Legislature Overrides Veto of Renewable Energy Portfolio Standard Increase

Wind Turbines

On February 2, 2017, the Maryland Senate and House of Delegates voted to override the veto of an increase the State’s Renewable Energy Portfolio Standard, as enacted in the 2016 Maryland General Assembly session.

Last May, Maryland Governor Lawrence J. Hogan, Jr., vetoed House Bill 1106, that was characterized as a “sunshine tax” to be levied upon every electricity ratepayer in Maryland.

That is, on its face the bill mandates that 25% of all electricity consumption in the state come from renewable energy sources by the year 2020, an increase from the then existing renewable energy mandate of 20% renewable energy by 2022.

Except that nowhere does HB 1106 actually require that 25% of “Maryland’s energy” come from renewable sources.  The Renewable Energy Portfolio Standard is a mandate on electricity suppliers (.. think monopoly electric utilities) and the cost of compliance is passed through to ratepayers.  In 2015, Maryland ratepayers paid $127 million to comply. Under the increased standard in the bill, electricity suppliers would comply by purchasing a percentage of renewable energy credits proportional to its share of Maryland’s total electricity sales.

The implementation of this law is accomplished through the creation, transfer, and retirement of renewable energy credits (RECs). RECs are a commodity that represents the renewable attributes associated with the production of one megawatt-hour of electricity generated using eligible renewable energy sources.

Maryland electricity suppliers have relied heavily, and will continue to rely more heavily, on out of state generators to acquire the RECs needed for Renewable Energy Portfolio Standard compliance. In fact, in every year since 2011, The Public Service Commission admits that between 70% and 75% of RECs retired for compliance with this law were generated out of state. Maryland has been and now, more than ever, will be far ahead of what the electricity generating marketplace can do.

While the primary objective of the Maryland Renewable Energy Portfolio Standard when enacted into law in 2004 was to foster the development of renewable energy resources in Maryland, this has not happened.

The Governor’s veto had been widely applauded as a pushback against ever increasing legislatively flawed subsidized local renewable energy marketplace portends a national trend.

While on the surface, the aim of HB 1106, increasing the amount of renewable energy in Maryland was laudable, the dramatic increase in dollar costs to Maryland ratepayers for electricity, not to mention the regressive nature of the additional dollars, including burdening the poor that rely on electricity to heat and light their homes, while benefitting out of state investors (many of which institutional investors leverage those dollars invested in facilities in other states that they ‘double dip’ by getting credit in Maryland, and then obtain federal tax incentives), was widely seen as the wrong approach.

And calculatedly, the Maryland Renewable Energy Portfolio Standard does not take into account that more than one third of electricity in the State is generated from nuclear power, the ultimate (but controversial) renewable energy source that produces virtually no greenhouse gas emissions.

Additionally, the Standard is made more expensive when it expressly includes offshore wind (.. so, yes, Maryland ratepayers are subsidizing offshore wind development and later operation).

Twenty years ago Maryland had among the least expensive price of electricity to the ultimate consumer across the residential, commercial and industrial sectors, but before the implementation of HB 1106, at 14.3 cents per Kilowatt hour the average price is now among the highest in the continental U.S. and the very highest among all south Atlantic states.

The veto was Maryland’s effort to strike a balance in energy policy.

The veto override last week, was of a bill passed last year in advance of the Presidential election and resultant national policy shifts including anticipated elimination of President Obama’s Clean Power Plan. The vote was largely along party lines with the Democrat controlled legislature rebuffing the Republican governor. In the Senate, all 32 Democrats voted to override, more than the 29 needed. In the House of Delegates on Tuesday, 88 Democrats voted for the override, more than the 85 needed.

Despite politics, it is clear HB 1106 will do little if anything to foster the development of renewable energy resources within Maryland. What this veto override does signal in this changing environment is the need for a national rebalancing of government energy priorities, and not subsidized on the backs of the poor.

