Now It's Easy Being Green
Kermit the Frog was ahead of his time. Today he would find it is much easier, and even cost-effective, to be green. The United States is experiencing a "greening"1 never before seen. Enthusiasm for green projects has grown beyond recycling programs, composting, and compact fluorescent light bulbs to embrace rain barrels, alternative energy, and green buildings. In the face of increased fuel costs, climate-related disasters, regional drought, and a wounded economy, going "green" has become an economic stimulus concept in itself.
No longer the pet project of environmentalists, building "green," the practice of using sustainable design and development techniques to create or renovate structures in an environmentally-responsible manner, has gone mainstream. Why now? Although sustainable development was practiced more than a century ago due to the limited resources available prior to the Industrial Revolution, today's "green" movement seeks to address startling figures generated by twentieth century building practices.
According to the Environmental Protection Agency ("EPA"), buildings alone account for 39% of total energy use, 12% of total water consumption, 68% of total electricity consumption, and 38% of carbon dioxide emissions. This consumption of energy and resources, coupled with the related environmental effects of air and water pollution, waste, and stormwater runoff, results not only in lost resources and environmental degradation, but also in harm to human health.
Environmentally-oriented movements overseas and the emergence of the non-profit U.S. Green Building Council ("USGBC")2 have now introduced the concept of sustainable development into the mass market. Sustainable development's marriage of economic benefit and high quality of life to protection of the earth's natural systems is ushering in a new, greener era.
Environmental Performance
Building green promotes development and construction practices that implement energy efficiency, conserve resources, reduce waste, and promote smart growth. Such sustainable practices are intended to reduce the environmental impact of development from cradle to grave, ideally creating a cycle that is akin to cradle to cradle with neutral carbon impacts.
Any building, old or new, can be made "green," the best example being the pending retrofit of the Empire State Building built during the Great Depression. Energy-efficient retrofits, coupled with other sustainability measures, will enable the Empire State Building to pursue Leadership in Energy and Environmental Design ("LEED") certification, discussed below, as an existing building.
Currently, no national green building code exists that mandates green standards.3 This has led to a sub-industry of third-party verifiers who confirm, rate, and certify energy efficiency and other sustainable practices. Several green rating or certification systems for commercial development have achieved national recognition, including the USGBC's LEED, the Green Building Initiative's "Green Globes," and various eco-rating programs from Audubon International. For residential construction, there are green certifications for developers and renovators to follow through LEED, as well as the Model Green Home Building Guidelines of the National Association of Home Builders. Each program endeavors to verify a project's use of sustainable design techniques by considering elements such as site selection, low-impact design, energy conservation, stormwater management, indoor air quality, waste management, and selective resource consumption. In addition, Energy Star, a joint program between the U.S. Department of Energy ("DOE") and the EPA, focuses on efficient energy use in products and practices in order to reduce consumption, save money, and protect the environment.
The benefit of such third-party verification is that buildings, practices, and products certified as green are more attractive to certain potential purchasers and tenants than conventional buildings. Such verification is just as valuable for re-development. Green retrofitting improves energy efficiency in existing building stock, one of the biggest contributors to greenhouse gas emissions, and offers an attractive product to buyers and tenants interested in infill and urban development.
A cottage industry of eco-consultants, such as energy auditors, eco-brokers (real estate agents who specialize in green buildings), and health and wellness experts, has sprouted to advise consumers on green buildings. While eco-consultants can obtain green certifications from certain trade organizations, no industry standards currently exist and, thus, such certifications should not be confused with green building certifications pursuant to LEED, Green Globes, or Audubon International's rating programs.
Economic Performance
Green buildings have the potential to become more valuable economic assets than conventional buildings because, when designed and constructed properly, green buildings offer durability; reduced energy consumption; reduced operating costs; and, purportedly, improved employee health, productivity, and satisfaction. Although the up-front costs currently may be higher than conventional construction costs, the savings realized over the life-cycle of a building through lower operating and repair costs are projected to more than compensate investors and developers for the short-term additional outlay. As technology has improved and market demand has grown, the construction cost premium involved in making buildings green has been reduced significantly.4
Furthermore, financial incentives for green building, retrofitting, energy efficiency, and renewable energy projects have been extended and expanded through the American Recovery and Reinvestment Act of 2009 ("Stimulus Act") and other energy-related legislation at the federal, state, and local levels.5 DOE has approved North Carolina's use of a portion of the State's share of Stimulus Act funds for a state energy program to improve energy efficiency, promote greater use of renewable resources, and create more green jobs in North Carolina. Projects to be funded need to be shovel-ready and shovel-worthy. Additionally, the North Carolina State Energy Office has developed an Energy Improvement Loan Program for industrial and commercial projects, is promoting residential energy efficiency and renewable energy through the NC HealthyBuilt Homes Program, and has implemented a new energy-efficient mortgage program through which prospective homeowners can finance energy efficient systems through a home mortgage with key lenders that have joined the program.
