Copy from my Column from Sustainable Industries July 2009

The American Clean Energy and Security Act, known as the Waxman-Markey bill, is “a rare opportunity to rise above parochial concerns to enact a bill with a profound national impact,”according to President Barack Obama. Republican critics are attacking Democrats as pro-business and anti-consumer and small business, which is ironic as the GOP is the “The Party of ExxonMobil (NYSE: XOM) and Peabody coal. “Using this tactic, the GOP wants to hold the line against the climate change bill, even though Duke Energy (NYSE: DUK), Johnson & Johnson (NYSE:NJN) and Shell Corp., along with other businesses and environmental organizations, are backing the bill. “I find it extremely amusing that suddenly the Democrats are being attacked for being too friendly to business creation,” Senator Barbara Boxer (D-Calif.), chairwoman of the Senate Environment and Public Works Committee, has said. The GOP argues that the Waxman-Markey bill would create higher energy costs for small business and consumers.

The real issue is the bill does not go far enough. It needs to create an “energy-efficiency and renewable energy set aside”-or green building carbon offset program-which rises above the regulatory approaches to energy efficiency. The Waxman-Markey bill provides for an economy-wide cap-and-trade program. The cap reduces greenhouse gas (GHG) emissions to 17% below 2005 levels by 2020, and 83% below by 2050. Offsets (project-based reductions) are limited to 2,000 million metric tons CO2 equivalent per year, or 30% of U.S. emission reductions, split evenly between domestic and international offsets. Domestic offsets do not include offsets from green buildings.

However, federal regulators are closely watching California, which is holding public hearings about AB32 implementation [see "California gives legs to AB32, Sustainable Industries, December 2007]. Members of the San Francisco Carbon Collaborative, including Carbonflow, have made significant progress with the regulators on getting an “energy efficiency set aside” into the discussion for possible inclusion in AB 32. This is an important first step, as California is known as a global leader in energy related legislation.

Simultaneously, at the recent CarbonExpo in Barcelona, many expressed interest in a Global International Protocol on Energy Efficiency and Renewable Energy set asides. Under the Waxman-Markey bill, energy efficiency would be achieved through a renewable electricity standard, a low-carbon fuel standard, and energy efficiency programs and standards for buildings, lighting, appliances, as well as vehicles and stationery sources and fuels.

These are all good initiatives. But according to Anne-Marie Warris, author of the Voluntary Carbon Standard, “the problem is that it relies on energy efficiency measures to be applied as the natural turnover of building stock takes place,which is estimated to take anything from 500 to a 1,000 years….which is time we simply do not have to prevent climate change,” Warris says.

Indirect sources of emissions

The Waxman-Markey bill relies on capping direct sources of emissions such as power plants and other smokestack industries. The bill’s definition of domestic offsets includes agriculture,landfill, waste-to-energy projects and biomass. But, it does not include green building offsets. The conventional wisdom is that cap-and trade should be restricted to direct industrial sources, because there are fewer of them and they are already heavily regulated. The bill follows the reliance on reductions from direct sources and forecloses on the possibility to achieve reductions from indirect sources, such as buildings that consume electricity despite their cost effectiveness.

“As a result, a valuable incentive for voluntary GHG reductions is lost, the low-hanging fruit of increasing energy efficiency in buildings goes unpicked, and industrial sources are required to shoulder a greater share of required GHG reductions, all of which increase the societal cost for addressing climate change and makes it less politically feasible to accomplish,” says Donald Simon, an attorney for Wendel, Rosen, Black and Dean.

Huge potential with existing buildings

Existing regulation leading to emissions reductions through “green” construction techniques usually comes in the form of building codes that reach only new construction and substantial renovations. Yet the majority of GHG in the built environment come from existing buildings. Current government incentives “are helpful but inadequate because they do not achieve sufficient market penetration and rely on limited government funding that can disappear in lean budget years,” Simon says. Domestic green building offsets would allow regulated industries to choose between reducing their own emissions or purchasing offsets from others who are able to reduce theirs at lower cost.

This would reduce the overall cost of climate change regulation for consumers because the market would exploit the lowest cost GHG reductions. Green building carbon credits would provide a large funding source that partially finances energy efficiency improvements. Poorer communities would benefit, as credits would fund energy efficient and renewable energy upgrades to existing building stock at a more accelerated rate than building codes currently create.

Making energy upgrades affordable

Moderate House Democrats and Republicans say that under a cap-and-trade program, ordinary people would incur higher energy costs over time because most have not upgraded their homes and small  businesses with energy-efficient technologies.

However, by allowing green building offsets into the federal cap-and-trade system, subsidies to poorer communities for increased energy costs would not be necessary. Their buildings would be retrofitted by the private sector using the dollars from green building offsets. Ultimately, these people would consume up to 50 percent less energy, with no net energy cost increase. Green building offsets would allow construction companies, project developers, engineers and architects to initiate energy efficiency and renewable energy building projects. And, revenue from the sale of the credits would fund projects and create new “green” jobs. Without this small inclusion to the Waxman-Markey bill, the Democrats may miss a chance to pass sweeping climate change legislation in 2009.

Reproduced from Renewfund Fri, 06/26/2009 - 15:32 - By Shari Shapiro and Chris Cheatham

Today, the Waxman-Markey bill, otherwise known as the American Clean Energy and Security Act (H.R. 2454) is set to be voted on in the House of Representatives. The very fact that the vote is occurring means this bill will pass in the House. This monumental bill would establish a cap-and-trade program to cut global warming pollution. Of course, a cap-and-trade program faces an even more difficult path in the Senate.

So what is a cap-and-trade program exactly?

The cap: Each large-scale emitter, or company, will have a limit on the amount of greenhouse gas that it can emit. The firm must have an “emissions permit” for every ton of carbon dioxide it releases into the atmosphere. These permits set an enforceable limit, or cap, on the amount of greenhouse gas pollution that the company is allowed to emit. Over time, the limits become stricter, allowing less and less pollution, until the ultimate reduction goal is met.

The trade: It will be relatively cheaper or easier for some companies to reduce their emissions below their required limit than others. These more efficient companies, who emit less than their allowance, can sell their extra permits to companies that are not able to make reductions as easily.

Companies will be required to purchase the emissions permits from the federal government, which in turn results in a sizeable revenue stream to the federal government. Much of the back room politicking that has occurred over the last few weeks regarding the Waxman-Markey bill has involved how this revenue stream will be allocated to government programs.

In addition to establishing an overall cap-and-trade program for carbon emissions, the Waxman-Markey bill contains several provisions which involve green building, and many green building and energy efficiency programs will be funded by the cap-and-trade revenue. Below is a summary of some of the major provisions regarding green building contained in the Waxman-Markey bill.

Section 201: National Energy Efficiency Building Codes

Section 201 of the Waxman-Markey Act calls for the development and adoption by state and local governments of a national energy efficiency code. A summary of the main provisions are as follows:

1. Establishes a “national energy efficiency building code” for residential and commercial buildings, sufficient to meet each of the national building code energy efficiency targets.

2. Sets energy efficiency targets for the national building code: “on the date of enactment of the American Clean Energy and Security Act of 2009, 30 percent reduction in energy use relative to a comparable building constructed in compliance with the baseline code…effective January 1, 2014, for residential buildings, and January 1, 2015, for commercial buildings, 50 percent reduction in energy use relative to the baseline code; and…January 1, 2017, for residential buildings, and January 1, 2018, for commercial buildings, and every 3 years thereafter, respectively, through January 1, 2029, and January 1, 2030, 5 percent additional reduction in energy use relative to the baseline code.”

3. If consensus based codes provides for greater reduction in energy use than is required under the ACESA, the overall percentage reduction in energy use provided by that successor code shall be the national building code energy efficiency target.

4. Requires that states and local governments comply with or exceed the national energy efficiency building code, and provides for enforcement mechanisms for states which are out of compliance.

The federalization of building codes has the potential to save consumers large amounts of money on their energy bills by enhancing the energy efficiency of buildings nationwide, as well as addressing the 38 percent of carbon emissions generated by buildings in a comprehensive manner. On the other hand, it represents a major shift in the balance of power over building and land use regulation. Traditionally, building codes, like almost all land use regulation in the United States has been a local (in some cases, state) issue. This makes for a patchwork of different codes across the nation. Indeed, thirteen states have no statewide commercial building codes, and fourteen states have no statewide residential building code.

Proponents of local control of regulatory authority argue that local government can more appropriately respond to local conditions and can experiment more freely with different types of regulations than would be possible at the federal level. On the other hand, federal control of building codes provide uniformity across the country for a problem which does not respect state and local borders, prevents local challenges to individual energy efficiency efforts (like AHRI v. City of Albuquerque) and, given the large number of states which do not have a current building code at all, provides more effective regulation of this important source of carbon emissions.