Defamation Case over Global Warming Claim set for Trial

Mann hockeystick

Michael E. Mann is a well-known climate scientist whose research in studying the “paleoclimate,” or ancient climate, has featured prominently in the politically charged debate about climate change. Dr. Mann filed an action for defamation and intentional infliction of emotional distress on October 22, 2012 against Competitive Enterprise Institute (CEI), Rand Simberg, National Review, Inc. (National Review), and Mark Steyn based on articles written by Mr. Simberg, Mr. Steyn, and National Review’s editor Rich Lowry that appeared on the websites of CEI and National Review. Dr. Mann’s complaint claimed that the articles which criticized Dr. Mann’s conclusions about global warming and accused him of deception and academic and scientific misconduct contained false statements that injured his reputation and standing in the scientific and academic communities of which he is a part.

The court order says, on July 15, 2012, Mr. Steyn authored an article titled “Football and Hockey,” which appeared on National Review’s online blog “The Corner.” In his article, Mr. Steyn quoted from Mr. Simberg’s July 13 article:

I’m referring to another cover up and whitewash that occurred [at Penn State] two years ago, before we learned how rotten and corrupt the culture at the university was. But now that we know how bad it was, perhaps it’s time that we revisit the Michael Mann affair, particularly given how much we’ve also learned about his and others’ hockey-stick deceptions since. Mann could be said to be the Jerry Sandusky of climate science, except that instead of molesting children, he has molested and tortured data in service of politicized science that could have dire consequences for the nation and planet.

And the order further says, Mr. Steyn then added:

Not sure I’d have extended that metaphor all the way into the locker-room showers with quite the zeal Mr. Simberg does, but he has a point. Michael Mann was the man behind the fraudulent climate-change “hockey-stick” graph, the very ringmaster of the tree-ring circus.

The defendants argue that Dr. Mann’s lawsuit infringes on their First Amendment right of free speech and moved for dismissal under the District of Columbia’s Anti-Strategic Lawsuits Against Public Participation (Anti-SLAPP) Act, D.C. Code §§ 16-5501 et seq, and, alternatively, under Court Rule 12 (b)(6). The trial court ruled that Dr. Mann’s claims were “likely to succeed on the merits,” the standard established in the Anti-SLAPP Act to defeat a motion to dismiss, and denied the defendants’ motions to dismiss and their subsequent motions to reconsider. CEI, National Review and Mr. Simberg sought interlocutory review of the trial court’s denial of their motions to dismiss.

In a December 22, 2016 order, the District of Columbia Court of Appeals held that it has jurisdiction under the collateral order doctrine to hear appellants’ interlocutory appeals of the trial court’s denial of their special motions to dismiss filed under the Anti-SLAPP Act:

“We further hold that the Anti-SLAPP Act’s “likely to succeed” standard for overcoming a properly filed special motion to dismiss requires that the plaintiff present evidence — not simply allegations — and that the evidence must be legally sufficient to permit a jury properly instructed on the applicable constitutional standards to reasonably find in the plaintiff’s favor. Having conducted an independent review of the evidence to ensure that it surmounts the constitutionally required threshold, we conclude that Dr. Mann has presented evidence sufficient to defeat the special motions to dismiss as to some of his claims.”

The appeals court remanded the case to the trial court for further proceedings.

The defendants have filed a petition for rehearing. Many expect the petition to be granted and that the full Court of Appeals will put an end to this attack on the First Amendment now, before a trial that will no doubt result in many more years of appeal.

I first blogged about this case in 2013, Michael Mann’s Defamation Case Continues, Just Not Now and the saga continues.

Of course a jury verdict in this case will do nothing to resolve the debate over climate change. And given new President Donald Trump has said he will “open up our libel laws” to make it easier to sue for defamation law, this case will not impact the law of libel and slander.

Given that a jury will have to find that Steyn and Simberg acted with “actual malice” or a “reckless disregard” of the truth or falsity of the claims at issue, most believe Dr. Mann, who is among that coterie who refer to people as “climate change deniers” (analogizing those who disagree with him to Nazi Holocaust deniers), .. such that this lawsuit strikes many as the pot calling the kettle Black, is very unlikely to prevail on the merits. We will continue to monitor the debate.

California is a Model for PACE Loan Reform

Residential PACE

California’s statutory changes to its existing residential Property Assessed Clean Energy (PACE) financing program, that became effective January 1, 2017, may be a model for residential PACE programs across the nation.

The first residential PACE program started in Berkeley, California in 2007. Today there are laws in at least 34 states that allow some form of PACE financing, however, there are very few residential PACE programs up and running. Residential PACE loans got a late jumpstart when the U.S. Department of Housing and Urban Development and the Department of Veterans Affairs released new guidance on July 19, 2016, changing their 2011 positions, now widely allowing residential PACE.

