Sustainability Without the Stars Sustainability Without The Stars

“Sustainability – Without the Stars”

“Sustainability Without The Stars” Presentation to Property Institute of New Zealand Conference May 26, 2011 Norman Smith Senior Adjunct Associate – New Zealand Rocky Mountain Institute

What does that mean? Abandon rating schemes…. …or collectivist action

Sustainability - the “jargoniest” word of 2010 - Advertising Age n Even ahead of monetize, choiceful, and the new normal n A good concept gone bad by misuse - and - overuse

Sustainability in the built environment n Promoting energy efficient buildings and minimising their harm on our environment n Improving economic efficiency, while protecting and restoring ecological systems, and enhancing the well-being of people in general. “Doing well by doing good”

The Big, Big Picture n Buildings account for 40%of primary energy in developed countries … and rising. n The International Energy Agency (IEA) estimates that current trends in energy demand for buildings will stimulate half of energy supply investments to 2030. n The World Business Council for Sustainable Development identified buildings as one of the five main users of energy where “megatrends” are needed to transform energy efficiency

2011 Top trends in the US US Earth Advantage Institute: n n n n Energy labelling for homes and office buildings More accurate energy rating systems for homes and office spaces Buildings information modelling software Advances in building modelling for energy and embedded energy Buy-in to green buildings by the financial community, new load products Carbon calculations to document, measure, and reduce greenhouse gas creation Net zero buildings which generates more energy than they use On-site renewable energy sources such as wind, solar or geo-exchange systems

Messages from your European colleagues n Reducing energy consumption and eliminating wastage are among the main goals of the European Union n The Energy Performance of Buildings Directive imposes energy performance certificates (EPCs) for all buildings in Europe. “EPCs won’t realise their full potential until valuers actually factor them into their valuations and the grade it gives the building”. Roger Messenger Chairman of TEGo. VA – The European Group of Valuers’ Associations January 2010 'Sustainability is no longer a buzzword: it is now an everyday part of property decision making' Jo Stocks: Chief Executive - Watts Group UK

Where Goest Australia ……. . n n Very active in reducing Greenhouse Emissions in buildings which account for 25 -30% of GHG 2010 - stringent energy efficiency requirements in building code. Gillard Government working on tax breaks for energy efficient buildings Mandatory disclose of energy efficiency in buildings – Commercial Buildings Disclosure

Commercial Buildings Disclosure n National programme to improve the energy efficiency of Australia’s large office buildings n Since November sellers or lessors of office space (2, 000 sq. m +) required to provide an up-to-date energy efficiency rating. n Building Energy Efficiency Certificate must include: 1. 3. NABERS Energy star rating [*] an assessment of tenancy lighting and general energy efficiency guidance n Repeat - This is mandatory 2. [*] National Australian Built Environment Rating System. Performance-based rating system for existing buildings. Actual versus design Energy – water- waste-indoor environment Given the increasing linkages between our two economies – not to mentioned our professed desire to catch up with Australia - is it reasonable to assume similar policies will be heading across the Tasman?

But wait there’s more Green leases [*] n n n Government agencies (since September 2006) must include a Green Lease Schedule. A legally binding part of the lease and a formal commitment to energy efficiency Sets a minimum ongoing operational building energy performance standards measured by NABERS [*] A series of provisions that encourage/require the parties to reduce the environmental impact of the premises. Encourages sustainable practices by landlord and the tenant and remove disincentives. End result; (a) a comfortable, productive and healthy indoor environment (b) reduced energy use and reduced production of Greenhouse Gases (c) reduced use of potable water and the use of recycled water where appropriate (d) effective diversion of construction, demolition, and land-clearing waste from landfill and incineration disposal, and recycling of tenant waste streams;

Market transformation is under way Property investment analyst IPD in Australia has launched its green property index n n n Measures investment returns for buildings which have environmental performance ratings Focus on investment rather than operational considerations Benchmark: compares environmentally-rated buildings again non-rated buildings IPD presentation to the Green Cities Conference, February 2011 n n Evidence Green Star and NABERS-rated buildings outperform non-rated buildings on a financial basis by a significant margin, especially at the upper end of ratings performance. Specifically; Rated Green Star office buildings deliver a higher return than non-rated buildings for both Sydney CBD and Melbourne CBD office markets. Rated NABERS Energy office buildings deliver a higher return for the Sydney CBD office market. National Australia Built Environment Rating System Rated NABERS Energy office buildings with a 4 to 5 rating deliver a higher return for the Melbourne CBD office market.

