I. Recent Changes in City and State Mandates for Green Building Certification
A SECOND WAVE OF GREEN BUILDING regulations is being enacted. Cities, counties, and states have been refining existing green building codes in order to correct deficiencies and attempting to combat the high initial cost of green building retrofits through creative financing.
Issues with commissioning, audits, and performance bonds have been principal concerns. Many of the long-term benefits of green building retrofits are contingent upon the ability of green buildings to maintain their energy efficiency once built, certified, and while operating. Greening existing buildings may save anywhere from 4-20% over a 20-year building lifespan, but may cost anywhere from 1-2% of the building’s up-front costs. It is important for green building regulations to include commissioning requirements in order to ensure full capture of a green building’s cost savings over the long-term. Commissioning has been described as a systematic, forensic approach to quality assurance. Existing buildings that are retrofitted to increase energy efficiency, or new green building construction, may be later commissioned in order to determine whether the building continues to perform at the efficiency level at which they were designed, since inevitably a building “drifts” away from its intended efficiency level. There have been growing concerns with green building performance and whether the high initial costs of green building are truly recovered as projections indicate.
New York City recently dealt with concerns that green building may not provide long-term energy savings by enacting an impressive code that requires commissioning. For example, New York City’s Code requires that all buildings greater than 50,000 square feet (a significant number of buildings in the city) monitor energy and water usage and undergo energy audits and retro-commissioning every ten years. The New York City Code also closes a loophole in the city’s previous code that allowed renovations comprising less than fifty percent of the building area to remain non-compliant. Now all renovations must comply with the International Energy Conservation Code (IECC).
Performance bonds are another mechanism by which cities are ensuring that a green building will live up to long-term expectations for energy and water savings. In December 2009, Washington D.C. updated its green building ordinance to clarify performance bond requirements. Until recently, no bond, security, or insurance instruments existed to guarantee LEED® or other green building certification. In this case, if a city requires LEED certification and the building fails to achieve such requirements, additional money would be needed for final greening of the building. Washington D.C.’s code previously had no guarantee that a building would achieve LEED certification because it required a performance bond and there is no bond or security instrument on the market that could be substituted for the city’s “performance bond” requirement. Thus, if a building did not follow green building requirements, a surety or building owner must complete the project and cover any related cost. Washington D.C.’s recent amendments may hold promise as an example for other cities to use when requiring bond instruments that guarantee green building certification, plans and specifications.
While cities like New York and Washington, D.C. refine exisiting codes with commissioning and performance bond requirements, other cities are still focusing on implementing existing green building requirements. Of the regulations currently in effect, San Francisco’s 2008 regulations remain the strictest requirements for green retrofits in the nation. San Francisco’s green building requirements apply only to commercial buildings with areas of over 5,000 gross square feet and residential structures. In order to complete major alterations (in excess of 25,000 gross square feet) — specifically the existing structural, mechanical, electrical, or plumbing components of the buildings — developers must submit documentation of a LEED Silver rating by 2009 and a LEED Gold rating by 2012.
Los Angeles remains the largest city to have implemented a green building retrofit program, which it enacted in 2009. Los Angeles’ regulations apply to green building retrofits of at least fifty dwelling units in an existing mixed-use or residential building, if those alterations comprise at least 50,000 gross square feet of floor area and for which construction value is fifty percent or more of the replacement cost of the building. Boston has not amended its 2007 green building law, which requires that all rehabilitations over 50,000 square feet achieve LEED certification.
Until recently, cities have been leading the green building trend by requiring third-party green building verification; however, states are also now entering the green building regulation arena. These new state green building codes are likely to preempt local green building ordinances, some of which rely on third-party green building verification such as LEED. For example, in the last year, Massachusetts updated its green building code and California drafted and enacted an influential green building code that includes the strictest state-level requirements. Massachusetts was the first state to enact statewide, comprehensive green building regulations. In 2009, Massachusetts strengthened its 2007 green building regulations to include optional Appendix 120AA. This Appendix includes a “stretch code” that towns and cities may adopt as an alternative to the less stringent 2007 base energy efficiency requirements for existing buildings.
