CRE Coalition Asks EPA to Help Standardize Conflicting State, Local Building Emissions Laws

The Real Estate Roundtable and industry partners encouraged the U.S. Environmental Protection Agency (EPA) on Sept. 14 to enhance its set of effective, standardized, and voluntary federal tools that can assist real estate companies meet climate targets imposed by city and state laws. (Real estate coalition letter, Sept. 14)

EPA Standards to Quantify Emissions

  • The coalition endorsed EPA’s planned improvements to its free, online Portfolio Manager benchmarking tool, announced in an ENERGY STAR July 2023 policy brief. Nearly 25% of U.S. CRE space measures energy and water use, waste disposal, and GHG emissions using Portfolio Manager.  
  • Without EPA’s voluntary resources to support uniform emissions measurement, compliance with local mandates is “exceedingly difficult, impracticable, and in some cases, impossible,” the letter states.
  • “We value greatly our longstanding collaboration with the US-EPA’s ENERGY STAR program.  It is the gold standard of resources which help our industry report on energy efficiency and the financial impacts from the increase of renewable energy supplies,” said Roundtable Sustainability Policy Advisory Committee Chair, Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust), below.
SPAC Chair Tony Malkin
  • Malkin added, “Non-binding federal guidelines from the EPA’s strong and best-in-class analytical frameworks are the North Star through which local governments can inform their law-making, and this helps to bring some sense and order to the otherwise conflicting patchwork of climate laws and frameworks developed by states, cities, and NGOs. The future is hard facts and data, and our industry is fortunate to have a constructive and productive relationship with the EPA that focuses on points on the board, the how to address the what.”  
  • The American Hotel & Lodging Association; Building Owners and Managers Association (BOMA) International; CRE Finance Council; ICSC; Mortgage Bankers Association; NAIOP, Commercial Real Estate Development Association; and Nareit® joined The Roundtable on the coalition letter.

Anticipated SEC Climate RulesSecurities and Exchange Commission (SEC) seal

  • The Roundtable’s call for uniform methods to calculate and report emissions anticipates overdue rules this fall from the U.S. Securities and Exchange Commission (SEC). The SEC’s rules are expected to compel registered companies to disclose in investor filings material financial impacts related to climate change. (See Roundtable Weekly, June 10, 2022 and RER comments).
  • Gensler is also scheduled to testify before the House Financial Services Committee on Sept. 19.

The Biden administration’s emphasis on climate policy will continue this fall, when it is expected to propose a uniform federal definition on the long-term concept of “zero emissions buildings.” The Roundtable’s SPAC will convene a working group to analyze the definition upon its release for public comments.

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Roundtable, Nareit Critique Proposed International Standard for Building Emissions

Greenhouse gas emissions

As the buildings sector makes progress on reducing greenhouse gas emissions to meet global climate goals, The Roundtable and Nareit submitted comments today about proposed guidance that would create “unworkable and unattainable” standards. (RER-Nareit joint comments)

Science-Based Targets

  • The real estate groups submitted their joint letter to the Science-Based Targets initiative (“SBTi”), a body with global influence. In May, SBTi released extensive draft guidance for companies in the buildings sector to set emissions reduction levels based on climate science. SBTi’s targets aim to achieve a goal of “net zero emissions” by 2050 in accord with the 2016 Paris Agreement administered by the United Nations.

  • The controversial draft guidance was developed by an advisory group comprised largely of academia and environmental organizations—with minimal representation from real estate developers, owners, and financial institutions. SBTi asked stakeholders to comment on its proposal, prompting the letter from The Roundtable and Nareit.

    SPAC Chair Tony Malkin and Vice Chair Ben Myers
  • A number of real estate companies use science-based protocols to establish portfolio-wide emissions reductions targets. The Roundtable convened a working group of its Sustainability Policy Committee (SPAC) to review and assess SBTi’s draft guidance. [Photo above: SPAC Chair Tony Malkin, left, (Empire State Realty Trust Chairman President and CEO) and Vice-Chair Ben Myers, right, (BXP Senior Vice President, Sustainability)]. Nareit conducted a similar process with its members. These efforts resulted in the organizations’ unified position.

RER-Nareit Position

  • The Roundtable and Nareit seek a constructive dialogue with SBTi, as their letter explains. However, the real estate groups expressed concern that SBTi’s proposal would require building stakeholders to set emissions targets for sources and operations they do not control, based too heavily on estimates and speculation as opposed to actual and verifiable data.