Meanwhile, in our own back yard n n n NZ lagging behind Work of Professor Sandy Bond-Lincoln Un. Cessation of ‘Govt 3’

It’s the (New Zealand) economy stupid! “Our” experience in our shared patch: n n n Commercial property sector in recession - tenants in the driving seat Vacancy rates rising, rent income is reducing Property valuations being written down, tightened banks lending Big pressure on cost reduction – replacing Govt 3 in Government Increasing energy costs, increasing energy consumption Restricted capital expenditure even for essential work Upgrades focussed on retaining/attract new tenants Funding for upgrade work to reduces energy consumption is scarce Proactive management of tenants by facilities management companies 1 year before lease renewal Tenants starting to make property decisions based on sustainability, energy use and internal environment The squeeze is on – more office workers per square metre

What we know that you may not n n n Outstanding opportunities to reduce energy use in buildings Many tenants and property owners lack knowledge about energy efficiency and effective running of plant in commercial buildings Funding available from EECA not always understood Energy use “easily” reduced by 10 -15% by tuning existing controls Savings with a payback of less than 3 years can reduce energy consumption by 30% Opportunities with payback of less than 5 years can reduce energy consumption by 50% + Even when these opportunities have been identified there is a good chance a good nothing will happen, and for very good reasons: Behavioural Economics; Bounded Rationality

Bounded rationality, Cognitive dissonance, Pareto optimality n “I haven’t got the time to understand everything I need to know about how to save energy n “I’ve got lots of other pressing tasks and don’t have the resources to deliver the optimal solutions n “I might make things better off for others but not necessarily for myself, or vice versa. Split incentives. n “There is a risk of being too ambitious which could backfire, so I’ll opt for a satisfactory solution rather than the optimal one [Satisficing] n If I bring in someone else and they find major savings I could be criticized for not finding them myself Satisficing a handy blended word combining satisfy with suffice a strategy that seeks to meet criteria for adequacy.

But it can all come together Reserve Bank : Starting from 30% below Energy Use Index benchmark n n n n Total building energy use reduced 22% Comfort conditions = to best ever recorded Cooling Energy (central plant) reduced 54% Gas energy (whole-building) reduced 35% HVAC Auxiliary energy reduced 11% Electric energy (whole-building) reduced 6% Carbon emissions reduced 13% But Wait - there’s more: Project to deliver as many savings again under way Energy Management is a process not an event, and sometimes a counter-intuitive one at that

Measuring sustainability in commercial buildings Green Star in New Zealand n n NZ Green Building Council established in July 2005 61 Green Star rated buildings in NZ - new buildings 50 for office buildings, 5 for education facilities, 5 for “fitouts, 1 industrial site. Eight separate environmental impact categories Assessment Criteria

Design versus Reality n n May not be as green as they seem One third may not reach their potential Certification based on design Issues being addressed

Measuring sustainability in commercial buildings NABERS coming to New Zealand n Announced but details awaited n Initiated by EECA, delivered by NZGBC n Adapted for NZ conditions n Name not yet known n A Voluntary scheme in New Zealand National Australian Built Environment Rating System. Performancebased rating system for existing buildings. Actual performance versus design Energy – water- waste-indoor environment, GHG.

Emissions Trading Scheme n n n New Zealand will be running an Emissions Trading Scheme (ETS) Puts a price on greenhouse gases; incentive to reduce emissions and encourage tree planting. It will increase the cost of energy ‘Cheap’ gas reservoirs depleting Currently, NZ electricity costs are low in comparison to rest of the world…

New Zealand Building Stock

Property Institute- Professional Pathways

Adding Energy Efficiency into the new Competency Matrix - Example Knowledge Area Core Property Knowledge Field Property Management Title Provide clients with advice on property economics Purpose Are able to identify economic factors affecting property; provide advice on external factors influencing property. Understand the value to property owners of investing in energy efficiency and the resulting increase in their return on investment

Thank you Questions –Comments-Discussion

Split Incentives Landlord aim is to maximise return on investment: n n n maximise rent minimise landlord expenses where possible, pass costs to tenants Tenant goal to maximise staff comfort, satisfaction, minimise OPEX, rent and energy consumption n Landlord typically passes on all energy and maintenance costs to tenant n No landlord incentive to install higher quality or energy efficient plant

The ECO Conundrum 15 - 5000 • In a typical commercial building, the base build energy costs can be around $15/m 2 • Savings of 33% or $5/m 2 are typically achievable • Depending on the building use and location, tenants could be paying $500/m 2 in rent and $5, 000/m 2 in staff costs Q: Even though saving energy is cost effective … why take the risk of alienating tenants/employees? A: Because the non-energy benefits are greater.