Section 131, 132: SEED funds

According to analysis completed by the American Council for an Energy-Efficient Economy,

“allocations detailed in Section 782g direct 9.5 percent of allowances in 2012 (and decreasing amounts thereafter) to go into a State Energy and Environmental Development (SEED) account to be used by state and local governments for efficiency and renewables projects.”

The allocation of SEED money will be at the discretion of local and state authorities.

One of the programs that can be funded by these allocation are Property Assessed Clean Energy (PACE) Bonds. PACE bonds involve loans to commercial and residential property owners to finance energy retrofits. Through the interest generated on these bonds, a revolving fund is established to allow for even more retrofits to occur. Already, California and Missouri have announced plans to use funding from the Department of Energy State Energy Program to establish PACE bond programs. Look for more states to jump on the PACE bond bandwagon and use cap-and-trade revenue to fund similar programs.

Section 202: REEP Program

With the American Recovery and Reinvestment Act, the Department of Energy’s State Energy Program received billons of dollars. Under the Waxman-Markey bill, the State Energy Program will again receive billions of dollars for more energy efficiency retrofits. From the Pew Center on Climate Change (PDF):

“This section requires the Secretary of Energy to develop a Retrofit for Energy and Environmental Performance (REEP) program to facilitate building retrofit programs for energy efficiency and efficient water use. Funding will be made available through REEP to the State Energy Programs for state and local efforts, including audits, incentives, technical assistance, and training. States are permitted to choose funding mechanisms, with options including credit support, such as interest rate subsidies or credit enhancement, providing initial capital, and allocating funds for utility programs.”

The REEP program has not been created yet so it is unclear what the program will look like. Based on the DOE’s previous support for PACE bond programs when allocating ARRA funds, don’t be surprised to see even more of these programs established through REEP.

Green Act: H.R. 2336-Amendment to Waxman-Markey

On May 7, 2009, Rep. Ed Perlmutter (D-Colorado) introduced H.R. 2336, the Green Resources for Energy Efficient Neighborhoods Act of 2009 (”GREEN ACT”). According to Perlmutter’s office, “The GREEN Act provides incentives to lenders and financial institutions to provide lower interest loans and other benefits to consumers, who build, buy or remodel their homes and businesses to improve their energy efficiency and use of alternative energy.”

In essence, the Act:

1. Encourages energy efficiency in HUD housing by offering block grants and credit for energy improvements in the underwriting of mortgages;

2. Provides that Fannie Mae and Freddie Mac will have a duty to serve very low, low and moderate income communities while developing underwriting standards to facilitate a secondary market for energy-efficient and location efficient mortgages;

3. Requires federal banking regulators to establish incentives for the development and maintenance of “green banking centers” for the purpose of providing information to customers seeking information about acquiring green mortgages.

Interestingly, Perlmutter’s GREEN Act passed the full House of Representatives as part of HR 6899, the Comprehensive Energy Security and Consumer Protection Act in September 2008, but the Senate failed to take action on this legislation. The GREEN ACT was added this morning to the manager’s amendment to the Waxman-Markey bill.

Shari Shapiro, J.D., LEED AP, is an associate with Obermayer Rebmann Maxwell & Hippel LLP in Philadelphia. And attorney Chris Cheatham, J.D., LEED AP, is an associate at Watt, Tieder, Hoffar & Fitzgerald, LLP in the Washington, D.C., Metro Area.

This post originally appeared on their blogs: Shapiro’s Green Building Law and Cheatham’s Green Building Law Update.

Reuters: The Green Building Guide to Waxman-Markey

Fri, 06/26/2009 - 15:32 - kelley@renewfund.com

By Shari Shapiro and Chris Cheatham

Today, the Waxman-Markey bill, otherwise known as the American Clean Energy and Security Act (H.R. 2454) is set to be voted on in the House of Representatives. The very fact that the vote is occurring means this bill will pass in the House. This monumental bill would establish a cap-and-trade program to cut global warming pollution. Of course, a cap-and-trade program faces an even more difficult path in the Senate.

So what is a cap-and-trade program exactly?

The cap: Each large-scale emitter, or company, will have a limit on the amount of greenhouse gas that it can emit. The firm must have an “emissions permit” for every ton of carbon dioxide it releases into the atmosphere. These permits set an enforceable limit, or cap, on the amount of greenhouse gas pollution that the company is allowed to emit. Over time, the limits become stricter, allowing less and less pollution, until the ultimate reduction goal is met.

The trade: It will be relatively cheaper or easier for some companies to reduce their emissions below their required limit than others. These more efficient companies, who emit less than their allowance, can sell their extra permits to companies that are not able to make reductions as easily.

Companies will be required to purchase the emissions permits from the federal government, which in turn results in a sizeable revenue stream to the federal government. Much of the back room politicking that has occurred over the last few weeks regarding the Waxman-Markey bill has involved how this revenue stream will be allocated to government programs.

In addition to establishing an overall cap-and-trade program for carbon emissions, the Waxman-Markey bill contains several provisions which involve green building, and many green building and energy efficiency programs will be funded by the cap-and-trade revenue. Below is a summary of some of the major provisions regarding green building contained in the Waxman-Markey bill.

Section 201: National Energy Efficiency Building Codes

Section 201 of the Waxman-Markey Act calls for the development and adoption by state and local governments of a national energy efficiency code. A summary of the main provisions are as follows:

1. Establishes a “national energy efficiency building code” for residential and commercial buildings, sufficient to meet each of the national building code energy efficiency targets.

2. Sets energy efficiency targets for the national building code: “on the date of enactment of the American Clean Energy and Security Act of 2009, 30 percent reduction in energy use relative to a comparable building constructed in compliance with the baseline code…effective January 1, 2014, for residential buildings, and January 1, 2015, for commercial buildings, 50 percent reduction in energy use relative to the baseline code; and…January 1, 2017, for residential buildings, and January 1, 2018, for commercial buildings, and every 3 years thereafter, respectively, through January 1, 2029, and January 1, 2030, 5 percent additional reduction in energy use relative to the baseline code.”

3. If consensus based codes provides for greater reduction in energy use than is required under the ACESA, the overall percentage reduction in energy use provided by that successor code shall be the national building code energy efficiency target.

4. Requires that states and local governments comply with or exceed the national energy efficiency building code, and provides for enforcement mechanisms for states which are out of compliance.

The federalization of building codes has the potential to save consumers large amounts of money on their energy bills by enhancing the energy efficiency of buildings nationwide, as well as addressing the 38 percent of carbon emissions generated by buildings in a comprehensive manner. On the other hand, it represents a major shift in the balance of power over building and land use regulation. Traditionally, building codes, like almost all land use regulation in the United States has been a local (in some cases, state) issue. This makes for a patchwork of different codes across the nation. Indeed, thirteen states have no statewide commercial building codes, and fourteen states have no statewide residential building code.

Proponents of local control of regulatory authority argue that local government can more appropriately respond to local conditions and can experiment more freely with different types of regulations than would be possible at the federal level. On the other hand, federal control of building codes provide uniformity across the country for a problem which does not respect state and local borders, prevents local challenges to individual energy efficiency efforts (like AHRI v. City of Albuquerque) and, given the large number of states which do not have a current building code at all, provides more effective regulation of this important source of carbon emissions.

Section 131, 132: SEED funds

According to analysis completed by the American Council for an Energy-Efficient Economy,

“allocations detailed in Section 782g direct 9.5 percent of allowances in 2012 (and decreasing amounts thereafter) to go into a State Energy and Environmental Development (SEED) account to be used by state and local governments for efficiency and renewables projects.”

The allocation of SEED money will be at the discretion of local and state authorities.

One of the programs that can be funded by these allocation are Property Assessed Clean Energy (PACE) Bonds. PACE bonds involve loans to commercial and residential property owners to finance energy retrofits. Through the interest generated on these bonds, a revolving fund is established to allow for even more retrofits to occur. Already, California and Missouri have announced plans to use funding from the Department of Energy State Energy Program to establish PACE bond programs. Look for more states to jump on the PACE bond bandwagon and use cap-and-trade revenue to fund similar programs.

Section 202: REEP Program

With the American Recovery and Reinvestment Act, the Department of Energy’s State Energy Program received billons of dollars. Under the Waxman-Markey bill, the State Energy Program will again receive billions of dollars for more energy efficiency retrofits. From the Pew Center on Climate Change (PDF):

“This section requires the Secretary of Energy to develop a Retrofit for Energy and Environmental Performance (REEP) program to facilitate building retrofit programs for energy efficiency and efficient water use. Funding will be made available through REEP to the State Energy Programs for state and local efforts, including audits, incentives, technical assistance, and training. States are permitted to choose funding mechanisms, with options including credit support, such as interest rate subsidies or credit enhancement, providing initial capital, and allocating funds for utility programs.”