In February 2010, the California Building Standards Commission unanimously approved the new state building code “CALGreen,” which was published in July and takes effect in January 2011.15 Pursuant to CALGreen, some previously voluntary regulations for residential and commercial new construction will become mandatory. CALGreen also includes a two-tier voluntary system that allows localities to choose to enact more stringent standards. For example, the two tiers require certain buildings to exceed current California Energy Commission requirements by 15% and 30%, respectively. California has been touting the benefits of a uniform state green building code as opposed to the piecemeal adoption of local green building ordinances. Through CALGreen every city in the state will be subject to a minimum green building standard that requires everything from stormwater management plans to a 50% reduction in construction waste on job sites. Some commentators have claimed the 2010 CALGreen to be the most stringent and environmentally friendly state building code yet. “A coalition of environmental and green building certification groups, however, have criticized the 2010 CALGreen as a step backward, because its requirements are less strict than both LEED standards and existing California city building code standards, including those of Los Angeles and San Francisco.” All commentators seem to agree, however, that the mandatory basic requirements of the 2010 CALGreen are at least a step toward a greener California. Other provisions of CALGreen include: a 20% reduction in water consumption, moisture-triggered irrigation systems, and installation of low pollutant-emitting materials such as low-VOC paints, flooring, and carpets. The California Air Resources Board estimates that the Code’s mandatory provisions will reduce greenhouse gas emissions by the equivalent of three million metric tons by 2020.
Several international and national green building models have also been recently published. Instead of requiring LEED certification, cities may choose to use these model codes as a basis for local green building requirements. The International Green Construction Code (IGCC), released in March 2010, will be published in final form in 2012. The IGCC focuses on reducing the carbon footprints for commercial buildings. The 2008 National Green Building Standard, as approved by the National Association of Homebuilders (NAHB), defines green building for newly constructed single and multi-family homes and residential remodeling projects.
A broader national standard was recently announced and adopted by the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE), Standard 189.1.20 Standard 189.1, slated to be the first comprehensive code for green building standards in the United States, will cover standard green building issues such as site location, design, construction, and planning for the operation of high performance, green buildings. Although comprehensive, ASHRAE’s Standard 189.1 will not apply to single-family houses, multi-family structures of three stories or fewer, above grade manufactured houses (mobile homes), and manufactured houses (modular). The standard includes requirements for site sustainability, water use efficiency, energy efficiency, indoor environmental quality, and the building’s impact on the atmosphere, materials, and resources. ASHRAE’s Standard 189.1 will achieve a twenty-five percent energy savings and a broader scope over the 2007 ASHRAE Standard 90.1. ASHRAE’s intent is for cities to adopt Standard 189.1 into their local codes.
The question that many cities now face is which code or standard to adopt: a third-party rating system or a set of local green building standards. Many cities have chosen to implement point systems put forward by third-party rating entities. The benefits of such third-party rating systems include independent verification of green building measures, committee experts devoted to providing quality green building requirements, and some of the strictest regulations in the country. Currently, LEED is the most popular third-party rating system. LEED has put forward a set of very stringent standards at the Gold and Platinum rating level. As discussed above, cities such as San Francisco and Los Angeles have chosen LEED due to its popularity and because of its reputation for quality requirements. Despite its solid reputation, LEED is attempting to address recent concerns about its rating process. For example, LEED is beginning to institute commissioning and paper auditing requirements. Another concern with LEED is the increased chance of litigation over green buildings, coined “LEEDigation” by Chris Cheatham. Until recertification standards are developed, uncertainty involved in LEED could result in an increase of construction litigation over building performance. LEED certification requirements and points are not very clear. To make matters worse, as of the summer of 2009, USGBC halted publication of LEED Credit Interpretation Requests (CIR), which interpret and explain LEED requirements to those entities implementing LEED. This increased ambiguity as to what measures will satisfy LEED requirements will likely result in confusion and increased litigation over LEED accreditation.
Other government entities have opted to create their own green building regulations or adopt a state, national or international standard instead of third-party rating systems. For example, California has adopted CALGreen, a state green building code that contains a mandatory minimum state standard and an optional two-tier voluntary standard for localities to adopt. California claims that its standards surpass a third-party rating system for several reasons, including: its standards are less costly, since LEED accreditation can range from $30,000 to $50,000, and California’s standards are not based on private membership like LEED but instead include an open public process. The state emphasizes that CALGreen includes in-person auditing rather than LEED paper audits, commissioning requirements, and the benefit of state uniformity because there is one set of standards for all localities and for all types of buildings (whereas LEED has several point-based systems for each type of building). Whichever type of green building standard a locality chooses, there are now several examples of well-developed codes to choose from.
