Month: October 2015

How Greed and Capitalism Can Solve the Climate Crisis

By Greg Hamra, LEED AP BD+C, O+M
Climate Solutionist, Education & Advocacy
Guest Author

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You’re about to learn of a fiscally conservative, market based solution to the climate crisis that reduces government regulations, boosts economic growth, creates millions of jobs, save thousands of lives per year and reduces greenhouse gases and has the endorsement of leading economists and world-famous scientists.

But first, a disclaimer: I think Naomi Klein makes some very good points in her book, “This Changes Everything: Capitalism vs. The Climate.” Naomi Klein first landed on my radar with this hard-hitting quote:

“Climate change detonates the ideological scaffolding on which contemporary conservatism rests. A belief system that vilifies collective action and declares war on all corporate regulation and all things public simply cannot be reconciled with a problem that demands collective action on an unprecedented scale and a dramatic reining in of the market forces that are largely responsible for creating and deepening the crisis.”

I find it very difficult to argue with her statement. However, many experts believe solution exists somewhere in between Naomi Klein and Milton Friedman, in fixing capitalism, not overthrowing it. Don’t be so quick to dismiss capitalism as a tremendously powerful force to drive human behavior and major financial moves. Right now capitalism is very broken. It’s being misused, mismanaged, and even hijacked. And when it comes to our energy economy, it is completely bastardized. Milton Friedman is turning over in his grave.

“It is easier to imagine the end of the world than to imagine the end of capitalism.” – Fredric Jameson

And if you think all this is just a scam – part of a liberal conspiracy, I say to you: “You can ignore reality, but you can’t ignore the consequences of ignoring reality.” - Ayn Rand

Please take a moment to consider the benefits being put forth, an economic boost, job creation, and restoration of free-market capitalism! The issues at hand are of such great urgency and importance that none of us can enjoy the luxury of expecting everyone to do what needs to be done for the same reasons you or I have.

So what’s the problem?

Our need power our world by continually burning of fossil fuels results in serious consequences for our planet, our economy, and the way we live. Our very way of life is threatened. Burning of fossil fuels results in the release of heat-trapping gases to our atmosphere. This is not disputed.

The costs associated with this are immense. They include: downwind emissions that shorten people’s lives, sea-level rise (SLR), extreme weather, increased wildfires, ecosystem and biodiversity loss (including crop loss), dying coral, famine, floods, mudslides, damaged fisheries, and a national security risk in the form of climate refugees. (See documentary: “Climate Refugees” with Newt Gingrich – trailer).

The big issue for us in South Florida is clearly sea-level rise. In fact, Miami is ground-zero for the economic impacts of sea-level rise with the greatest value of assets at risk in the world. SLR is the result of a warming planet. Over 93% of the Earth’s trapped surface heat goes straight to the oceans. Thermal expansion of ocean water and melting of land-based ice results in sea-level rise. Here in S. FL, the seas have risen nearly 9 inches in the past 100 years, as measured by the Naval Air Station in Key West. During super high-tides, sea water is delivered into our streets through the storm sewers. (Sea-level rise in action) The City of Miami Beach is undertaking major infrastructure improvements, raising sea-walls, roads and sidewalks, and installing pumps to return seawater back to Biscayne Bay. The first phase of this project included four pumps at a cost of $15 Million. The entire project will involve 60-70 pumps with a whopping price-tag.

Estimated cost: $500 MILLION

Prices reflected in our cost of good or fuels: $0

With assets in the trillions to be protected, we need to do this, but we also need to fix a big accounting error.

Our broken energy economy bears little resemblance to a free-market economic model.

Three predominant market distortions that must be remedied:

  • The price on fossil fuels does not reflect the social costs.
  • Energy subsidies (picking winners and losers) serve to create deeper market distortions.
  • Top-down government regulations can be inefficient and costly, and receive consistent pushback from ‘free-market’ purists and industry groups.

The President’s new Clean Power Plan is an aggressive and effort to tackle GHG emissions. So what’s the problem? Half of the states are already protesting it.
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Our energy economy is broken. Very broken. Nobody argues with this.

Another problem we have are elected leaders who are driven by fear, short-term interests, and often re-elected by low-information, similarly fearful voters. I submit that most of these punters, these ‘slow-lane’ Americans who waffle somewhere between “let’s keep it in neutral” and “more CO2 release is good for us” are actually quite scared. But they’re not afraid of the science. They’re afraid of the solutions. They fear that anything we do to reduce greenhouse gas emissions will tank our economy. Many people truly believe this, conservatives and many liberals too. And they’re wrong.

