Maryland is Leading the Transition to All Electric Buildings

There is a move toward all electric buildings as a way to reduce greenhouse gas emissions and combat climate change. The state of Maryland is leading the way in this movement, including several local jurisdictions adopting all electric building code laws.

All electric building codes require that new construction and major renovations be powered by electricity rather than fossil fuels. This means that buildings must use electric heating, cooling, and hot water systems instead of natural gas or oil. It also means that buildings and the power grid must be equipped to handle the increased electrical load, with sufficient capacity and infrastructure to support electric appliances and equipment.

Most business leaders understand the need to mitigate greenhouse gas emission risk and many companies are already seized with the multi-trillion dollar economic opportunity that accompanies this economy wide transition to all electric buildings.

In 2022, the Maryland legislature enacted the Climate Solutions Now Act (SB 528) which mandates a 60% reduction in the state’s GHG emissions by 2031 relative to 2006 levels and net zero GHG emissions by 2045. Dramatically, that Act includes the requirement “to transition to an all electric building code in the State” and expressly “supports moving toward broader electrification of both existing buildings and new construction as a component of decarbonization.”

No other state has ascribed into law moving so quickly and so broadly with economy wide climate ambitions by decarbonization.

But be aware that depending upon how that Act is implemented there are very real U.S. Constitutional concerns of Federal preemption by the 2005 Energy Policy and Conservation Act which expressly preempts State and local regulations concerning energy conservation and specifically will not allow banning natural gas in buildings even when characterized as decarbonization.  

A recent report by the Maryland Codes Administration describes that in 2022 within Maryland, most of the electricity is generated from natural gas (48%), followed closely by nuclear (37%), then from coal fired power plants (11%) and petroleum fired power plants (<1%). A small percentage comes from hydroelectric (<1%) and non-hydroelectric renewables (3%).

Significantly, Maryland uses more energy than it produces, so the state also draws electricity from the interstate power grid. According to the U.S. Energy Information Administration, Maryland uses as much as 60% more energy than it generates, so any additional electricity demand from buildings that use all electric systems will either have to come from increased in state generation or be imported from other states. Because the electric grid itself relies in large part on carbon based fossil fuel, increasing demand for electricity from the grid is not carbon neutral such that all electric building codes in Maryland will result in more coal generated power than is used today.

So, the change to all electric buildings is not a simple issue.

The Biden administration issued a rule on December 7, 2022 through the U.S. Department of Energy that orders all new and refurbished federal buildings to become fully electrified by 2025. In the guidance document explaining the announcement, they note that this will result in an increase in carbon dioxide,  nitrous oxide, mercury, and sulfur dioxide emissions:

“DOE’s analyses indicate that the proposed regulation would save a significant amount of site energy; however, switching from gas loads burned on-site to electric loads produced off-site, at national average level emission rates, would result in an increase of CO2, N2O, Hg, and SO2 emissions with a decrease in NOX and CH4 emissions.”

So, again, the change to all electric buildings is not a simple issue.

There was a hue and cry this past January about the government coming for people’s gas stoves and while that story may have been overcooked nationally, yes, it is correct that in Maryland the State government is in the process of banning newly installed gas stove and all gas appliances in residential as well as commercial building as part of this all electric building mandate.

Not surprisingly there was no meaningful opposition to that SB 528 mandate last year, bar some negative testimony from the natural gas utilities.

Several jurisdictions in Maryland have already adopted all electric building code laws even in advance of express authority from the state. Montgomery County became the first county in the state requiring the county executive to issue an all electric building code for new construction by December 31, 2026. The city of Takoma Park also adopted an all electric building code law. And Howard County adopted a law requiring an all electric building code be implemented for new construction and renovations. But those local enactments each have not only a Federal preemption fail but also a State preemption problem, neither of which is likely correctable.    

The fossil fuel based economy has changed, but building codes didn’t.

Note, later this week New York may leap frog ahead of Maryland with a measure that is proposed to be added to the state budget banning gas and other fossil fuel in new buildings. The measure would be an end to gas stoves and other appliances in new homes, but will likely have broad exemptions that it appears Maryland will not.

Make no mistake, the future of all electric buildings is bright in Maryland, New York and across the country! As technology continues to improve to be able to make that change a reality, the current increased first costs of all electric buildings will decrease.

But be certain that this public policy driven change is and will significantly increase the cost of power, increasing energy insecurity at a time when 1 in 6 American households are already more than 4 months behind in their utility bills, and driving businesses to relocate seeking lower operating costs when for example utility rates in Nevada are less than 50% of those in California. Before these all electric mandates are even implemented electricity rates in Maryland are already higher than the national average while rates in adjoining states are below the average.

We are already advising some clients, and certainly many of those in Maryland that own 35,000 sq. ft. buildings and larger that they should not be replacing equipment with gas fueled models and rather should be installing all electric HVAC, hot water heating and the like. We anticipate counseling many more businesses about matters of all electric codes as decarbonization of the economy becomes a commonplace business decision. And recognizing that this is too large a topic to address comprehensively in a single blog post, we will write more, here about the subject.