While green building regulations are on the rise and do produce energy cost savings, private and public landowners are finding it difficult to fund the high initial cost of energy retrofits. A recent study performed by the California Sustainable Building Task Force found that less than two percent of up-front costs yield twenty percent savings over a twenty-year building life. The report accounts for energy savings, water and waste reduction, employee productivity, and health improvements. Although emissions, water, and energy savings exceed the initial cost of green building within twenty years, researchers have found that green building aspects such as natural lighting and air circulation increase human productivity and translate into additional financial savings.
In response to front-loaded costs of green building, states, cities, and counties are beginning to offer Property Assessed Clean Energy (PACE) Bonds, also known as clean energy municipal financing. PACE bond proceeds may be lent to private commercial and residential property owners for the financing of small renewable energy retrofits and repaid through a tax lien over five, ten, or twenty years. Although the PACE bond financing mechanisms are by no means a one-stop solution to the costs of green retrofits, they are an example of one type of creative financing for green retrofits. Importantly, PACE bonds include front-end funding for the installation of energy-saving devices, provide municipalities flexibility in implementing such funding, and allow owners to contract directly with contractors. PACE bonds, therefore, are one avenue for local governments in the financial battle against the high upfront cost of certain green building retrofits.
California has taken the lead in the proliferation of municipally financed green retrofits through PACE bonds with the implementation of California’s 2008 Assembly Bill 811 (AB 811). AB 811 enables all California cities and counties to create assessment districts, which may encompass a portion or all of a city. Within that assessment district, the city or county is authorized by AB 811 to provide low-cost financial assistance to property owners in the form of contractual assessments for the installation or purchase of renewable energy sources that are permanently affixed to residential, commercial, and industrial property (such as solar panels).26 AB 811 requires that the property be already developed in order to ensure that the funds are used for the retrofitting of existing buildings rather than the construction of new buildings. These assessments are then recorded on the property’s tax roll as liens on the property and paid by the property owner as a contractual assessment. The liens run with the property and are carried over to subsequent property owners. In order to provide these loans, AB 811 requires that the city: (i) designate the boundary of the area where these loans are available; (ii) draft a specific contract specifying the terms and conditions of the loan; (iii) create a method for prioritizing property owners’ requests; and (iv) create a plan for raising capital through bond funds.
The Californian City of Palm Desert sponsored AB 811 and was the first city to roll out an AB 811 progrAM. Palm Desert’s AB 811 program is called the Energy Independence Loan ProgrAM. The city currently has a total of $5 million in commitments and the program has a cap of $7.5 million from interim financing through bonds sold to the city’s Redevelopment Agency. San Francisco, San Diego, Solana Beach, Sonoma County, and the Association of Bay Area Governments have all followed Palm Desert’s lead. Sonoma County, for example, has a $115 million program cap and uses the county treasurer as a funding source.  These established programs are providing essential headway for other cities and states to follow; however, certain aspects of PACE funding still require legal clarification. For example, California’s AB 811 does not make clear the priority of the loans over other mortgages in the event of foreclosure. Furthermore, AB 811 allows only cities and counties to create districts and enter into contractual assessments for energy-efficient retrofits. To this end, the California legislature has already proposed subsequent clarification bills, including Assembly Bill 474, to allow other local entities, such as special districts, to create assessment districts and provide the municipal funding of energy retrofits.
Similarly, Berkeley, California enacted a PACE-type program called Berkeley Financing Initiative for Renewable and Solar Technology (FIRST), through the California Mello-Roos Act, a slightly different channel than the AB 811-authorized assessment districts.  Through FIRST, a property-owner agrees to annex into a special city tax district, and then the city provides up-front costs for residential and commercial property owners to install electric and thermal solar systems. These costs are repaid to the city over twenty years through a special tax on the property. Unlike AB 811, only charter cities, those that possess additional autonomy beyond state laws, may create these special tax districts and utilize this type of funding. General law cities, with only the power that the state has carved out for them, may not implement financing for private property and must rely on AB 811.
