Congress has reached an impasse over energy and climate change legislation and is unlikely to approve a comprehensive bill this year.  The Senate has signaled that it will not address carbon caps or other contentious energy measures before the November election, and will focus instead on a small energy bill principally devoted to oil spill and drilling issues.  

While Senate leaders were not able to advance even a pared-down proposal this summer, they will likely revisit the legislation in the fall.  Although unlikely, a modest Senate package possibly focused on the Gulf of Mexico oil spill could be paired with House-passed legislation in a conference committee later this year.  Even without election pressures, however, numerous controversial provisions and economic concerns work against passage of a significant bill this year.

The House passed its version of energy/climate change legislation (H.R. 2454, the Waxman-Markey bill) on June 26, 2009.  On the Senate side, the Senate Committee on Energy and Natural Resources passed a standalone energy bill (S. 1462) on June 17, 2009.  In addition, on September 30, 2009, 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).  With no consensus reached in 2009, Senators John Kerry and Joe Lieberman released a much-anticipated American Power Act (APA) compromise proposal in May 2010.

The principal bills under consideration include several provisions of interest to apartment firms.  Several of these measures enjoy broad Congressional support, so individual passage is possible even in the absence of a comprehensive energy and climate change package.

A side-by-side analysis of the three bills is available here.   A brief summary follows. (Updated August 2010)

SUMMARY

Unrealistic Code Mandates
Both the House and Senate have introduced measures that would unravel the existing process for developing and adopting building energy codes and would impose new federal requirements for stringency and enforcement.  These proposals have bipartisan support and are likely to be considered independently if not included in a broad energy and climate package. 

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.  The Kerry-Lieberman APA does not contain building code language. 

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

NMHC/NAA are 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; 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 (such as triple-glazed windows)   without significantly improving overall building energy performance.

In a positive development, in response to NMHC/NAA 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 House 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 more efficient 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/NAA support voluntary benchmarking programs, such as EPA’s Energy Star program, 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 rating system for multifamily properties comparable to those that exist for single-family homes or commercial office properties.  While recent updates to the Energy Star Portfolio Manager Program enable multifamily firms to use the performance measurement tool, the program does not provide a metric for comparing apartment units or for ranking buildings against their peers.  NMHC/NAA continue to argue against a one-size-fits-all approach and is educating lawmakers about the important differences between the multifamily sector 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 than 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. Ed Perlmutter (D-CO) in 2008 and is now being considered as stand-alone legislation, having passed the House Financial Services Committee in April 2010.  It makes numerous changes to federally assisted housing programs. 

NMHC/NAA support 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/NAA 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 (ICC 700-2008) 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 if there will be 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/NAA applaud—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, each chamber has proposed measures to address climate change by creating a cap and trade program.  The House bill would cut greenhouse gas emissions by 17 percent using 2005 as a baseline.  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, while the APA receded to an emissions reduction target in-line with the House bill.

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.