ViewPoint: A new stretch energy code is not justified

This OpEd appeared in the Boston Business Journal on June 3, 2016.

In March 2015, Governor Charlie Baker signed Executive Order 562, initiating a comprehensive review process for all regulations. Only those regulations which are mandated by law or essential to the health, safety, environment, or welfare of the Commonwealth’s residents would be retained or modified, making Massachusetts a more efficient and competitive place to live and work.

Agencies must demonstrate, in their review, that there is a clearly identified need for governmental intervention; the costs do not exceed the benefits; a regulation does not exceed federal requirements; less restrictive and intrusive alternatives have been considered and found less desirable; and the regulation does not unduly and adversely affect the competitive environment in Massachusetts.

Based on these specific criteria, the business community is concerned that the Board of Building Regulations and Standards (BBRS) is currently considering a new Stretch Energy Code as it develops the 9th edition of the statewide building code. Besides the fact that this Stretch Code undermines the statutory requirement that there be a uniform State Building/Energy Code, there is no good reason for it. This proposed energy code is unnecessary and fails the regulatory review standards, and the Baker Administration and the BBRS should not advance it.

The Stretch Energy Code was originally adopted in May 2009, despite strong opposition from the business community.  The code required commercial and residential construction in those communities that voted to adopt it to be approximately 20% more energy efficient than the statewide code. The new stretch energy code would require a 15% increase in energy efficiency over the current code. The Stretch Code has caused confusion among local building inspectors and developers.  Due to this and several other reasons, a new version of the Stretch Energy Code has never been adopted, even when the statewide code changed.  In fact, at the close of the Patrick Administration, the BBRS voted not to advance a new draft of the Stretch Energy Code.  However, in April 2015, this decision was reversed.

Massachusetts is already the most energy efficient state in the nation, with the most aggressive energy efficiency targets.  Furthermore, Massachusetts will be one of only a handful of states in the nation to adopt the 2015 International Energy Conservation Code (IECC) statewide.  Since the Green Communities Act requires the adoption of the latest IECC (every three years), the Commonwealth’s position as a national leader in energy efficiency will be ensured even without a Stretch Code.  Anything beyond that is overly burdensome and creates a significant competitive disadvantage for Massachusetts.

It is important to note that there is no statutory requirement to adopt or update a Stretch Energy Code.  There is no mention of it in any statute, and it is only the Department of Energy Resources’ (DOER) policy that encourages the creation of this code.

According to DOER, the changes to the Stretch Code would take effect automatically in stretch code communities without any local vote.  Many municipalities had no idea they would be subject to an automatic upgrade.

The business community continues to support a uniform statewide building and energy code.  We believe a new Stretch Energy Code is unnecessary, will hinder economic development, and would impose an unfair and difficult burden on local building officials and the construction industry.  We urge the Baker Administration and the BBRS to eliminate the Stretch Energy Code, once and for all, and acknowledge the latest version of the IECC as the only energy code in Massachusetts.

David Begelfer is the CEO of NAIOP Massachusetts, the Commercial Real Estate Development Association.

Out front on climate change

This article appeared in the Summer 2012 issue of Commonwealth Magazine.

Massinc’s recent research report, Rising to the Challenge: Assessing the Massachusetts Response to Climate Change, was billed as “the first independent assessment of state action on climate change.” We, at NAIOP Massachusetts, believe that it missed an opportunity to provide a more complete, non-partisan account. Although it is acceptable to inquire into the progress that the state is making to reduce greenhouse gas emissions as required by statute, this report is by no means a sufficient analysis of the issue.

The Massachusetts Global Warming Solutions Act, passed in 2008, required the state’s secretary of energy and environmental affairs to set a greenhouse gas reduction goal of between 18 and 25 percent for the year 2020 (one of the most ambitious in the nation). Ian Bowles, who was the secretary at the time, chose to set that target at 25 percent. The secretary was required to submit an action plan to the Legislature that could assist in meeting this goal; however, there was no requirement that the plan be followed or that other means could not be used to achieve this target.

We have no argument with the statute’s basic premise that climate change is a serious global problem and there need to be international and national plans in place to reduce greenhouse gas emissions in a timely manner. But we feel that questions need to be raised regarding the practical challenges of emissions reductions—where and how they can best be achieved, at what cost, and over what period of time?

Climate change is not a local issue. One state’s reduction in greenhouse gas emissions will have little impact on how that state will be affected by global climate change. Any other expectation is un­realistic. However, pursuing policies that could unintentionally hinder growth will most definitely put the Commonwealth at a competitive disadvantage when it comes to attracting or retaining jobs.

MassINC’s stated goal was to uncover the facts and reach independent conclusions based on evidence. Its approach was developed from the perspective that the state has committed to achieving ambitious greenhouse gas reduction goals, and that there should be a dialogue about the best way to do so. Unfortunately, the report comes up somewhat short. Rather than offering a dialogue, the report simply checks off which measures in the plan have or have not been completed to date. It accepts these recommended measures as the only path to achieving the required reductions and lacks any qualitative critique of these mitigation methods.