Last year I suggested with that new guidance, PACE financing, where payments for energy efficiency, water conservation and renewable energy improvements to real estate are made through a building owner’s property tax bill without upfront cash from the owner could be bigger than anything in U.S. real estate since the invention of the glass window.

To date, more than $3 Billion has been lent for residential PACE projects and it is predicted that total will double within the year. A recent front page Wall Street Journal article went on to forecast that growth “would likely rank PACE loans as the fastest growing type of financing in the U.S.”

But this explosive growth has not been without externalities. There is growing concern that PACE loans are being made to homeowners who cannot afford to make the payments.

The State of California determined that government enabled PACE “is sometimes misunderstood and may affect the consumer’s ability to refinance their loan or sell their property” but that many of the regulatory safeguards that buttress traditional second mortgages do not exist in the realm of PACE. To address those and other issues, California announced it “is essential to promote standardized disclosures and protections for consumers to ensure that the PACE program can continue to be widely used to offset the adverse impacts of years of climate change.” To that end, the State enacted Assembly Bill No. 2693 and Assembly Bill No. 2618, both effective January 1, 2017.

Among the key features of the new laws, for residential properties with four or fewer units, that may be model language as more residential PACE programs are enabled across the country are:

Not permitting a property owner to participate if the owner’s participation would result in the total amount of any annual property taxes including PACE assessments exceeding 5% of the property’s market value, as determined at the time of approval of the owner’s contract.

The PACE financing must be for less than 15% of the value of the property, up to the first $700,000 of the value of the property, and must be for less than 10% of the remaining value of the property above $700,000.

Requiring a disclosure in substantially the same form as provided in the law shall be completed and delivered to a property owner before the property owner consummates a voluntary contractual assessment.

Mandates that the property owner shall receive the right to cancel document in substantially the same form as provided in the law, providing a 3 business day right to cancel.

In addition, the amendments to California’s existing law generally prohibit the making of any representations to property owners regarding the monetary or percentage effect that the PACE financed improvements will have on the value of the property unless the estimate of value is derived through the use of a specified automated valuation model or a licensed real estate appraiser.

PACE programs exist only as a creation of government, made possible by the fact that local governments collect payments incident to property tax bills, ignoring existing indebtedness secured by the real property. With those loans now the fastest growing type of financing in the U.S., many of these state and local enactments are less than ideal, including it has become clear that certain consumer protections must be built in if this segment is going to achieve its true market potential, advance green building, and yes, save the planet.

Is the New USDA Organic Rule Dead on Arrival?

organic cool

On January 19, 2017, the U.S. Department of Agriculture published a new list of rules governing the treatment of animals that are ultimately sold to consumers as organic food.

It is suggested that these amendments to the existing organic livestock and poultry production requirements are an exercise in futility both in that they were published on the final day of the Obama administration (.. last Thursday) and at a time when Republicans control both houses of Congress.

The rules were scheduled to become effective on March 20, 2017, but on January 20, 2017 (.. last Friday), the new White House Chief of Staff Reince Priebus issued a memorandum to all Executive departments and agencies to freeze all new or pending regulations. Because this is a regulation that has been published in the Federal Register but has not reached its effective date, the memo instructs that this regulation be delayed for 60 days for review.

President Donald J. Trump only announced his pick of former Georgia Governor Sonny Perdue to be his Secretary of Agriculture on January 19, 2017, on the same day these rules were published, so it is premature to conclude that these rules are dead on arrival and it might be more accurate to conclude that a new notice reopening the regulation will likely occur.

Make no mistake these rules have been very controversial. Nothing here is new with much of this ‘non food quality related’ mandate coming from recommendations of the National Organic Standards Board, a USDA advisory group, dating back to 1994. And that they were among the final act of an outgoing Administration (that chose not to promulgate these rules during the last 7 years and 364 days) is what some find offensive about the federal government regulatory processes.

The Final Rule is here.

Among what is most controversial is that nothing in the rule goes to the quality of the organic meat and poultry that people will consume (i.e., there is nothing about pesticide fee, genetically modified free, fungicide free or anything along those lines). According to the USDA, this regulation “ensures organic animals will live in pasture-based systems and are produced in environments supporting their well- being and natural behavior.”