The REEP program has not been created yet so it is unclear what the program will look like. Based on the DOE’s previous support for PACE bond programs when allocating ARRA funds, don’t be surprised to see even more of these programs established through REEP.

Green Act: H.R. 2336-Amendment to Waxman-Markey

On May 7, 2009, Rep. Ed Perlmutter (D-Colorado) introduced H.R. 2336, the Green Resources for Energy Efficient Neighborhoods Act of 2009 (”GREEN ACT”). According to Perlmutter’s office, “The GREEN Act provides incentives to lenders and financial institutions to provide lower interest loans and other benefits to consumers, who build, buy or remodel their homes and businesses to improve their energy efficiency and use of alternative energy.”

In essence, the Act:

1. Encourages energy efficiency in HUD housing by offering block grants and credit for energy improvements in the underwriting of mortgages;

2. Provides that Fannie Mae and Freddie Mac will have a duty to serve very low, low and moderate income communities while developing underwriting standards to facilitate a secondary market for energy-efficient and location efficient mortgages;

3. Requires federal banking regulators to establish incentives for the development and maintenance of “green banking centers” for the purpose of providing information to customers seeking information about acquiring green mortgages.

Interestingly, Perlmutter’s GREEN Act passed the full House of Representatives as part of HR 6899, the Comprehensive Energy Security and Consumer Protection Act in September 2008, but the Senate failed to take action on this legislation. The GREEN ACT was added this morning to the manager’s amendment to the Waxman-Markey bill.

Shari Shapiro, J.D., LEED AP, is an associate with Obermayer Rebmann Maxwell & Hippel LLP in Philadelphia. And attorney Chris Cheatham, J.D., LEED AP, is an associate at Watt, Tieder, Hoffar & Fitzgerald, LLP in the Washington, D.C., Metro Area.

This post originally appeared on their blogs: Shapiro’s Green Building Law and Cheatham’s Green Building Law Update.

Huge potential with existing buildings
Existing regulation leading to emissions reductions through “green” construction techniques usually comes in the form of building codes that reach only new construction and substantial renovations.

Yet the majority of GHG in the built environment come from existing buildings. Current government incentives “are helpful but inadequate because they do not achieve sufficient market penetration and rely on limited government funding that can disappear in lean budget years,” Simon says.

Domestic green building offsets would allow regulated industries to choose between reducing their own emissions or purchasing offsets from others who are able to reduce theirs at lower cost. This would reduce the overall cost of climate change regulation for consumers because the market would exploit the lowest cost GHG reductions.

Green building carbon credits would provide a large funding source that partially finances energy efficiency improvements. Poorer communities would benefit, as credits would fund energy efficient and renewable energy upgrades to existing building stock at a more accelerated rate than building codes currently create.

Making energy upgrades affordable
Moderate House Democrats and Republicans say that under a cap-and-trade program, ordinary people would incur higher energy costs over time because most have not upgraded their homes and small businesses with energy-efficient technologies.

However, by allowing green building offsets into the federal cap-and-trade system, subsidies to poorer communities for increased energy costs would not be necessary. Their buildings would be retrofitted by the private sector using the dollars from green building offsets. Ultimately, these people would consume up to 50 percent less energy, with no net energy cost increase.

I have been away and attended a conference Carbon Expo, the Global Carbon Market, Fair and Conference, May 27th-29th 2009 in Barcelona, the most important conference in the Carbon Calendar and under new market initiatives in the Voluntary and Regulatory market there is now a “Cities & Carbon Finance Stream Workshop”. This shows the force of Cities gearing up to participate in the Post 2012 Climate Change Agreement.  This is unusual as Nation States participate in International Treaties not city states. Climate Change is impacting on global governance issues as all levels of government are involved in Climate Change emissions, reductions, impacts and mitigation. Even a few years ago the role of Cities and local government at international meetings was questioned. Mayor’s of the world are responding spontaneously such that City states are now involved with the lead up meetings like Carbon Expo to Copenhagen for the Post 2012 Agreement. For example in the U.S, I have recently heard that Governor Schwarzenegger of California state may well be present along with Global Presidents and Prime Ministers in Copenhagen.    Eventually organizations on behalf of cities will have to be represented at these Global meetings, as the numbers and levels of government simply become unwieldy.

According to the Carbon Expo program, there is “increased awareness and growing commitment of city decision makers to city climate strategies and implementation of GHG mitigation in policies and measures in both developed and developing country cities. However, currently there is limited access to information, knowledge on technologies and innovative financial solutions are some of the barriers preventing local leaders, entrepreneurs and business groups from seizing an overabundance of low carbon win-win options in urban centers. Hence the Cities stream aimed to facilitate and promote dialogue, knowledge sharing, networking and business communication within relevant stakeholder groups to be a part of an essential measure to foster a transition to low-carbon city development. The streams covered:
- Beyond Carbon Trading - Policies & Measures at the local level for financing low carbon development in cities
- Carbon finance in cities post-2012- Scaling up GHG reductions and enhance urban development co-benefits
- CDM/JI in Cities - What has worked and what has not
- Creating Urban Carbon Assets: From Concepts to action
- Leveraging Greater Energy Efficiency in Buildings with Carbon Finance - How can we make it happen?
- The Role of Carbon Finance in the transport sector in urban areas

U.S Cities are moving fast to catch up with European initiatives and are closer to taking over - they are well  organized and spear-heading major initiatives around GHG reduction at the city level. The San Francisco Carbon Collaborative is part of a broader groundswell of spontaneous activity by the World’s Mayors.The City of San Francisco Urban EcoMap, an Internet-based tool that enables cities around the world to provide smarter climate change information for their citizens. Urban EcoMap provides information on carbon emissions from transportation, energy and waste among neighborhoods, organized by ZIP/ Post codes.

On PBS March 23rd 2009, it was announced that the U.S Conference of Mayor’s established 4 years ago by Seattle Mayor Greg Nickels reached the 900-mayor milestone. The 900 mayors represent 80 million Americans, and they illustrate the increasingly prominent role that cities and towns are playing in combating climate change.

According to Seattle Mayor, Greg Nickels, “cities cover less than one percent of the earth’s surface, but hold half its population and produce about 80 percent of greenhouse gasses. And cities will have to deal with the effects of climate change, from sea level rise in coastal cities to heat waves, strong storms and other extreme weather”.

Seattle has  aims to reduce its carbon emissions by 30 percent below 1990 levels by 2024 and 80 percent below 1990 levels by 2050. The plan includes transportation goals — such as building a light rail system, improving bicycling infrastructure and using more “clean vehicles” in the city’s fleet — and improvements in building energy efficiency.

Mayor Michael R. Bloomberg and Council Speaker Christine C. Quinn on April 26th 2009 announced the world’s most comprehensive package of legislation to reduce greenhouse gas emissions from existing government, commercial, and residential buildings. According to the PlaNYC inventory of greenhouse gas emissions, almost 80 percent of New York City’s carbon footprint comes from buildings’ energy use.

A six-point plan, when enacted as part of PlanNYC, will dramatically reduce the City’s energy usage and save consumers money, while simultaneously creating thousands of well-paying jobs and significantly reducing New York City’s carbon footprint. The six-point plan consists of four pieces of new legislation and two PlaNYC programs that will achieve carbon reductions, train workers for the estimated 19,000 construction jobs that will be created, and help finance energy-saving improvements using $16 million available from the American Recovery and Reinvestment Act. The plan will also result in cleaner air, since emissions from boilers, furnaces, and local power plants will also be reduced.

“Today we’re introducing the greener, greater buildings plan, a far-reaching package of new local laws that will dramatically improve New York’s energy efficiency and reduce energy costs by some three-quarters of a billion dollars a year,” said Mayor Bloomberg. “This will significantly improve our economic competitiveness, put thousands of New Yorkers to work in green jobs, and do more to shrink our own direct impact on global warming than any other actions imaginable.”

According to the PlaNYC inventory of greenhouse gas emissions, almost 80 percent of New York City’s carbon footprint comes from buildings’ energy use. Once implemented, the legislation announced today will reduce citywide emissions by 5 percent….

