Change is in the Air What Businesses Need to Know. Thomas M. Donnelly, San Francisco Brian L. Sedlak, Chicago Thomas V.

Transcription

1 Change is in the Air What Businesses Need to Know Thomas M. Donnelly, San Francisco Brian L. Sedlak, Chicago Thomas V. Skinner, Chicago

2 California s Efforts to Reduce Greenhouse Gas Emissions Renewable Portfolio Standard (2002): Requires utilities to increase the percentage of renewable fuels (wind, solar, hydro, etc.) used to generate electricity sold or supplied in California. 20% by December 31, % by December 31, % by Pavley Rule (2004): Establishes progressively stricter greenhouse gas ( GHG ) emission standards for new vehicles. Survived legal challenge. 2

3 California s Efforts to Reduce Greenhouse Gas Emissions Low Carbon Fuel Standard (2007): Requires producers and importers of transportation fuels sold in California to reduce the carbon intensity of such fuels by at least 10% by Struck down by U.S. District Court for Eastern District of California on ground that carbon intensity assigned to ethanol produced outside California was facially discriminatory and thus violated the dormant commerce clause. Pending appeal before Ninth Circuit. Fully briefed and argued. Decision expected this summer. 3

4 California s Efforts to Reduce Greenhouse Gas Emissions Global Warming Solutions Act ( AB 32 ) (2006) Requires reduction of GHG emissions to 1990 levels by Through a combination of regulations and market mechanisms. California Air Resources Board ( CARB ) has determined the 1990 GHG level and thus the 2020 limit to be 427 million metric tons CO2e. CARB estimates that the limit will require a 30% reduction in projected business-as-usual GHG emissions. To achieve this mark, California must reduce carbon emissions by four tons per person per year. 4

5 California s Efforts to Reduce Greenhouse Gas Emissions AB 32 (cont.) CARB has adopted mandatory reporting requirements (modeled after U.S. EPA s GHG reporting program), requiring larger emitters of GHG to annually report their emissions. It also has adopted nine early action measures, including the LCFS, regulations affecting landfills, refrigerants in cars, tire pressure, and port operations. 5

6 California s Efforts to Reduce Greenhouse Gas Emissions AB 32 (cont.) Most critically, CARB has adopted a cap and trade program. Covers major sources of GHG emissions (accounting for approximately 85% of the statewide emissions), such as refineries, power plants, and industrial facilities. Enforceable emissions cap, declines over time. CARB distributes allowances (permits to emit), free and by auction. During initial years of program, CARB will issue most emission allowances for free; eventually it will transition primarily to sales of allowances through quarterly auctions, with price controls. 6

7 California s Efforts to Reduce Greenhouse Gas Emissions AB 32 (cont.) Carbon offset credits that satisfy requirements of approved offset protocols may also be used (but only for up to 8% of annual emissions). Sources subject to the cap must surrender allowances and offset credits (together, compliance instruments ) equal to their GHG emissions at end of each compliance period. 7

8 California s Efforts to Reduce Greenhouse Gas Emissions AB 32 (cont.) Market participants may sell or purchase allowances and approved offset credits in the secondary market. Compliance instruments do not expire, which enables covered entities to bank and hold compliance instruments until they are needed and other market participants to hold and sell compliance instruments without any deadlines for sale. Information for each trade, including trade date, settlement date, and price, is required to be reported to the accounts administrator of the program. 8

9 California s Efforts to Reduce Greenhouse Gas Emissions AB 32 (cont.) When a covered entity fails to surrender a sufficient number of compliance instruments by the annual or triennial deadline, the regulations require the covered entity to surrender allowances in an amount equal to four times its excess emissions. If after 30 days the covered entity fails to fulfill this surrender obligation, CARB may take action through its general enforcement authority under the Health and Safety Code. Monetary penalties can reach $25,000 per violation, per day, even for negligent violations, while knowing violations will carry more severe penalties, including the possibility of jail time. 9

10 California s Efforts to Reduce Greenhouse Gas Emissions AB 32 (cont.) Several lawsuits have been filed challenging aspects of cap and trade. California Chamber of Commerce and Morning Star Packing: related lawsuits challenging auction of allowances, and the revenue it generates for California, as unconstitutional tax. Hearing set in Sacramento Superior Court in late August. Citizens Climate Lobby: lawsuit challenging approved offset protocols as not meeting statutory requirements. San Francisco Superior Court denied petition; appeal likely. 10

11 California s Efforts to Reduce Greenhouse Gas Emissions How Do These Programs Affect Businesses Outside California? Regulatory programs have served as a model for federal and other state programs (e.g. RPS, mandatory reporting of GHG emissions). Pavley Rule directly affects the manufacture of new vehicles intended for sale in California (by requiring engines and exhaust systems that produce lower GHG emissions). LCFS directly affects production, demand for and pricing of low carbon fuels outside California (such as Midwest ethanol). Cap and trade requires covered entities to modify their fuel supplies, equipment and operations in order to reduce GHG emissions, and creates a market for creating and selling approved offset credits. 11