The USDA says it received 6,675 written comments in response to the proposed rule. Nearly 80% of those (5,180 comments) were form letters and the majority of these were from individuals associated with animal welfare groups.

One of the few noncontroversial, if not actually popular, provisions adds the term “ritual slaughter” to the existing definition of Humane Methods of Slaughter authorizing “slaughtering in accordance with the ritual requirements of the Jewish faith or any other religious faith that prescribes a method of slaughter” (e.g., halal) without loss of organic status.

Specifically, the Final Rule:

Requires that producers provide animals with daily access to the outdoors and that outdoor areas include vegetation and/or soil. Additionally, exit doors must be distributed to ensure animals have ready access to the outdoors. It does not allow enclosed porches or “winter gardens” to be considered outdoors.

Specifies the amount of space required indoors for chicken broilers and layers, prohibits forced molting, restricts the use of artificial light, limits the amount of ammonia in the air indoors, and requires perching space for laying chickens indoors.

And adds humane handling requirements for transporting livestock and poultry to sale or slaughter.

Congress has steadfastly refused to enact these perversions of increasingly popular organic programs that conflate issues of free range and cage free with organic. To undertake this expansion of organics without express legislative authority is wrong.

Given that this Final Rule would be at significant additional costs to consumers, but without additional benefit for those consumers of organic meat and poultry, many anticipate a new notice reopening the regulation will occur.

Green Building Transactional Due Diligence

Due Diligence

As ever larger numbers of green buildings are bought and sold, due diligence related to the green features of commercial buildings takes on an increasing importance.

But apparently most real estate due diligence checklists are stuck in the 1980s and while they address matters ranging from title and zoning to tenants and leases, as well as review of litigation and physical property inspections, many green buildings are being transferred with little if any appreciation of the opportunities or for that matter the risks associated with the “greenness.”

We have seen a surprisingly large number of contemplated transfers of LEED certified buildings where the deliverables at closing do not anticipate including the GBCI Change Of Ownership Agreement. That Agreement is not only required by GBCI such that a new owner is entitled to claim the building is LEED certified, but also so that the new owner can access the project on Arc.

If there is a single issue that arises most often as a surprise, although admittedly it is of only modest dollar impact, if at all, new owners have not been pleased to be learn after the fact that a multi year commitment to purchase green power was a credit achieved for LEED certification. Those new owners that object to any USGBC requirements for continuing reporting of energy data to USGBC, simply choose not to report.

There is no widely accepted standard for green building due diligence, as there is for hazardous materials where the Phase I Environmental Site Assessment ASTM Standard is all but universally utilized. It is curious that Mike Italiano, one of the three founders of the U.S. Green Building Council, was also a co-originator of Phase I ASTM standard.

There are, of course, other environmental matters that are beyond a Phase I, including non-tidal wetlands, but it is clear that green building issues may be material in valuing a property correctly.

As such it is important to use a skilled practitioner to assist with green building due diligence. We regularly assist with these efforts work as well as the associated work of providing opinions of counsel in green building transactions.

A threshold matter is always determining if the property complies will state and local government building codes and other regulatory requirements. An increasing number of jurisdictions have adopted the International Green Construction Code, or some other green code (e.g., CalGreen) or made LEED certification mandatory for private building, and an even larger number of jurisdictions have adopted the International Energy Conservation Code that has the import of imposing high performance building requirements on most building.

Much of the profit associated with green building is often derived from green leases (e.g., a GSA lease mandates an Energy Star score of 75) and reviewing those writings with an eye to greenness is key.

Of course matters of photovoltaic panels on the roof or otherwise are contract matters that need to be appreciated and the economics incorporated into operating budgets as well as tax allocations.

Tax allocations are also a matter to be considered because there are often expedited and special tax treatments of energy efficient and other green features (e.g., the 179D federal tax deduction is an expedited depreciation that a new owner should be aware of). Similarly, there may be local property tax abatements, but most are of limited duration and start date is of import.

There may be other government incentives and such should not only be addressed as a contract term, but also verifiable through due diligence.

Most of our green building due diligence efforts are associated with the sale and purchase of commercial real estate, but we also do work for prospective tenants, for lenders, including those providing green bonds, and others who are concerned about the verifiable greenness of a building.