The reductions will be achieved through the six point green buildings plan unveiled today:
* Legislation that creates a New York City Energy Code that existing buildings will have to meet whenever they make renovations;
* Legislation that requires buildings of 50,000 square feet or more to conduct an energy audit once every ten years and make any improvements that pay for themselves within five years;
* Legislation that requires commercial buildings of 50,000 square feet or more to upgrade their lighting to more energy-efficient systems that pay for themselves through energy savings;
* Legislation that requires buildings of 50,000 square feet or more to make an annual benchmark analysis of energy consumption so building owners can better understand what steps they can take to increase efficiency;
* A jobs program that will work with the real estate and construction industries to train the workforce that will fill the estimated 19,000 construction jobs the legislation will create; and
* An innovative financing program that uses Federal stimulus money to provide loans for property owners to pay the upfront costs for the efficiency upgrades that eventually pay for themselves.

Carbonflow is the first web-based multi-party carbon record system, will participate at Carbon Expo in Barcelona. Designed from the ground up to manage carbon projects, including CDM/JI and the voluntary market, Carbonflow works in rapidly changing multi-party project environments.

Carbonflow drastically lowers the cost and time it takes to create carbon credits. It improves the velocity and transparency of this growing market, while enabling the expansion of the carbon credit supply.

This announcement by Steven. T.Dennis, seems to indicate that, “Waxman has agreed to give utilities free initial allocations on nearly all of their greenhouse gas emissions. Boucher had sought to give utilities the credits to avoid rate hikes for consumers”. They have still not addressed the issue in the long-term of how to not incur rate-hikes for consumers, see my previous blog. The other change from the Draft bill seems to be a reduced interim target to 17% down from 20% reduction in greenhouse gas emissions out to 2020. It is a good start though and hopefully the Bill will be passed today.

Democrats on the House Energy and Commerce Committee have reached a deal on the most contentious aspects of cap-and-trade legislation for carbon emissions and plan to unveil the bill on Thursday, Chairman Henry Waxman (D-Calif.) said Tuesday night.

“We have resolved a good number of the issues,” Waxman said after a meeting with committee Democrats, adding that the bill remains on track to clear his panel next week. Opening statements are planned for Thursday with a marathon markup beginning on Monday.

“I am optimistic. I believe we will have the votes to pass the bill [next week],” Waxman said.

Waxman had to compromise with Rep. Rick Boucher (D-Va.) on one of his key goals -the overall level of carbon reductions by 2020. Waxman had wanted a 20 percent cut; Boucher has worried such a steep cut would outpace the development of new technologies like carbon capture from coal-fired power plants. They settled on a 17 percent cut instead.

Waxman also agreed to give utilities free initial allocations on nearly all of their emissions. Boucher had sought to give utilities the credits to avoid rate hikes for consumers.

The Energy Committee chairman added that details have not yet been worked out on all of the allocations, including those for refineries, but said he expected that they would be reached quickly.

A smiling Boucher also acknowledged that some details still need to be completed. “It’s still a work in progress,” he said.

Members also reached a deal on renewable electricity requirements. Energy and Environment Subcommittee Chairman Ed Markey (D-Mass.) said the legislation would require that 15 percent of electricity be renewable by 2020, although up to 8 percent could come from efficiency measures.

The agreement also includes additional help for automakers on top of the “cash for clunkers” provision announced last week at the request of Rep. John Dingell (D-Mich.).

The Waxman and Markey Climate Change bill has to be finalized by 25^th of May on Memorial day 2009. The House is considering climate change legislation authored by a key subcommittee chairman, Rep. Ed Markey (D-MA). President Obama has said this is, “a rare opportunity to rise above parochial concerns to enact a bill with a profound national impact”.

The Waxman-Markey Discussion Draft provides for an economy wide cap & trade program: The cap reduces greenhouse gas emissions to 20 percent below 2005 levels by 2020, and 83 percent below 2005 levels by 2050. Offsets, (project based reductions) are limited to 2,000 million metric tons CO2 equivalent (MtCO2e) per year or 30% per cent of U.S emission reduction, split evenly between domestic and international offsets. Domestic offsets does not include Green Buildings offsets. There are provision for emissions reductions from reduced deforestation through allowance set-asides.

Waxman does not yet have support from House Republicans or moderate Democrats like Rep. John Dingell (D-MI) who are opposing the bill. Opposition concerns whether to give away or auction the permits to manufacturers, utilities, and other industrial sectors in a U.S Cap and Trade Emissions Trading scheme. The U.S is coming up against the same opposition from industry and parochial interests that the Europeans came up against, when they decided to give away the majority of permits in the early years of the European Emissions Trading scheme (EU-ETS). The U.S was originally highly critical of the Europeans for going down this path.   Al Gore has gone on the front foot calling for unity from the democrats on Climate Change against the resistance of some democrats wanting to protect local industry. Similar to the results of the EU-ETS, we found with the Carbonflow carbon game emission reductions were achieved even with giving away the permits in the first period. So, whatever the House decides on auctioning versus giving away permits that should not block the Draft bill’s passage through the house.

Some believe that Speaker Pelosi will make the House vote on a version of the Markey bill with 254 House Democrats, but important House Democrats like Mr. Dingell may make a similar case as House Republicans, that the bill should be opposed because of the higher energy costs for consumers.

The approach taken by the Waxman-Markey bill does not alleviate the problem whereby household consumers will pay higher energy costs because the regulatory approach to energy efficiency and renewable energy is insufficient. Under the bill energy efficiency and renewable energy is proposed to be achieved through regulation by establishing a renewable electricity standard, a low carbon fuel standard, and energy efficiency programs and standards for buildings, lighting, appliances and additionally further standards for vehicles, stationery sources and fuels.

According to  Donald Simon, an attorney for Wendel, Rosen, Black and Dean, BOMA International, The Real Estate Roundtable, U.S. Green Building Council and the California Business Properties Association, regulation does not achieve the result intended as, “Building codes typically affect only new construction, because existing buildings are “grandfathered” and new code requirements apply only to substantial renovations, which is  hugely problematic. Existing buildings account for the vast majority of real estate sector GHG emissions. Government incentives are helpful but inadequate and unreliable because they do not achieve sufficient market penetration and rely on limited government funding that can disappear in lean budget years”.

Simon goes on to say that, “in the world of Climate Change regulation, there are two major classifications of GHG emission sources - direct and indirect. Direct sources release GHGs directly into the air, like power plants and other smoke stack industries. Indirect sources are activities that consume what the direct sources produce, like buildings that consume electricity produced by power plants. The conventional wisdom among regulators globally is that market-based programs, like cap and trade, should be restricted to direct industrial sources, because there are fewer of them and they are already heavily regulated. This generally forecloses the possibility for green building projects to generate carbon credits, despite their cost-effectiveness. As a result, a valuable incentive for voluntary GHG reductions is lost, the low-hanging fruit of increasing energy efficiency in buildings goes unpicked, and industrial (direct) sources are required to shoulder a greater share of required GHG reductions, all of which increase the societal cost for addressing Climate Change and make it less politically feasible to accomplish”.

Not only do, Cap and Trade Green Building carbon credits provide a much larger funding source that could partially finance energy efficiency improvements if buildings are allowed to participate, they also actually benefit poorer communities by upgrading the existing building stock with energy efficient and renewable energy technologies at a much more accelerated rate as the private sector is incentivised from the price of carbon to go out and do projects on a large scale, providing whole districts and building owners with clean technologies funded by the credits. Regulatory approaches just take too long to retrofit the existing building stock and leave people stranded with high energy bills.

House moderate Democrats and Republicans correctly say ordinary people will incur higher costs of energy over-time because most people will not have had their homes and small businesses upgraded with clean technologies and they know the subsidies to poorer communities for energy costs will be short-lived and once removed all Americans will be left with higher energy costs. A householder or small business faced with a doubling of energy costs from USD 100 - USD 200 a quarter would probably just pay as there is not enough incentive to go out and retrofit the house nor do they have the trades expertise to do it.

The better outcome is that Green Building Carbon Credits are allowed and business, construction companies, project developers, engineers, architects do energy efficiency and renewable energy building projects using the funds from the credits and create the Green jobs President Obama is talking about.

In short proposed subsidies to less well off Americans waste money that should be going into making all American homes energy efficient and creating green jobs.

Policy-makers can encourage voluntary reductions by structuring carbon markets in a way that allows parties to convert their GHG reductions into carbon credits that they can sell to regulated sources to offset their emissions. Under the current plan the U.S would be in the anomolous situation of accepting international carbon offsets from energy efficiency and renewable energy but not accepting it domestically. This makes no sense. Domestio Green building offsets would allow regulated industries an alternative way to comply with regulatory obligations by letting them choose between reducing their own emissions or purchasing Green Building offsets from others who were able to reduce theirs at lower cost. This reduces the overall cost of Climate Change regulation by letting the free market exploit lowest cost GHG reductions.