What we have at hand is potentially the biggest job-creating economic stimulus ever seen… if we get it right. But what if we don’t? It’s not like it’s the end of the world, right? Wrong That’s exactly what it means. Our survival on this planet depends on getting this right, and fast. We can’t afford to punt. We need a big play.

We need to fix the accounting error. The moment we begin to account for the social and environmental costs of carbon based fuels, the markets will shift.

To my conservative friends:

Our energy economy is nothing at all like the “free-market” Milton Friedman envisioned. Would you help to restore true, free-market principles, remove the socialism from the system, help restore capitalism and fix our energy economy? Consider dealing with this issue the Reagan way.

To my more liberal, and potentially anti-capitalist friends:

Capitalism is a big word, with many flavors. Leading economists realize we’re getting it wrong and that a correction is in order. Experts think more plausible, and certainly more politically viable to plug the holes in capitalism rather than swap it for an entirely different economic system. That would require nothing short of a revolution. Are you ready for that? Me neither.

There’s one plan that could put us on the right track. The Washington Post called it the most politically viable solution to reducing greenhouse gasses, and it is consistent conservative economic principles.

The carbon fee + dividend (CF&D) plan was written by a Republican icon, George Shultz, President Reagan’s Treasury Secretary and Secretary of State, and Nobel laureate Gary Becker.

It calls for a steadily-rising revenue-neutral carbon tax collected at the most upstream point — the mine, well, frack pad — (about 1600 points of collection in the U.S.) and rebating those fees back to American households. All of it. This is not a big government plan. In fact, it trades in current big government regulations and subsidies for a simple, more honest, market-based plan that fixes the accounting error.

This plan is consistent with conservative economic principles by embedding the true cost into the price we pay for our direct and embodied energy. When happens, market actors change behavior almost immediately. When the markets move in this direction we’ll be on our way. Suddenly all those green jobs we’ve wanted start taking off. American ingenuity and competition is unleashed.

This plan has the endorsement of leading economists, top scientists, and top economic policy analysts. George Shultz says: “You shouldn’t call it a tax if the government doesn’t keep it!”

Read about the Shultz-Becker Carbon Tax proposal in this WSJ article (or see PDF).

In summary the Carbon Fee and Dividend plan:

  • reduces government intervention
  • leverages the incredible power of the market
  • is revenue-neutral; rebates all funds to taxpayers
  • unleashes American ingenuity and innovation, and spurs competition
  • will create millions of jobs, benefiting our economy (REMI report)
  • would eliminate costly fossil-fuel subsidies
  • would result in thousands of lives saved
  • would reduce GHGs by over 50% by 2035

From a performance standpoint, the Carbon Fee & Dividend would outperform the Clean Power Plan. Look:

  • CPP aims for a 32% emissions reduction by 2030 (and some call it a job killer)
  • CFD would reduce CO2 emissions by 52% by 2035 (and it creates 2.8 million jobs)

So the solution is simple:

  1. Put an HONEST price on carbon
  2. Rebate all fees to American households
  3. Get out of the way and let the free market work

This is a call to my fellow Americans. Let’s fix capitalism! Let’s restore some honesty into the system.

Economist Robert Reich explains in 3-minutes:

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What we need is political will for a livable world. We need a price on carbon, a carbon fee & dividend.

To be part of the solution, contact Citizens’ Climate Lobby, the most effective organization driving sane climate policy in this country. www.citizensclimatelobby.org

The world’s most famous climate scientist says…
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Learn more:

 

The Financial Analysis of a Deep Sustainable and Resilient Retrofit

PJ Pictureby Paul L. Jones, CPA, LEED Green Associate, Principal,
Emerald Skyline Corporation

According to a guide to the energy retrofit market entitled “Deep Energy Retrofits: An Emerging Opportunity” and published by the American Institute of Architects (AIA) in conjunction with the Rocky Mountain Institute (RMI), “Energy efficiency in existing buildings is most often addressed by upgrading dated engineering systems such as lighting and HVAC systems with better performing technologies… A design-centered, holistic approach to a retrofit, in which all the interactions in a building’s systems are considered can yield substantially higher energy savings. Retrofits of this type, called deep energy retrofits, aim for energy savings upwards of 50%.”

