The pending climate bill passed by the House has a medley of programs to save energy in buildings, but there was one in particular that drew the attention of the multitrillion-dollar real estate industry.
It was a plan to create an "energy label" for homes and commercial buildings, showing, in one simple illustration, how much energy they use compared to their ideal performance. In theory, the information would be like the miles per gallon stickers on cars, giving vital information to buyers and owners, who are becoming increasingly aware of rising energy costs.
The real estate industry had a different take: It called the labels a scarlet letter that would stigmatize old, energy-leaky buildings, making them harder to sell. They said it would hobble a market already suffering from the mortgage meltdown.
Before the bill reached the House floor, Realtors made their case to Congress. As originally written, the bill proposed by Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) would instruct U.S. EPA to develop two kinds of labels: one for brand-new buildings, and one for the older buildings that cause the bulk of the sector's CO2 emissions -- roughly 40 percent of the U.S. total.
Congressmen, led by Rep. Ed Perlmutter (D-Colo.), heard the industry's views and struck a bargain: EPA would still design a label, but only for new buildings and major renovations. Older buildings, which will make up the majority of the building stock for decades, were exempted.
"At some point, we've got to count votes," Perlmutter said in an interview. He said the deal swung several lawmakers behind a cap-and-trade bill that passed by only one vote. "We picked up the endorsement of the NAR [National Association of Realtors] to a very substantial energy bill that is far-reaching in many, many respects," he said.
But the deal frustrated some environmental and industry groups thats think a label for all buildings, new and old, is needed to make efficiency a valued commodity in the real estate industry, pushing owners to stamp out energy waste or face the wrath of the market.
A renewed effort in the Senate
A varied group of interests, from the Sierra Club to the Edison Electric Institute and the U.S. Climate Action Partnership, had lobbied to stop Perlmutter's compromise. Now some are pressuring the Senate to re-expand the labels, making them applicable to older buildings. Analysts estimate that 1 to 2 percent of the building stock turns over each year.
The real estate industry, meanwhile, hopes its congressional sway will help it hold the fort. With 1.3 million members, the NAR claims to be the country's largest trade association. A related industry group, the Real Estate Roundtable, says it accounts for 9 million jobs -- and that its members own $6.7 trillion worth of commercial property alone.
That economic heft translates to influence on Capitol Hill. According to OpenSecrets.org, a research group tracking money in Congress, the industry contributed $135 million in the 2008 election cycle, roughly split between Democrats and Republicans. Its total donations since 1990 rank it fourth among all industries.
The convergence of climate policy with the slump in housing sales has made buildings a point of conflict on the Hill. A wide range of interests, including environmentalists, have pushed for stiff regulations to march building efficiency ahead. They've called it a "no brainer" investment that would save billions of dollars of energy and the related emissions using technology that already exists.
Builders and real estate agents, meanwhile, have worried that "mandates" would demand too much efficiency too quickly, endangering an already tottering housing market. They've said government incentives, such as lower interest rates for green-home buyers, are a better path, and that their own green initiatives need time to work.
Builders have been especially vocal about upgraded building codes, since these would directly affect the cost of construction. While NAR stated some reservations about hiking the codes, it has come out more aggressively against the labels, which would have direct bearing on the way a real estate agent closes the deal with a buyer.
NAR turned to Perlmutter, a second-term congressman from Colorado. His district in the exurbs of Denver rode the state's housing bubble before Colorado become a top-10 state for foreclosures.
Perlmutter founded his state Senate's renewable energy caucus. His district is home to the National Renewable Energy Laboratory in Golden, and wind-turbine manufacturer Vestas will soon open a plant for turbine blades in the area. Green energy was a major plank of Perlmutter's campaign. But real estate played a role, too: According to OpenSecrets, the industry has given his campaigns $263,553 since 1989.
Incentives for states that allow the labels
So when the industry came to ask Perlmutter about the building labeling program, it put House leaders in a bind: They would have to balance the aggressiveness of the climate bill against a major business interest.
As originally written in the Waxman-Markey bill, EPA would develop labels for different types of commercial buildings and residences, from warehouses to single-family homes. Whether a building was old and leaky or new and sleek, EPA would have a label to profile its energy use.
