at some additional questions and elements and breaks things down; breaks strategies down to seven categories in which occupants can take proactive measures to enhance sustainability.

Those are things like energy efficiency, recycling, supply-chain sustainability, commuting, and other things. Once a tenant achieves 70 Leaf Credits, which is what we call the point system, they are awarded with a plaque and the designation of Green Office.

This has been a very important and well-received tool to engage our tenants in the energy-efficiency process, and we think it's very important to continue to find solutions to engage those tenants to control what's happening in that tenant space.

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By Denis Du Bois at Energy Priorities

Whether the law mandates energy benchmarking and disclosure, or the market demands more energy efficient buildings, the result is that owners make improvements that reduce energy waste. But where do they begin? How do they know it'll work? And how do they pay for it? Denis Du Bois interviews Ash Awad, Vice President of Energy for McKinstry, a firm that designs, builds, operates and maintains commercial buildings nationwide.

This is a highlight from the Building Priorities Briefing.

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Transcript

Denis Du Bois:

An energy benchmark is not the same thing as an energy audit. Briefly, what's the difference?

Ash Awad:

An energy audit actually goes through and does a physical inspection of the building and actually starts to look at pieces of equipment and systems, and starts to make recommendations for changes in the building. Sometimes they're retrofits, sometimes they're operational changes.

Whereas an energy label is actually just taking information about the energy consumption and then creating a very simple benchmark. It actually doesn't provide a recommendation for change, it just quickly indicates how much energy consumption a building is going through based on historic utility bills.

Denis:

Have you encountered owners who want to improve their scores ahead of the disclosure deadline?

Ash:

Yes. Now that the mandates have been defined, we're getting more and more clients coming to us, getting prepared. Because once you go through and start doing the benchmarking, the last thing that you want is a benchmark that shows you to be performing so far below your peers.

And so everybody's cleaning their house before the housekeeper shows up.

Denis:

So what's the process for deciding where to clean up first -- for identifying improvements that would raise that efficiency score?

Ash:

The first step is you've really got to get a sense of how you're performing against general benchmark information that's available in the industry.

If you're performing under an optimal level, the way we think about it is in the following stages. The first thing we do is we look at just basic operational improvement. In other words, changes to the facility's operation that don't require a lot of capital investment. Usually we're just trying to make those very simple operational changes with clients.

The step after that is a first level of basic retrofits that maybe includes lights and motors. And then from there it really is about deeper retrofits that include maybe larger heating and ventilation systems, chilled water plants, boiler systems.

And then the last tranche might be working on the building envelope, which includes windows and roofs, things of that sort.

Denis:

Now credit is tight, and companies are risk-averse -- how are these projects getting paid for? Are performance contracts playing a big role?

Ash:

Performance contracting is an absolute method. What happens when a retrofit is happening in a building, the client may have some capital dollars, we would then work with the utility to maybe find some utility grant money. There is a little bit of stimulus money available to maybe offset the first costs of a project.

But even with utility money and other grants, there is still a gap between the total project cost and those grants that are available. The slack is then picked up through a loan. Now performance contracting is a mechanism that guarantees that the savings will pay back the loan, and that has essentially a risk-mitigation factor for clients that are worried about taking a loan, encumbering themselves without knowing there's going to actually be a return.

Denis:

I waited and waited for my stimulus check and it never came. Do you find certain owners are waiting around for the Recovery Act to pay for more of those retrofits?

Ash:

That's exactly what happened in 2009. The stimulus was a really good idea, it's just unfortunate that it set an expectation that everyone was sitting around and waiting for their check.

In 2010, I think the stimulus is going to have a really positive impact in retrofitting buildings.

Denis:

McKinstry's been in energy efficiency for quite a while actually. Is energy efficiency getting to be an easier sell?

Ash:

Well, it's actually interesting you put it that way. I think the answer is yes. I think, for a while there, it became too easy of a sell. And let me explain what I mean by that.

I don't mean as it relates to the end user. I mean as it relates to the policy maker. I think energy efficiency just seems like just a good idea that, in the mind's eye of a policymaker, they have skipped over energy efficiency and, for instance, went right to big renewable energy. Or they skipped over energy efficiency and went to home weatherization.

Energy efficiency in the commercial and industrial marketplace still has a significant opportunity. So is it easier to sell? Well, I think people are more cognizant of it, end users are more cognizant of the impact of energy efficiency and the benefits of making their buildings more energy efficient. Even predisclosure folks were really appreciative of the idea that you can actually do retrofits in buildings and have them pay for themselves.

