With the Copenhagen Climate Conference about to begin, the issue of New York’s carbon footprint has taken center stage here—just as the city government has been forced to trim back its plans to require large buildings to reduce their use of energy.
On Earth Day, 2009, New York mayor Michael Bloomberg and city council speaker Christine Quinn announced the “Greener Greater Buildings Plan for NYC”. Acknowledging that the 80% of the city’s carbon footprint came from buildings, the city set out to cut 30% of its carbon emissions by 2030. According to the press release, the city would require buildings of 50,000 square feet or more to conduct an energy audit once every ten years and make any improvements that pay for themselves within five years.” Al Gore spoke at the Earth Day event, said nice things about the mayor and everyone left feeling green and good.
Unfortunately, according to a Dec. 4 New York Times story, “After intense opposition from building owners, Mayor Michael R. Bloomberg has dropped the most far-reaching initiative of his plan for reducing greenhouse gas emissions” The audits will still be required, but not the efficiency upgrades. It seems that New York’s real estate industry is too poor these days to be energy efficient. The problem is that the City’s financial wizards cannot figure out any way for owners to recoup their investments, since owners would pay the costs of improved efficiency, but under some leases they would not be able to recoup their costs, and only tenants would receive the benefits. And, even if some owners are willing to invest and can recoup, private capital has become increasingly scarce and the resources are simply not available. It’s more than a little scary to think that there cannot be some arrangement under which the owners of New York’s largest buildings can invest in energy efficiency measures that pay for themselves in five years
With all the clever financial minds wandering the streets lower Manhattan, I’m surprised that no one seems to be able to figure out a way to deal with this. Contrast this sad bit of unimaginative thinking with the proposed “Cash for Caulkers” program now being touted as a jobs initiative in Washington. Under this program, federal stimulus money would be paid to homeowners to fund 50% or more of the costs of a weatherization project. A second and far more imaginative energy efficiency initiative is the state-level Property Assessed Clean Energy program (PACE). These programs, now enacted in 15 states including New York, generate revenue streams to fund bond payments that provide capital for energy retrofits. Property owners pay for energy improvements over 15-20 years through an increase in their annual property taxes. The extra tax payments are used to pay bondholders who in effect, finance the energy upgrades. This method of payment overcomes one of the major disincentives to homeowner energy upgrades: What if I pay for these improvements and move before I have recovered the costs of the upgrade? By linking capital costs to long-term property taxes, the costs of the upgrade are paid by both the current and future owners of the homes.
PACE and “Cash for Caulkers” are efforts to provide incentives for homeowners to weatherize private homes. We waste enormous amounts of energy in America’s private homes, and there is no question that weatherization can pay for itself over time. Most homeowners do not have the money or the will to do this without a little push, and the programs provide one.
Which brings us back to Bloomberg’s backpedal on big-city buildings. Cash for Caulkers and PACE provide us with a model that could be converted for urban use. These programs both need multi-unit and non-residential options. PACE and Cash-for Caulkers have a definite suburban bias. While it is true that most of the land in New York City sits beneath single family homes, and many folks in the outer boroughs could benefit from these programs, most of the people in New York City live in apartments. Even more important, most people in New York City work in buildings of more than 50,000 square feet. We need to figure out a way to help building owners generate the capital needed for energy upgrades.
The obvious way is to use the money saved by energy savings to create a revenue stream to fund government bonds that would subsidize upgrades. It is true that tenants are not property owners and therefore the property tax surcharge in PACE cannot be used to generate capital for energy upgrades. However, an increase in the tax on electricity currently already by utilities for energy efficiency projects could be assessed to provide capital for large building upgrades. The economic impact of the tax should be slight, because utility costs would go down even as the taxes on those costs rose.
While the world’s leaders gather in Copenhagen to discuss the great issues of global warming and world diplomacy, I am once again reminded of the late congressman Tip O’Neill’s admonition that all politics is local. In the end, all the forward-looking policies articulated in Washington and in Copenhagen will have meaning only when a landlord in New York City decides to sign up a contractor this summer to weatherize his pre-World War II apartment building.
Steve Cohen is executive director of the Earth Institute, Columbia University.