Green Building carbon credits would be more transparent as they would have to be independently validated and verified, and open to public scrutiny, whereas money going to government agencies for programs may well end up being used on things other than greenhouse gas reductions projects. Even the double-counting issue can be managed as companies like Carbonflow, multi-party software designers for the carbon industry can easily retire end use building credits back to the Cap.

I believe however, if the house was not to get too hung up over auctioning or giving away permits in the first phases and secondly, to introduce Green Building Carbon Credits, it could solve all the problems that beset the Draft Waxman-Markey bill before the House on Memorial Day.

A Structure for Promoting Greater Efficiency in the Real Estate Sector to Address Climate Change The research, analysis and preparation of this white paper was partially funded by the joint efforts of BOMA International, The Real Estate Roundtable, U.S. Green Building Council and the California Business Properties Association. Reproduced in full - Donald Simon is an attorney for Wendel, Rosen, Black and Dean.

Summary Argument: Building codes typically affect only new construction, because existing buildings are “grandfathered” and new code requirements apply only to substantial renovations. This is hugely problematic. Existing buildings account for the vast majority of real estate sector GHG emissions, because there are far more of them and they are significantly less energy efficient than new construction. Government incentives are helpful but inadequate and undependable because they do not achieve sufficient market penetration and rely on limited government funding that can disappear in lean budget years. Cap and trade carbon markets provide a much larger funding source that could partially finance energy efficiency improvements if buildings are allowed to participate. The European carbon market totaled $30 billion in 2006 ² and some predict that trillions of dollars will change hands each in year in global carbon markets by 2030.

A Structure for Promoting Greater Efficiency in the Real Estate Sector to Address Climate Change by . Introduction and Summary
Energy use in buildings accounts for approximately one-third of U.S. greenhouse gas emissions (”GHG”) through a combination of electricity consumption and fossil fuel combustion. Improving the energy efficiency of new and existing buildings is internationally recognized as one of the lowest cost means to reduce GHG emissions.¹ Yet the “low-hanging fruit” of greening buildings is typically not included in carbon markets created under Climate Change laws.

In the world of Climate Change regulation, there are two major classifications of GHG emission sources - direct and indirect. Direct sources release GHGs directly into the air, like power plants and other smoke stack industries. Indirect sources are activities that consume what the direct sources produce, like buildings that consume electricity produced by power plants.

California is currently developing the world’s most comprehensive regulatory system for addressing Climate Change. The conventional wisdom among regulators in California and elsewhere in the world is that market-based programs, like cap and trade, should be restricted to direct industrial sources, because there are fewer of them and they are already heavily regulated. This generally forecloses the possibility for green building projects to generate carbon credits, despite their unrivaled cost-effectiveness. As a result, a valuable incentive for voluntary GHG reductions is lost, the low-hanging fruit of increasing energy efficiency in buildings goes unpicked, and industrial (direct) sources are required to shoulder a greater share of required GHG reductions, all of which increase the societal cost for addressing Climate Change and make it less politically feasible to accomplish.

Under this conventional wisdom, GHG reductions from the real estate sector and other indirect sources are sought through stricter building codes mandating ever-increasing levels of energy efficiency and through limited government incentives programs. But neither mechanism achieves the depth of cost-effective reductions possible. Building codes typically affect only new construction, because existing buildings are “grandfathered” and new code requirements apply only to substantial renovations. This is hugely problematic. Existing buildings account for the vast majority of real estate sector GHG emissions, because there are far more of them and they are significantly less energy efficient than new construction. Government incentives are helpful but inadequate and undependable because they do not achieve sufficient market penetration and rely on limited government funding that can disappear in lean budget years. Cap and trade carbon markets provide a much larger funding source that could partially finance energy efficiency improvements if buildings are allowed to participate. The European carbon market totaled $30 billion in 2006 ² and some predict that trillions of dollars will change hands each in year in global carbon markets by 2030.

Carbon regulation is evolving. Europe initiated the first GHG cap and trade system, but green buildings are unable to participate. Several eastern U.S. states advanced matters with the Regional Greenhouse Gas Initiative, which provides carbon credits for green building activities that reduce direct GHG emissions from onsite fossil fuel combustion for heating, but no credit is provided for reducing electricity consumption, which accounts for much greater (indirect) GHG emissions. The Australian state of New South Wales leapfrogs all other programs by providing carbon credits for green building projects that improve energy efficiency in fossil fuel combustion and electricity consumption.

For decades, the world has looked to California for innovative leadership in business, public policy and environmental protection. California should continue this tradition by structuring its cap and trade market under Assembly Bill 32 (”AB 32″) in a way that enables new and existing buildings of all types to generate carbon credits for direct and indirect GHG reductions that satisfy statutory requirements. Whatever California does will greatly influence whatever federal legislation finally emerges from Washington, which in turn will greatly influence international efforts, because the next international treaty must be implemented before Kyoto Protocol expires in 2012. Once again, California has the unique opportunity to lead. The stakes have never been higher.

This paper outlines the potential structure and benefits of a voluntary green building carbon credit (”Green Building Credit”) that empowers the real estate industry to monetize energy efficiency and sell the resulting GHG reductions into the cap and trade carbon market or a parallel market funded by cap and trade auction revenues.

II. Green Building Carbon Credit

A. The General Role of Carbon Credits.
Cap and trade is the favored mechanism for GHG regulation, because conventional wisdom believes the market will find the lowest cost methods to reduce GHG emissions. Regulators establish absolute limits (caps) for total GHG emissions for each of the largest GHG industrial sectors, like electricity, cement and oil refining. Each sector cap is allocated among individual sources, which must comply through on-site improvements or by purchasing carbon credits from others (trade). These trading transactions are conducted through bilateral negotiations or a centralized exchange (like commodities).

Many GHG reduction opportunities exist outside the industrial sectors typically regulated under cap and trade systems. Policy-makers can encourage such voluntary reductions by structuring carbon markets in a way that allows parties to convert their GHG reductions into carbon credits they can sell to regulated sources to offset their emissions. Such offsets provide regulated industries an alternative way to comply with regulatory obligations by letting them choose between reducing their own emissions or purchasing offsets from others who were able to reduce theirs at lower cost. ³ This reduces the overall cost of Climate Change regulation by letting the free market exploit lowest cost GHG reductions.

B. Design Issues.
By law, California may only credit efforts that produce GHG reductions that are real, quantifiable, permanent, verifiable, enforceable and additional beyond those that would otherwise occur under business as usual.⁴ The same general requirements govern offsets in other GHG programs throughout the world. These are the threshold design issues a Green Building Credit must satisfy

1. Double counting.
The most frequently cited reason for not allowing offsets from green building and other efficiency measures that indirectly reduce GHG emissions is that the same reductions are counted twice, first by the building owner and a second time by the electricity sector. ⁵ Green building credits would be awarded based on energy savings and the resulting reduction in GHG emissions from the electricity sector. Unless the electricity sector cap is adjusted, this reduction in electricity demand will cause the electricity sector to have a surplus of carbon credits equal to the number of Green Building Credits issued. If the electricity sector is allowed to use or sell those surplus credits, then the same GHG reductions are counted twice. No net GHG reduction occurs, and the electricity sector receives windfall profits by selling carbon credits for fictitious reductions.

This double counting problem is easily solved by reducing the electricity sector cap by an amount equal to the number of Green Building Credits issued. The New South Wales program uses this solution in Australia. New South Wales implemented a carbon credit for energy efficiency improvements to new and existing buildings of all types in 2003 as part of its regulatory system that establishes GHG emission benchmarks for the electricity sector. Utilities meet their benchmark obligations by improving operations or purchasing offsets from others. Double counting is avoided by reducing the sector benchmark by an amount roughly equal to the volume of green building and other energy efficiency credits issued. As of December 2007, energy efficiency and other demand side abatement activities had reduced GHG emissions by 18.5 million tons under the New South Wales program.

2. Additionality.
Another regulatory design prerequisite is that offsets must represent “additional” reductions that would not have otherwise occurred under business as usual. For example, a standard definition precludes crediting actions already required by law because they would have occurred anyway. Additionality criteria determine the baseline and counting methods used to quantify the number of credits a given project creates. In some systems, a customized process is used for each project, such as in the Clean Development Mechanism under the Kyoto Protocol. But such project-by-project analysis creates high transaction costs that undermine the financial viability of offset projects. The preferred and more effective method is to use standardized measurement and verification protocols.

