Fixing Drafty Old Buildings Becomes $20 Billion U.S. Industry

Aerial Views Of The Bay Area As The City Seeks Break From Rising Rents

California and New York have taken the lead in prodding building owners toward greater energy efficiency with a mix of rebates and tax breaks to help offset the costs.

Photographer: David Paul Morris/Bloomberg
  • California's clean-air laws drive 'energy retrofit' economy
  • Paperwork bugs some landlords, but they're OK with big fixes

California building owners already employ a small army of consultants to navigate the nation’s strictest energy standards, and many will soon spend millions to make old buildings more efficient. As the U.S. redoubles its commitment to reducing greenhouse gases, that experience could be replicated nationwide.

With the state poised to halve building energy use by 2030 and the nation about to start curbing greenhouse-gas emissions under last month’s Paris accord, more structures across the U.S will need renovations. Buildings account for 39 percent of carbon dioxide emissions, exceeding transportation and industrial uses, says the U.S. Green Building Council.

Energy management system
Energy management system
Photographer: Kevork Djansezian/Bloomberg

“Most of the focus has been on new construction, but now people are really taking a look at existing buildings,” said Cliff Majersik, executive director of the Institute for Market Transformation, a Washington nonprofit that promotes more efficient buildings. “If you really want to move the needle on climate change, you can’t ignore the 99 percent of buildings that are already there.”

A decade of progressively stricter laws aimed at reducing energy useand consumer desire to lower costs have already bred a $20 billion-a-year industry in the U.S., according to Majersik. Consultants guide property owners through the regulatory maze and help them file paperwork. Contractors retrofit old ventilation systems and fixtures, replace drafty windows, doors and roofs, and install state-of-the-art environmental controls.

California and New York have taken the lead in prodding building owners toward greater energy efficiency with a mix of rebates and tax breaks to help offset the costs. Still, the standards could force rents even higher.

Dozens of consulting firms such as New York-based CodeGreen Solutions have built businesses around compliance and paperwork requirements in cities like New York, Chicago, San Francisco and Los Angeles. Founded in 2008, CodeGreen now is responsible for energy auditing in 250 million square feet of offices around the country, said Christopher Cayten, a principal in the closely held company.

“The laws have given us more business, granted, but they’ve also broadened the concept of sustainability beyond big, shiny, brand-new buildings,” Cayten said.

Because regulators historically went after gas guzzling cars and smokestack industries to improve air quality, office buildings and apartments attracted relatively little scrutiny until the past decade. Now policy makers are switching their attention from simply requiring periodic energy audits to compelling property owners to replace inefficient fans, windows, lighting and other components.

Demand Response

California was the first to impose efficiency standards almost four decades ago and its regulations have been tightened periodically since. The state says those rules lowered electric bills by $74 billion since 1978.

In New York and San Francisco, building owners are required to periodically assess energy use and look at new appliances, fixtures or other measures to become more efficient. Even smaller cities like Kansas City and Atlanta have moved to require energy audits of buildings.

Air conditioning room
Air conditioning room
Photographer: Kevork Djansezian/Bloomberg

In 2008, Pennsylvania required utilities to come up with plans to encourage energy efficiency through programs such as rebates for new appliances, lighting and windows and by requiring periodic energy audits and “smart meters” to measure real-time power use.

New York and California have measures to encourage buildings to automatically reduce air conditioning, idle assembly lines and dim lighting during periods of stress on their electric grids. That process, known as demand response, has fueled growth for companies such as Milwaukee, Wisconsin-based Johnson Controls Inc., which predicted an increase of between 9 and 11 percent this year in its $14 billion building efficiency business.

Other states are expected to embrace demand response, which is required under a California bill that Governor Jerry Brown signed into law last October.

Low-Hanging Fruit

Terrill Laughton, vice president and general manager of demand response for Johnson Controls, said in an interview that a “favorable legislative environment” should accelerate growth in his business.

“There’s only so many new buildings that get built,” Laughton said. “States aren’t going to achieve their environmental goals without getting to older buildings and facilities. Broadly speaking, most of our work is in older buildings and facilities. There’s a lot of low-hanging fruit.”

The California bill originally called for every building to cut energy use in half by 2030, but it was watered down after the California Business Properties Association and other commercial groups objected. The final version only calls for an overall reduction, meaning that the burden won’t fall equally on all buildings. It was backed by lobbyists for energy-consulting firms as well as unions representing building trades who stand to gain work from the retrofit requirements.

Commercial landlords remain concerned that regulators could impose millions of dollars in fixes on old buildings that barely eke out a profit as it is, said Matthew Hargrove, the Business Properties Association’s chief lobbyist.

“As the state pushes forward with making building energy codes more complex and tougher to meet, it just makes it that much more complicated and expensive for the average businessperson,” said Hargrove. “People need to hire energy consultants and sustainability specialists because they can’t do it internally anymore.”

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