A green or sustainable building refers to both the real estate (land, building, fixtures, furniture and equipment) and its maintenance, or the use of processes that are environmentally responsible and resource-efficient throughout its life cycle (e.g., site planning, building design, construction, occupancy and operation including maintenance and renovation, and, finally, demolition. In our corporate brochure, we state that “A facility made sustainable by Emerald Skyline Corporation will have a small carbon footprint, high occupant comfort, limited environmental impact and conserved natural resources.”
Accordingly, a deep sustainable retrofit, hereinafter referred to as a “Deep Retrofit,” is designed to lower energy, water and waste disposal bills as well as operating, maintenance and insurance costs with increased marketability and higher long-term values due to a higher tenant capture rate resulting in premium occupancies and rental rates as well as reduced risk resulting in a lower cap rate upon sale. Other benefits include improved employee health, productivity and satisfaction from improved indoor environmental quality.

With recognition of the increasing importance of resiliency in the ability of a building to survive and recover from a catastrophic event, any Deep Retrofit should also include improvements that reduce a building’s vulnerability and risk due to stronger winds, higher storm surge, more frequent flooding, wild fires and other natural hazards that threaten our families, livelihoods, businesses and properties.

As a Deep Retrofit represents a significant modernization of a facility during which over 50% of the building is renovated, the optimum time to implement a Deep Retrofit is upon acquisition, to improve a building that suffers from significant vacancies, to reposition or repurpose a building, pursuant to a new lease (or renewal thereof) to a major tenant or timed to certain events in a property’s life cycle. A Deep Retrofit is a tremendous catalyst for a building’s comeback.

According to Jack Davis in a 6/14/2012 article entitled “Energy-saving Deep Retrofits published by the Urban Land Institute, “Deep retrofits are part energy efficiency project, part real estate project, and can be daunting in their cohesive nature. However, in a 2011 study the New Buildings Institute found that “in most projects, the cost of the efficiency portion was not distinguishable due to the renovation nature of the work.

Mr. Davis makes another valid point: “Psychologically, Deep Retrofits are simply more inspiring that a piecemeal approach. They they do not occur by accident; they imply the involvement of a capable team with a plan and the technical abilities to pull it off. They grab our attention in a unique way. In the competition to secure and retain tenants, with buildings certified under the LEED program becoming the norm in some markets, deep retrofits offer a gut-level indicator that this building is different.”

Study after study (see our Sustainable Benefits article “Welcome to Sustainable Benefits – Let’s begin with the benefits of doing a commercial building sustainable retrofit” February 2015) provides evidence that a LEED (Leadership in Energy and Environmental Design) or Energy Star certified building produces returns beyond those realized from energy savings alone. Therefore, it only makes sense that the financial analysis of a Deep Retrofit should extend beyond the capital budgeting approaches presented in our September eNewsletter.

RMI defines Deep Retrofit Value (DRV) as “the net present value of all of the benefits of a deep energy or sustainability investment.” In the case of a Deep Sustainable Retrofit, the analysis includes a calculation of the change in market value resulting from the implementation of the Deep Retrofit, which is based on the income approach to value in a full property valuation.

The first step in the analysis of a Deep Retrofit is to perform a diagnostic assessment of the Building. The assessment will include:

  • Gain an understanding of the building’s historical performance through an analysis of existing usage of, and expenditures for, energy, water, building maintenance and cleaning supplies as well as tenant behavior
  • Perform a sustainability audit of mechanical, electrical, plumbing and other building systems as deemed appropriate which includes an estimate of the capital investment required as well as a forecast of future utility, maintenance and operating cost savings,
  • Evaluate internal environmental quality, waste disposal practices, purchasing and other operating policies, procedures and practices which will also include a calculation of any savings or incremental costs realized as a result of the Deep Retrofit; and
  • Determine the resiliency of the property by ascertaining the building’s ability to absorb and recover from actual or potential adverse effects of stronger storms, higher storm surge, wildfires and more frequent flooding.

The next step is to complete what RMI refers to as a “Value Element Assessment” which is designed to identify the potential types of value that may be created by the Deep Retrofit. The four key elements of added value are:

