Executive Summary: Creating a Market for Energy-Efficient Commercial Buildings

Climate change is real. Greenhouse gas emissions must be reduced. 

The evidence is clear. Our Earth is warming. Rising global temperatures have been accompanied by changes in weather and climate. Many places have seen changes in rainfall, resulting in more floods, droughts, or intense rain, as well as more frequent and severe heat waves. The planet’s oceans and glaciers have also experienced some big changes: oceans are warming and becoming more acidic, ice caps are melting, and sea levels are rising.

As these and other changes become more pronounced in the coming decades, they will likely present challenges to our society and our environment. 

Over the past century, human activities have released large amounts of carbon dioxide and other greenhouse gases into the atmosphere. The scientific consensus is that these man-made greenhouse gases are the main cause of global warming and climate change. Sixteen percent of these greenhouse gases come from burning fossil fuels to produce energy to light, heat, cool, and ventilate commercial buildings. 

Creating a market for energy-efficient buildings reduces emissions and grows the economy. 

It can be done. Emissions reductions can be accomplished through implementing energy efficiency in buildings. It can be done at a profit and while growing the economy. It’s a strategy for reducing emissions that is good for the environment and good for the economy. 

So often we hear that reducing emissions from power plants will create a drag on economic activity by reducing the pace of economic growth resulting from higher energy costs. The answer to this assertion depends on the perspective from which policy-makers see the challenge of reducing greenhouse gas emissions. Policy-makers seem to focus heavily on energy production, electric utilities, and the operation of power plants, regulating energy-related emissions at the production source. This perspective only considers the impact on energy utilities, which are heavily invested in old technologies and are only too anxious to pass along the costs of a renewable energy transition to energy consumers. The inevitable result of this approach is the self-fulfilling prophecy of rising energy costs and decreased economic activity.

However, if policy makers look at the emissions reduction challenge from the perspective of energy consumers, a completely different scenario arises. Energy users have for decades taken advantage of evolving energy efficiency technologies to reduce energy consumption and save money. Reducing energy consumption in buildings reduces operating costs, empowering businesses to reap higher profits or to lower prices for the purpose of being more competitive in the marketplace, resulting in the creation or retention of jobs. Additionally, the process of creating more energy-efficient buildings is a decentralized activity that takes place at the point of energy consumption and results in the employment of many thousands of technical and trade workers to implement the latest energy-saving technologies and management practices in buildings. Thus, stimulating energy efficiency in buildings has the potential result of increasing economic activity while repositioning an economy to be more cost effective and competitive in the future, while also reducing emissions from power plants by simply using less energy.

It is easy to understand why utilities have not embraced energy efficiency more robustly. After all, they are in the business of selling more and more energy. But given the scientific imperative to reduce emissions, the time has come to worry less about the old electric utility business model and encourage the new industries of energy efficiency and renewable energy that are now cost effective and can be implemented directly by energy users. 

This Guide

Improving the energy efficiency of buildings—and reducing the associated greenhouse gas emissions—is a significant opportunity that saves money, creates jobs, strengthens the local economy, supports grid reliability, and helps pave the way for investments in renewable energy.

This guide is intended for government policy-makers, trade associations, and non-profit organizations that wish to reduce greenhouse gas emissions from power plants to address global warming and climate change. 

Typically, energy efficiency in commercial buildings is regulated by governments through codes and standards. This guide describes how to reduce carbon emissions resulting from energy consumption in buildings by implementing key elements of the successful United States’ ENERGY STAR Buildings program as a template for creating a market for energy-efficient commercial buildings. What makes the ENERGY STAR Buildings program unique is that it is a successful voluntary program that relies on using the power of information to influence markets. By establishing a voluntary program that identifies and recognizes energy-efficient buildings and their inherent value attributes, governments, trade associations, or nonprofits can stimulate demand for energy-efficient buildings and the services and technologies that are used to create them. Most importantly, building owners, managers, and occupants can be motivated to voluntarily improve the energy efficiency of their buildings and businesses simply by being made aware of the financial benefits, without having to resort to regulations or stricter building codes. While building codes and standards are important for setting a floor for energy performance, a more powerful and flexible market stimulus is the fact that saving energy saves money for building owners, managers, and occupants. This financial motivation results in creating energy-efficient buildings that are more competitive, profitable, and valuable. 

At the community level, the economic result of a market-driven voluntary program is a more attractive, competitive, and constantly improving building infrastructure, as well as the creation of an energy efficiency services industry that stimulates economic activity and creates jobs. 

In 1999, the United States Environmental Protection Agency developed and implemented the ENERGY STAR Buildings program (www.energystar.gov/buildings). This voluntary program is focused on improving the energy efficiency of existing commercial buildings in the United States and reducing the associated carbon emissions from power plants and other energy sources. 

In order to influence market behavior and create demand for energy-efficient buildings, ENERGY STAR Buildings created a set of market-influencing program elements that would drive the demand for energy-efficient buildings as well as the practices, technologies, and energy efficiency services that would improve and achieve a high level of energy performance for commercial buildings. What were those dynamic market-influencing program elements? How were they promoted to building owners, managers, occupants, mortgage lenders, and investors? Why were they embraced by the real estate market and US corporations? 