Following California’s lead, Colorado has also passed a PACE bond law that allows cities to grant property liens for energy efficient fixtures, such as solar panels, on both commercial and residential property.  Boulder County’s Climate Smart Loan Program implements efficient energy fixture funding city-wide through loans financed by publically offered bonds. 
In addition to local financing mechanisms, federal monies are being distributed in hopes of sparking the economy. Congress’ American Recovery and Reinvestment Act (ARRA), a $787 billion appropriation bill, included funding for green building retrofits and aimed at stimulating the United States economy.  ARRA will hopefully spur building energy efficiency by funding the Department of Energy’s State Energy Program with billions of dollars and requiring the Secretary of Energy to develop retrofit funds. ARRA has already allocated $5.5 billion to the General Services Administration (GSA) to support its High Performance and Sustainable Design Program.  The GSA currently requires ARRA-funded buildings to receive LEED Silver certification. ARRA also issued a new type of tax-credit bonds called Build America Bonds,  which allow state and local governments to issue taxable bonds for capital projects such as green retrofits of public infrastructure; and Clean Renewable Energy Bonds (CREBs),  which are tax credit bonds issued by the Energy Policy Act of 2006 and supplemented by ARRA.
- See S.F. OFFICE OF THE CONTROLLER, OFFICE OF ECONOMIC ANALYSIS REPORT: MAYOR’S GREEN BUILDING REQUIREMENTS: ECONOMIC IMPACT REPORT (May 21, 2008), http://www.sfcontroller.org/ftp/uploadedfiles/controller/oea/080063%26lowbar;economic%26lowbar;impact%26lowbar;final.pdf; GREG KATS, CALIFORNIA SUSTAINABLE BUILDING TASK FORCE, THE COSTS AND FINANCIAL BENEFITS OF GREEN BUILDINGS (Oct. 2003), http:www.usgbc.org/Docs/News/News477.pdf.
- See EVAN MILLS, CALIFORNIA ENERGY COMMISSION PUBLIC INTEREST ENERGY RESEARCH (PIER), BUILDING COMMISSIONING: A GOLDEN OPPORTUNITY FOR REDUCING ENERGY COSTS AND GREENHOUSE GAS EMISSIONS (July 21, 2009), http://cx.lbl.gov/documents/2009-assessment/LBNL-Cx-Cost-Benefit-Pres.pdf.
- See Mireya Navarro, Some Buildings Not Living Up to Green Label, N.Y. TIMES, Aug. 31, 2009, at A8, available at http://www.nytimes.com/2009/08/31/science/earth/311eed.html?%26lowbar;r=l%26r3%26hp. LEED®, Leadership in Energy and Environmental Design, a third-party green building rating system developed by the U.S. Green Building Council (USGBC), is the most prolific of the national green building certification standards. U.S. Green Building Council, LEED Rating Systems, http://www.usgbc.org/DisplayPage.aspx?CMSPageID=222 (last visited July 14, 2010).
- N.Y. City, N.Y., ADMIN. CODE § 28-308 (2010).
- Id. § 28-308.3.
- D.C. CODE § 6-1451.03 (2010).
- Id. § 6-1451.05.
- See Chris Cheatham, White Paper: Revisions to Performance Bond Requirement of the D.C. Green Building Act, http://www.greenbuildinglawupdate.com/uploads/file/ DC%20White%20Paper%20FINAL%20PDF.pdf (last visited July 14, 2010).
- S.R, CAL., BUILDING CODE § 1302C (2008).
- Id.% 1304C.3.2.1.
- L.A., CAL., MUNICIPAL CODE § 16.10B (2008).
- BOSTON, MASS., ZONING CODE § 80B-2 (2008).
- See Mass.gov, Public Safety, Energy Conservation “Appendix 120AA” Approved, http://www.mass.gov/Eeops/docs/dps/inf/appendix%26lowbar;120%26lowbar;aa%26lowbar;jul09%26lowbar;09%26lowbar;final.pdf (last visited May 7, 2010).
- See Cal.gov, Build Standards Commission, CALGreen, http://www.bsc.ca.gov/CALGreen/defaulthtm (last visited May 7, 2010).