Markets thrive when participants are able to predict a return on investment (”ROI”) so they can better evaluate the capital investment necessary to achieve a desired return. This is especially important for Green Building Credits, because energy efficiency measures often require substantial capital expenditures. Predictability is enhanced when baselines and protocols rely on objective standards and readily available information. This enables building owners to quantify the ROI for green building investments. In new construction, building codes provide an objective and quantifiable baseline for determining additionality and quantifying offsets. For existing buildings, a more sophisticated approach may be necessary, since building codes seldom require upgrades in the absence of significant renovations.

Existing Green Building Credit programs use various protocols and methodologies to quantify carbon credits for different building types and green building improvements. The Regional Greenhouse Gas Initiative and the New South Wales programs award credits based on how much energy the green building improvements actually save in comparison to a baseline. For new construction, baselines are determined with reference to building codes. For existing buildings, baselines are tied to actual energy consumption before the green building improvements were made. All calculations and data are verified by independent third-party audits. The New South Wales program gains additional leverage by using the same measurement protocol that the Australia Green Building Council uses for its Green Star building certification program. California could similarly leverage existing systems. Assembly Bill 1103(2007) already requires benchmarking of existing commercial buildings using the Energy Star Portfolio Manager tool. Title 24, Energy Star Target Finder, or LEED (ASHRAE 90.1) could similarly provide a benchmark for new construction.

Additionality concerns can also arise when green building projects are partially funded through government or utility incentive programs. The fairest way to address these situations may be to reduce the number of Green Building Credits in proportion to the percentage of public funding received. Therefore, if public funding pays 20% of the owner’s total costs, then the owner would acquire carbon credits equal to 80% of the avoided GHG emissions. New South Wales uses this approach.

C. Alternative Design Structure To Avoid Potential Impacts To Cap And Trade Compliance Markets.

Regulatory experience with cap and trade is relatively limited, causing many regulators to prefer a conservative, limited cap and trade market design with fewer participants and restricted use of offsets. Instead, California’s regulators are discussing buildings in the context of stricter building codes, increased utility incentive programs and imposing mandatory retrofit requirements at time of sale. Unfortunately, the imminent dangers of irreversible Climate Change do not afford society the luxury of an overly conservative approach that delays important GHG reduction strategies. Both interests can be served by constructing the Green Building Credit as a parallel market separate from the cap and trade compliance market.

Regulators would use a standards-based approach by approving a measurement and verification protocol as rigorous as for any compliance offset; however, Green Buildings Credits would not be used for compliance purposes. Instead, they would be funded by a quasi governmental entity with revenues generated from the sale (auction) of cap and trade allowances.This would protect cap and trade program integrity and avoid various regulatory concerns. In California, that quasi-governmental entity could be the California Climate Trust proposed by the Air Resources Board’s Economic and Technology Advancement Advisory Committee.

This structure could be maintained indefinitely. However, the goal should be to eventually transition the Green Building Credit into a compliance offset after the cap and trade market has proven stable and regulators have gained confidence in the Green Building Credit protocol and resolved double-counting, additionality and any other concerns. This would empower “learning by doing” without jeopardizing the larger priority of a well-functioning cap and trade market. It would also make the Carbon Trust into an incubator that develops and refines new, market-based GHG reduction strategies. And although these Credits would not satisfy compliance obligations (at least initially), this structure would ultimately lessen the burden on regulated sectors by enabling real estate to contribute toward overall, economy-wide GHG reduction targets, like AB 32.

D. Rationale For Including A Green Building Carbon Credit In the Earliest Stages of Cap and Trade.

1. Reduced infrastructure and peak load.
Taking one’s foot off the accelerator is the first step for stopping a car. The Climate Change accelerator is the construction of new power plants built to satisfy America’s growing energy demand, which has increased an average of 2.2% each year since 1990. ⁶ As McKinsey & Company noted in a prominent study, cost-effective Climate Change policy requires tackling energy efficiency first, because it can alleviate the need for constructing new power plants and distribution capacity, saving billions of dollars in utility capital expenditures that would otherwise be imposed on the economy through higher electricity rates. ⁷ After this infrastructure is built, the economic value of energy efficiency drops, because its cost must then be compared to the cost of taking existing power plants and infrastructure off-line, which is considerably less favorable than avoiding their construction in the first place. Even if the Green Building Credit succeeds only in reducing peak energy demand, it will reduce operating time for the dirtiest power plants, which customarily remain in service to serve peak demand.

2. Faster, more permanent GHG reductions.
Green building provides more immediate GHG reductions than other, more frequently discussed GHG reduction strategies, because it is rapidly deployable and uses readily available, off-the-shelf technology. Other solutions take years to implement, like converting power plants from coal to natural gas or replacing existing electricity generation with nuclear or wind. Technology solutions, like carbon capture and storage and clean coal will not be viable for decades to come, if ever. Evolving scientific understanding of Climate Change reveals a growing urgency to reduce emissions now, and nothing can provide meaningful reductions faster than energy efficiency.

Energy efficiency improvements to existing and new buildings are the “gift that keeps giving” because buildings are long term assets that lock-in their energy and GHG performance throughout their useful life. Every building constructed without optimal energy efficiency represents a lost opportunity, because it costs much less to make buildings energy efficient during initial construction than to do so later through retrofits. For example, the California Air Resources Board notes that solar hot water systems cost twice as much to install in existing buildings than new construction. Consequently, the revenue a building owner might receive from carbon credits is more valuable during initial construction than a later retrofit, because it finances a larger percentage of the cost for energy efficiency improvements. The sooner Green Building Credits are included in regulatory carbon markets, the greater their contribution to GHG reductions will be.

3. Domestic creation of new “green collar” jobs and economic development.
An important co-benefit of a Green Building Credit is that energy efficiency improvements are more labor intensive than most other GHG reduction strategies. This provides substantial workforce development opportunities, especially for relatively low-skill but comparatively high-paying “green collar” jobs in the construction trades that cannot be outsourced to other countries. This co-benefit is exceptionally valuable, given the loss of so many blue-collar manufacturing jobs. Unlike imported offsets, such as the Clean Development Mechanism that funds GHG reductions in other (typically developing) nations to offset domestic carbon emissions, revenue from Green Building Credits remains in California (or the WCI) and supports domestic economic development.

E. The Green Building Carbon Credit Compliments Existing Energy Efficiency Programs And Is Superior To Other Strategies Being Contemplated To Fund Greater Energy Efficiency.

As noted above, California recently adopted AB 1103 (2007), which requires benchmarking and disclosure of energy consumption in commercial buildings. It is expected this will make energy efficiency a competitive building feature. But this benchmark data could also provide the basis for a Green Building Credit protocol, which would leverage AB 1103 beyond disclosure by providing the tool for incentivizing actual energy reductions.

California and a limited number of other states currently promote energy efficiency through financial incentives and consumer education programs. These programs are often administered by local utilities, because they are regulated industries and have the most interaction with consumers. But this structure expects and requires private utility companies to act against their interest by reducing demand for the product they sell - energy. These programs have been modestly successful in states like California, where utility profits are not directly tied to energy sales (i.e. decoupling), but even here, success is constrained by the fact that the core competency of utilities is selling energy, not saving it. And since decoupling is rare, California type utility programs cannot provide a model for federal or international efforts.

Existing programs create a monopoly structure by delegating energy efficiency responsibility to utilities. Regulated monopolies are an efficient delivery method for basic commodities where customers have identical needs, like electricity and natural gas. But they are inefficient and incapable of providing highly variable services, like energy efficiency improvements. Green Building Credits provide a profit motive that incents private sector competition to develop more sophisticated and successful ways to expand energy efficiency far beyond what the current monopoly system of utility incentive programs can provide. And unlike these current programs that are limited by scarce public funds, Green Building Credits would be funded through carbon markets. Potential funding would be limited only by the comparative cost of Green Building Credits in relation to other GHG reduction activities and any regulatory cap that might be imposed.

Utility programs also typically fund specific measures, like installing more efficient lighting or mechanical systems. They do nothing to spur energy conservation and little to ever increasing plug loads. But since a Green Building Credit would be quantified based on actual energy savings, conservation and plug load reductions would count the same as efficiency improvements. This would provide an incentive for behavior modification, which the real estate market could motivate through green leasing concepts.

In a properly constructed regulatory system, these Credits would be treated like other commodities. Financial institutions would invariably create new financial products that enable building owners to finance the cost of energy efficiency improvements based partly on the carbon credits they will create over time. Since upfront cost is the biggest hurdle to energy efficiency, this could revolutionize the building industry and exponentially increase the pace of existing building retrofits, all of which would spur private capital investment into increasingly efficient building products and systems.

