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Climate Talks and Bricks and Sticks

January 14, 2016

Last December, 195 countries agreed to reduce carbon emissions to 10 percent of 2005 levels by mid-century to avert the worst effects of climate change. The resulting impact on the places we live and work will be enormous. 

 

The Paris Agreement draws a sharp line in the sand for anyone building, developing or investing in the built environment - create carbon-neutral homes and buildings, or be left behind.

 

WHAT HAPPENED IN PARIS?

 

In December 2015, signatories to the Paris Agreement agreed to reduce greenhouse gas (GHG) emissions to limit climate change to no more than 2 degrees (C.) with 1.5 degrees as the desired target.  Each country will determine its own GHG reduction and ratchet that commitment every five years.  Countries must also report their progress in verifiable and transparent ways.  The Paris Agreement enters “into force” when 55 countries that emit 55 percent of global GHGs agree to it (the biggies like China, India, Europe and us), and that’s expected within five years. 

 

The United States agreed to reduce GHGs from 26 – 28 percent below 2005 levels by 2025 via the Environmental Protection Agency’s Clean Power Plan (CPP) and the “Tailpipe Rule” – emissions standards for vehicles.  Two-thirds of American GHGs come from those two sources – buildings and vehicles. 

 

In order to bypass a stymied Congress, the CPP was named as the regulatory North Star for what comes out of our nation’s power plant smokestacks, and that directly ties to building energy efficiency (how much energy is used) and the “source” energy (gas, electric, renewable, nuclear) that powers those buildings.  The CPP is also the American guideline in the Paris Agreement.

 

UTILITIES BRINGIN’ THE POWER

 

Utilities will do most of the heavy lifting when it comes reducing GHGs, and this will be tough.  In order to drive GHGs down, utilities will have to mothball dirty (coal) power plants, and invest heavily in energy efficiency and renewable energy.

 

In a panel discussion about the Paris Agreement and utility impact, Tom Kuhn of the Edison Electric Institute said that his investor-owned utility members spent $1 billion last year on energy efficiency and $9 billion on renewable energy.  While these numbers are impressive, Edison reports $100 billion in total capital expenditures last year. So that 10 percent spent on renewables and efficiency looks much smaller by comparison, and utilities have a long way to go.

 

In 2015 alone, $5 trillion in fossil-fuel subsidies was handed out by governments around the globe.  As those subsidies vanish, an action forcefully promoted in Paris, the price of oil and natural gas, currently at a 20-year low, must surely rise.  If carbon receives a price recognized here in the United States (and I believe it will), the days of cheap fossil fuels are over.

 

THE BIG, DA-- DEAL

 

Don’t think for a minute that utilities will allow their shareholder value to dive in spite of holding carbon-intensive assets with diminishing value.  The added costs for renewables, efficiency and clean power will be passed to consumers, and that means rising prices for fossil fuels.

 

There’s already a gear shift with government financial incentives.  Congress, gridlocked on almost everything, just renewed the Energy Efficient Property tax credit, a year before its expiration.  Congress also reinstated the $2,000 efficient home tax credit, which rewards builders who build significantly more efficient homes. 

 

Building energy codes governing energy use are ramping up fast, and places as disparate as Texas and Boulder, Colo., are adopting them.  And California has created its own above-code energy code called Title 24.  For residences, Title 24 mandates net-zero energy use by 2020, and for commercial properties, by 2030.  While I often hear my Cali colleagues saying “it ain't gonna' happen” for net zero by 2020, across-the-board net zero in California (or anywhere else) isn’t far off.

 

I’ve also got clients essentially giving utilities the middle finger.  One builder – niche, to be sure – won’t allow the utility to run gas lines into his homes.  Another has created a solar financing company to load up as many rooftops with solar electric panels as possible.  And several others have developed creative ownership structures that allow them to reap the benefits of heavy investment in green.

 

GAME ON

 

There’s a direct link between what was agreed to in Paris and what will happen on American construction sites.  Millennials care, and I hear them routinely asking about the carbon footprint of our properties.  With heightened awareness about climate change, builders loading up properties with code-minimum systems that hog fossil fuels risk alienating these younger buyers, and they're now the largest group of homebuyers. 

 

The Paris Agreement has delineated a simple case of carrot and stick.  Builders who lead the way with clean, efficient homes and buildings - get ahead of the carbon-reduction curve - will prosper.  Those who don’t, won’t.      

 

 

IMAGES:  Top, Eiffel Tower (from Inverse.com).  Middle, COP21 Logo.  Bottom, go.wh.gov.CleanPower

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