Since the dawn of time (well, OK, since 1979 when Michigan and Princeton Professors Ross and Williams developed the idea of a “house doctor”), energy efficiency enthusiasts have been convinced that retrofitting a residential building to save energy could pay for itself in fuel savings.  It’s been a rocky road since those days, when the prime concern was our dependence on unreliable Mideast oil rather than climate change, and in the energy price valley of 1985 – 2000, it was a lot harder to make the case.

But over the last ten years, subsidized programs all over the country have carried out hundreds, perhaps thousands, of retrofits.  Many were aimed at affordable housing, including the federally funded Weatherization programs, and state efforts like NYSERDA’s Assisted Multifamily Program (AMP, in which I was active) and the current Multifamily Performance Program (MPP). Others focused on coaxing the owners of unsubsidized multifamily buildings, including coops, condos, and market-rate rentals, to upgrade their building systems in the interest of greater efficiency, but always with the carrot of long-term savings. Similar efforts went on in many of the more progressive states.

All these programs were successful in installing efficiency upgrades:  insulate the roofs, add caulking and weather-stripping, switch to fluorescent lights, replace that failing boiler, and add better heating controls.  And because we had used careful analysis and detailed computer models, we were confident the savings were there.  But the fact is, we couldn’t present fuel and electric usage data from any of the early projects to prove that our analysis was accurate. As late as 2008, we had a grand total of 20 buildings from AMP for which we had verified savings, largely of satisfactory magnitude.

Of course this is a problem from a technical perspective – we would like to know we are telling the truth when we claim that savings will be forthcoming.  But there is another, much larger problem:  all the retrofits done under Weatherization or NYSERDA programs are subsidized, one way or another, so the owner could expect a much more substantial return on their own partial investment than they would receive in pure market circumstances. And still it was hard to get them to undertake the projects.  Further, what we need now is a truly massive campaign of energy retrofits, far larger than can ever be subsidized by either NYSERDA or the federal government. And owners rarely have the cash reserves to undertake energy retrofits on their own.  The only way to bring retrofit activities “to scale” is to make them an investment opportunity for lenders, by which I mean banks.

But you know bankers – dour, untrusting, “show me your cash flow” types who want proof that you will have the money to meet your monthly obligations. (We will omit discussion of the unfortunate events of the last few years except to note that now no one will lend any money without ironclad guarantees of credit-worthiness.) If we want bankers to lend money for retrofits based on the use of energy savings to repay the loan, we need tools to convince them that the savings will be forthcoming.  Until now, those tools were not in evidence.

Today, we stand a chance.  Deutsche Bank Americas Foundation and Living Cities commissioned Steven Winter Associates and HR&A Advisors to undertake a massive study of energy retrofit activities in New York City, and to formulate an underwriting approach based on their findings. The just-released report provides both a powerful case that the savings will be realized in enough instances to justify significant investment activity, and an analytic framework that will make investments even more secure.

On the technical side, they examined 231 buildings for which pre- and post-construction data was available, and developed a strong set of useful conclusions. Just a few examples: expect more substantial and reliable savings from fuel use reduction than from measures aimed at electric usage; the more fuel your building uses, the greater the potential for savings. (Before you say “duh”, this was quantified in way that that will be very useful for underwriting, as we will see.) And because buildings are complex systems, they found that while observed savings tracked projected savings in a statistical sense, there would still be cases where the savings fell short.  How can this risk be minimized, making energy efficiency retrofits an attractive investment for our dour banker?

Here is where the team developed an exceedingly clever analytic approach.  The engineers designing the retrofit will use their models to predict savings.  But from an analysis of the 231 buildings, the team already knew that on average, they could expect savings roughly equal to half of the pre-retrofit fuel use minus a substantial constant. (See the paper for the math!)  The clever approach then is to trust the engineer’s model unless it predicts savings greater than the average found for their data set, adjusted for energy use in the building being modeled. If the model predicts savings greater than the data set average, use the data set average. If the model predicts savings less than the data set average, use the model results. Then go talk to your banker. When this approach was applied to the buildings in the data set, they found that the actual energy savings substantially exceeded these adjusted predictions, a situation that should leave underwriters satisfied.

Can this work?  Will we see a dramatic increase in capital available for energy efficiency retrofits? Only time will tell, but we have made a substantial step forward.  All the buildings in New York City over 50,000 square feet will undergo energy audits, as required by Local Law 87 of 2009, and the proposed measures and their estimated savings will be there for all to see. Now, a robust way to justify financing the measures is also available.

I’ve been ruining family gatherings with this point for years.  But that doesn’t make it any less true.  There are easy jobs to be found with a little nudge from the government.  What’s the holdup?