Decarbonizing our fossil fuel economy is the biggest business opportunity in history, waiting to be unlocked; and it is happening in incredibly short order. We would be pleased to assist you in repairing the planet and making a nickel.

Endangered Northern Long Eared Bat is a Victim of Biodiversity Degradation

Biodiversity degradation is an existential crisis playing out right now in front of our eyes. Less than a week before the effective date of the uplisting of the northern long-eared bat from threatened to endangered under the Endangered Species Act, the U.S. Fish and Wildlife Service extended that effective date by 60 days, from January 30, 2023, to March 31, 2023.

Responding to the complexity of biodiversity degradation, the extension, at the request of Congressional leaders was to allow the FWS more time to finalize conservation tools and guidance to avoid disruption for owners of land across the incredibly large area of potential critical habitat of the northern long-eared bat that includes 37 states in the eastern and north central United States, the District of Columbia, and all Canadian provinces from the Atlantic Coast west to the southern Northwest Territories and eastern British Columbia.

Since 1970, populations of mammals, birds, amphibians, and fish have decreased by an unbelievable 68%. The is no question that existing government regulation in the U.S. has been completely ineffectual in impacting biodiversity degradation.

The rule reclassifying the northern long-eared bat from threatened to endangered under the Endangered Species Act was published in the Federal Register on November 30, 2022; the bat remains protected as a threatened species with a 4(d) rule until the reclassification becomes effective on March 31. The northern long-eared bat was listed as threatened in 2015.  It now faces extinction due to the impacts of white-nose syndrome, a deadly disease affecting hibernating bats across North America, and as admitted in that Federal Register posting not made better by being listed as threatened by U.S. law.

To not limit human activity that could “harass” or result in an unintentional “incidental take” including in industries ranging from wind energy to bridge infrastructure rehabilitation as well as other construction projects in the crazy big geographic range of the northern long-eared bat, FWS will, but apparently has not yet, released a series of new tools (.. that were not released when northern long-eared bat was just threatened) to provide guidance and to streamline processes for projects under the Endangered Species Act. Those tools which could have been useful as far back as 2015, were due in early March. In response to this unknown draconian regulatory guidance, we are aware, anecdotally, that in anticipation of regulation under the Endangered Species Act, pine trees in forested wetlands are being cut down widely across the 37 states before the March 31 effective date.

Bats are key pollinators, .. taking the night shift while bees and birds take the day shift. Bats are critical to healthy, functioning natural areas and contribute more than $3 billion annually to the U.S. agriculture economy through pest control and pollination.

These bats mostly spend the winter hibernating in caves, abandoned mines and even in large drainage pipes. During summer, northern long-eared bats roost alone or in small colonies underneath bark or in cavities or crevices of both live and dead trees, often pine trees in forested wetlands. They emerge at dusk to fly primarily through the understory of forested areas, feeding on insects.

White-nose syndrome, the disease driving their decline, is caused by the growth of a fungus that sometimes looks like white fuzz on bats’ muzzles and wings. The fungus thrives in cold, dark, damp places and infects bats during hibernation. Impacted bats wake up more frequently, which often results in dehydration and starvation before spring arrives.

White-nose syndrome has spread across nearly 80% of the species’ entire range and is expected to affect 100% of the species’ range by the end of the decade. The change in the species’ status comes after a review found that the government protections for the northern long-eared bat being listed as threatened failed, and as the species continues to decline now meets the definition of an endangered species. Data indicate white-nose syndrome has caused estimated declines of 97 to 100% in affected northern long-eared bat populations.  

But, the incredibly large 37 state area of the possible critical habitat of the northern long-eared bat makes for a very difficult listing without shutting down a significant portion of economic activity (that is, the portion of it that takes place on land with trees?) in more than half the country. And to what end?

It is suggested that this uplisting is an example of the need to reform the Endangered Species Act. While Congress originally intended the Act to protect and recover at risk species, the lack of flexibility in the Act, particularly when the dramatic limitations it places on activity by prohibiting the “take” of an endangered species, will do little if anything to address the primary contributor to this species’ decline, white-nose syndrome, and shows the need for meaningful reforms in government regulation. Some believe it is time to discuss ways to update the statute to address situations like the current one, as well as find innovative ways to recover and protect species and address the broader issue of biodiversity degradation, which new strategies could allow innovative responses by businesses.

Biodiversity degradation is a serious threat to the planet and all of us, its inhabitants. Human activities are causing significant damage to ecosystems and the species that rely on them and the Endangered Species Act responds to too little of that. And in this instance, it fails completely to address white-nose syndrome. It is crucial that forward thinking businesses take more, broader and faster action, now, to protect and restore biodiversity to ensure the health and stability of the planet.

Live webinar “Preparing for All Electric Building Codes” 30 talking points in 30 minutes, Wednesday, March 29 at 9 am EST presented by Stuart Kaplow and Nancy Hudes on behalf of ESG Legal Solutions, LLC. The webinar is complimentary, but you must register here.

