The Common Carbon Metric: A Future Enabler of Building Efficiency Projects?

Last week a client asked about the value of his carbon offset post-implementation of his energy-saving improvements: Is there any monetary value and - if not - when will carbon credits become a currency? It's a common and good question. Much has been discussed about negawatts, white tags, and a soon-to-come market for trading carbon offsets. When such a market will emerge is uncertain, but most all are convinced it will happen.

As the folks over at CleanTechies attest, "buildings represent about one-third of emissions worldwide and provide some of the quickest and most cost-effective ways to reduce carbon emissions." However, the full value of building retrofits has yet to be realized, since carbon management and credit trading can't be effectively implemented without consistent and reliable measurement techniques.

Enter the Common Carbon Metric:

A group of industry players, led by UNEP’s Sustainable Buildings and Climate Initiative has been working over the last few years to address the inconsistencies in carbon measurement techniques around the world. The group has been working to develop clear and transferable carbon metrics (known as the Common Carbon Metric) that can be used to measure carbon reductions in buildings, whether it’s a new office park in Mumbai or a retrofit program in Rio de Janeiro.

One of the group’s recent breakthroughs was to enable Clean Development Mechanism (CDM) projects to use these new metrics in CDM building projects. The CDM is a program that allows Annex I countries (i.e., the majority of developed countries) to invest in carbon reduction projects in developing countries and claim the carbon reductions for their Kyoto Protocol carbon reduction targets.

While building projects have technically been eligible for CDM status for the last ten years, inconsistencies in the methods for measuring carbon from CDM projects have made CDM projects for buildings prohibitively expensive. By making the Common Carbon Metric a viable pathway to measuring and certifying carbon reductions, it will be much easier for developed countries to invest in carbon-reducing building projects in the future.

What does this mean for businesses operating in California, the U.S. and abroad? At the moment, financial and reputational (or branding) motivations are often behind companies' efforts to reduce their emissions and slow the effects of climate change. A major development in carbon measurement - one that allows organizations to capture additional financial gains based on the product of their energy savings - should serve as a catalyst to encourage additional participation in the already low-hanging and tasty fruit of building efficiency.

Green premium? Not so, as it continues to pay to go green with commercial buildings

There's a lot of greenwash in the commercial real estate industry, fostered by pundits and proponents alike. Separating fact from fiction and reality from distortion is a challenge. Except, of course, when it comes to the facts.

Take a recent report from CoStar and the U.S. Green Building Council (USGBC): Green Premium Continues to Justify Implementation Costs for Building Owners. This one's good, and it's real.

A few snippets:

• The economic payback for building owners from 'going green' has been tested in the crucible of the worst economy since the Great Depression, and while the premiums in rental rates, faster lease-up times and lower vacancy associated with green buildings varies market to market, the corresponding increases in rental income, together with the resulting energy savings in operating the property, continue to justify the modest additional costs associated with going green in most markets.
• For tenants, a growing body of research continues to show that buildings with better air quality, natural lighting and variable temperature control yield greater productivity by employees. Also, separate metering and individual utility billing of tenants for their energy use encourages conservation and additional cost savings.
• One big change, however, has been the market shift in LEED certifications from new development. Today, much of the USGBC's certification activity has shifted to LEED for Existing Buildings (LEED-EB), which has seen certifications jump sharply from less than 15% of all certifications in early 2008 to more than 35% in second-quarter 2010.
• Class A LEED office buildings that completed construction before the recession hold a significant advantage over the national average for all Class A office buildings, with the LEED buildings averaging $28.50 per square foot in rent with an average vacancy rate of 6.5%, compared with $25.89 per square foot in average rent and an average vacancy of 10.7% for all Class A office stock.

Green is, well, green. At Octus Energy, we're acutely focused on the economic virtues of improving the operating efficiency of commercial buildings -- slash utility bills first which then drives building certifications (e.g., LEED and Energy Star).

"We do find that it does continue to pay to go green," CoStar Vice President of Analytics Norm Miller said. "In the long run buildings that do not include sustainable features run the very real risk of becoming obsolete. And it will likely be very risky to own buildings that do not have sustainable features in the future."

"We also know that tenants in green buildings enjoy higher levels of productivity and see a real benefit and value to having their employees in green buildings. Because there are still so few green buildings out there many tenants haven't experienced that impact yet. But we believe this will change in time as those markets become more educated and tenants begin to pursue the productivity benefits of green buildings," Miller said. "We expect rental premiums or energy savings to more than justify the added costs for energy saving green features like separate meters, motion detection light devices, or water savings devices."