Bloomberg’s homepage is pretty much what you would expect from the world’s leading financial information firm: the market snapshot…a crawl of all the major indices, and of course the Dow, S&P, and NASDAQ at a glance.  Below the logo, the navigation bar shows all the things relevant to the world of finance: News, Markets, Personal Finance, Sustainability…

Holy cow! “Sustainability”!? Last week, Bloomberg quietly offered up prime online real estate for this critical category. So far, it’s proving to be a fantastic source of national and international environmental news (I used it last week to track the depressing climate treaty discussions). But that’s the smaller point.

The big news here is the message Bloomberg is telling the finance industry: today’s businesses need to understand and track sustainability. One interesting question—is Bloomberg responding to a need voiced by the industry, or are they trying to make a market for it? Hopefully it’s a little of both.

Ellen is the Director of Construction Education at Urban Green Council, and runs GPRO: Green Professional Building Skills Training. GPRO is a series of courses and certificate exams that teach the people who build, renovate, and maintain buildings the principles of sustainability combined with trade-specific green construction knowledge.

Here at Urban Green Council we LOVE data!  At Greenbuild last month Harvey Bernstein, VP of Industry Insights and Alliances at McGraw-Hill Construction, released a new study on the Workforce and Green Jobs.

The upshot is that in construction, green jobs are growing at a faster rate than non-green jobs. Green training is considered valuable to contractors, trades and A/E professionals and is becoming more widespread throughout the industry.

How big is this industry anyway? Globally, construction in 2011 is projected to be a $7.2 trillion industry, representing 11% of global GDP. In 2020 this is expected to rise to $12 trillion (13.2% global GDP), mostly in emerging countries.  Projections for the next 9 years are for growth in single family homes and commercial construction but flat for institutional projects.  As we all know too well, construction and design jobs in the U.S. have been generally declining since 2008, but the good news is that green construction has been rising as a segment of the market.  This year, green jobs make up more than 1/3 of jobs in the A/E and contractor communities.

Is there a shortage of green-qualified construction workers? 69% of AEC firms expect work force shortages of qualified construction workers during the next decade.  The MH survey tried to determine the reasons why.  Major reasons cited are:

• Lack of interest in the construction industry among high school students because its perceived as not being high-tech enough
• Retirement of senior staff
• People leaving the workforce during the downturn and concern that they won’t return
• Licensed trades (MEPS) expect the worst shortages.  Contractors expect shortages in carpentry, millwork, electricians, concrete/cement workers, HVAC workers and boilermakers

What does green really mean?: The survey asked what “green” meant to each individual.  Top responses included: energy use reduction, reduction of use of natural resources, and installation of renewable energy (this response was higher for trades).

Is specialty knowledge valued? Formal training is prized by the trades and by decision makers.  80% of trades surveyed said that unions and associations were highly valued sources of training for trades.  Happily we seem to be moving towards higher levels of teamwork in the industry – the survey reported that General Contractors are looking to improve their collaboration skills and value employees who are proficient with technology and have good people management skills.  From the perspective of A/E firms, GC’s and subcontractors, certified employees help them win projects and increase competitiveness across the board.

What are the benefits of green training as seen by those in the industry?

• More job opportunities: Training is key to getting and maintaining better jobs. 30% of green job workers said they needed major training when they started, and most reported that formal education and training programs will continue to be needed. 71% of hiring decision-makers believe that having green skills increases an individual’s competitiveness

• Higher compensation:
  • 58% of the entire survey estimated a 4% higher salary for green skilled workers;
  • 38% of trade contractors said they valued green skills at 7% or higher salary;
  • 14% of AE firms said they valued green skills at a 10% or higher salary

• More job security and opportunities for advancement. Trades (carpenters, HVAC/boilermakers, electricians, concrete/cement masons and plumbers) are expected to see the greatest growth in green jobs. The survey found 15% of trade jobs today are considered green jobs, and this is expected to increase to 25% in three years.

• Outside sources of training are surpassing on-the-job training for green skills.  The number of people who responded that they can get training on the job was lower as compared to those who stated a need for outside sources of training as more specialization and technology takes effect – this response rate was similar for trades and AE professionals.

How many green jobs are out there? One oddity of this survey is how it defined “green jobs”:  Green construction or installation job in building construction involving installation of a uniquely green system or requiring different skills to meet green goals.  This definition does NOT include administrative or non-construction professions such as manufacturing or producing green products.   Hmm…and I thought I had a green job.

• Of the design professionals surveyed:  there was a steep increase in those that stated that more than 50% of their projects are green.  The rate of increase is less steep for GC’s but still climbing.
• Of the responses from the unemployed (mostly architects): 17% are seeking an exclusively green job, 60% are seeking a green job and 31% said they were not as interested in non-green jobs.