12 Not Everyone Objects to Global Warming 12 12

13 While Others Do 13 13

14 Green Leasing Key Elements LEED certification Pass-through of LEED certification costs to tenant Sharing of cost savings from energy efficiency with tenant Allocation of utility costs Pro-rata share: dependent upon efficiencies of building and other tenants. Separately metered: allows for tenant to maintain greater control over energy efficiency. 14

15 Green Leasing: Sample LEED Provision General. Tenant acknowledges that Landlord has, as of the Effective Date, obtained Leadership in Energy and Environmental Design ( LEED ) under the Green Building Rating System of the U.S. Green Building Council ( USGBC ) for the core and shell of the Building (the LEED Certification ). * * * Tenant Obligations. Tenant shall not do or permit anything to be done in or about the Premises which will cause the Building or any part thereof not to conform with Landlord s sustainability practices or any certification of the Building issued pursuant to USGBC certification programs. Example from First Class Office Lease May

16 Green Leasing Key Elements, cont. Audit rights related to utility charges and LEED certification pass-through costs Covenants to comply with green building practices, green rules and regulations Assignment and subletting restrictions Consent contingent on assignee or sublessee s compliance with green covenants in lease or green rules and regulations of premises. 16

17 Green Leasing Key Elements, cont. Tenant improvement and alteration issues Approval contingent upon compliance with LEED requirements, adherence to sustainable construction practices Allocation of rooftop space between: Tenant s HVAC, satellite and other equipment Landlord s ability to utilize rooftop space for solar equipment 17

18 Factors in Expansion of Rooftop Solar Rapidly falling installation costs Primarily for solar panels, also for balance of plant costs Solar panel costs fell 11%-14% in 2011 over prior year Balance of plant costs now equal 68% of total rooftop solar project 18

19 Factors in Expansion of Rooftop Solar, cont. State and federal incentives Remain key to expansion despite 80% decrease in incentives over past decade Other laws allow for third-party ownership of rooftop solar systems installed with no initial cost to owner Third-party systems coupled with PPAs take electricity back to grid in exchange for fixed electricity cost to owner 19

20 Structure of Solar Rooftop Deals Financed and owned by property owner Benefits: retain renewable energy certificates, receive all benefits from electricity generated Developed by third-party owner/operator Benefits: no capital investment, no operation/maintenance cost, stable electricity pricing for term of PPA, mitigation of performance risk 20

21 Key Factors in Solar Rooftops Present energy efficiency of premises prior to installation of solar project Initial assessment of premises Design of suitable system based on electric load Condition of rooftop Not less than 25 year remaining life PPA terms Pricing, term, purchase options 21

22 Representative Transactions Developers Diversified Realty Corporation Feature: SunEdison option to develop solar energy systems at hundreds of DDR's shopping centers. NRG Energy, Inc. Feature: 752 MW distributed generation rooftop solar project on 750 rooftops in the U.S. owned by ProLogis Inc. 22

23 While we re on the topic of roofs 23

24 Building Owner Benefits Increase lifetime of roofing Decrease building energy use Mitigate storm water runoff Increase usable outdoor space Job creation Food production

25 Environmental Benefits Reduce urban heat island effect Improve urban air quality Decrease noise pollution Increase biological diversity Connect habitats

26 Green Roof Design Types Comprehensive Extensive Semi-Intensive Intensive

27 Anatomy of a Green Roof

28 Current Green Roof Policy in the U.S. No federal policy Chicago expedited permitting, zoning DC rebate Indianapolis, Milwaukee grants NYC, Nashville property tax abatement Philadelphia tax credit Portland grants & density bonus Seattle green area factor & density bonus

29 Green Roof Permitting in Chicago Structural drawings Structural calculations Licensed structural engineer or architect s stamp General contractor signature Green roof details Permit fee City of Chicago s Green Roof Checklist

30 USGBC LEED Points for Green Roofs Sustainable Sites c5.1: Site Development Protect or Restore Habitat Green roofs apply towards SS c5.1 if: Both the plants on green roof plants are native species And, the project qualifies for SS-c2: Development Density & Community Connectivity Sustainable Sites c5.2: Site Development Maximize Open Space Green roofs apply towards SS c5.2 if: The project qualifies for SS-c2: Development Density & Community Connectivity. Sustainable Sites c6.1: Stormwater Control Quantity Control Green roofs apply towards SS c6.1 if: Stormwater management plan includes green roofs in methods to reduce peak stormwater runoff rate and quantity. Sustainable Sites c6.2: Stormwater Control Quality Control Green roofs apply towards SS c6.2 if: Stormwater management plan includes green roofs in methods to reduce impervious infiltration and total suspended solids in stormwater runoff. Sustainable Sites c7.2: Heat Island Effect Roof Green roofs apply towards SS c7.2 if: More than 50% of the roof area is vegetated, or 100% of the roof area is vegetated (exemplary performance). Materials and Resources c5: Regional Materials, Green roofs apply towards MR c5 if: The green roof assembly components are extracted and manufactured within 500 miles. Credit based on material cost Regional Priority c1 Green roofs apply towards RP c1 if: The project is in a zip code with extra priority on one of the listed credits. There are no points for green roofs available in LEED core components Water Efficiency or Energy and Atmosphere.

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