In urban areas, buildings represent 50–80 percent of energy consumption and greenhouse gas emissions. More than 170 US cities have made commitments to reduce their greenhouse gas emissions over the coming decades, with many aiming for reductions of 80 percent or more. The current pandemic has reduced energy use in commercial buildings, yet long-term prospects are uncertain, and reaching these ambitious climate goals will require substantial reductions in carbon dioxide emissions from buildings. To help achieve these goals, a growing number of cities—including Tokyo; New York; Washington, DC, Washington State, Reno and Boston—are setting or actively considering energy-related performance standards for buildings to mandate reductions in their energy consumption and emissions. These standards expand on the existing requirements for disclosing energy use among buildings.
Decisions in the design of building performance standards are driven by local considerations, often with substantial stakeholder input. Our recent report looks at various tradeoffs and challenges in designing such policies, to facilitate compliance and promote cost-effectiveness. In our report, we explain that selecting buildings according to their size, rather than by their historic emissions, offers transparency but risks increasing the program operating costs by including many low-emitting buildings. Regardless of the approach to selecting the buildings that are covered by the policy, the highest-emitting businesses might, over time, migrate emissions-intensive activities out of the city if they experience large increases in operating costs.
Building performance standards can use different types of targets, including energy use intensity (typically British thermal units per square foot), greenhouse gas emissions (pounds or pounds per square foot), ENERGY STAR score (1–100), and other measures. The calculation of a building’s performance relative to any of these target metrics should use emissions factors that are consistent with state policies, such as renewable energy goals. Building performance standards will allow building owners to better track and assess their compliance status when programs are based on simple, data-driven metrics such as energy consumption or greenhouse gas emissions, rather than on complicated, derived metrics such as ENERGY STAR scores.
Ultimately, the most important element of achieving city climate goals is setting long-term targets that unfold over multiple compliance periods and thus provide incentives for deep retrofits of building envelopes (the physical separation between the climate-controlled parts of a building and the external environment) and encourage electrification.
Compliance flexibility is key to keeping upgrade costs in check for building owners. Flexibility can be as simple as allowing the carryover of excess compliance from one period to the next—which incentivizes early and aggressive building improvement measures—or allowing renewable energy purchases to offset emissions where programs target emissions directly.
The most complex—and probably most controversial—flexibility mechanism is trading emissions or energy reduction credits across buildings. Trading can be allowed at the building-owner level within a portfolio of buildings or across the entire stock of buildings covered by the program. To illustrate how savings from trading materializes, we introduce in our report the concept of the building stock marginal abatement cost using an illustrative example of a portfolio of buildings that face different choices for efficiency improvement measures.
Notably, aggregate savings targets can be achieved at lower costs when trading is allowed across buildings, because building owners are not constrained to reducing energy use or emissions by a specific amount for each individual property.
Building performance standards can have important interactions with other climate and energy policies and markets, including emissions cap-and-trade programs, renewable portfolio standards, hourly wholesale electricity markets, and transportation electrification. These various interactions have important implications for designing building performance standard regulations that succeed in reducing emissions. Specifically, cities in California (a state with a multi-sector carbon dioxide emissions cap-and-trade program) or cities in member states of the Regional Greenhouse Gas Initiative should coordinate with these programs to reduce the likelihood that emissions reductions from buildings will be offset by increases elsewhere. Building performance standard programs also should exempt electricity use for vehicle charging, so the programs can help promote emissions reductions outside the building sector, from vehicle electrification. These exemptions for transportation electrification also could help cities achieve their goals and combat climate change more broadly.
Decarbonizing building energy use is an essential pathway toward achieving city climate goals. Well-designed, flexible building performance standards can help cities move further along that path at lower cost than more prescriptive approaches. Policymakers need to be cognizant of interactions with existing policies and markets to make sure the chosen path for the building sector is free of unanticipated obstructions that could slow their progress.