  • Key points raised in the joint comments include:

    Nareit and Real Estate Roundtable logos
    • Building owners must have options to purchase off-site renewable energy when they set science-based targets. Real estate in dense urban areas faces major barriers to deploy solar panels and similar measures on-site, so owners should be encouraged to increase overall clean energy supplies for broader market availability.

    • There should be no categorical, across-the-board mandate to set emissions targets based on tenants’ energy use because building owners do not control operations in leased spaces. Nor do owners have general access to meter data showing how much energy a tenant uses.

    • Emissions goals should not require, in all circumstances, reporting on “embodied carbon” in materials. Manufacturers do not uniformly provide such embodied emissions data for the concrete, steel, and other products they produce—so building stakeholders should not be required to guess this information in their climate reports.

    • Full-blown building electrification is not practicable, feasible, or even desirable for occupants’ safety and comfort in all cases. SBTi should abandon its proposed ban on all new fossil fuel building installations starting in 2025.    

Why It Matters

SBTi logo
  • There is no mandate in the U.S. at the federal level for real estate companies to set science-based emissions targets. However, anticipated rules from the U.S. Securities and Exchange Commission are expected to require registered companies to report to investors on material climate-related financial risks. Those disclosures could include corporate efforts to reduce emissions following SBTi’s and similar standards. (Roundtable Weekly, March 17March 6 and June 10, 2022).
     
  • In addition, key aspects of SBTi’s proposal counter voluntary efforts underway at the U.S. Environmental Protection Agency and the U.S. Department of Energy that recognize advances in low-carbon buildings and portfolios. (Roundtable WeeklyMarch 3 and March 4, 2022)

  • Moreover, varying and often conflicting climate mandates on buildings are proliferating at the local level. (Roundtable Weekly, Dec. 9, 2022). SBTi’s proposed approach should not gain traction in regulatory building performance standards imposed by cities and states. 

A final version of SBTi’s buildings sector guidance is expected this fall. The Roundtable will continue to track the issue, coordinate with Nareit and other allied groups, and educate policy makers as this matter develops. 

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Roundtable Comments to EPA on Building Performance Standards, Electrification

EPA sign

The Real Estate Roundtable submitted comments this week encouraging the Environmental Protection Agency (EPA) to use its grant authority to foster consistent, practicable, and cost-efficient local building mandates and electrification programs. (Roundtable letter, Jan. 18)

Consistency Urged in Building Performance Standards

EPA letter image capture

  • In addition to clean energy tax incentives for the private sector, the Inflation Reduction Act (IRA) devotes billions in grant money for EPA to dole-out to states and cities for greenhouse gas (GHG) reduction programs. [White House Guidebook, Dec. 15]
  • IRA grants could support localities as they develop and enforce building performance standards (BPS) that mandate owners to reduce energy use and emissions. Dozens of BPS laws have emerged in jurisdictions across the United States. (EPA Policy Brief, Jan. 19) (Roundtable Weekly, July 1, 2022)
  • The Roundtable’s Jan. 18 letter urges EPA to use its grant authority to encourage consistency in BPS mandates. A “hodge-podge” of state and local laws complicates compliance by building owners with nationwide real estate portfolios and hinders responsible investment strategies, according to The Roundtable’s letter.
  • The Roundtable’s position is that EPA should not award IRA grants unless state or local recipients ensure their BPS laws offer uniform federal tools, data, and protocols for enforcement and compliance.
  • These federal standards include EPA’s ENERGY STAR Portfolio Manager, its GHG Emissions Calculator, eGRID factors that convert electricity use to GHGs, and metrics already recommended by EPA to support BPS efforts.

Tenant Energy Data and “Practicable Electrification”

EPA letter electrification capture

  • The Roundtable letter also advocates that utilities should be eligible for EPA grants to develop technologies that provide owners of multi-tenant buildings with “whole building” energy data. Owners need data on tenants’ energy use to meet BPS mandates and to attain the IRA’s new tax deduction for building retrofits. (Fact Sheet, updated Jan. 5.)
  • In addition, The Roundtable letter advocates that grants to help standardize corporate climate reporting should prioritize consistency in accounting for emission benefits from the purchase of Renewable Energy Certificates (RECs), and for embedded carbon in construction materials and building products purchased by real estate owners and developers.

IRA tax incentives and grant programs affecting CRE will be among the topics discussed during The Roundtable’s Sustainability Policy Advisory Committee (SPAC) Meeting on Jan. 25 in Washington, D.C., held in conjunction with Jan. 24 State of the Industry meeting.

