Congress continues to consider a sweeping energy and climate change bill.  While both Houses have introduced proposals, a packed legislative agenda may push deliberations into next year. 

The House passed its version of energy/climate change legislation (H.R. 2454, the Waxman-Markey bill) on June 26.  The measure includes several provisions of interest to apartment firms, including an onerous section mandating a National Energy Efficiency Building Code.   

On the Senate side, the Senate Committee on Energy and Natural Resources passed a standalone energy bill (S. 1462) on June 17.  In addition, on September 30, the Senate Committee on Environment and Public Works introduced a greenhouse gas reduction and energy efficiency package (S. 1733), the Clean Energy Jobs and American Power Act (CEJAP). 

• A side-by-side analysis of the three bills is available here.   A brief summary follows. (Updated October 1, 2009)
• An NMHC Grassroots Alert seeking member letters to oppose the building code section of the Waxman-Markey bill is available here.

SUMMARY

Unrealistic Code Mandates
Both the House and Senate bills would unravel the existing process for developing and adopting building energy codes and impose new federal requirements for stringency and enforcement.   The measures also undermine the regional flexibility of the current code system. 

The House bill directs the Secretary of Energy to establish a National Energy Efficiency Building Code that is 30 percent more efficient than the 2004 version of ASHRAE Standard 90.1 and the IECC 2006 by 2010.  By 2014, the national code is required to be 50 percent stricter than the baseline codes.  Senate bill 1462 contains comparable but slightly less onerous building codes language, while S. 1733/CEJAP removes all efficiency targets and timelines and leaves those decisions to an EPA rulemaking. 

State and local governments must adopt and enforce codes that meet or exceed the efficiency levels of the national code. The codes would apply to all buildings built or substantially rehabilitated after the enactment of the legislation. 

NMHC is educating lawmakers about the serious limitations of this approach.   First, according to NMHC/NAA-commissioned research, a one-size fits all approach to building energy performance fails to account for regional climate characteristics that heavily influence energy consumption.  In some regions of the country the energy performance targets are unachievable with current technology and in other climate zones, achieving these performance levels will require the use of technology that is unaffordable in terms of the overall cost of construction.

Moreover, using building codes to achieve conservation goals is a flawed policy in the residential sector because most energy used in apartments falls outside the scope of these codes. Primarily, the building codes referenced by the legislation only cover the building envelope and HVAC systems. 

To meet the energy performance levels identified in the legislation, however, other facets that are outside of the scope of the codes must be counted, issues such as lighting, hot water heating and other appliances.   By excluding these items,   the code targets put extreme pressure on building owners to invest in expensive upgrades (think triple glazed windows)   without significantly improving overall building energy performance.

In a positive development, in response to our concerns that this requirement will subvert the consensus-based code process by requiring the Department of Energy to set codes if the third-party code-writing organizations are not able to do so, language has been included in the House bill that would require that the modified code to “achieve the maximum level of energy savings that is technologically feasible and life cycle cost effective.”

Federal Cause of Action Against Property Owners
In addition to unrealistic energy efficiency targets, the House bill would federalize building code enforcement and create a federal cause of action for non-compliance with energy codes. (Neither Senate bill provides for federal enforcement or penalties for non-compliance.)

As introduced, the bill would have made it unlawful to occupy, permit to occupy or convey a building that cannot or does not comply with the new codes.   (See p. 200 of H.R. 2454.)  Builders and property owners found in violation would be subject to daily-accruing penalties and federal courts could rescind sales transactions of non-compliant properties. 

Under the measure, owners could be pursued if they sold a building built after the enactment date that was, for example, only 20 percent or 25 percent more efficient than a model building code (ASHRAE 90.1 (2004)), not the 30 percent as required by the National Code.  

While a last minute amendment by Rep. Jim Matheson (D-UT) tempered this provision by removing the references to specific violations and penalties, the bill still requires the Secretary of Energy to establish violations and penalties through a rulemaking within three years. This means the threat of federal fines is still very real. 

If enacted, these penalties would have a chilling effect on the development and transfer of properties across the real estate spectrum.

Building Energy Usage Labeling Requirements
Both the Senate and the House have introduced "disclosure/labeling" provisions that could require property owners to disclose energy scores or performance ratings of their properties.  While NMHC supports voluntary benchmarking programs, such as EPA’s ENERGY STAR program and the Department of Energy’s Commercial Building Energy Consumption Survey (CBECS), we are concerned that this provision could lead to mandatory requirements under a program that has not yet been specified. 

Mandatory labeling requirements are more problematic for the apartment sector because there is no ENERGY STAR or CBECS rating system for multifamily properties comparable to the one that exists for single family homes or commercial office properties.  NMHC continues to argue against a one-size-fits-all approach and is educating lawmakers about the important differences between multifamily and other commercial real estate sectors.

In a positive development, an amendment to the House proposal limits the labeling provisions to new construction, which recognizes that existing buildings have inherently different energy profiles compared to new buildings.

GREEN Act of 2009
The House bill fully incorporates the GREEN Act of 2009 (H.R. 2336).  This legislation was originally introduced by Rep. Perlmutter (D-C)) last term.  It makes numerous changes to federally-assisted housing programs. 

NMHC supports the overall approach of this section, which emphasizes incentives and technical assistance to improve building energy performance.  However, several provisions undermine the voluntary nature of the section and create conflict with other parts of the greater energy bill. 

NMHC previously raised concerns over the GREEN Act in 2008 congressional testimony and several changes were made accordingly.  Of note, the provision now cites the National Green Building Standard as a compliance method for the bill’s green building requirements.   We also submitted written testimony on the GREEN Act in June 2009.

Renewable Energy Requirements
The House measure and Senate bill 1462 would also impose a "combined efficiency and renewable electricity standard" on utilities that would require them to meet a certain percentage of their load with power generated from renewable resources and energy efficiency measures.  How this will play out for multifamily property owners is not clear, though.  It remains to be seen whether there will be incentives to property owners who reduce energy demand or some other more onerous mechanism to force reduced usage. 

Any effort to significantly reduce energy demand will require rehabilitating existing properties.  To that end, NMHC applauds—and will encourage the continuation of—the incentive-based approach that currently offers owners rewards that vary depending on how much energy is saved. 

Cap and Trade Program
Finally, the House draft also addresses global warming by creating a cap and trade program that would cut greenhouse gas emissions percent to 17 percent of 2005 levels by 2020.  In his fiscal 2010 budget plan, President Obama proposed a 14-percent cut in emissions from 2005 levels by 2020 and an 83-percent cut below 2005 levels by 2050. The Senate bill (S. 1733/CEJAP) is the most aggressive proposal, calling for a 20 percent reduction of 2005 levels by 2020.

NMHC will continue to work with lawmakers to craft final legislation that recognizes the importance of considering economic feasibility and the potential impact of mandates on the nation's affordable housing.