Energy Benchmarking and Disclosure

Understanding building energy use is a critical first step for engaging building owners in energy efficiency and retrofit strategies, and achieving sustainability and energy savings goals locally and nationally. Benchmarking and disclosure of building energy use is an innovative policy that has been adopted by an increasing number of cities and states across the country to support these goals. Mandatory benchmarking seeks to provide building owners with a snapshot of how much energy their building uses and how their building relates to comparable buildings. Mandatory disclosure seeks to provide building users with a basis for comparing buildings they may rent or purchase. This is a form of labeling similar to EnergyStar ratings on appliances or mils per gallon ratings on automobiles, which help consumers make informed choices as well as incentivize sellers to make improvements to their product so it can be appropriately valued by consumers in the market.

Philadelphia legislation

On May 17, 2012 Philadelphia City Councilwoman Blondell Reynolds Brown introduced Bill # 120428, which would require commercial buildings in Philadelphia over 50,000 square feet to benchmark and disclose their energy and water consumption to the City on an annual basis. The bill also calls for the use of an online tracking program, the Environmental Protection Agency’s Portfolio Manager, which would allow property owners, tenants, prospective purchasers, and the public at large to compare energy and water usage among comparable buildings.

Philadelphia City Council’s Committee on the Environment held a hearing on the bill on June 5 and the full City Council voted unanimously in support of the legislation on June 21. The law will go into effect on June 1, 2013 and will be administered by the Mayor’s Office of Sustainability. Failure to comply would be punishable by a $300 fine for the first 30 days, and then $100 a day.

Econsult Report

The EEB Hub commissioned a study by Econsult to help identify the extent to which mandated building energy use disclosure in Philadelphia could foster economic activity and other benefits.  

Findings from the study include:

• The estimated energy efficiency improvements undertaken as a result of the legislation would result in the retrofit of approximately 5.3 million square feet of office space for a total cost of $1.9 million, supporting 157 direct jobs. The ripple effects of that activity would generate an additional $1.6 million in activity, for a total of $3.5 million in economic value to the Philadelphia economy.
• Rent reductions spurred by increased competition between landlords would induce a one-time absorption of 443,000 square feet of office space, supporting 1,480 to 2,950 new office jobs, with an annual payroll of $66.8 million to $133.5 million. The multiplier effect of the new jobs would mean an additional 1,150 - 2,230 jobs and $29.7 to $59.4 million in earnings, for a total of 2,630 to 5,250 new jobs and $96.5 to $192.9 in jobs and earnings in Philadelphia.
•  If owners must disclose energy costs, tenants will be able to choose between paying higher rent (but lower utilities) for a more efficient space or paying lower rent (but higher utilities) for a less efficient space. Consequently, some building owners will be incentivized to make their spaces more efficient so that they can command higher rents, thereby increasing the overall energy efficiency of Philadelphia’s commercial properties

Econsult has identified three general obstacles to the successful implementation of this legislation in Philadelphia:

1. Disclosure- Most leases for commercial space are “triple net”, where the tenant carries the costs of occupancy, including utility bills. In this case, it makes it difficult for the owner to disclose the energy use of the building if she does not have access to its utility expenditures. However, more utilities are now engaging in efforts to share energy data with their customers and PECO is exploring strategies to make this easier for building owners in the region as well.
2. Split Incentives- The structure of most leases means that the owner would pay for the improvement but the tenant- who pays the utility bills- would reap the benefit. Green leases can help to align the financial and energy incentives of building owners and tenants so they can work together to save money, conserve resources, and ensure the efficient operation of buildings. The EEB Hub is a partner in the Green Lease Library, a centralized resource for commercial green leasing sources.
3. High Cost- In the current market, most retrofits do not pay for themselves within a reasonable amount of time. While the retrofit may increase the value of the building, the rate at which the benefits are capitalized is typically either too low, too slow, or both, for the owner to be incentivized to undertake the retrofit at their own expense.

Econsult concluded that if owners disclose the efficiency of the space they are selling or renting, it would allow for more appropriate sorting of tenants into the space they are willing to pay for, along with more appropriate pricing of space based upon its relative energy efficiency.  Moreover, if owners are willing to improve the energy efficiency of their space to gain the higher rent, and it is profitable to do so, then the overall energy efficiency of the stock of commercial space could potentially be improved. If current rents and prices do not accurately reflect utility and maintenance costs, and there is market value for this information, then this market may be improved by government actions that improve information symmetries between the market’s participants.

Related Links

• EEB Hub Success Story: Philadelphia Benchmarking and Disclosure Legislation
• EEB Hub Testimony at Energy Benchmarking Hearing by Deputy Director Laurie Actman
• Institute for Market Transformation- Building Energy Performance Policy