Reactions to Energy Bill's Impact on Commercial Real Estate Mixed

The American Clean Energy and Security Act of 2009 sponsored by Henry Waxman (D–Calif.) and Edward Markey (D–Mass.) has cleared the U.S. House of Representatives, making the potential for passage—and concerns that commercial real estate will be negatively impacted—very real. The bill as it currently stands offers financial incentives for energy retrofits to help owners achieve sustainable goals, including building codes, energy labeling, and financial incentives to help defray the cost of energy retrofits.

The bill would establish a national building code mandating energy improvements in existing buildings. And, the bill’s proposed Building Energy Performance Labeling Program would direct the Environmental Protection Agency to develop an energy performance labeling program, such as EnergyStar, for buildings. But, property owners could be required to disclose the energy scores or performance ratings of properties constructed only after the bill was enacted. Proponents of the bill speculate that public reporting likely will be the biggest deterrent to non-compliance for owners that don’t improve their building’s energy efficiency.

However, many commercial real estate owners are concerned about the cost of energy retrofit upgrades that would be necessary to get a respectable energy label or bring an existing building up to the new code, a fear that the Retrofit for Energy and Environmental Performance (REEP) program included in the bill should alleviate. REEP would support retrofitting initiatives and potentially offer credit enhancements, interest rate subsidies, and initial capital for public revolving loan funds, according to the U.S. Green Building Council.

Additionally, a “cap and trade” provision calls for a 17 percent reduction of carbon emissions across the U.S. by 2020; it is the most controversial element of the bill because of its price tag. Cap and trade would require large emitters of greenhouse gas—such as utility companies and certain manufacturers—to buy carbon offsets for each ton of carbon emitted in the prior year. On the upside for commercial real estate owners: commercial buildings are unlikely to produce enough carbon emissions to be subject to cap and trade.

Conflicting research on the actual cost of the bill for American households is causing doubts about the legislation. A recent analysis by the Congressional Budget Office (CBO) stated that the cost of the climate legislation for the average U.S. household would come to $175 per year by 2020, while research conducted by the Heritage Foundation found that a household of four would pay $1,870 over the same period.