A comprehensive assessment of this issue would include a serious discussion of the economic and financial impacts that will result from recommendations of the state plan. This includes a cost/benefit analysis of any presumed impacts on businesses and residents. However, the only mention of cost impact in MassINC’s report is general statements from environmental advocacy groups indicating that these measures are fully balanced by the savings they will produce. The groups also imply that the costs would be less detrimental as valued against the cost of building a new power plant, which is a very unsuitable standard by which to judge individual policies. In addition, many of the policies outlined in the plan would have dramatic impacts on the economic development goals of the Commonwealth and should be questioned accordingly

The report is also lacking more substantive examination of the controversial decision to fund many of the alternative energy and efficiency programs with increased electricity costs for ratepayers. What are the impacts of the plan’s recommendations? What are the associated costs to those existing businesses that are dependent on high energy consumption? Are these investments the right ones for the Commonwealth? Does the growth of new jobs created by the grants and incentives justify the jobs lost due to high energy costs?  Besides the anecdotal evidence, what are the firm data regarding these investments and the return in terms of jobs, tax revenue, and economic development?

Also overlooked is the question of whether the aggressive greenhouse gas target for Massachusetts will significantly alter the projected impacts of climate change in the Commonwealth. The report describes projected climate change threats that include a rise in sea level, more frequent severe storms, and temperature spikes in the summers. If the Commonwealth is successful in meeting (and even exceeding) its greenhouse gas reductions at a substantial cost to the public, does anyone credibly believe such reductions would meaningfully reduce potential climate change impacts?

The Massachusetts Department of Energy Resources needs to be more open and transparent with its decisions to pursue mitigation plans. These should be grounded in sound economic cost-benefit analyses using data from its regulated industry stakeholders. Advancing policies without reliable data and analysis of their impact could cause the state to make decisions that have unintended negative consequences on our future economic growth.

Critical first steps would be to educate the marketplace, provide additional support to make these methods financially attractive, and recognize that the state of the economy is an important determinant of when to require greater efficiency measures. We should be researching whether there are more cost effective ways to get to the appropriate goals before we accept and mandate the most expensive solutions.

Increased energy efficiency in new development and existing buildings is a prime target for achieving the 2020 target goals. But it is important to keep in mind that not all markets around the Common­wealth are created equal. Statewide energy mandates for all building types will create a disincentive to develop new properties in areas where the markets cannot absorb the increased costs. Unfortunately, many of the “one-size-fits-all” government proposals do not account for varied building types or tenant energy requirements, and they rarely take into account actual investment/payback ratios.

The more stringent energy efficiency requirements disregard the mismatches between who pays the cost of an option (owner) and who gains the benefit (tenant), making it difficult to justify economically the investment in the first place. There is also too much emphasis being put on regulating the energy efficiency of the building shell. Much of a building’s energy use actually falls within the tenant spaces and therefore is not directly influenced by mandates for increased energy code efficiency. However, with appropriately scaled tax incentives, owners could receive financial benefits for the upfront investment and tenants could see reductions in their operating costs.

On a national basis, rather than using regulatory mandates, President Obama has announced the Better Buildings Initiative, an innovative economic development program using tax incentives to make existing buildings more energy efficient through retrofit projects. The amount of the incentive would grow with increased energy savings, encouraging ambitious projects and also rewarding more moderate retrofits that achieve meaningful levels of energy savings.

Since Massachusetts has among the highest energy costs in the nation, it makes good business sense to reduce a property’s controllable operating costs, especially if it can help to also reduce greenhouse gas emissions. Becoming more energy efficient is an important consideration in today’s commercial real estate industry. Many developers, owners, and tenants understand that it makes economic sense to find ways to increase initial capital investments for energy efficient technology and design elements that will result in a reasonable payback of energy savings.

As a result, the market is becoming more responsive to the need for energy efficiency, especially with volatility in energy costs, and a more educated and demanding tenant base. We have already seen that, without regulatory requirements, more buildings are now built as LEED-certified “green buildings.” Before the state moves toward aggressive mandates, policy makers should consider incentive-based solutions. Doing so could leverage and support private investments in order to help businesses reach higher levels of energy efficiency. MassINC should follow-up its report with a more critical look at the existing, proposed mitigation measures, as well as other alternatives, which could lead the Commonwealth down the right path to our greenhouse gas reduction goals.

It’s a bright time for solar

If there ever was a time to consider investing in solar photovoltaic (PV) projects in Massachusetts, it is now. There are a number of federal and state financial incentives that may not be around for long. 

  1. First, the developer can take advantage of a Federal U.S. Treasury “Cash Grant” based on 30% of the total value within 60 days of the project becoming operational.  This benefit expires on the end of this year. Or, as an alternative, the owner can take a Federal Investment Tax Credit of 30% of the project value. Tax credit can be carried back 1 year and carried forward 20 years.  This incentive expires December 31, 2016.
  2.  Second, the owner can benefit from a 100% bonus depreciation. This is based on the total value in the year that the project is placed into service. This will also expire the end of this year, but will continue for another year with a 50% bonus depreciation.
  3.  Lastly, project developers can benefit from the Massachusetts solar renewable energy certificates (SRECs.)  The market for SRECs is currently trading at more than $500/MWH (there is a $300 floor.) This is value priced annually.

Maybe this is the right thing to do for the environment; but it looks like, for now, it is the smart thing to do for your bottom line.