This guide contains the answers to these questions. It describes how emissions reductions can be achieved and documented on a voluntary basis in a world that is allergic to environmental regulation or doubtful of the effectiveness of carbon trading, carbon taxes, and international carbon reduction commitments. And finally, it will describe the environmental and economic benefits that accrue to communities, not only resulting from improved building infrastructure, but also from the development and manufacturing of new energy efficiency technologies and the establishment of a profitable energy efficiency services industry. 

Energy consumed by commercial buildings and industrial facilities is responsible for 40 percent of all carbon emissions from power plants in the United States. Commercial buildings account for 16 percent of greenhouse gas emissions.(1) In major cities such as New York City, buildings are responsible for 70 percent of greenhouse gas emissions.(2) The ENERGY STAR Buildings program demonstrated that existing buildings could, on average, be 30 percent more energy efficient while continuing to perform without compromise for their owners, managers, and occupants.(3) 

The results of the ENERGY STAR Buildings program are impressive. By 2015, more than 400,000 buildings were using the program’s tools to measure and track their energy performance and more than 25,000 had earned ENERGY STAR certification for superior energy efficiency. The resulting energy saved was the equivalent of 17 million metric tons of carbon dioxide equivalent (MtCO2e), or the electricity use of 2.3 million homes annually.(4)

By focusing on existing commercial buildings, the ENERGY STAR Buildings program was able to address all the energy consumption and emissions that resulted from their operation. Newly designed and constructed buildings were included on a “post construction performance basis” since new buildings become existing buildings as soon as they are put into service. The ENERGY STAR Buildings program also encouraged new building designs that would result in the construction of high-performing energy-efficient buildings. 

While the ENERGY STAR Buildings program did not limit the scope of buildings that were included in the program, it did provide a particular focus on building types that were the most energy intensive, represented the most square footage, and had the potential to result in the greatest carbon emissions reductions. 

Critical to this process is the essential realization that the energy performance of buildings can be improved in a financially justifiable manner, creating energy-efficient buildings. 

Energy Efficiency is an Energy Resource

Energy efficiency remains the cheapest and cleanest form of new energy supply. Greater building efficiency can meet 85 percent of future demand for energy in the United States.(5) (See chart from the American Council for an Energy Efficient Economy) Simply put, a watt not used does not have to be generated. When considering a shift from fossil fuels to renewables, it is important to reduce the demand and consumption of energy as much as possible in concert with deploying a renewable energy supply system. While both energy efficiency and renewable energy generation can be pursued together, it is important to remember that reducing the overall demand and consumption of energy will result in a reduction in the amount of renewable energy resources that will be required to achieve the overall goal of reducing carbon emissions. In this way the transition to a low carbon energy system based primarily on renewables can be accomplished more quickly.

THE RESOURCE COST ADVANTAGE OF ENERGY EFFICIENCY (ACEEE)

Energy-Efficient Building Definition

The United States’ ENERGY STAR Buildings program defined an energy-efficient building as a one that is more energy efficient that 75 percent of similar buildings in the nationwide building population. The ENERGY STAR Buildings program provides ENERGY STAR building certification to buildings that perform in the top quartile of similar building types. In this way, an energy-efficient building does not have to be an abstract idea, or a conceptual maximization of energy efficiency in a building. The placing of the ENERGY STAR building certification level at the top quartile of buildings enables the vast population of buildings to have a realistic opportunity to embrace energy efficiency and achieve certification. 

The strength of the ENERGY STAR Buildings program is the ability to:

• Measure ACTUAL energy use in buildings on a level playing field
• Identify and score the relative energy performance of buildings to each other
• Recognize those buildings in the top quartile with ENERGY STAR building certification 

By comparing buildings based on ACTUAL energy performance, it is not necessary to prescribe the technological components or the management practices that are inherent to energy-efficient buildings but merely to assess the resulting energy performance. This “results orientation” frees the program to focus on overall energy management strategies and the benefits of improved energy performance without getting bogged down in the complex world of evolving energy efficiency technologies.

Cumulative ENERGY STAR Certified Buildings and Square Footage

The Market for Energy-Efficient Buildings

Simply put, a market for energy-efficient buildings is a market that recognizes energy-efficient buildings and their value attributes. But a market must be able to:

• Understand the actual relative energy performance of buildings
• Understand the value attributes of energy-efficient buildings for their owners and the community
• Understand the process of improving the energy performance of buildings. 

And, the market must be able to identify and recognize energy-efficient buildings through a generally accepted certification process.

The United States’ ENERGY STAR Buildings program incorporated a suite of market-transforming program elements to successfully improve the energy performance of buildings, identify energy-efficient buildings, and create a market for them. This guide will show how. 

References:  

1. US EPA. “Inventory of U.S. Greenhouse Gas and Sinks: 1990-2013. Table 2-5: CO2 Emissions from Fossil Fuel Combustion by End-Use Sector (MMT CO2 Eq.).” February 2015.
2. Dickinson, Jonathan; Khan, Jamil; and Amar, Mikael. “Inventory of New York City Greenhouse Gas Emissions, December 2013.” City of New York, Mayor’s Office of Long-Term Planning and Sustainability. 
3. US EPA, ENERGY STAR Buildings Program. “A Decade of ENERGY STAR Buildings, 1999-2009” 
4. US EPA, ENERGY STAR Buildings Program. “Facts and Stats.” https://www.energystar.gov/buildings/about-us/facts-and-stats
5. ACEEE. “The Best Value for America’s Energy Dollar: A National Review of the Cost of Utility Energy Efficiency Programs.” http://aceee.org/research-report/u1402