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White House Announces Federal Building Performance Standards

The White House

The White House on Wednesday released a new standard to reduce scope 1 “direct” emissions from fossil fuels combusted to heat and cool federal buildings. (CNBC |UPI | PoliticoPro, Dec. 7)

Federal Building Performance Standard (BPS)

  • The Federal BPS from the White House Council on Environmental Quality (CEQ) applies to the 300,000 existing buildings owned by the U.S. government. It sets a 2030 goal for each federal agency to eliminate scope 1 emissions in 30% of its facilities. (White House Fact Sheet)

  • The Federal BPS “prioritiz[es] energy efficiency and the elimination of on-site fossil fuel use.” It is a stepping-stone toward the Biden administration’s ultimate goal of “net zero” emissions by 2045 across all federal facilities. (Exec. Order 14057, Dec. 8, 2021)

  • The Federal BPS’s “performance pathway” would achieve the goal for zero scope 1 emissions “through efficient electrification of all equipment and appliances.”

  • The Federal BPS also offers a “prescriptive pathway” for specific replacement of gas-fired furnaces and boilers. This alternate compliance route recognizes that “full decarbonization may not be practicable today” considering a building’s size and climate zone—and is designed to account for the market availability and cost-effectiveness of electrification equipment.

Relevance to Other GHG Standards

Energy.gov map of BPS
  • While the Federal BPS intends to reduce on-site scope 1 emissions, it will likely increase scope 2 emissions from electricity purchased by the federal government to power electric heat pumps, hot water heaters, and similar equipment.

  • Furthermore, the Federal BPS—and its focus to reduce fossil fuels on-site—might set an easier standard compared to a number of emerging BPS mandates at the state and municipal level.

  • Some local BPS laws may effectively require buildings to reduce overall GHG emissions at their source, which depends on whether local power grids provide “clean” electricity from solar, wind, or other renewable energy. EPA data that profiles “fuel mixes” used to generate electricity, however, indicate that coal, gas and other non-renewables account for 80 percent of the fuels that power electric grids nationally.

  • Also, local BPS laws may not offer a “prescriptive” compliance path similar to the Federal BPS that contemplates cost effectiveness in building electrification retrofits.

  • Notably, the Federal BPS sets no requirements for U.S.-owned buildings to reduce their upstream and downstream “scope 3” emissions outside of an owners’ control. (EPA website)

  • Possible measurement and reporting of scope 3 emissions has been a controversial element of a private sector, corporate GHG disclosure rule proposed by the U.S. Securities and Exchange Commission that has not yet been finalized. (Roundtable Weekly, June 10)

Other Building Policies  

Department of Energy sign
  • The U.S. Department of Energy (DOE) also on Wednesday proposed a rule that would establish the first-ever emissions standards for new federal construction and major renovations. Like the Federal BPS for existing federal assets, DOE’s proposed rule “aims to accelerate” electrification by phasing out on-site fossil fuel usage for heating and hot water. (DOE news release)

  • The White House also announced this week that California has joined the National Building Performance Standards Coalition, a group of over 30 states and localities committed to adopt BPS policies by Earth Day 2024. (White House Fact Sheet)

The White House’s announcements touted DOE’s Better Climate Challenge—a voluntary “pledge” that includes Roundtable members as “partners” who have committed to reduce portfolio-wide scopes 1 and 2 emissions by at least 50% within 10 years. The Roundtable is an “ally” supporting DOE’s Challenge. (Roundtable Weekly, March 4)

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EPA Highlights Federal Resources to Help Standardize State, Local GHG Laws on Buildings

EPA's Building Performance Policy Brief - image

The U.S. Environmental Protection Agency (EPA) released a policy brief on Tuesday that provides a “formal recommendation” on metrics that states and cities should consider as they may develop GHG-related mandates on commercial and multifamily buildings. 

Trends in Building Performance Standards (“BPS”) 

  • A national BPS law does not exist (and is not on Congress’s horizon) for emissions limits or efficiency requirements on private sector buildings.
  • Nor do U.S. agencies have any current ability to create a general federal building energy code or enact rules that establish GHG mandates on real estate assets, as made evident by yesterday’s SCOTUS decision in West Virginia v. EPA. (SCOTUSblog, June 30)
  • However, a number of states and cities have developed or are considering their own climate-related building regulations according to the National BPS Coalition launched by the Biden Administration.
  • Local BPS laws can require CRE owners to pay for energy efficiency retrofits and building electrification projects—or else pay fines and penalties.
  • The White House Council on Environmental Quality (CEQ) is creating a BPS for buildings owned by the federal government. Development of the “federal BPS” is reportedly delayed because of “data shortfalls.” (Bloomberg Law, June 29)

