Yesterday I attended a Department of Energy Resources (DOER) hearing on its draft Commercial Building Energy Asset Labeling Program in Massachusetts. It would be the first energy asset labeling program of its kind in the world.
Initially a two – three year pilot, the goal is to require all existing commercial buildings to acquire an energy asset rating before a specific “trigger event” (e.g., building sale, re-finance, or major renovation). The lower the energy efficiency, the lower the rating. DOER’s goal is to motivate owners to invest in energy efficiency to avoid a bad score and a devaluation of the property. The proposed program would rate buildings against a “zero net energy benchmark.” As a result, most commercial buildings would be branded with a low score.
NAIOP is concerned that no business group was informed of this initiative until the white paper went out for public comment – especially given the significant impact this will have on investment and lending in the Commonwealth. The comment period closes on February 12 and NAIOP will be submitting detailed comments. In the meantime, here are the highlights from my testimony at yesterday’s hearing:
- Program Will Hurt Older Buildings and Gateway Cities. Throughout the report, it states that this program will “drive further investment in energy efficiency within the commercial building sector.” This is simply not the case. Consider an older office building in one of the Commonwealth’s Gateway Cities. Unemployment is in the double digits, vacancy rates are high, and many properties are valued at less than their purchase price several years ago. If every office building is required to undergo an energy assessment when it is put up for sale, refinanced or renovated, the end result will be devastating. Older buildings will be branded with a low score. For owners who are struggling to pay the mortgage on a building, this low score will reduce the value of their property, make it more difficult to sell, and make foreclosures and abandoned properties more likely. This is exactly what the Commonwealth and its Gateway Cities do NOT need.
- No Discussion of Real Costs Associated with Program. While there is some mention of the expected high cost of the assessment (with few assessors trained to undertake this energy rating), there is no mention of the real costs associated with the energy upgrades or the devaluation of these properties. The report focuses solely on “sticks” to achieve its goals. It provides no “carrots” such as subsidies or technical assistance. Many buildings, old and new, have been seriously devalued in this prolonged economic downturn. Forcing expensive retrofits could push many properties over the edge.
- Program Encourages New Construction and Expanded Carbon Footprint. The program would reduce the marketability of older buildings and, as a result, encourage developers to choose greenfield sites. It is widely known that renovating existing properties saves more carbon dioxide than constructing new projects. Thus, this program could actually result in an expanded carbon footprint for the Commonwealth.
- Program Ignores Market Realities. Throughout the report there are numerous assumptions that simply could not work in the marketplace. For example, it states that leases would allow building owners to pass through to tenants any costs associated with a mandatory labeling program through “very small, minor increases in tenant rents, making such a program more affordable and palatable.” However, many of these properties, especially older assets, have already been commoditized to such an extent that the rent levels they are able to achieve will never justify the efficiency investments.
NAIOP is strongly opposed to a mandatory energy asset labeling program and we were disappointed to see that such a mandatory program was included in the Massachusetts Clean Energy and Climate Plan for 2020. We encourage interested parties to submit comments on this initiative and we will urge the Administration to seriously consider the impact this will have on economic development in Massachusetts.