  1. Retrofit Development Costs: As noted in the capital budgeting process in our article on the Capital Budgeting Analysis of a Sustainability Project, any direct and indirect savings are measured against the capital cost to be incurred. The Retrofit Capital Cost Equation is as follows: Gross capital cost less avoided capital costs less cost savings through design less cost subsidies, rebates and incentives equals Retrofit Capital Costs
  2. Energy and Non-Energy Operating Costs: The first financial benefit from a Deep Retrofit will appear in the utility bills as both the wattage consumed and the amount of peak-demand billing that is avoided will result in an immediate reduction in the electric and gas bills as well as the water bill. Non-energy operating cost savings are realized from new technology, improved performance information and operating savings from reduced maintenance requirements, and, including resiliency measures in the Deep Retrofit is anticipated to result in reduced property, flood and hazard insurance expenses. Also, a Deep Retrofit will enable a building owner to comply with current and future regulatory reporting requirements due to automated benchmarking data collection.
  3. Rental Revenues: According to a primer for building owners and developers published by the Appraisal Institute in conjunction with The Institute for Market Transformation, Deep Retrofits have the potential to improve tenant-based revenues which are those revenues generated when building owners are able to monetize enhanced demand resulting from the Deep Retrofit.
    • “In many markets, rental premiums are emerging in green buildings as many of today’s best tenants are increasingly willing to pay a premium for green spaces… National studies for commercial office buildings back up this trend on rents and occupancy, as certified green buildings outperform their conventional peers by a wide margin (According to recent studies, the premium can range from 2% to 17%).
    • “Occupancy premiums can lead the case for green investments. If it can be determined that the green features will result in higher occupancy (through market research) than an otherwise similar building, a significant argument can be built for increases in value (from a reduced vacancy factor). Further, a LEED-certified building will attract demand from governmental agencies, Fortune 500 companies, major banks and insurance companies and other tenants who have corporate sustainability guidelines.
    • “Savings may be experienced as a result of tenant retention and the corresponding reduction in lost rents, reduced retrofit costs upon releasing spacer, lower vacancy at turnover and improved lease terms.
    • “Along with this improved occupancy premium, quicker absorption may be experienced in new properties or those that have been repositioned as green.”

While the calculation of the increased income is the same as for a traditional building investment analysis, the determination of the key assumptions requires extensive market research to support the assumptions which are input into a discounted cash flow model, like ARGUS® Valuation DCF.

  1. Sales Revenue Premium: Increased property values are realized from the higher net operating income realized due to reduced expenses and increased tenant revenues, lower capitalization and discount rates which result from risk-mitigating protections sustainable and resilient buildings provide property owners and banks, higher quality tenants, and increased investor demand. Recent surveys show that green commercial buildings trade at a premium ranging from 6% to 35% depending on the certification and the market. Studies have shown that capitalization rates for Energy Star and LEED-certified buildings are between 50 and 100 basis points lower than those for brown buildings.

Since the analysis is to determine the premium due to sustainability and resiliency improvements made to a commercial building. To complete this analysis, it requires the creation of a Cash flow projection under two scenarios:

  1. Baseline: A baseline projection is prepared based on the property in its current operating condition and market position; and
  2. Post-retrofit: This projection incorporates the retrofit development costs, the reduced operating expenses, the premium rental revenue and the any anticipated reduction in cap rate.

The difference in net operating income and the reversionary value is discounted based on the risk profile of the property and the investment to determine the value add from completing the Deep Retrofit.

The benefits of a Deep Retrofit can be significant!

With over 30 years of experience in acquisition due diligence, property valuation and cash flow forecasting as well as the ability to conduct the diagnostic assessment and create a Deep Retrofit program and budget, Emerald Skyline is uniquely qualified to be your advocate in planning, analyzing and executing your sustainable and resilient retrofit project.

Commercial Building Project Update

JulieBy Julie Lundin, Founder,
Director of LEED Process Management for Emerald Skyline Corporation

Emerald Skyline’s repurposing of our commercial building located in Boca Raton, FL is progressing and changing as we go through the development process. We have concluded the Planning Advisory Review and are now working on the Site Plan Application. As with any project, basic requirements must be met. These may include zoning, future land use designation, and city codes. One city code we were hoping to get an exception for is the Floor Area Ratio (FAR). The FAR is governed by the zoning district regulations applicable to each property. Based on our property’s zoning our “floor area ratio” – the floor area of our building divided by the lot area in square feet, cannot exceed 0.4. Since our project is registered as a LEED project we were hopeful that an exception to the 0.4 FAR could be made. The response regarding this issue during the Planning Advisory Review is that according to City Code, no variance may be granted which has the effect of increasing the intensity/FAR on a plot or parcel.

The adherence to the required FAR has presented us with design challenges resulting in both positive and negative impacts for the project. The property on which our building is located and it’s required setbacks is not large enough to accommodate any outward (horizontal) added square footage. Therefore, our option to increase the building size is by building up (vertical). This requires that a structural engineer is engaged to beef up the existing foundation and wall structure under the new space to ensure that it can support the added weight. With the addition of a second story, a stairwell has to be utilized which will use some of our already limited square footage. We have also decided to include an elevator which impacts the design and available square footage of the building. The height restrictions of 30’ based on the zoning district does not impact the addition of a second floor including the elevator shaft. The elevator component is a key design element to the exterior elevations.