If we may be able to assist you with green building due diligence do not hesitate to contact Stuart at skaplow@stuartkaplow.com.

Passive House is “In” in 2017

Passive House

As you consider what’s “in” and what’s “out” in 2017, within the realm of green building, Passive House is in.

It is not controversial to accept that a strategy to reduce greenhouse gas emissions from buildings at low cost, while also improving occupant comfort, is to improve the thermal performance of the building envelope. By increasing the insulation and airtightness of walls, roof, and windows, it is possible to reduce the energy used for heating buildings by up to 90% compared to common practice. This “passive” approach, in contrast with active systems based on a constant supply of conditioned air by HVAC systems is the basis of Passive House.

The origins of Passive House date back 40 years to the Saskatchewan Conservation House built in 1977 in Regina, Canada with an airtight building enclosure and one of the first modern heat recovery ventilation systems in the world. Those design principles were systematized by Bo Adamson and Wolfgang Feist, who founded the Passive House Institute (Passivhaus Institut) in 1996 in Darmstadt, Germany.

Buildings utilizing the Passive House standard use dramatically less energy than typical buildings due to a high level of insulation, high-performance windows, an airtight building enclosure, minimized thermal bridges, and continuous ventilation with energy recovery.

The number and size of Passive House projects in North America has rapidly grown in the last year. Several mid-rise residential projects currently under construction will more than quadruple the number of available units and triple the square footage of Passive buildings. And there is Cornell University’s 250 foot tall 26 story high rise under construction on Roosevelt Island that may be the tallest and biggest Passive building.

While most Passive buildings are residential (well over 3500 buildings worldwide and 300 in North America), there are a growing number of commercial and institutional projects (over 500) including office buildings, hotels, schools, and even a prison.

There are currently over 1600 professionals and trades trained in Passive House design and construction in North America, including non lawyer professionals associated with this firm.

Governments in North America are beginning to drive Passive House. The City of Vancouver Zero Emissions Building Plan calls for a 90% reduction in emissions from new buildings by 2025 and while it does not explicitly require Passive House design or certification, it will move that market.

New York City Zone Green thick wall exclusion allows for up to 8 inches of wall thickness to be exempted from the calculation of floor area to encourage high performance buildings without decreasing the amount of usable space in the building, including Passive construction.

Pennsylvania offers tax credits for low income Passive House building. Applications submitted under the PennHOMES and low income housing tax credit program are ranked. And while up to 25 points are awarded for green building, what is unique is that up to 10 points may be awarded to those developments which meet Passive House certification requirements under either the Passive House Institute standard or Passive House Institute US standard.

Which raises an interesting conflict that the two standards are not the same. By way of demonstration, a recent study found the cost to operate the same multi family building in Portland, Maine, if Passive House Institute certified was $20,806 per year versus if certified to Passive House US was $26,781 per year, .. so the two standards are definitely not the same.

There is a very good article by Bronwyn Barry that highlights the bleeding edge 100% renewable energy calculations embedded in the new Plus and Premium Passive House US standards.

You can come up to speed quickly at the North American Passive House Network annual convention on October 4-8, 2017 in Oakland, California. Information is available from events@psssivehousecal.org.

Much of the innovation in green building in recent years was in Passive House, but the real market driver for Passive House in 2017 will likely be the increased public education and training of professionals coupled with outreach among the building industries that will cumulatively make Passive House building feasible in the U.S.

FTC Order Restricts use of “All Natural”

ftc

The Federal Trade Commission issued a summary decision against California Naturel, Inc., for falsely advertising its sunscreen product as “all natural” in violation of Sections 5 and 12 of the FTC Act.

In a December 12, 2016 opinion, written by Chairwoman Edith Ramirez, the FTC describes how the company promotes its “all natural” sunscreen on its website as containing “only the purest, most luxurious and effective ingredients found in nature.”

The FTC’s Green Guides do not provide guidance on the term “natural.”  However, the FTC is clear that “marketers must identify all express and implied claims that the advertisement reasonably conveys” and “ensure that all reasonable interpretations of their claims are truthful . . . .”  77 Fed. Reg. 62125 (2012).