RER Seeks Voluntary Federal Guidelines   

SPAC at Roundtable Annual Meeting

  • The Real Estate Roundtable has repeatedly expressed to policymakers—including the Federal Energy Regulatory Commission (FERC)—that workable, federal-level, voluntary guidelines are needed to help standardize the “hodge-podge” of divergent local laws that can vary in their regulations on buildings.
  • The Roundtable’s June 10 comment letter to the SEC urged the creation of a “safe harbor” for proposed emissions disclosures that are based on the best available GHG calculation tools, standards and data offered by federal agencies. (Roundtable Weekly, June 10).
  • EPA branch chiefs heard from The Roundtable about the need for federal guidance to help unify local BPS laws at the June 17 meeting of the Sustainability Policy Advisory Committee, above. (Roundtable Weekly, June 17) SPAC is chaired by Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust) and vice-chaired by Ben Myers (VP, Sustainability, BXP). 

EPA’s Recommended BPS Metrics  

EPA's BPS metrics publication

  • SPAC members participated in a number of EPA-sponsored “workshops” that led to the recommended federal BPS metrics.
  • EPA’s recommended metrics are intended to “develop consistent policies that reflect the business realities faced by building owners.” (EPA’s Policy Brief and Recommended Metrics publication, above)
  • Specifically, EPA recommends that any locality considering a BPS should focus on measures within a building owner’s ability to control—such as “on-site” reduction of energy usage or “direct” GHG emissions.
  • EPA also recommends that any energy-usage intensity requirement should not be “one size fits all.” Rather, BPS rules should be “normalized” to reflect variables such as a building’s type, hours of operation, and weather conditions.
  • EPA’s recommendations are preferable to other proposals that could make CRE owners responsible for how “clean” the electric grid should become—an issue beyond owners’ control. (Roundtable Weekly, April 9, 2021). 

A number of localities are contemplating laws to ban natural gas and other fossil fuels within their borders. EPA’s encourages any such jurisdiction to consider long-term, published, and incremental “phase-out” schedules so building owners can “plan for costly and difficult equipment replacements.”  

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Roundtable Submits Comments to SEC on Climate Risk Disclosure Proposal

SEC logo and text

The Real Estate Roundtable submitted comments today to the U.S. Securities and Exchange Commission (SEC) on a proposed rule that would require all registered companies to disclose material financial risks related to climate change. The comments were developed with The Roundtable’s Sustainability Policy Advisory Committee (SPAC), chaired by Tony Malkin (Chairman, President and CEO of Empire State Realty Trust). (GlobeSt, March 22) 

Extensive Climate Risk Disclosures

  • The SEC’s proposal, “Enhancement and Standardization of Climate-Related Disclosures for Investors,” is a key component of the Biden Administration’s efforts to cut U.S. greenhouse gas emissions. (CBS-AP | Bloomberg Axios, March 21)

  • If the rule is finalized, compliance would phase-in over the next several years. All SEC registrants would be required to quantify their greenhouse gas (GHG) emissions, assess the economic impact of rising sea levels related to their assets, and report in SEC filings (for the benefit of investors) on these and other climate-related risks through annual 10-Ks and additional filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)

  • The SEC’s extensive draft rule has raised significant concerns throughout the U.S. business community. (ClimateWire, June 2). The proposal includes new disclosure requirements for “Scope 3” GHG emissions, which are generated outside a business’ direct control by partners, suppliers, and consumers that make up the “value chain” of that business. (EPA Scope 3 Inventory Guidance and Fourkites).

Roundtable Response

CRE building with tree and sunshine
  • The Roundtable’s comment letter is summarized as follows:

    • Registered Companies Should Not be Required to Report on Emissions From Sources They Do Not Own or Control.
      When applied to the CRE context, this means that a building owner should not be under a mandate to report on emissions attributable to the operations of tenants in leased spaces. For example, emissions from metered electricity in a tenant-leased space should not be the CRE owner’s responsibility to report to the SEC.  

    • Create a “Safe Harbor” for Emissions Calculated with U.S. Government Data and Tools.
      Reporting companies should be protected by a “safe harbor” that insulates emissions disclosures from liability—in both SEC enforcement as well as private litigation—when calculations are based on the best, available, and most recent data and tools released by the federal government.