The Green Building Credit is likewise superior to newer strategies being considered for enhancing energy efficiency. An amendment to the Lieberman-Warner federal Climate Change bill proposed having a set-aside of cap and trade carbon allowances that would be given to local governments to sell and raise money to fund energy efficiency projects in their jurisdiction. This same concept is purportedly being considered in California. The Green Building Credit is a superior strategy, because it promotes market adoption by providing a single measurement and verification protocol that industry can use throughout the jurisdiction, whereas the allowance set aside provides no such efficiencies because each local government would operate a separate program. The allowance set-aside is merely an alternative currency that would be less efficient than even direct grants to local governments, because it would require them each to become traders in the carbon market.

Because cap and trade will increase the cost of electricity production, some anticipate this will encourage the electricity sector to help finance building energy efficiency improvements in order to reduce their own cap and trade compliance obligations. But this could only work in a load-based point of regulation where the compliance obligation rests with utilities, because they sell electricity directly to consumers and could link specific projects to their service obligations. In the load based or first-seller point of regulation favored in California, the Western Climate Initiative and federal legislation, the compliance obligation rests with power plants. There is no way to know which power plant is powering a building at any given time, because their electricity is fed into the grid. So the power plant would have no incentive to finance a particular project, because its emissions would not necessarily be reduced, since the building may be receiving its power from a different power plant and reducing that plant’s compliance obligations rather than those of the plant that funded the project. Moreover, unlike load serving entities, power plant revenues are not decoupled from electricity sales, so they would have no incentive to decrease demand for their power. ⁸ The Green Building Credit overcomes this problem by creating a commodity that can be traded without any need to link project carbon reductions to a specific power plant.

III. Conclusion

A properly constructed Green Building Carbon Credit is supported by the same rationale that underlies cap and trade and other market-based initiatives for addressing environmental problems. By providing a mechanism to seize the low-hanging fruit of building energy efficiency, a Green Building Credit will enable the market to deliver GHG reductions faster and cheaper than otherwise possible.

Each new study shows that Climate Change is accelerating. Society must deploy innovative regulation to harness the power of the market to deliver the immediate reductions needed. The Green Building Carbon Credit is one such prescription. And it warrants serious consideration among those entrusted with devising the solution. In places like California, electricity sales are decoupled from utility profits. But this only applies to load-serving entities. Many power plants are owned by separate entities that are not subject to regulatory decoupling.
_________________________________
¹ See, Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost?, U.S. Greenhouse Gas Abatement Mapping Initiative Study (McKinsey & Company et al., December 2007). http://www.mckinsey.com/clientservice/ccsi/pdf/US_ghg_final_report.pdf; and Green Building In North America, Secretariat of the Commission for Environmental Cooperation, March 2008, http://www.cec.org/files/PDF//GB_Report_EN.pdf.
² The European carbon market fell sharply at the end of 2007 as it became clear that regulators had freely awarded too many carbon credits for the initial 2005-2007 regulatory compliance period. Supply far exceeded demand and the market price for carbon credits of that vintage fell to less than one Euro. This temporary problem was solved by regulators issuing fewer credits for the 2008-2010 compliance period, and carbon was trading at 24.5 Euros ($35) per ton as of September 5, 2008.
³ The term “offset” is often reserved for GHG reductions unrelated to and outside of any regulated industry sector. Because building electricity consumption affects electricity sector emissions, a green building carbon credit is more properly referred to as an emission reduction credit. However, the “offset” term is more readily known, and the general concept is the same, so the green building carbon credit is interchangeably referred to here as an offset.
⁴ AB 32, section 38562(d)(1).
⁵ Green Building Credits could be created by building owners, tenants or whoever else causes the energy efficiency project to occur. For simplicity, this paper assumes that building owners create and own the credit. In the New South Wales program, Green Building Credits are awarded to the party contractually obligated to pay utility bills, including landlords, tenants and building managers, who may  ssign ownership of such credits to third-parties. This promotes a third-party market for those seeking to capitalize on the revenue stream green building offsets provide, such as energy service companies.
⁶ National Energy Technology Laboratory report, February 18, 2008, based on U.S. Energy Information
Administration data. See www.netl.doe.gov/coal/refshelf/ncp.pdf.
⁷ http://www.mckinsey.com/clientservice/ccsi/pdf/US_ghg_final_report.pdf, p. xvi.
⁸ In places like California, electricity sales are decoupled from utility profits. But this only applies to load-serving
entities. Many power plants are owned by separate entities that are not subject to regulatory decoupling.

At a recent conference called, “Navigating the American Carbon World Conference and Trade Fair” sponsored by Point Carbon and IETA, PG & E,  April 1-3 2009. San Diego, California, there was a consistent general tone to the presentations on the importance of doing something about Climate Change, how little time we have to do it in and how the global community including the developing world must come together for a Post 2012 Climate Change Agreement in Copenhagen 2009. There was broad consensus from all speakers such as, Janet Pearce, Vice President, Markets and Business Strategy, Pew Center, Carl Pope, Executive Director Sierra Club, Nancy McFadden PG& E,  to firm targets for the next commitment period 2012-2017, followed by a series of rolling interim targets with a firm long term 2050 target for the U.S and the rest of the world.

It is expected that the U.S will join the Annex 1, first world Kyoto countries and take on an absolute Cap of greenhouse gas emission of 60-80% below 1990 levels by 2050. However, U.S presenters are very artful and one notices that U.S speakers never actually state that the U.S will ratify the Post 2012 Climate Change agreement without mentioning in the same breath, the need for a commitment to targets by the developing world.

Nancy Sutley, Whitehouse Council on Environmental Quality, raised the question of engaging with the BRIC (Brazil, Russia, India and China) nations on sector targets for developing countries. IETA (The international Emissions Trading Association) also discussed giving BRIC nations sector caps, in other words targets on specific industry sectors, which would expand over time to include more sectors. An example of a sector cap, which was often cited was the cement sector in China. Sector Caps for developing countries seems to be the compromise solution to allow the U.S. Congress to agree to an international agreement and not to be seen to be letting U.S competitors off the hook. My concern is what happens if the developing world does not agree to any kind of cap on emissions including sector caps, where does that leave the U.S?

Today, The Obama administration is convening a meeting of 17 major nations April 27-28 in Washington to begin talks on international action to address climate change. The talks are a prelude to the December UN meeting in Copenhagen to create a new global treaty on Climate Chane. These talks confirm the U.S position, which is to insist on greenhouse gas caps on developing countries. The meeting underway in Washington includes nations responsible for 75 percent of the world’s carbon emissions and includes Western European countries, Japan, South Korea, Brazil, China, India, Indonesia and Mexico. Michael Froman, Deputy National Security Adviser for International Economic Affairs, told journalists April 24 at the State Department’s Foreign Press Center, “We believe that it is critical that those 17 be able to make progress on the outstanding issues and reach political consensus if there is to be to a deal in Copenhagen”.

The issues under discussion in Washington this week were discussed at an IETA hosted side-event, “Making Markets Work for the Environment” at the Point Carbon Conference in San Diego earlier this month. IETA released a document on “Principles for a Post 2012 International Climate Change Agreement”, which captures the key debating points around the Post 2012 Climate Change Agreement under discussion in Washington.

IETA recommended that the parties agree to:

- Firm targets for the next commitment period 2012-2017 followed by a series of rolling interim targets with a firm long term 2050 target. (They did not specify the actual target).

- Longer commitment periods of 8 years not 5 to provide predicatability and certainty for business decisions.

- Support for differentiated targets for Annex 1 nations and new forms of commitment such as sectoral caps for BRIC nations. IETA stressed that criteria for differentiation needs to be clearly elaborated including ways in which non Annex 1, developing countries such as China and India can move to Annex 1 mid-period - a pathway for all nations to move to the higher standard of commitment.

- Develop long-term standardized global network of Inventories and Monitoring, Reporting and Verification systems (MRV). Indira Balkinson and Barbara TooleO’Neil of DNV raised the necessity for 3rd party independent validation at the Point Carbon conference. It is not practical diplomatically for the U.S EPA to audit overseas credits it is better to be done by independent validators.

IETA countered U.S criticism of Emissions Trading and the flexible mechanisms by stating the need to focus on the provision of a global carbon market that facilitates trading between private entities and Parties as a pillar of the next Climate Change Agreement.

IETA Supported:

- The existing Flexible Mechanisms: Emissions Trading, the Clean Development Mechanism (CDM), and Joint Implementation (JI), which has been the key to jump starting emission reduction activities as well as facilitating the flow of technology. (Currently, CDM allows for credits generated in a developing nation to be sold into a capped nation like the EU as a means to meet it’s cap). IETA supports continued access to CDM for developing countries without a sector cap or  for un-capped sectors, which would cover most developing countries and most sectors. CDM credits, (CERs) serve as a linkage between regional trading systems, a crucial function until a global direct linkage has occured.  Interestingly, Steven Messner of SAIC showed a slide that indicated without domestic or international CDM offsets, the price of carbon would double in the U.S., showing that purchasing CDM credits by the U.S. would reduce the cost of cutting carbon. U,S criticism of CDM is based on the notion that it involves transfer of U.S.D and technologies to developing countries like China, which is why the U.S argues for developing country caps.

