DEVELOPMENT IN A CARBON-CONSTRAINED WORLD
By Lawrence L. Ostema, Esq., LEED AP
Also published in Green Builder Magazine, March 2008
There is an 800-pound green gorilla in the room when most people talk about green development: climate change. Many people would add climate change to the laundry list of politics and religion as topics not suitable for casual conversation. Whether this reluctance to discuss climate change arises from political motivations, unfamiliarity with the complex scientific issues, or unwillingness to distract potential customers or partners from the generally accepted positives of green development, one thing is certain. Wall Street and Silicon Valley love the nationwide changes that are about to come due to the current political pressure and momentum to address this issue.
Although investment banks, equity groups, and carbon credit developers are anxious to embrace the reality of a national carbon cap and trade system within the next few years, few developers and builders are prepared for the risks and opportunities that will arise in this likely environment. The climate change issue for developers and builders boils down to two simple facts. Commercial and residential buildings account for approximately 39% of the greenhouse gas emissions in the US, with an additional 27% caused by driving vehicles between homes and work, shopping and play.
Although investment banks, equity groups, and carbon credit developers are anxious to embrace the reality of a national carbon cap and trade system within the next few years, few developers and builders are prepared for the risks and opportunities that will arise in this likely environment. The climate change issue for developers and builders boils down to two simple facts. Commercial and residential buildings account for approximately 39% of the greenhouse gas emissions in the US, with an additional 27% caused by driving vehicles between homes and work, shopping and play.
The first volley came last year from California Attorney General Edmund “Jerry” Brown when he sued the County of San Bernardino for its failure to address greenhouse gas emissions and mitigation strategies in the update to the County’s 20-year Master Plan. Attorney General Brown has reportedly warned two private residential developers of master-planned communities that they need to address greenhouse gas emission reduction plans or their developments may be blocked. Similarly, Massachusetts and King County in Washington have recently expanded their state Environmental Policy Acts to require certain large private projects to report, forecast and reduce their greenhouse gas emissions.
With recent publications such as the Urban Land Institute’s Growing Cooler, awareness of the impact of a development’s location on greenhouse gas emissions is increasing. Growing Cooler forecasts that by 2030 greenhouse gas emissions from vehicles will increase by 41% despite a 12% improvement in fuel economy. Although part of that increase is due to a forecasted 23% increase in the nation’s population, most of the gain is attributable to a forecasted 59% increase in vehicle miles traveled. The publication calls for aggressive policies to limit sprawl and encourage smart growth with decreased automobile dependence.
When (not if) the US has a mandatory carbon cap and trade system, the increased cost borne by the utilities and other targeted “source” industries will be passed down to end users, i.e., home owners. Developments that are farther from centralized work locations will be at a distinct disadvantage as homeowners become faced with higher commuting costs due to “carbon premium” added to fuel prices. Utility costs will also likely rise, making homes without energy efficiencies more costly to operate and less attractive to own.
One climate change bill before Congress right now (the Lieberman-Warner Climate Security Act) includes a national energy efficiency code that would require all new homes to be 30% more energy efficient by 2010 and 50% more energy efficient by 2020 as compared to IECC (2006) standards. It would also require major greenhouse gas emitters to reduce those emissions by 2050 to approximately 70% below 2005 levels. Similar to most climate change bills, it would create nationwide caps on greenhouse gas emissions for individual companies within targeted industries. Those companies that exceed the reductions required by the caps could sell their excess reductions (or allowances) to companies that fail to meet the mandatory reductions. This is the “trade” portion of cap and trade. The Lieberman-Warner bill would also allow certain parties to create offsets, or carbon credits, for other projects that reduce greenhouse gas emissions beyond a business-as-usual scenario.
The crux for the residential industry is how these credits are created and what the federal and state governments do with the revenues they raise from auctioning or selling these allowances or “rights to pollute.” Right now Lieberman-Warner and similar bills currently before Congress lack provisions for smart growth developments to generate offsets or carbon credits that could be sold and generate more profit for the developers. Qualification and verification programs would need to be developed and put in place to allow developers to create carbon credits based on infill locations and other sustainable development techniques. The sale of these carbon credits would improve the bottom line and incent sustainable development. Creative residential lobbying groups will have to work on those proposals.
A much more viable benefit to green developers and builders would be a tax credit system for sustainable development that is designed to reduce vehicle miles traveled and automobile dependence and save even more energy than any national energy efficiency code. Both the federal government and the states will have monies available from auctioning allowances to fund these tax credit programs. This tax credit system would not be a mandate for all developers and builders but an incentive for those desiring to exceed the new standards. Since carrots generally work better than sticks in a free trade environment, tax credits could be a powerful tool for change. Additionally, focused sustainable development could be rewarded through these credits, such as low-income housing, brownfield redevelopment, and transit-oriented development.
With some thoughtful policy choices, the residential market could experience increased and exciting market demand even in these tough economic times. Without these creative policies, however, mandatory carbon markets could likely depress new development and further lower resale values. The best-case scenario is that Congress and the state legislatures will recognize that a robust residential market brings with it a broad range of other benefits, including increased “green collar” jobs, a marketplace for clean technologies, and strong incentives for sustainable development.
Attorney Lawrence L. Ostema, a LEED Accredited Professional, heads the Green Initiatives Group at Horack Talley in Charlotte, N.C. Reach him at lostema@horacktalley.com.