The goal: to sum up this information up in a label that anyone could easily understand. The label would show how much energy a building uses, versus how much it was designed to use -- a difference that could drive some to invest in efficiency.
States wouldn't be required to adopt labeling. But states that agreed to apply the labels to their buildings would become eligible for extra funds from the cap-and-trade bill to implement the program.
Eventually, the labels might become as common as EnergyGuide stickers, which are required on many home appliances and show how an item's energy use rates against that of its peers.
Perlmutter thought it made sense to label new buildings, since they're built to modern energy codes. But he understood the industry's concern about older construction that may never have been built to code: Compared to new buildings, their labels would stick out like a sore thumb.
It's "kind of like going back and trying to determine miles per gallon on a 1955 Chevy, compared to a new model Prius," he said.
The only thing an energy label would do for old buildings, the industry said, is bid down their asking price.
A buyer and a seller could be sitting down at the bargaining table, hammering out the details of the sale, said Austin Perez, environmental policy representative at NAR. As the buyer sorts through the forms, he suddenly finds the building's energy label -- a score that shows it could use some efficiency upgrades.
Would sticker shock push down the sales price?
The number might not mean anything to a buyer who has never considered energy savings. But now, Perez said, he can make a demand: "Yours is an 85 score ... so either improve your score by five points, or else knock off X dollars."
In a difficult housing market, a seller might give in. But what will the buyer get with his X savings? Perez points out that there's no way to know. He could install a hyper-efficient heater, or he could haul home a power-guzzling big-screen TV.
Either way, Perez said, the label has missed its mark. Some buyers take an interest in efficiency and will do the research on the property beforehand. But pull back the curtain for all buyers, as an energy label would do, and sales will be disrupted. "It wouldn't do what it's supposed to do, but it would create a lot of problems," he said.
Efficiency advocates call this a red herring. They point out that the labeling program is voluntary: States only have to label if they want federal funding for it. Moreover, they say, labels only offer information to the public, and the public should be more knowledgeable.
"Not knowing what your energy performance is is essentially a barrier to saving money," said Jason Hartke, director of state and local advocacy for the U.S. Green Building Council.
If labels do make the public more curious about efficiency, he said, buyers don't have to finance these changes alone: Governments offer various incentives to invest in greener buildings. Just as the stimulus bill did, Hartke estimated, a cap-and-trade bill will likely channel billions more to cut energy waste out of the building stock.
Searching for the 'Prius effect'
"This is kind of the Prius effect," he said. "Once you know where you stand, you're watching it ... that'll actually help by itself change behavior."
Moreover, efficiency campaigners say, the labels would help people avoid the very foreclosures the real estate industry fears, because saving money on energy bills makes it easier to make house payments.
Some observers say an EPA-led label would add consistency to the market, where a number of groups are developing labels but don't always do it the same way. They draw comparisons to EPA's Energy Star program, which rates commercial buildings against their peers -- buildings of similar types, and in similar climates -- and awards the Energy Star to the top quarter.
The Energy Department is developing a similar label for homes. The EnergySmart label uses a 100-point scale to rank a home against the national average: A score of 70, for example, means a house uses 30 percent less energy than a typical new house built to code.
While these labels aim to find how a building stacks up against its peers, others are developing labels more along the lines of the climate bill, comparing a building's actual performance against its own potential.
The American Society of Heating, Refrigerating and Air-Conditioning Engineers, or ASHRAE, is developing one for commercial buildings called Building EQ. The label, to be released next year, would assign a letter grade for how efficient a building's design is in comparison to similar ones. But after collecting a year's worth of data, engineers would add another score: how efficiently the building actually operates. Both scores would be stamped on a single, easy-to-read chart.
Ron Jarnagin, a staff scientist at the Pacific Northwest National Laboratory who is helping develop the ASHRAE label, said he's cooperating with some in the real estate industry. He said that while some industry members are nervous about how the labels would affect the market, those who deal in energy-efficient properties think it will benefit them.
The European Union already requires building labeling, and officials have designed the program to be used at the bargaining table. Smaller programs have sprouted in the United States. Some local and state governments sometimes require energy audits prior to selling, while others mandate labeling for all government buildings. But Jarnagin and others couldn't point to specific data showing how these programs have affected building markets.