It is worthy of note that in November 2015, the FDA issued a request for comments regarding the use of the term “natural” in connection with product labeling. 80 Fed. Reg. 69905 (2015). But no action was publicly announced.

And there has been much discussion at the federal level and in several states about the term “natural light” in both visible transmittance of window glass and light bulbs.

But in this instance, California Naturel admitted that eight percent of its sunscreen formula is in fact dimethicone, (by its own admission triggering the summary decision without a hearing) a synthetic ingredient.

The FTC was not persuaded by the company’s argument that its ingredient list and a disclaimer recently added to the company’s web page cured its misleading advertising, noting that consumers should not have to search for and dig out information that contradicts what an advertisement expressly and prominently conveys. For example, the “all natural” claims were prominent on the webpage, while the disclaimer was added to the bottom of the webpage, was not visible without scrolling down, and was well below the “Add to Cart” button.

Other than adding the disclaimer, California Naturel has not changed the representations challenged in the complaint. The website still claims the Sunscreen SPF 30 is “all natural.” The FTC concluded this “plainly conveys to reasonable consumers that every ingredient in the product is natural” which it is not.

Nor was the FTC persuaded by California Naturel’s argument that the disclaimer it added renders its marketing claims “transparent” (the word of the year, but that has no legal or other import).

The FTC regularly holds that “an advertisement is deceptive if it contains a representation or omission of fact that is likely to mislead a consumer acting reasonably under the circumstances, and that representation or omission is material to a consumer’s purchasing decision.”

The FTC’s final order prohibits California Naturel from misrepresenting the ingredients or composition of its products; whether a product is “all natural” or “100% natural;” the extent to which a product contains any natural or synthetic ingredient or component; or the environmental or health benefits of such a product. It also requires the company have competent and reliable evidence to support any of the claims it makes about any of its products (the FTC’s usual ‘suppression of material’ standard, that all but amounts to prior restraint, violative of the First Amendment).

The company may file a petition for review with a United States Court of Appeals within 60 days.

There’s an old adage “bad facts make bad law” and this extreme case is a poor basis for the FTC’s broader interpretation of what is natural.

Refocus the EPA through the Lens of Green Building

Green Monopoly e

In a time of changing national environmental agendas, including the Trump Pence Transition Team announced plan “to refocus the EPA” it is an ideal moment to articulate how green building is “the” ideal means of voluntarily mitigating the negative impacts that human activity has on the planet.

While buildings and the construction of buildings provide countless benefits to human beings far beyond merely providing shelter, voluntary stewardship of the environment through green building can save the planet.

Given the broad environmental impact that buildings have on the planet, it is not necessary to go down the rabbit hole of a political debate with the new Administration over global warming. Moreover, today the debate about climate change has shifting away from a discussion of costs and risks toward the question of how to capitalize on exciting opportunities.

While there is no one homogenized building type, we regularly articulate that green buildings can significantly reduce energy use, water use, solid waste and greenhouse gas emissions.

By way of example, compared to the average commercial building, an oft quoted study found the LEED Gold buildings in the U.S. General Services Administration’s portfolio generally: Consume 25% less energy, use 11% less potable water, have 19% lower maintenance costs, 27% higher occupant satisfaction, and emit 34% lower greenhouse gas emissions.

But at a time when many in society describe environmental matters apocalyptically, as if human existence on the planet is at risk we need to talk more than only about reducing energy use, water use, solid waste and greenhouse gas emissions. And green buildings do so much more.

Such is not a new idea. In fact in the early 1990s the U.S. National Institute of Standards and Technology (NIST) began the Building for Environmental and Economic Sustainability (known to most of us simply as BEES) project. (Some will remember the first pre Greenbuild USGBC green building convention in 1994 hosted by NIST.)

The first version of LEED allocated points based substantially upon the BEES environmental impacts. (An updated version of BEES is expected in 2017.)

Later, LEED version 2009 reweighted the solutions to environmental impacts using the U.S. EPA Tool for the Reduction and Assessment of Chemical and other environmental Impacts (TRACI). Such was not a leap because (the previously utilized) BEES is based upon TRACI.

The current 10 TRACI impacts are:

  • Ozone Depletion
  • Global Climate
  • Acidification
  • Eutrophication
  • Smog Formation
  • Human Health Particulate
  • Human Health Cancer
  • Human Health Noncancer and
  • Ecoxicity

BEES also assesses Indoor Air Quality, an impact not included in TRACI because it is unique to the building industry.

