Green Building in the American Clean Energy and Security Act (“Waxman-Markey”)

July 22nd, 2009 | Posted by: Christopher DeGrezia 1| comments:

Green Building - Natural worldBy Joshua Kaplowitz, Esq., LEED

On June 26, the House of Representatives approved the American Clean Energy and Security (“ACES”) Act, legislation aimed at curbing greenhouse gas (GHG) emissions.  While most of the media attention has centered around the bill’s establishment of a mandatory cap on GHG emissions and a complex emissions credit market (i.e. “cap-and-trade”), ACES contains several sweeping provisions which will dramatically impact the green building industry and national land use policies.

Green Building Codes

First and foremost, ACES requires the Department of Energy to establish a federal building code for new residential and commercial construction.  The new codes have the following goals:

  • For new residential, 50% reduction in building energy consumption over the baseline of the 2006 International Energy Conservation Code by 2014.
  • For new commercial, a 50% reduction in building energy consumption over the baseline of ASHRAE Standard 90.1-2004 by 2015.

The DOE must consider a wide range of factors in drafting the code, including data on building efficiency from Energy Star and other preexisting programs, and building standards and practices presently in use.  Within one year of the establishment of a national building code, each state must certify that it has:

  • Adopted the national code;
  • Updated its own codes to meet or exceed the national target; or
  • Gotten local governments representing at least 80% of the State’s urban population to adopt the national code or appropriately modify their own codes.

Within two years of adopting new building codes, states and local governments must demonstrate compliance by certifying that 90% or more of new and substantially renovated building space from the preceding year meets the code.  States will be granted exemptions within the first seven years if they demonstrate that they have been making “significant progress” towards compliance.

ACES also directs the DOE to develop a program which will develop national standards for retrofitting existing commercial and residential buildings.  The program, the Retrofit for Energy and Environmental Performance (REEP), must include, among other things:

  • A certification program for energy auditors, inspectors, raters and contractors of existing buildings.
  • Clear standards, tests and procedures to guide the retrofit process.
  • A requirement that building retrofits utilize high-reflectance roofing materials, green roofs or solar panels.
  • Determination of energy savings through a before/after comparison or other benchmark.
    Federal funding in the form of block grants to states will be allocated to directly support retrofit projects.

The bill also establishes programs to incentivize the purchase of Energy Star-rated manufactured homes, label existing buildings based on their energy performance and plant trees in residential and office settings.

These new codes are likely to dramatically expand the demand for green building materials and services, and may advantage developers and contractors operating in jurisdictions which have already adopted mandatory green building requirements.

Low-Interest Loans For Home Energy Efficiency

Added as a last-minute amendment to the bill, the Green Resources for Energy Efficient Neighborhoods Act of 2009 (“GREEN ACT”) provides a variety of 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 alternative energy.

The bill sets basic energy efficiency standards for all HUD-assisted housing.  It also sets enhanced building standards – tied to LEED, Green Globes and other certification programs— that, if met, will qualify the builder or owner for low-interest loans and/or federal assistance.  The bill also establishes a pilot program to demonstrate the effectiveness of federal funding in meeting those energy efficiency standards.

Next, the bill imposes green building and energy efficiency considerations on a wide variety of federal housing initiatives.  Fannie Mae, Freddie Mac and HUD are directed to develop loan products and underwriting guidelines for and moderate income families which incentivize energy-efficient homes and homes in transit-friendly locations.  HUD, in conjunction with other federal agencies, is also encouraged to develop and recommend energy-efficient mortgage products that can be adopted by private-sector lenders.  And energy efficiency improvements are to be considered in all appraisals conducted pursuant to federal law.

The bill also establishes a $2.5 billion residential energy efficiency block grant program for states and municipalities and $10 million in grants to non-profits for green job training in low-income communities.

Lastly, federal banking regulators are required to establish incentives for the development and maintenance of private “green banking centers” which will provide information to customers interested in taking out home energy efficiency loans.  As a corollary, HUD is authorized to guarantee the portions of eligible loans that are used for energy efficiency projects, up to 10% of the amount of the loan.

These measures, while they only directly affect federally-subsidized loans and housing, are sure to have a ripple effect to private lenders and the green construction industry.

