After a more than 10-month review period, the Environmental Protection Agency (EPA) is resuming Energy Star building certifications. The announcement should come as welcome news to property owners who rely on the program, whether using it to ensure compliance with state and local disclosure mandates, with federal lease requirements, or just as a handy metric for tracking energy usage.
Chances are you’ve heard of Energy Star. Administered by the EPA, the program promotes energy efficiency through Portfolio Manager, a free online tool that enables property owners to measure and track water and energy consumption, as well as greenhouse gas emissions. It also compares the data against similar buildings.
Properties that use the tool are assigned an Energy Star score on a scale of 1-100, which can be used to compare the building’s performance against similar property types in the U.S. For example, a score of 90 indicates that that property is more efficient than roughly 90% of its peers. Scoring 75 or higher designates a “top performer,” and means the building is eligible for Energy Star certification.
While it started out as a voluntary program, dozens of states and municipalities have incorporated the tool into their energy mandates and ordinances. For example, buildings in California larger than 50,000 square feet are required to disclose their energy use though Portfolio Manager; legislation passed in Washington, D.C., last year mandates minimum energy-efficiency standards, also based on data logged in the tool. According to EPA’s most recent data, more than 40% of commercial building space in the U.S. (270,000 buildings, or 26 billion square feet of floor space) use Portfolio Manager.
Because Energy Star and the commercial real estate industry are so deeply enmeshed, changes to the program can have broad implications for property owners. This became evident last year, when the EPA updated its Energy Star models, leading to big score drops for existing buildings.
Here’s what happened: Rather than trying to collect consumption data from every single building in the country, EPA relies on the Commercial Buildings Energy Consumption Survey (CBECS), which is conducted roughly every four years by the U.S. Energy Information Administration (EIA). The survey takes a small representative sample, which the EPA uses to establish a baseline of energy usage in buildings nationwide. The EPA then compares the real-time Portfolio Manager data to this baseline to determine how buildings participating in the Energy Star program stack up. Importantly, when you input your building’s data into Portfolio Manager, you’re comparing it to all similar properties across the country, not just ones in the Energy Star dataset.
Unfortunately, the CBECS hadn’t been updated in more than a decade, meaning scores were assigned based on comparisons to an old, less efficient building stock. This led Energy Star scores to be artificially inflated, since they weren’t taking into account the myriad technological advancements and shifts in industry practices that occurred over that time. Once the new CBECS data went into effect, the average office property saw a 12-point score decrease.
However, NAIOP members soon began reporting other unintended consequences. Namely, similar buildings experienced large variations in score decreases based on climate. As a hypothetical example, a 300,000 square foot office building in Boston might see a 22-point decrease, while an identical one in San Francisco only lost 5 points.
The disparate outcomes were problematic, because Energy Star is intended to account for and normalize differences in energy consumption based on climate. If it didn’t, the vast majority of Energy Star-certified buildings would be located in climates where energy usage is inherently lower.
In response, NAIOP worked with its allies in the real estate community to compile data and demonstrate to EPA the effects of its scoring updates.
To its credit, EPA acknowledged the issue and halted all new Energy Star certifications, to give the agency time to review its models. It later determined that a Heating Degree Day (HDD) adjustment was needed to account for these regional differences. That tweak went into effect when the program was resumed at the end of July 2019 (see a full summary of the changes from the review period).
The EPA has taken a number of steps to ensure the regulated community is aware of the changes, including a number of recorded webinars available on the EPA website.
To account for the suspension period, the EPA has waived a number of rules regarding certification deadlines and has made available information on the changes for those seeking certification for both 2018 and 2019.