commentary

(Pittsburgh Post-Gazette)

September 25, 2009

Green Buildings, Jobs and Summits

by Charles P. Ries

In rich countries, more than a third of all energy is used to heat, cool and light buildings, or used within buildings, efficiently or not. Climate change demands we slash that consumption.

That's one reason why President Obama is hosting this week's G-20 summit at the David L. Lawrence Convention Center and the Phipps Conservatory and Botanical Gardens — two buildings that are "gold" certified for their energy-efficiency design characteristics by the U.S. Green Buildings Council.

The venues are part of the message: investments in renovation and energy-aware construction can be a big part of a green jobs strategy. If the United States is to be a global competitor in green building technology, it needs to learn from some of the other countries that will be at the table in Pittsburgh.

At RAND, we recently took a look at efficiency policies for buildings as they have been tried in Europe and Australia. Voluntary ratings programs such as the Green Building Council's can play a part in making our new buildings better energy performers. But the Europeans and Australians discovered that ratings can be more effective if all buildings are rated, as part of a system involving tighter building codes and better-trained inspectors. Ways can be found to reward energy savings for buildings under climate-change "cap and trade" systems, too.

Buildings have characteristics that make energy-efficiency policies tough to design, however. They are expensive, transactions are relatively infrequent and buildings last a long time. Unlike cars or toasters, they are not standardized. A design for a south-facing house in Pittsburgh would perform badly if facing north in Duluth, for example.

And how buildings are used matters: Most buildings that win design awards for their energy efficiency use more energy than projected. Lights are left on, thermostat levels raised, or heating and cooling systems are not serviced regularly. Moreover, the big energy savings are to be had by improving the performance of existing buildings, even while making new ones better.

In 2002, the European Union decided to require energy performance certificates be presented for all building sales or rentals. These certificates document a building's energy efficiency (on the basis of design characteristics or usage history) relative to others like it.

For public buildings, the EU also decided to require that energy efficiency ratings be posted in a prominent place, normally at the entrance. To rate buildings, most EU countries have adapted their appliance energy-efficiency grading system (using an "A" through "G" scale).

Roll-out of the program throughout Europe has taken time: standards for certificates have had to be developed, and inspectors had to be selected and trained to rate the buildings. The EU is now considering amendments to the system, notably to require a building's energy grade be included in all property advertisements.

In Australia, states and the Capital Territory have experimented with building energy ratings too. Two big states — New South Wales and Victoria — have gone further. For specified energy efficiency investments, they issue "white certificates" that may be sold to utilities and big energy users who are required to reduce energy use under the states' cap-and-trade programs.

In principle, it's a good idea, but in some cases third-party aggregators have distributed low-cost energy-saving equipment (compact fluorescent bulbs or low-flow shower heads, for example) to homeowners in order to claim the white certificates. Subsequent studies have shown that not all the equipment was actually used, and the program had to be changed.

Some in Australia are now proposing a buildings-only cap-and-trade system in which all large landlords are given energy-savings obligations that can be met either directly or by buying-in certificates from better-performing buildings. Such a system would provide more incentives for owners and users to operate buildings more efficiently.

Do all these policies work? The market indicates energy-efficient buildings are worth more. One study of U.S. office buildings confirmed that Green Building Council or EPA-rated structures earned higher rents and had higher occupancy rates, compared with similar buildings close by.

Another study calculated 7 percent higher net income per square foot for U.S. "Energy Star"-rated buildings when lower energy costs and higher net rentals were included. In Australia, home sales values in the Capital Territory correlated to energy ratings found that, all other characteristics being equal, each additional "star" (in a five-star system) was worth about 3 percent more in median sales value.

What lessons can the United States learn from Europe and Australia as it designs its own policies to improve the energy efficiency of buildings?

Our RAND research indicates that better building codes are essential. They may be slow to work (because only about 3 percent of structures are built or significantly renovated in a normal year) but features that improve energy efficiency (e.g., insulation, windows, lighting) are the cheapest when built-in from the start.

Another lesson is that while information and rating programs can provide incentives, great attention must be paid to training the requisite inspectors. Ratings are only as credible as the experts who issue them.

Public buildings should lead the way, by posting energy ratings and by setting minimum standards of energy performance.

And if a cap-and-trade system is adopted, it is important to think of ways to accord "white" efficiency certificates to buildings that make significant changes in their energy performance.

Not incidentally, a comprehensive energy-efficiency program for buildings can create well-paying "green jobs" — in the building materials industry, in renovation, in new construction and in the creation of high-tech testing and evaluation capabilities.

So, with the world assembled in Pittsburgh to debate the world's economic and environmental future, cast an eye to the walls and ceilings of the David L. Lawrence Convention Center. Their (silent) energy-efficient performance symbolizes the future as well.


Charles Ries, former U.S. Ambassador to Greece, is a senior fellow at the RAND Corporation, whose Santa Monica, CA headquarters building is "gold" LEED certified.

This commentary originally appeared in Pittsburgh Post-Gazette on September 25, 2009. Commentary gives RAND researchers a platform to convey insights based on their professional expertise and often on their peer-reviewed research and analysis.