State Energy and Environmental Development (SEED) Accounts

The cap-and-trade program established elsewhere in ACES requires companies which emit large quantities of GHGs to hold tradable “allowances” issued by the EPA for every ton of carbon dioxide they generate each year.  In 2012, the first year of the program, 10% of those allowances are given directly to states to resell and use the proceeds for investments in energy efficiency and renewable energy.  ACES establishes State Energy and Environment Development (SEED) accounts to manage those allowances, which are estimated by Congressional Budget Office to have a 2012 market value of nearly $7 billion.   The allowances (or the proceeds from their sale) must be used as follows:

  • At least 12.5% distributed by states to local governments for use in building energy efficiency or renewable energy.
  • At least 20% for development and implementation of green building codes, REEP and other building efficiency programs established by the Act.
  • At least 20% for deployment of renewable energy systems in the form of capital grants, tax credits, production incentives, loans, loan guarantees, forgivable loans, and interest rate buy-downs related to
  • The remaining 47.5% for building efficiency, renewable energy, smart grid development or surface transportation projects.

It is largely up to individual states how much of this money to spend on building efficiency.  However, since at least 20% of the annual allocations to states is required to be spent on green building-related projects, the benefit to the industry would be substantial.

Lighting And Appliance Efficiency

ACES also amends the Energy Policy and Conservation Act of 2005 to impose tougher standards on lighting and appliances.  Among other things:

  • The process for setting energy efficiency standards will become more rigorous and must evaluate an expanded range of criteria.
  • Appliance efficiency standards will be expanded to new types of appliances.
  • Energy Star labels on appliances will now be required to indicate “carbon output,” and the program will be revamped and toughened.
  • The bill establishes a “Best-In-Class” Appliances Deployment Program which provides financial incentives to retailers to sell the highest efficiency appliance models and recycle older, inefficient, environmentally harmful products.  The DOE is charged with identifying the “Best-In-Class” models for each type of covered appliance, including (but not limited to) washers, dryers, dishwashers, cooking products, refrigerators/freezers and water heaters.
  • In recognition of limited water resources and the vast energy used to treat, transport and heat water, the bill directs the EPA to establish a WaterSense program to identify and promote water-efficient products, buildings, landscapes and services through voluntary labeling.  The bill also requires Federal agencies to procure such products.
  • EPA is directed to investigate the feasibility of developing a voluntary national product carbon disclosure program which would encourage all product labels to disclose their carbon footprint through a lifecycle analysis.

These programs, in addition to encouraging consumer purchase of energy-efficient appliances, are likely to indirectly encourage manufacturers to bring more efficient and environmentally friendly products to market.

WHERE DOES THE BILL GO FROM HERE?

 Now that ACES has been passed by the House, the Senate has wasted little time in beginning to develop its own version of the legislation.  As of mid-July, Senate leadership has established an October deadline for a Senate floor vote.  Along the way, the bill must be drafted, marked up and approved by the Senate Environment and Public Works (EPW) Committee.  The Senate bill is expected to differ somewhat from the above-described version of ACES, although Senator Barbara Boxer, Chairwoman of the Senate EPW Committee, has stated that she will be using ACES as the jumping-off point for their draft.  Although it is yet unclear whether and how the green building and land use components of the bill will change, there here have been some indications that Senate Democrats wish to see more funding for mass transit.

If and when the Senate passes its own version, it will then go to a conference committee which will harmonize the two bills.  If the conference bill passes both houses, it will then be sent to President Obama’s desk.  President Obama has stated that his goal is to have a law in place by the time the U.S. delegation arrives in Copenhagen, Denmark in December 2009 for negotiations over a new international climate treaty to replace the 1997 Kyoto Accords.  Despite strenuous opposition from some corners, ACES has garnered support from most environmental groups and a substantial segment of the business community.  Many observers believe something similar to the current bill stands a reasonable probability of becoming law by December 2009.

Drinker Biddle is working hard to determine what ACES could mean for land use policy and the green building industry.  We will continue to keep you informed with our analysis of this critical legislation as it passes through Congress and, potentially, the regulatory process.

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