Photo credit: Linh Do

The results are in!  The American Council for an Energy Efficient Economy (ACEEE) has released its annual State Energy Efficiency Scorecard, and New York has edged out arch-rival Oregon for the #3 slot.  We’re still substantially behind the two big dogs, but there was drama in the top bracket as well, as Massachusetts lapped California to become #1.

How we did it: Of course the first thing you’re wondering is how we managed to outdo Oregon and become #3.  The most likely answer might be that we grabbed free agent David Bragdon, who directed much of the greening of Portland, and brought him here to head up Mayor Bloomberg’s Office of Long Term Planning and Sustainability.  That, however, was a city-to-city maneuver, and the Scorecard, based on statewide performance, shows no indication that it was a factor.  Rather, New York scored 1.5 points higher on “Utility and Public Benefit Fund Efficiency Programs and Policies” and Oregon beat us out by half a point on “Building Energy Code,” leaving us a net lead of 0.5 points. (We were tied in the other four categories.) This is way too close for comfort, and we’ll have to grow the advantage substantially to ensure continued dominance.

The Big Picture: To put all this in perspective, the Scorecard allocates a total of 50 possible points among six categories.  Massachusetts won with a total of 45.5; California was second with 44.0, we were third at 38.0, and Oregon is now fourth with 37.5.  Yes, we would have to span a substantial 6-point gap to compete in the top rank.

How Can New York Prevail? The areas in which we can most easily rack up additional points are the “Utility and Public Benefit Fund” area, where we got 15/20, and “Transportation,” now at 6/9.  Looking at the detailed breakdown of the first category (p. 6 if you’re reading along), we got 4.5/5 for Electricity Program Budgets, but only 2.5/5 for actual Savings.  So we spent the money, but we need meters on almost everything!  And our Gas Program Budgets were deemed weak and only rated 1/3. This stems from all the years when the PSC and NYSERDA functioned off a System Benefit Charge that was initially structured around electric efficiency, and is only now being fully extended to include gas.  We scored the maximum in the other two subcategories for “Utility and Public Benefit Fund,” so no room for improvement there.

On “Transportation,” I’m from New York City, where we probably rate a 9/9, so it really falls to those upstate SUV and pickup truck drivers to give us an assist. But 3 big points are just waiting to be picked up, if only we could extend rail and bus service.

For Building Energy Codes, we only scored 6/7, while four states got 7 and Georgia got 6.5 (?!?).  What was our problem?  Well, to get 7, your code had to exceed the 2009 IECC or ASHRAE 90.1-2007, and the authors deemed that we had only met those codes. Clearly, New York State should adopt the New York City energy code, which by definition exceeds the NYS code, and therefore meets the ACEEE requirements for a 7.  Alternatively, we could plead that since almost half the population of NYS is now governed by the more stringent NYC code, on average the state deserves a 7.  I’m sure a highly-paid lobbyist would be able to make this case clearly to the ACEEE  staff over an expensive lunch.   

California Strikes Back: Clearly outraged at being pushed off the high podium, the California Air Resources Board started the 2012 competition early by adopting a statewide cap and trade system for greenhouse gasses on October 20th. This was a shrewd move by California, since Massachusetts had already scored 7/7 on “State Government Initiatives” and can’t go any higher, while if California can push their 5.5 up to a 7, which this ambitious effort certainly deserves, they can tie Massachusetts on that basis alone.

Race from the Bottom: Three states – Mississippi, Wyoming, and (dead last) North Dakota – have total scores of less than 5/50.  They should consider it a growth opportunity – Alabama went from 3 to 9/50, and Nebraska from 4 to 10/50, earning both of them commendations for “most improvement.” I’m not so sure they deserve praise at this level – some state will always be ranked 51^st (DC is a state in the Scorecard), but even the lowest ranked state could have a score of 20 or 30/50 if they were trying at all.  How about “still fails to meet expectations”?

Full Disclosure: OK, the Scorecard is a little dense, I haven’t read the whole thing, and you probably won’t either.  But it is a lot of fun to dip and skim through, with great gobs of detail for the items that interest you most.  I especially recommend Chapter 3 on Building Codes – a very clear explanation of different vintages of codes from the IEC and ASHRAE90.1, the role of the DOE and ARRA, and all that confusing stuff.

With federal climate change policy at a standstill, and with federal agencies creating road blocks for retrofit programs in the residential sector, it is great news to see a consortium of private and non-government organizations throwing themselves into the breach to kickstart retrofit programs in the commercial sector.  The principal broker in this consortium is Richard Branson’s group, the Carbon War Room.  They have a solid promo video here, and  you can find a great survey of recent developments in the NYT here.