Several localities in North Carolina offer incentives for building green projects. Pursuant to N. C. Session Law 2009-95, passed on June 11, 2009, counties and municipalities can offer incentives, such as a density bonus, to developers for projects, whether new or re-development, that make a significant contribution to reduction in energy consumption. The City of Asheville and Mecklenburg County already offer permit fee waivers and rebates for certified green projects.
Incentives also come from programs authorized by utility companies. In North Carolina, utility loan programs, rate discounts, and rebate programs offer financial incentives for green homes. Progress Energy encourages the installation of solar power systems in residential structures through its SunSense™ program by paying a certain rate per watt of electricity generated, with the goal of reimbursing approximately 25% of the installation cost. For commercial installations, the SunSense™ program offers incentives and rebates including paying the going market rate for each kilowatt-hour of electricity produced. For both residential and commercial structures, SunSense™ offers rebates for the installation of solar water heating systems. Progress Energy also promotes Energy Star-rated homes which are typically 15% more energy efficient than conventional residences. Not only are the monthly energy savings sufficient to cover any premium on the purchase price, but the effective branding of Energy Star also makes for a strong selling point at resale due to the program's wide public recognition.
Passive House Design provides the residential construction industry with another way to reap the benefits of energy efficiency. Its techniques permit builders, developers, and building owners to participate in sustainable development without incurring the higher costs associated with the traditional non-passive techniques used to go green. Passive House Design focuses on construction elements that can be applied to all residences, from small starter homes to large luxury homes, whether new or as retrofits,6 such as enhanced insulation, heat recovery ventilation, high-performance windows and doors, and passive solar and internal heat gains.
Finally, the lending industry may cause green to be the new black by helping sustainable projects to avoid the red. The importance of energy efficiency; reduced resource consumption; and improved water and air quality to tenants, purchasers, and owners is driving lenders to factor green criteria into their financial underwriting for long-term investments. Green attributes, such as projects certified in accordance with LEED or Energy Star, are easier for a lender to value, particularly in jurisdictions that have adopted green building mandates utilizing LEED as the standard. Banks with experience in financing green projects have the additional advantage of understanding the green certification process and can attribute value to the pertinent factors. Thus, assuming a green project appears to be profitable, custom financing such as reduced interest rates based on green certification levels may be available from some lenders.
Social Performance
The growing desire of many people to enjoy an enhanced quality of life while leaving a better legacy to future generations is an additional driving force behind the green building movement. Companies that invest in residential and commercial properties are finding that the increased tenant and purchaser demand for sustainable features derives as much from lifestyle preference and social conscience as from financial or environmental motives. Fortunately, as pointed out in this article, the social benefits of building green do not have to be achieved at the expense of foregoing economic success.
Furthermore, including green properties in an investment portfolio has gained popularity through the relatively new concept of Responsible Property Investing ("RPI"). RPI tenets embrace social and environmental criteria such as smart growth, energy conservation, urban revitalization, environmental protection, worker well-being, and responsible corporate citizenship.7 These core principles allow investors subscribing to RPI to align their desire to promote social and environmental good with their desire to make money from market-driven development. Utilizing RPI, investment funds and other investors critically investigate development projects to ensure utilization of desired financial, social, and environmental features. Embracing the adage of "doing well by doing good," investors are finding RPI to be an important tool to evaluate and promote a project's success on multiple performance levels. Both broad-based real estate funds as well as those focused on financing energy-efficient retrofit projects now take socially responsible investing seriously.
Green Means Go!
Although the current economic climate has hampered adequate and accessible capital funding for green development, as it has for development in general, incorporating sustainable practices into a project may well give a developer access to capital available only to green investments and an advantage when the credit markets return to normal activity levels in a world in which sustainability and energy efficiency are being legislated by all levels of government and demanded by more consumers. The risks to a developer in choosing a design that is not green are building obsolescence and missed market opportunity. This area is ripe for collaborations among developers, investors, lending institutions, energy service providers, and building owners. "Green" building is no longer in the future; it is now. Kermit would be proud.
For further information regarding the issues described above, please contact Amy P. Wang.
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This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.