Green building provides powerful improvements to each and all of those 11 environmental impacts.

Interestingly, the new LEED version 4 describes the benefits of green building in terms of “Impact Categories.” It seeks to answer the questions, “What should a LEED project accomplish?” with a very much stylized and narrowed down list of environmental impacts: Reverse Contribution to Global Climate Change; Enhance Individual Human Health and Well-Being; Protect and Restore Water Resources; Protect, Enhance and Restore Biodiversity and Ecosystem Services; Promote Sustainable and Regenerative Material Resources Cycles; Build a Greener Economy; and, Enhance Social Equity, Environmental Justice, and Community Quality of Life. It is not clear why the USGBC abandoned the standardized TRACI listing in favor of a proprietary test, but the positive environmental impacts of building green remain.

And while some desire a hyperbolic government response to the environmental issues of the day, even at the risk of changing our way of life, the recent U.S. election has shown, today, most Americans have a deep distrust of the federal government and of far reaching public programs. An ideal solution then, to address environmental issues, is for government to make it possible for business to voluntarily build green including the greening of existing buildings.

As the nation refocuses environmental policy beginning in 2017, voluntary green building is the solution to many of the very real environmental impacts of the day.

A Day in the Life of a Green Building Attorney

Stuart Kaplow

This blog post is not as epic as A Day in the Life, the last song on the Sgt. Pepper’s Lonely Hearts Club Band album that Rolling Stone magazine ranked as the greatest Beatles song ever.  But rather, this responds to a question I was recently asked when speaking at a law school forum on innovation in the law, “what does a green building attorney do?

My practice is almost exclusively sustainability including green building law, so a good response may be to look at a typical day. Admittedly my practice is varied such that there may be no truly typical day, so let’s look at a real day in the life, what I did this past Friday. (Client names and other specific references are omitted to protect the not so innocent.)

04:45 a.m.  Responding to client email about impact of construction project change order on contemplated LEED certification, so that payment can be released today.

04:55 a.m.  Responding to client email described as a “sustainability emergency” seeking advice and comment on a revised footnote in a public company annual report, responding to the SEC mandated disclosure of the risk that climate change developments may have on their business, being considered by the board of directors today.

05:00 a.m.  [Off to my gym where I am training for an April mountain climb.]

07:00 a.m.  Responding to consultant email and draft report of Phase II environmental site assessment.

07:10 a.m.  Responding to consultant with comments on selection of a DOE approved energy model for 179D tax deduction.

07:30 a.m.  Reviewing and approving quotes in draft third party journal article on defects in green building contracts.

08:00 a.m.  Drafting form contract for LEED consultant to use in responding to RFPs.

09:00 a.m.  Reviewing and editing proposed specifications for university mandated to be green building construction contract.

09:50 a.m.  Responding to email with requested revisions and finalizing our firm opinion of counsel on green building construction loan closing.

10:10 a.m.  Participating in portion of online value engineering session for “way over budget” green multifamily project.

11:00 a.m.  Responding to client email and text about requested revisions to contract for green building services.

11:10 a.m.  Drafting contract for general contractor on large project pursuing LEED certification.

12:15 p.m.  [Lunch with prospective client]

01:00 p.m.  Drafting settlement agreement and release reflecting amicable resolution of disputes and differences arising out of construction of green building.

01:30 p.m.  Representing client in telephone informal mediation of construction dispute aimed at keeping construction on schedule while apportioning responsibility for design defect.

02:55 p.m.  Telephone call with client and others including local counsel re application of DC mandatory green building law related to shared photovoltaic panel and vegetated green roof.

03:00 p.m.  Reviewing, considering and revising an enhanced commissioning scope.

03:30 p.m.  Telephone call with client and others including local counsel re application of Phoenix newly adopted IgCC 2015 with alternative compliance path in energy code for reskinning existing building.

03:50 p.m.  Reviewing and editing PR firm prepared copy for website advertising construction of new green mixed use high rise building.

04:00 p.m.  Conference call with trade association about proposed ASHRAE 189.1 addendum public comment.

04:30 p.m.  Telephone call with client about recommendation on how to address changing GBCI fees in existing contracts.