Energy Efficiency and Real Estate: Opportunities for Investors (take two)

In a post last week, we summarized a Mercer and Ceres report, Energy efficiency and real estate: Opportunities for investors. The report equips real estate investors and property managers with a pragmatic framework, and anecdotal evidence, to make informed decisions about how to implement energy-efficiency initiatives, with a central theme: If you’re not investing in energy efficiency, you are leaving money on the table. Corroborating music to our ears.

The report concludes with eight terse and meaningful morsels:

• Energy efficient buildings offer a measurable financial benefit over non-green buildings, in the form of higher rent, occupancy, valuation and lower operating costs
• No- or low-cost energy efficiency improvements can have quick and dramatic impacts on property operating costs
• Poorly performing buildings represent an opportunity for a significant investment gain when it comes to energy efficiency
• Additional improvements require planning, partnerships and initial investments, but can also decrease operating expenses and raise resale and leasing value
• Investment managers and products that consider energy efficiency and green building practices are increasingly available to investors
• Barriers to implementing energy efficiency improvements are eroding as demand grows, research on the benefits continues, and supporting products and services improve feasibility and cost-effectiveness
• A growing number of strong networks, initiatives and tools are helping investors, owners and property managers measure and improve energy performance and prioritize new projects and programs
• All of the above factors facilitate indirect approaches to energy efficiency improvements, which provide further opportunities to investors

As Energy Efficiency Booms, Buildings Get a Brain

The Cleantech Group recently released a comprehensive analysis of energy efficiency innovations in commercial office buildings. The findings are promising -- and lucrative -- for commercial building owners, managers and developers, let alone smart energy investors.

“Commercial office buildings consume 40% of the electricity produced in the U.S. and 18% of total U.S. energy,” said Sheeraz Haji, president of the Cleantech Group. “Our analysis shows that energy efficiency is poised to overtake solar as a top investment category in 2010, and commercial buildings represent a prime target. Lower investment costs, financial incentives, and faster payback periods are fueling product competition as data-driven technologies battle over the building’s brain.”

As we opined in a previous post, commercial, industrial and municipal buildings are dumb, inefficient and, above all, wasteful. If you own or manage a building (or a portfolio of buildings), you are unnecessarily wasting money every day. But, if your building has a brain -- if it's intelligent and you are intelligent in your management of your asset -- you, well, get smart. Andrew DeGuire, vice president, strategy and acquisitions with Johnson Controls, explains:

True building efficiency can only be achieved when executives take a more holistic view of their portfolio of buildings. Robust building control systems can be networked within buildings and across a portfolio to integrate security, lighting and HVAC with other enterprise applications, providing real-time data to track performance, decrease operating costs, and set future efficiency goals.

According to the Cleantech report, the focus on performance is driving an information and communication technologies invasion of buildings to enable greater visibility and control as vendors compete to be the gateway to building intelligence. Data-driven energy efficiency products and services look poised to grow, including low-powered Wi-Fi sensors, energy management software, building automation, and smart lighting and windows.

We could not agree more. A decade ago, few computers and information systems were networked; now, it's commonplace. Today, few buildings (and their energy-consuming equipment, specifically lighting and cooling systems) are networked. Ten years from now, we may look back and chortle at the back-then arcane -- boy, they were dumb! -- and wasteful condition of buildings.

Key Lessons: Energy Efficiency Retrofits

Leanne Tobias, author of Retrofitting Office Buildings to be Green and Energy-Efficient (recently published by the Urban Land Institute), shares a high-level summary of readily-available energy efficiency opportunities. Here's a snapshot:

• Energy efficient and sustainable retrofits can be remarkably cost-effective. A number of the case studies profiled in the book achieved payback in a year or less, and an early sample of U.S. LEED-certified retrofits showed average paybacks of approximately 17 months, with an average cost per square foot of just $.21.
• Many of the retrofit approaches with the best paybacks are the simplest. A few of the readily implemented, low-cost ways to reduce building energy use include such approaches as operational changes, lighting retrofits, and replacing constant speed drives with variable speed drives on major mechanical equipment. These types of changes are not technologically advanced, but they are extremely cost-effective.
• There are also some fascinating technological advances being introduced to the building energy-efficiency market. Among them: smart meters and smart grid systems, which use wireless technology to monitor and optimize energy use in real time.
• One of the most intriguing trends is the extensive use of passive heating and cooling to minimize reliance on mechanical systems. Passive heating and cooling approaches include the use of natural ventilation, the uncovering of thermal mass (exposing walls and underfloor slabs), and the use of vents or chimneys to regulate interior temperatures.

Click here to read the entire post published in GreenerBuildings.