The Best Reasons for Sustainable Practices

Most of us know children whose health and happiness we care about, so doing everything we can to foster sustainable practices makes a lot of sense. Climate change and pollution have already had a significant impact in many parts of our country, and the problems are escalating.

My nephew and his beautiful little daughters live in Los Angeles, one of the areas in which climate change has contributed to severe drought. Recent forest fires have not only increased the level of pollutants in the air, they have also forced the family to evacuate their home. And because drought and fires kill plants that help the soil adsorb water, when it does rain there are mudslides and floods.

It is often said that for sustainable initiatives to be accepted, they must benefit the triple bottom line --- people, planet and profit. I believe that if everyone realized that the "people" who are at risk include their own children and grandchildren, they would be more likely to adopt sustainable practices for which they do not perceive immediate positive effects on their own income.

"Natural" disasters also cost us all a lot of money. Taxes must be raised to support government aid, insurance premiums increase, and the cost of construction goes up considerably. For instance, the cost of renovation projects in New York City went up 10% in the wake of Hurricane Katrina.

Thank You, Mayor Daley!!!

A colleague accused me of lionizing Donald Trump in a presentation on sustainable design and construction that I gave two days ago. Guilty as charged! I believe that Donald Trump would make a great poster child for sustainable design and construction because his very high level of visibility and proven track record for maximizing profits will encourage many real estate investors to follow his lead.

In keeping with his statement that "Environmental concerns should be the norm..." Donald Trump is currently developing projects in Stanford and in Philadelphia to meet the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) standards. Even those who are not fans of Mr. Trump believe that when he invests in something, it must make sound business sense.

In his own inimitable fashion, Donald Trump has had no compunction whatsoever in redefining LEED. I think that his definition of the rationale behind green building is terrific, because it will resonate with investors. While the first four bullet points below could have been directly copied from any description of LEED, from then on the focus is purely on the financial benefits of going green. According to the Trump Organization's web site, LEED-qualified buildings are designed to:

• Reduce waste sent to landfills.
• Conserve energy and water.
• Be healthier and safer for occupants.
• Reduce harmful greenhouse gas emissions.
• Lower operating costs and increase asset value.
• Qualify for tax rebates, zoning allowances and other incentives in hundreds of cities.
• Demonstrate an owner's commitment to environmental stewardship and social responsibility.

So why am I thanking Mayor Daley instead of Donald Trump personally? When I was lecturing on "Saving with Sustainability" at NeoCon in Chicago last June, I had lunch at the new Trump Hotel and Tower. The view from the dining room (shown above) was inconsistent with what I viewed as Donald Trump's aesthetic or value system, so I asked the head of Chicago's Green Roof's Program whether green roofs were required for new construction. He explained that projects that are built to recognized green standards and incorporate green roofs qualify for incentives and, perhaps more importantly, get special expedited treatment and cooperation from Chicago's Department of Buildings. While I don't know how important this policy was in Donald Trump's adoption of LEED standards for projects in other parts of the country, I'm fairly certain that it got his attention.

Why Energy Efficiency Does Not Pay - Split Incentives

Energy efficiency is the most cost-effective way to address climate change and energy security concerns. Efficiency presents a unique opportunity because not only does it save energy, it reduces costs and lowers CO2 emissions. But unfortunately many opportunities for energy efficiency improvements are wasted because of split incentives. Often the consequences and benefits of energy choices do not affect those making the choices.

I've already addressed how sub-metering can encourage tenants to be more energy efficient. In apartment houses that are sub-metered the resident who leaves his air conditioner on all day pays more for electricity than the one who conserves energy whenever possible. And when commercial buildings are sub-metered a tenant who invests in energy efficient lighting, equipment and practices pays less for electricity than the energy hog in an adjoining space.

A property developer or building owner may be unwilling to pay any incremental cost for energy-efficient equipment and appliances because the building occupants will be paying the electric bills.

Split incentives are particularly challenging in commercial real estate. Most leases enable owners to buy bulk energy and charge tenants a higher rate than they pay, so they profit from energy use rather than from energy efficiency. Leases normally do not allow owners to assess tenants for capital improvements that would save energy and save the tenants quite a bit of money. To add to the owner's dilemma, mortgage terms often restrict the ability to finance capital improvements.

The significant obstacles outlined above can be overcome. Solving such a complex problem requires legal and financial expertise and the ability to think outside the box.