The challenge is, is that policy makers have seen energy efficiency as such an easy sell that they actually skipped over funding it at the level that it needs to be funded at. Or giving it the attention it needs to be given to create the jobs that we so desperately need in America. We're actually seeing a turn on that.

In other words, we're now seeing not only end users being very excited about doing energy efficiency retrofits in their buildings, but we're also seeing policy makers truly understand and appreciate the impact of energy efficiency in the built environment. Particularly in the commercial and industrial, the opportunity to really create durable jobs in America by retrofitting almost 80 billion square feet of commercial industrial buildings.

So it's been an interesting kind of road. But I think, right now, not only is it an easy sell, but I think it's getting the attention that it deserves. We've just got to keep the focus on it.

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By Denis Du Bois at Energy Priorities

MSNBC contributor Rebecca Agiewich has created an excellent overview of the meaning of "green" at the Vancouver 2010 Olympics.

Several weeks ago, an MSNBC business writer interviewed me about sustainability at the 2010 Winter Olympics in Vancouver BC. MSNBC's "Sports Biz" piece broke today, timed for the opening day of the "green games." It contrasts the sustainability claims against some realities.

"Vancouver goes for the green and more"

Related article:

"How Green Are the 2010 Winter Olympics? - Building Priorities Briefing"

Related column:
"VANOC's Consultant Gives It a Bronze for Greenness"

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By Denis Du Bois at Energy Priorities

Suzuki Foundation finds little evidence of strong engagement by the parent organization, and recommends the IOC play a stronger role to ensure that future host cities like London and Sochi follow through on their environmental commitments.

The Vancouver 2010 Olympics deserve a bronze medal for climate protection initiatives, the David Suzuki Foundation concluded in a "climate scorecard" released this week and reported in the Vancouver Sun.

The Vancouver Organizing Committee hired the foundation in 2008 to estimate the carbon impact of the Games and to recommend ways to offset those emissions. Prior to that engagement, the foundation had been one of VANOC's most vocal critics.

David Suzuki himself was at a press conference to award the "medal" to VANOC. He gave the Olympic organizers credit for innovative and energy-efficient venues, but lamented that a legacy of the Winter Games will be more carbon emissions.

The carbon will come from cars and sprawl due to the decision to upgrade the Sea to Sky Highway, instead of investing in rail transit between Vancouver and Whistler.

VANOC could have been more transparent about its sustainability budget and how it acquired offsets, while the International Olympic Committee could have played a stronger role in making sure its sustainability "pillar" is properly upheld, the foundation noted.

Our perspective: The Olympics must set a shining example of sustainability in action. VANOC has instead focused on being a little greener than previous Olympics. At that rate, it will take decades for the Games to eliminate their negative environmental impact.

VANOC will use this moment as an opportunity to close the door on debate about its sustainability practices, hoping that the Games' excitement will dissolve the messy details into a green memory.

Thus we don't expect to see any sustainability-related media reporting objectively from the Games starting next week. Instead, VANOC PR will spoon-feed the broadcast media with the official message of sustainability, which will be delivered unabridged. Watch for music-backed stories of frogs and reclaimed wood, positioning the "greenest games ever" as "carbon neutral" in the minds of the viewing public.

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By Denis Du Bois at Energy Priorities

On February 2, 2010, the Securities and Exchange Commission ("SEC") published an interpretive release to provide guidance to public companies on the SEC's existing disclosure requirements relating to climate change. Those requirements apply to registration statements and periodic reports filed under the Securities Act of 1933 and the Securities Exchange Act of 1934.

by William Lin, Michael Nesteroff and Jeffrey Wolfstone

This is the first time the Commission has addressed climate change disclosures. The interpretive release does not create new legal requirements or modify existing requirements. Instead, the guidance is intended to provide clarity about the requisite disclosures for public companies regarding the impacts of climate change on their businesses. The guidance is meant to foster consistency in the treatment public companies give to their disclosures related to climate change.