04:40 p.m.  Telephone call with state elected official about increased school construction costs associated with green schools.

04:50 p.m.  Telephone call with print media reporter, on background only, about Task Force on Climate-Related Financial Disclosures.

05:20 p.m.  Telephone call with client about water use reduction alternatives for redevelopment that is striving to be net zero water use in jurisdiction with water use restrictions.

05:30 p.m.  Responding to client email about LEED no cigarette smoking policy in Massachusetts where recreational cannabis will be allowed.

Following an orchestral crescendo, the Beatle’s A Day in the Life ends with one of the most famous final chords in music history. My day in the life of a sustainability and green building attorney ended with the keypad chirps of setting the alarm as I exit the door of my office on my may to a dinner party.

Less Climate Change Disclosure by Public Companies

SEC Headquarters

Publicly traded companies are required to disclose material business risks to investors through regular filings with the Securities and Exchange Commission. Since February 8, 2010, the SEC has expressly required disclosure related to climate change.

While it has been controversial, the SEC’s 2010 interpretive guidance, the Commission Guidance Regarding Disclosure Related to Climate Change, which technically did not create a new legal obligation, but clarified how publicly traded corporations should apply existing SEC disclosure rules to certain mandatory financial filings with the SEC regarding “the risk that climate change developments may have on their business” remains unchanged since it was issued.

Specifically, the SEC Guidance states what companies could be required to disclose in relation to climate change under the corporate disclosure requirements that fall under the SEC’s Regulation S-K, including Forms 10-K annual reports.

In 2010, immediately after the SEC guidance, this law firm worked with a large number of publicly traded companies and their counsel and outside consultants to advise them about climate change. That year more than 25% of public companies used the term “climate change” in their annual report, most for the first time.

Data culled from filings of public companies listed on U.S. stock exchanges reveals that last year less than 30% of all publicly traded companies made a climate change disclosure. That number is dramatically higher for larger companies with 59% of S&P 500 companies including a climate related disclosure in their 10-K filings.

But I suggest that the less than complete response by companies is not out of ignorance, but rather is a knowing voluntary election by company management supported by boards of directors.

In point of fact, in 2016 this law firm received more inquiries than any year before about SEC disclosure requirements as they apply to climate change. The number of inquiries has grown each years since 2010 and actually more than doubled since 2015. Possibly the publicity over the effective date of the Paris Climate Agreement or state’s public efforts to comply with the EPA power plant rule, resulted in the heightened interest we have experienced. And I have written in this blog about More Robust Enforcement of SEC Climate Change Disclosures.

Most dramatic, of the public companies this firm assisted with SEC disclosure requirements, those companies making a disclosure in Forms 10-K and 20-F filings dropped by more than 20% from last year.

And public companies are saying less. Those that have notes explaining the possible material impact of climate change are using, on average, more than 50% fewer words on the subject.

It should not be surprising that many companies report a general lack of interest in the subject of climate change from investors and the financial community at large.

After analysis, many companies concluded disclosing climate change associated information was uncertain and speculative when compared to other disclosures being made. Many companies observed that the process for reaching conclusions about climate change did not have any recognized standards. And the administrative and compliance costs of providing the evaluating a possible disclosure could be significant.

Many public companies determined there were no meaningful business opportunities arising from climate change disclosures, but that they carried a potential for creating risk. Wherefore, an increasing number of companies concluded there was little upside and more possible downside in climate change disclosures.

So, those companies that we worked with making a climate change disclosure in Forms 10-K and 20-F filings dropped by more than 20% from last year.

Disclosure of material risk arising from climate change poses an ongoing challenge for public companies. At the close of 2016, there is no consensus on when such risks should be disclosed and how much detail should be included in SEC filings. While the response to the SEC’s 2010 interpretive guidance has been more activity in this area, few think it has resulted in any greater transparency that aides investors.

It can be anticipated that a Trump Administration will move to determine if the SEC climate change guidance results in disclosures that continue to provide useful information to investors? If not, the guidance could be withdrawn and there will be less climate change disclosure.

We assist public companies in legal and non-law matters associated with climate change and sustainability, including voluntary environmental reports, as well as SEC disclosures and financial statement compliance. If we can assist your company, please contact Stuart Kaplow.

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