    • There Should be No Scope 3 Reporting “Mandate.”
      Scope 3 disclosures typically depend on GHG data possessed by suppliers and other businesses in a reporting company’s value chain. Registrants should not be under any Scope 3 disclosure mandate because they frequently cannot get the basic data to quantify those “indirect” estimates.

    • Wait Until a Registrant has a Full Year of “Actual” Data Before Requiring Emissions Disclosures.
      The proposal as written effectively requires two separate emissions disclosures each fiscal year. The SEC should only require emissions filings once a year—after a company has all of the “actual” data it needs to support and verify its calculations.

    • Financial Risks from Severe Weather Events Should be Subject to “Principles-Based” Reporting—As Opposed to One-Size-Fits-All “Prescriptive” Rules.
      Risks from floods, droughts, and similar events should be subject to narrative, “principles-based” reporting. The SEC should drop its proposed “prescriptive” rule that registrants should precisely quantify impacts from climate-related events if they have a one-percent or greater impact on any line item in a financial statement.  

Policymaker Concerns

  • The Biden administration is expected to push forward with a final rule that could be issued later this year.

  • Senator Joe Manchin (D-WV), chairman of the Senate Committee on Energy and Natural Resources, sent a letter to the SEC on April 4 outlining his concerns with the proposal.

  • Senate Republicans also expressed their opposition to the SEC proposal in an April 5 letter.

  • House Republicans have called for a hearing on the SEC’s proposal—signaling heightened oversight should they win the majority in this November’s mid-term elections. (E&E News, May 10)

The Roundtable’s comments to the SEC will be a focus of the SPAC meeting on June 17, held in conjunction with The Roundtable’s Annual Meeting.

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SEC Issues Proposal for Registered Companies to Disclose Climate Risks; EPA Releases Emissions Calculator Tool

Houston skyline storm clouds

The U.S. Securities and Exchange Commission (SEC) issued an anticipated proposed rule on March 21 regarding the reporting and disclosure of material corporate financial risks related to climate change. (GlobeSt, March 22 and Roundtable Fact Sheet, March 25) 

Expanded Climate Disclosures 

  • The proposed rule has no immediate effect. If it is finalized, the action would require all SEC registered companies to quantify their greenhouse gas (GHG) emissions, assess the economic impact of rising sea levels relating to their assets, and report to investors on these and other climate-related risks through annual 10-Ks and additional filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)
  • Release of the proposal triggers a public comment period, with stakeholder input due to the SEC around May 20, 2022. Themes raised by The Real Estate Roundtable in pre-rulemaking comments submitted last year will likely be raised again in this latest round of public input. (Roundtable Weekly, June 11, 2022)
  • The SEC’s proposal, titled “Enhancement and Standardization of Climate-Related Disclosures for Investors,” is considered a key component of the Biden Administration’s efforts to cut U.S. greenhouse gas emissions by as much as 52% (below 2005 levels) by 2030. (CBS-AP | Bloomberg | Axios, March 21) 

Scope 3 “Safe Harbor” 

Chicago downtown with river view

  • A Real Estate Roundtable Fact Sheet provides a summary of the 510-page SEC proposal, including the following elements:
    • All companies registered with the SEC would be required to report and quantify Scope 1 and Scope 2 GHG emissions each year. Scope 1 and 2 reporting would require registrants to define and disclose how they determine their “organizational” and “operational” boundaries.
    • SEC registrants would report on Scope 3 “indirect” emissions in their supply chain if the company has announced a Scope 3 reduction goal – or if investors would deem the registrant’s Scope 3 emissions to be “material.” 
    • The SEC proposes a “safe harbor” for Scope 3 disclosures related to certain liabilities covered by federal securities law.
    • Independent 3rd party assurances would be required for Scope 1 and 2 disclosures, but not for Scope 3.
    • Registrants should report on climate targets or goals they set for themselves, their energy efficiency investments, and whether they purchase Renewable Energy Certificates (RECs) or carbon offsets to meet their GHG goals.
    • Registrants would also need to report on material “physical risks” to buildings and other assets from climate change – such as those caused by extreme weather, droughts, and coastal flooding.
    • Compliance would start with SEC filings in 2024 for the biggest registrants and phase-in for other companies. (Roundtable Fact Sheet)

EPA’s GHG Emissions Calculator for Buildings 

EPA's Emissions Calculator logo

The Building Emissions Calculator has important potential to assist owners as they strive to comply with state and local building performance standards. EPA’s new calculator can also help real estate companies registered with the SEC to quantify and report on their GHG emissions should the commission’s investor disclosure proposed rule take final shape. 

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