Three policy keys to more energy-efficient commercial office buildings

NRDC recently joined the Real Estate Roundtable, the US Green Building Council, and Johnson Controls, Inc. in a memorandum identifying three actions the Obama administration could immediately take to better enable building owners to invest in improving the energy efficiency of commercial office buildings.  These are actions the administration could take now, with no new federal funding or authority, and the private investments spurred from these actions would have widespread benefits.

Investing in increasing energy efficiency can make a ton of sense for a building owner.  Better controls, building management systems, new lighting, and new windows -- these measures can reduce utility bills substantially.  The energy savings can quickly repay the cost of improvements, paying regular dividends thereafter.  Even if the tenant pays the energy bills directly, the savings from reduced energy consumption should be reflected in higher occupancy and ultimately in higher rents for the building.

But building owners today face multiple barriers to making these investments, even where it makes economic sense to do so.  With the actions we suggest, the Obama administration could help building owners to realize return from these needed investments:

  1. Correct out-dated property appraisal standards to enable appraisers to account for the value of energy efficiency.  Today, the standards, issued by bank regulatory agencies, are unclear.  As a result, appraisers often ignore or undervalue efficiency, and this inhibits lending and suppresses investment.
  2. Improve the agency guidance needed for building owners to claim an existing tax deduction (Section 179(d)) for investments that meaningfully improve building efficiency.
  3. Use the loan guarantee program at the Department of Energy to support whole-building retrofit projects that use innovative technologies and systems. This will help to prove the value of investing in these measures. 

I often focus on the financial return to the building owner for making investments in efficiency, and that should not obscure the fact that these investments produce great public benefits -- reducing toxic pollution from power plants, avoiding costs of building new power plants, which we all pay for, increasing our energy security, and creating new jobs in construction and building technology.  Investing in efficiency is one of the best investments we can make.