Existing SEC Disclosure Rules and Regulations

The SEC has identified the following disclosure rules and regulations as the source of existing disclosure obligation related to climate change:

• Business Description. Item 101 of Regulation S-K under the Securities Act requires disclosure of the material effects that compliance with environmental laws may have on capital expenditures, earnings or the competitive position of a company.
• Legal Proceedings. Item 103 of Regulation S-K requires a company to describe any material pending legal proceedings to which it or any of its subsidiaries is a party. This would include any environmental enforcement actions and orders material to the company.
• Management's Discussion and Analysis ("MD&A"). Item 303 of Regulation S-K requires a company to disclose known trends, events, obligations or uncertainties that will, or are reasonably likely to, materially affect the company's liquidity, capital resources or operations. Companies are also required to disclose any other information the company believes is necessary to an understanding of its financial conditions, changes in financial condition and results of operations.
• Risk Factors. Item 503(c) of Regulation S-K requires a public company to provide a discussion of "the most significant factors that make the offering speculative or risky." A company should clearly state the risk and indicate how the particular risk specifically affects the company and avoid generic risk factor disclosures that could apply to any company.

Climate Change Related Disclosures

The interpretive guidance highlights four specific topics as examples of where climate change may trigger disclosure requirements under the existing rules and regulations summarized above.

• Impact of Legislation and Regulation: A company should consider whether existing laws and regulations regarding climate change have a material effect on the company and evaluate the potential impact of pending legislation and regulation related to climate change. These developments may trigger disclosure obligations under Items 101, 103, 503(c) and 303 of Regulation S-K.

  In the case of risk factor disclosures (Item 503(c)), companies should consider specific exposure they face as a result of climate change laws and avoid generic risk factor disclosures that could apply to any company. In addition, a company should not limit its disclosure analysis regarding proposed legislation or regulation only to the adverse consequences of those regulations. Rather, companies should also evaluate whether there are any new opportunities afforded to the company by changes in the law or in the company's business practices that would warrant disclosure under the circumstances.

  The SEC notes that companies will need to regularly assess their potential disclosure obligations related to climate change since climate change regulation is a rapidly developing area. In addition, disclosures should be attuned to the risks that are particular to the company's industry. For example, a company in the energy sector may face significantly different risks compared to a company in the transportation sector.

• Impact of International Accords: A company should consider and disclose any material risks or effects of international accords and treaties relating to climate change on the company's business. The need for this disclosure should be assessed by reference to the MD&A disclosure requirements under Item 303 of Regulation S-K (e.g., disclosure of any known trends, events, obligations or uncertainties that will or are reasonably likely to materially impact the company's liquidity, capital resources or operations).
• Indirect Consequences of Regulation or Business Trends: A company should consider, and disclose where material, any indirect consequences of regulation or business trends relating to climate change. Those consequences may occur as a result of legal, technological, political or scientific developments that may create demand for new products or services or decrease demand for existing products or services. For example, a technological innovation that enables a competitor to produce products that emit lower greenhouse gases could result in an increase in demand for that competitor's products and a corresponding decrease in demand for a company's products. These business trends or risks may trigger disclosure as risk factors under Item 503(c) or as a trend or uncertainty that may have a material favorable or unfavorable impact on the company's business under Item 503.
• Physical Impacts of Climate Change: Companies should evaluate the physical impacts of climate change on their businesses. Floods, hurricanes, sea levels, arability of farmland and water availability and quality all have the potential to affect a company's operations and results. Accordingly, companies whose businesses may be vulnerable to severe weather or climate-related events should consider and disclose the material risks of, or consequences from, such events as risk factors under Item 503(c).

The SEC intends to monitor the impact of this interpretive release as part of the SEC's ongoing disclosure review program. As part of the SEC's evaluation of whether further guidance or rulemaking related to climate change disclosure is necessary, the SEC intends to: (i) review its experience with the disclosure review program, (ii) hold a public roundtable on climate change disclosure in Spring 2010 and consider the information it gains through the roundtable, and (iii) consider any recommendations made by the SEC's Investor Advisory Committee (formed in June 2009 to advise the SEC on matters of concern to investors in the securities markets) which has been considering climate change disclosure issues.

The text of the interpretive release is available at http://www.sec.gov/rules/interp.shtml.

William W. Lin is a Shareholder at Lane Powell and a member of the Firm's Corporate Finance and Securities Practice Group. He can be reached at (206) 223-7982, linw@lanepowell.com.

Jeffrey C. Wolfstone is a Shareholder and Co-Chair of Lane Powell's Corporate Finance and Securities Practice Group. He can be reached at (503) 778-2153, wolfstonej@lanepowell.com.

Michael A. Nesteroff is a Shareholder and Chair of Lane Powell's Sustainability and Climate Change Team. He can be reached at (206) 223-6242, nesteroffm@lanepowell.com or Twitter: @USClimateLaw.

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By Lane Powell at Energy Priorities