Meanwhile, NRDC has launched a related effort to document best practices for commercial tenant retrofits over the next three years.  The initiative was recently announced as a Clinton Global Initiative commitment. See here.  (Full disclosure: My firm, YR&G, is a partner in the NRDC/CGI initiative.)

Fingers crossed that these and related initiatives can keep the ball rolling forward in the absence of broader guidance on the national or international level.

Bill Clinton is on the cover of Newsweek and he can’t stop talking about green building.

The former President offers Newsweek 14 ideas to get the economy moving forward, and he doesn’t get past #4 before he places green building front and center.  In this item he proposes the country use the Empire State Building retrofit project as a model.  The Clinton Climate Initiative was heavily involved in the project, which provided a 38% reduction in energy use and provided Newsweek with their cover quote:

“We could put a million people to work retrofitting buildings all over America.” – Bill Clinton

In subsequent items he advocates for energy efficiency retrofits of single family homes financed by the utilities, financing of government and institutional building retrofits guaranteed by left-over TARP (Troubled Asset Relief Program) funds, and mobilizing the un- and under-employed to paint roofs white all across the country.  All in all, more than a quarter of his recommendations revolve directly around green building, and at least another quarter deal with the directly related issue of clean energy investment.  Read the whole piece here.

What’s CRE? Commercial Real Estate, which faces an impending crisis of national import. Don’t take my word for it, ask Elizabeth Warren.  You’ll find that $1.4 trillion (with a “t”) in mortgages on commercial properties are coming due between early 2010 and 2014, and at least half of that property is underwater.

Since commercial owners favor balloon mortgages, for which they pay only interest charges, and since commercial property values have fallen 40% since the mortgages were established, and since the banks are already feeling a lot of pain for bad loans that is now manifesting itself as extreme caution with respect to offering new loans, owners are going to have a very tough time refinancing. And once banks end up owning some of those non-refinanceable properties, they in turn will have trouble staying afloat. That’s why Warren has been asking Congress to start getting ready to deal with this through prudent planning and carefully thought-out strategies. Good luck with that.

Meanwhile, the Obama administration has developed “The President’s Plan for Better Buildings.” This incorporates some existing initiatives, like using ARRA stimulus money for increased Weatherization, and some low cost proposals for green workforce development and streamlined regulations, but it also has some meat. The juiciest piece would take existing tax deductions, called the “Section 179(d) Building Efficiency Tax Incentive,” and turn them into tax credits. This will make them worth about three times as much, depending on the owner’s financial situation. Because Republicans enjoy giving tax breaks to business, this plan may not be DOA in Congress.

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The folks at Environmental Building News outline a recent study of the value of green building in the marketplace that finds an “effective rent” premium of 8%.  The piece also outlines the difficulty of gathering enough data to complete statistically relevant analysis, a challenge we also faced when we developed our own study of the cost of green building in New York City, here.

The New York Times has a ton of stuff on green issues today, from the sublime to the ridiculous.  There’s an Op-Ed on Climate Change by Mikhail Gorbachev and an article about Greenpeace targeting Facebook for their reliance on coal plants to power their data centers.

Greenpeace started its campaign in February, urging “ The So Coal Network” — a play on Facebook’s “social network” identity — to “Unfriend Coal,” which it calls “the dirtiest source of energy and largest single source of pollution in the world.”

Following on the data center issue there’s a great piece on European Union efforts to significantly increase the energy efficiency of their data centers. Seriously- the Europeans are cleaning our clocks on this stuff- they are way out in front of us.  While the EU works on advancing energy conservation where it counts we have to beat back attempts to eliminate one of the only clean energy laws in the US.  The Times has a nice editorial on the resounding defeat of the efforts in California to kill their enormously successful Climate Change law.

All of this is book-ended by a style-type piece on upcycling and the growing culture of seeing waste materials as a resource rather than a nuisance to be disposed out of sight, and a business section item on the many bond funds out there working to finance clean energy investments.  This last piece has a lot of great stuff on progressive bond funds but makes one of the most common and most unbelievably frustrating mistakes about the economics of climate change.  They open the piece with:

Financial experts may debate how much it would cost to shift the world to a low carbon economy, but they agree on one thing: the amount would be phenomenal.

It’s a snappy way to start but totally ignores the issue at hand, namely, our options.  Shifting to a low carbon economy might entail spending significant sums of money but it will not be “expensive” when compared to the other options.  As Amory Lovins has pointed out, “The good news about climate change is that it’s cheaper to fix than it is to ignore.”  Yes- reorienting our infrastructure to clean and green energy sources will cost money, but the repercussions of just burning all the fossil fuel the planet has to offer as quickly as possible will cost even more.  This is simple math, folks.