- IETA indicated that a JI like mechanism, (trading between two capped nations) would become more important in a post 2012 international Climate Change Agreement as more countries would have caps.

-IETA also indicated that domestic offset projects will become a complement to Cap and Trade regimes, as they promote emission reduction within those Parties economies. There are numerous opportunities to enhance the use of domestic offsets alongside more traditional cap and trade mechanisms, particularly in areas such as forestry, agriculture, land-use change and waste. The discussion indicated that some European countries that did not allow domestic offsets in the 1st commitment period such as France and Germany were interested in domestic offsets to drive private sector activity, jobs and technology uptake.

- IETA supported the transferability of the existing carbon market projects in process through the CDM/JI to domestic offsets as new nations formally adopt emission limitations.

I found myself agreeing with the points made by IETA and suggest further reading of their material. In summary they are arguing for all existing and future market mechanisms, which have the explicit intention of attracting private sector investment to create a secure investment environment with clear rules for participation and crediting and to use the market to create the most effective way for the private sector to participate in the Post 2012 Climate Change Agreement.

Renewable Energy seems to be one of the big winners in the U.S. Stimulus package. The American Recovery & Reinvestment Act of 2009, an economic stimulus package with tax and spending provisions totaling nearly $800 billion, was signed into law on February 17. The act contains a number of tax provisions that provide significant value to companies and individuals that are focused on producing renewable energy or reducing energy use through efficiency. By extending, modifying and enhancing several renewable energy and energy efficiency incentives, the stimulus package creates many opportunities for taxpayers to get paid for going green according to an article in Greener Buildings.

In Washington, The U.S. Interior Department said it has created a special task force to speed the development of renewable energy projects on federal lands. “More so than ever, with job losses continuing to mount, we need to steer the country onto a new energy path,” said Interior Secretary Ken Salazar.

The government is on the right path from the point of view of creating employment. According to a study, Defining, Estimating and Forecasting the Renewable and Energy Efficiency Industries in the U.S and Colorado by The American Solar Energy Society, Boulder, Colorado, and published on Climatebiz it found that,

“U.S. RE and EE in 2007, generated $1,045 billion in sales and created over 9 million jobs – including $10.3 billion in sales and over 91,000 jobs in Colorado. The U.S. RE and EE revenues represent substantially more than the combined 2007 sales of the three largest U.S. corporations - WalMart, ExxonMobil, and GM ($905 billion) before the melt-down. RE and EE are growing faster than the U.S. average and contain some of the most rapidly growing industries in the world, such as wind, photo-voltaics, fuel cells, recycling/re-manufacturing, and bio-fuels. The study further noted the importance of policy settings to the industry and said that, with appropriate federal and state government policies, RE and EE could by 2030 generate over 37 million jobs per year in the U.S. – including over 600,000 jobs in Colorado. The study goes onto report that the stronger the policy settings the stronger the job creation potential from RE and EE”.

Mr Salazar has said that, “We will assign a high priority to identifying renewable energy zones and completing the permitting and appropriate environmental review of transmission rights-of-way applications that are necessary to deliver renewable energy generation to consumers. We have to connect the sun of the deserts and the wind of the plains with the places where people live.” Furthermore, “the task force will identify specific zones on public lands where the department can act rapidly to create large-scale production of solar, wind, geothermal and biomass energy”.

I have a concern about this approach, which is that although creating large-scale renewable energy projects on government land, maybe more administratively easier, it may lead to local opposition to fields of solar collectors and wind farms. I think the application of this policy should be integrated into communities in a more subtle way.

I have suggested that rather than create renewable energy parks, the better concept is take an integrated approach and create entirely sustainable communities, which I described on this blog - “Convert the suburbs to Sustainable Communities and Bank the Credits”  - In this post I was also suggesting that energy efficiency, sustainable water and waste management be included in the mix of energy solutions such that whole communities could become entirely sustainable. Put another way it involves a move away from the monoculture approach to development and requires the adoption of strategies that mimic nature, based on bio-diversity.

On another blog on Multiple Crises, which concerns sustainable agriculture, I have drawn on the work of Dr Lietaer who takes up the notion of bio-diversity for the banking system. I am applying it to renewable energy systems and I believe that that the more diverse the renewable energy systems are the more resilient the community will be.

The conceptual breakthrough, which applies to all systems whether they be energy, financial or agricultural systems identified by Bernard Lietaer and his colleagues, “takes its evidence from balanced, structurally sound, and highly functioning eco-systems is that that all complex systems, including our energy, monetary and financial ones, become structurally unstable whenever efficiency is overemphasized at the expense of diversity, inter-connectivity and the crucial resilience they provide. The surprising systemic ‘a-ha’ insight is that sustainable vitality involves diversifying systems”.

The interior department is in a good position to do this as it manages one-fifth of the U.S. landmass and over 1.7 billion offshore acres. It needs to create diversity at the core of the sustainable communities it wishes to create and not make the same mistakes with the new renewable energy solutions that we made with the old ones.

There has been considerable recent furore in the Australian press concerning whether to support Emissions Trading or a carbon tax. One example of the debate happens to surround the inclusion of energy efficiency. The Government is actively promoting domestic energy efficiency actions, and there is no doubt that energy efficiency is a critical part of any overall emission reduction plan. However, the fact is that under the present capped emission arrangements these essential individual actions will not reduce Australia’s carbon emissions, a fact the Government is carefully trying to avoid addressing. Put simply, with an Australian emission cap in place any emission reductions achieved as a result of domestic energy efficiency actions will immediately result in increased emissions somewhere else, and there will be no net reduction. There is also a fundamental economic efficiency problem, which is that domestic abatement is at the individual level low in volume and high in cost, and so any incentive from the sale of abatement credits is slight at best.

The NSW Greenhouse Gas Abatement Scheme solution to this dilemma is to credit the project with its anticipated lifetime emission abatement on the day that it is commissioned. This results in administrative efficiency and delivers a once-off front-loaded payment to the project, but also means that the credits are non-fungible with any other scheme where abatement has to have occurred before any credits. In this case, administrative simplicity is not the answer. Energy efficiency credits must be fungible with the credits issued by other schemes.

There is a second (and there are possibly more) option. It is already established that, in order to prevent double counting, issue of a project based domestic energy efficiency credit must also result in the cancellation of an emission permit, thus ensuring that the emission cap is unchanged. This, however, is the same result as is intended in the Australian ETS - action to increase domestic energy efficiency does not reduce overall emissions. However, consider what would happen if each domestic energy efficiency credit was also rewarded with an additional one or more emission permits which were immediately bought back by the scheme administrator and then canceled.

Effectively, each unit of domestic energy efficiency can be leveraged to any number of units of emission reduction. So, suppose a domestic project achieves one tonne of abatement. The project owner could receive:

1. A one tonne energy efficiency credit that could be sold or held by the project owner; and
2. An additional one or more emission permits which would then be purchased by the scheme administrator and immediately canceled.

The net effect is that the project owner receives one energy efficiency credit to trade, payment to the value of the emission permits issued, reacquired and then canceled and the ongoing benefit of reduced energy costs. From the perspective of the scheme administrator, payment for the canceled permits can be considered revenue foregone rather than new expenditure, as the cost of the emission permits canceled would be recovered from the normal auction process for emission permits. The integrity of the scheme would be protected as the only tradeable credits would in fact be offset by a real and verified reduction of that amount.

Could this result in acceleration of the rate at which the emission cap fell and the price of emission permits rose? Yes, but there are some simple measures which could be implemented that would effectively curtail any untoward changes in permit price:

1. The supply of domestic energy efficiency credits is unlikely to be excessive, as these projects are, in any case, notoriously difficult to implement.
2. The number of energy efficiency credits available for issue using this process in any period could be established as part of the program design, and managed using the project approval process.
3. The leverage factor can be varied over time - either for all projects in a particular period or following a depreciating schedule for individual projects
4. Although likely to create discussions about picking winners and losers, different levels of leverage could be used to improve the uptake of different types of energy efficiency program - more leverage for more difficult implementations with a lower actual outcome, such as changes at the household level.

Taken overall, there is no fundamental reason why innovative thinking cannot change the incentives behind domestic energy efficiency projects to the point where becoming more efficient is simply a good economic decision.