Out front on climate change

Reducing emissions is a worthy goal, but costs should also be considered

massinc’s recent research report, Rising to the Challenge: Assessing the Massachusetts Response to Climate Change, was billed as “the first independent assessment of state action on climate change.” We, at NAIOP Massachusetts, believe that it missed an opportunity to provide a more complete, non-partisan account. Although it is acceptable to inquire into the progress that the state is making to reduce greenhouse gas emissions as required by statute, this report is by no means a sufficient analysis of the issue.

The Massachusetts Global Warming Solutions Act, passed in 2008, required the state’s secretary of energy and environmental affairs to set a greenhouse gas reduction goal of between 18 and 25 percent for the year 2020 (one of the most ambitious in the nation). Ian Bowles, who was the secretary at the time, chose to set that target at 25 percent. The secretary was required to submit an action plan to the Legislature that could assist in meeting this goal; however, there was no requirement that the plan be followed or that other means could not be used to achieve this target.

We have no argument with the statute’s basic premise that climate change is a serious global problem and there need to be international and national plans in place to reduce greenhouse gas emissions in a timely manner. But we feel that questions need to be raised regarding the practical challenges of emissions reductions—where and how they can best be achieved, at what cost, and over what period of time?

Climate change is not a local issue. One state’s reduction in greenhouse gas emissions will have little impact on how that state will be affected by global climate change. Any other expectation is un­realistic. However, pursuing policies that could unintentionally hinder growth will most definitely put the Commonwealth at a competitive disadvantage when it comes to attracting or retaining jobs.

MassINC’s stated goal was to uncover the facts and reach independent conclusions based on evidence. Its approach was developed from the perspective that the state has committed to achieving ambitious greenhouse gas reduction goals, and that there should be a dialogue about the best way to do so. Unfortunately, the report comes up somewhat short. Rather than offering a dialogue, the report simply checks off which measures in the plan have or have not been completed to date. It accepts these recommended measures as the only path to achieving the required reductions and lacks any qualitative critique of these mitigation methods.

A comprehensive assessment of this issue would include a serious discussion of the economic and financial impacts that will result from recommendations of the state plan. This includes a cost/benefit analysis of any presumed impacts on businesses and residents. However, the only mention of cost impact in MassINC’s report is general statements from environmental advocacy groups indicating that these measures are fully balanced by the savings they will produce. The groups also imply that the costs would be less detrimental as valued against the cost of building a new power plant, which is a very unsuitable standard by which to judge individual policies. In addition, many of the policies outlined in the plan would have dramatic impacts on the economic development goals of the Commonwealth and should be questioned accordingly.

The report is also lacking more substantive examination of the controversial decision to fund many of the alternative energy and efficiency programs with increased electricity costs for ratepayers. What are the impacts of the plan’s recommendations? What are the associated costs to those existing businesses that are dependent on high energy consumption? Are these investments the right ones for the Commonwealth? Does the growth of new jobs created by the grants and incentives justify the jobs lost due to high energy costs?  Besides the anecdotal evidence, what are the firm data regarding these investments and the return in terms of jobs, tax revenue, and economic development?

Also overlooked is the question of whether the aggressive greenhouse gas target for Massachusetts will significantly alter the projected impacts of climate change in the Commonwealth. The report describes projected climate change threats that include a rise in sea level, more frequent severe storms, and temperature spikes in the summers. If the Commonwealth is successful in meeting (and even exceeding) its greenhouse gas reductions at a substantial cost to the public, does anyone credibly believe such reductions would meaningfully reduce potential climate change impacts?

The Massachusetts Department of Energy Resources needs to be more open and transparent with its decisions to pursue mitigation plans. These should be grounded in sound economic cost-benefit analyses using data from its regulated industry stakeholders. Advancing policies without reliable data and analysis of their impact could cause the state to make decisions that have unintended negative consequences on our future economic growth.

Critical first steps would be to educate the marketplace, provide additional support to make these methods financially attractive, and recognize that the state of the economy is an important determinant of when to require greater efficiency measures. We should be researching whether there are more cost effective ways to get to the appropriate goals before we accept and mandate the most expensive solutions.

Increased energy efficiency in new development and existing buildings is a prime target for achieving the 2020 target goals. But it is important to keep in mind that not all markets around the Common­wealth are created equal. Statewide energy mandates for all building types will create a disincentive to develop new properties in areas where the markets cannot absorb the increased costs. Unfortunately, many of the “one-size-fits-all” government proposals do not account for varied building types or tenant energy requirements, and they rarely take into account actual investment/payback ratios.

The more stringent energy efficiency requirements disregard the mismatches between who pays the cost of an option (owner) and who gains the benefit (tenant), making it difficult to justify economically the investment in the first place. There is also too much emphasis being put on regulating the energy efficiency of the building shell. Much of a building’s energy use actually falls within the tenant spaces and therefore is not directly influenced by mandates for increased energy code efficiency. However, with appropriately scaled tax incentives, owners could receive financial benefits for the upfront investment and tenants could see reductions in their operating costs.

On a national basis, rather than using regulatory mandates, President Obama has announced the Better Buildings Initiative, an innovative economic development program using tax incentives to make existing buildings more energy efficient through retrofit projects. The amount of the incentive would grow with increased energy savings, encouraging ambitious projects and also rewarding more moderate retrofits that achieve meaningful levels of energy savings.

Since Massachusetts has among the highest energy costs in the nation, it makes good business sense to reduce a property’s controllable operating costs, especially if it can help to also reduce greenhouse gas emissions. Becoming more energy efficient is an important consideration in today’s commercial real estate industry. Many developers, owners, and tenants understand that it makes economic sense to find ways to increase initial capital investments for energy efficient technology and design elements that will result in a reasonable payback of energy savings.

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As a result, the market is becoming more responsive to the need for energy efficiency, especially with volatility in energy costs, and a more educated and demanding tenant base. We have already seen that, without regulatory requirements, more buildings are now built as LEED-certified “green buildings.” Before the state moves toward aggressive mandates, policy makers should consider incentive-based solutions. Doing so could leverage and support private investments in order to help businesses reach higher levels of energy efficiency. MassINC should follow-up its report with a more critical look at the existing, proposed mitigation measures, as well as other alternatives, which could lead the Commonwealth down the right path to our greenhouse gas reduction goals.  

David Begelfer is the CEO of NAIOP Massachusetts, the Commercial Real Estate Development Association. He also is a MassINC board member.