- See, e.g., Marisa Lagos, State Adopts Greenest Building Codes in U.S., CHRONICLE SACREMENTO BUREAU, Jan. 13, 2010, available at http://articles.sfgate.com/2010-01-13/news/17827807%26lowbar;l%26lowbar;building-code-green-building-council-verification-system/2.
- The Public Blawg, California to Go Green! First Mandatory State Green Building Code in Nation, http://www.publiclawnews.com/public%26lowbar;law%26lowbar;news/climate-change-and-green-practice/(Jan. 20, 2010, 13:23 PST).
- See, e.g., California Air Resources Board, http://www.arb.ca.gov/cc/ab32/ab32.htm (last visited May 7, 2010).
- International Code Council, International Green Construction Code, http://www.iccsafe.org/cs/IGCC/Pages/default.aspx (last visited May 7, 2010).
- ASHRAE Standard Project Committee 189.1, Standard for the Design of High Performance, Green Buildings Except Low-Rise Residential Buildings, http://spcl89.ashraepcs.org/(last visited May 7, 2010).
- Chris Cheatham is an attorney at Crowell Moring, his blog is available at: http:// www.greenbuildinglawupdate.com (last visited May 7, 2010).
- U.S. Green Building Council, CIRs, http://www.usgbc.org/DisplayPage.aspx? CMSPageID=168 (last visited May 7, 2010).
- Press Release, Office of the Governor of the State of California, 2010 California Green Building Standards Code: Nation’s First Mandatory Statewide Standards Code to Green Construction and Fight Climate Change, http://images.emaildirect.com/clients/govpressoffice847/GreenBuildingCodeOnepager.pdf (last visited May 7, 2010).
- See GREG KATS, THE COST AND FINANCIAL BENEFITS OF GREEN BUILDING: A REPORT TO CALIFORNIA’S SUSTAINABLE BUILDING TASK FORCE ii (Oct. 2003), http://www.usgbc.org/Docs/News/News477.pdf; see also JERRY YUDELSON, DEVELOPING GREEN: STRATEGIES FOR SUCCESS 69 (2006).
- Assem. B. 811 (Ca. 2008), available at http://www.leginfo.ca.gov/pub/07-08/ bill/asm/ab_0801-0850/ab_81 l_bill_20080721_chaptered.pdf (amending and adding to section 5898.10 through 5898.32 et. seq. of the Streets and Highways Code).
- CAL. STS & HIGH CODE § 5898.12(a)-(d) (West 2008).
- Id. § 5898.12(a).
- Id. § 5898.20(b).
- Id. § 5898.22.
- The Palm Desert AB 811 Conference (June 12, 2009), http://www.ab811.org/.
- Sonoma County Energy, Sonoma County Energy Independent Program (SCEIP), http://www.sonomacountyenergy.org/energy-improvements.php (last visited May 7, 2010).
- City of Berkeley, Berkeley FIRST: Financing Initiative for Renewable and Solar Technology, http://www.ci.berkeley.ca.us/ContentDisplay.aspx?id=26580 (last visited July 14, 2010).
- H.B. 081350, 2008 Gen. Assem., Reg. Sess. (Colo. 2008), available at http://www.leg.state.co.us/clics/clics2008a/csl.nsf/fsbillcont/E62A0C34C01772C9872573D000830B58?Open%26file=1350%26lowbar;enr.pdf.
- Climate Smart, ClimateSmart Loan Program, http://www.beclimatesmart.com/ (last visited May 7, 2010).
- See Recovery.gov, Track the Money, http://www.recovery.gov/ (last visited May 7, 2010) (signed into law by president Obama in February of 2009).
- U.S. General Services Administration, Sustainable Design Program, http://www.gsa.gov/Portal/gsa/ep/contentView.do?contentType=GSA%26lowbar;OVERVIEW%26contentId=8154(lastvisited May 7, 2010).
- IRS.gov, IRS Issues Guidance on New Build America Bonds (Apr. 3, 2009), http://www.irs.gov/newsroom/article/0,,id=206037,00.html.
- Clean Renewable Energy Bonds (CREBs), http://www.crebs.org/ (last visited May 7, 2010).
By Erin Elizabeth Burg Hupp, Associate, Meyers, Nave, Riback Wilson and Silver, California; J.D. University of North Carolina School of Law, 2008; Masters in Regional Planning, University of North Carolina Department of City and Regional Planning, 2008