The FAR of 0.4 has required us to significantly reduce the size of the second floor addition than we originally designed and wanted. This has impacted the layout of both floors and require that we re-think what is important to be included and where. As designers we have learned that what initially is perceived as negative impacts can actually lead to a better designed project. The second floor is now smaller but the green terrace is larger. This allows for more roof top vegetation and promotes a peaceful, connected to the environment space for the occupants. For more in-depth information on the benefits of a green roof please see Kendall Gillens’s post from last month’s newsletter “Vegetation is Not Solely for Landscape: The Benefits of a Green Roof”.

We are now preparing the drawings and documentation for the Site Plan Application. The site plan requires many issues to be addressed; parking, ingress and egress, landscaping, exterior lighting, ADA requirements, water and sewer, fire and life safety, etc. One of requirements of the site plan is to provide the design of the dumpster enclosures and their location on the property. Our property has very limited space which must accommodate many different elements to meet codes. The project is LEED registered with the intent to obtain the highest level of LEED certification that is possible. Sustainable design and LEED certification should positively impact all phases of a building including its design, construction and operation. We are proposing our building will be a zero waste facility in which no trash is sent to landfills or incinerators. Our goal is to send no garbage to the landfill. We will utilize new avenues for any waste and think creatively in terms of reducing, reusing and recycling. An example of this initiative will be the creation of an organic garden located at the rear of the building to process and compost organic materials to create a product that can be used to enrich the soil. Additionally, we will send materials that can be repurposed to innovative companies that will use the waste to create new products. We also plan to install portable carts with several recycling receptacles to facilitate the collection and sorting of waste materials. Our company will transport the recyclables to the recycling facilities. No commercial waste hauling will be contracted and there will be no dumpsters on the property.

We will pursue a dumpster deviation request from the City of Boca Raton and a Zero Waste Facility Certification. This is a third-party certification and we will need to meet all of its requirements. One requirement which is important is that our policy meets all federal, state, and local solid waste and recycling regulations. A zero waste facility will meet criteria to earn points toward LEED certification.

Our site plan will also contain a bicycle rack, an electric charging station for cars and pervious pavement rather than asphalt. For more information on pervious pavements please see our post “Exploring Permeable Pavement Options for LEED Projects”.

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Zero Waste Business Facility Certification

Inspired by the Zero Waste business community, the U.S. Zero Waste Business Council and its Certification Development Committee have created the first third-party Zero Waste Business Certification program for facilities that meets the Zero Waste Principles of the Zero Waste International Alliance (ZWIA). Our facility certification program goes beyond diversion numbers and focuses on the upstream policies and practices that make Zero Waste successful in an organization. We have crafted the facility certification to meet the requests of Zero Waste Businesses for a valid, comprehensive verification of their Zero Waste achievements.

Objectives

The USZWBC 3rd Party Zero Waste Business Certification does the following:

  • Supports ZWIA definition of no waste to landfill, incineration and the environment
  • Drives the development of new markets and new ideas towards a Zero Waste Economy
  • Meets Zero Waste Businesses request for valid and comprehensive third party certification
  • Focuses on upstream policies and practices beyond diversion or recycling
  • Emphasizes strong Total Participation: Training of all employees, ZW relationships with Vendors and customers


Requirements for Certification

1. Zero Waste policy in place
2. 90% overall diversion from landfill and incineration for non-hazardous wastes

-Discarded materials are reduced, reused, recycled, composted or recovered for productive use in nature or the economy at biological temperatures and pressures
-Materials can be processed above ambient biological temperatures (>200° F) to recover energy from the 10% residual, but they do not count as part of the 90% diversion
-Reused materials (office furniture, pallets, paper, etc.) are eligible to count as part of the 90% diversion requirement

3. Meet all federal, state/provincial, and local solid waste and recycling regulations
4. Data provided to USZWBC has been published formally
5. Data documents a base year and measurements since the base year
6. Commit to submit 12 months of data to USZWBC annually (Data submitted will be public and published on the USZWBC website)
7. Case Study of Zero Waste initiatives can be published on USZWBC website
8. Recertification is required every three years
9. Contamination is not to exceed 10% of each material once it leaves the company site