The Environmental Catastrophe that is PFAS will see Movement in 2023

Just two days after this blog post EPA proposed legally enforceable levels, called Maximum Contaminant Levels (MCLs), for six PFAS in drinking water. EPA anticipates finalizing the regulation by the end of 2023. The EPA announcement said, “that if fully implemented, the rule will prevent thousands of deaths and reduce tens of thousands of serious PFAS attributable illnesses.”

Much action is expected over PFAS in 2023. Where in recent years climate change has sucked the air out of the room overtaking other devastating events that occur due to humanity’s impact on the environment, PFAS is now on the agenda of government, businesses, and consumers alike.

This year began with the U.S. Court of Appeals for the District of Columbia Circuit, on January 23 granting EPA’s motion to dismiss American Chemistry Council v. EPA Petition For Review, challenging EPA’s lifetime health advisory levels to 0.004 ppt for PFOA and 0.02 ppt for PFOS. EPA describes those levels as “near zero” and admits they are “below EPA’s ability to detect at this time” (.. translation, current science cannot detect PFAS chemicals at levels below 4 parts per trillion), acknowledging for the first time the safe level of consumption for those two chemicals is practically zero. 

Lest there be any question, this is a big deal because a peer reviewed 2020 study cited approvingly by the EPA describes 99.7% of Americans having detectable PFAS in their blood! (Note, in this post we use PFAS as shorthand for per and polyfluoroalkyl substances that are a group of more than 4,000 man-made chemicals that includes PFOA, PFOS, GenX, etc.)

The EPA reports, “there is evidence that exposure to PFAS can lead to adverse health outcomes .. studies indicate that PFOA can cause reproductive and developmental, liver and kidney, and immunological effects in laboratory animals, .. and have caused tumors in animal studies.”

And this is not a U.S. problem alone. Populations in nearly all industrialized nations have a PFAS blood level of at least 2 parts per billion. 

The three judge panel in the American Chemistry Council case held in an unpublished per curiam order, “Petitioner has failed to carry its burden of establishing standing. .. Despite relying on associational standing, petitioner has neither alleged that the challenged conduct affects all of its members nor identified any specific member who would have standing to pursue this action.” That is, the case was dismissed, not for lack of merit, but because the Court found that the Chemistry Council did not meet the procedural requirement of having “standing” for its member businesses to bring the lawsuit.

While there will no doubt be other challenges to EPA’s nonbinding health advisory levels, there are other lawsuits pending across the country arising from PFAS claims, including two class actions that are expected to conclude this year.

And outside of courtrooms, last month the Biden Administration announced efforts to clean up these “forever chemicals” from the environment, including as examples among the many projects in the recently enacted Infrastructure Law, providing $75 Million to address PFAS in drinking water in Pennsylvania and $23.1 Million for New Hampshire.

We blogged last year about EPA Proposing Designating PFAS as Hazardous under the Comprehensive Environmental Response, Compensation, and Liability Act, also known as the “Superfund” law and we expect a final rule in 2023. PFAS is no doubt a developing environmental catastrophe but that proposed rule listing PFAS as a hazardous substance is yeeting the matter without regard that that solution may do more harm than good.

If we are going to be good ancestors, our lofty responsibility to humanity as observed by Jonas Salk, it is critical that there be more and better science about removing PFAS including methodologies to minimize adverse health effects, as these forever chemicals accumulate in human beings across the planet, but it is imperative that organizations stop producing and using PFAS products at the earliest possible date.

And increasing numbers of businesses are taking steps to reduce or eliminate their use of PFAS, including last week outdoor retailer REI that had been the subject of a more than year long public campaign by its customers to drop PFAS products announced upcoming hard ban. And back in 2019, Patagonia announced that it would phase out the use of PFAS in all of its products by 2025. That growing trend reflects a broader shift toward ESG both because their stakeholders are demanding it and because it is the right thing.

All of that observed, action on PFAS by the EPA is an important and ongoing issue that highlights the need for broader proactive measures to address the health of our natural environment. While the science behind PFAS is still evolving, the EPA’s efforts toward these chemicals, although late to the game, demonstrate a commitment by government to protecting people and the planet from this environmental catastrophe.

It remains to be seen how efficacious government action will be (.. yes, the federal government must continue to throw money at cleanups, especially in areas adjacent to airports and military installations where it was the polluter). Quite likely the better answer to this ecological damage will be found in state courts enforcing existing tort causes of actions against businesses that engaged in the risky behavior of using PFAS. And maybe and most likely to succeed, businesses will promptly eliminate their use of PFAS, mimicking Patagonia’s “We’re in business to save our home planet.” What is clear is that in 2023 we will see important steps toward addressing the challenges posed by PFAS contamination.

Live webinar “Preparing for All Electric Building Codes” 30 talking points in 30 minutes, Wednesday, March 29 at 9 am EST presented by Stuart Kaplow and Nancy Hudes on behalf of ESG Legal Solutions, LLC. The webinar is complimentary, but you must register here.

Biden Veto of Repudiation of ESG Worker Savings Rule a Positive for ESG

After this blog post, on Monday, March 20 President Biden issued the first veto of his presidency saying, “I am returning herewith without my approval H.J. Res. 30, a resolution that would disapprove of the Department of Labor’s final rule titled ‘Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.’ ”  

Last week Congress voted to approve House Joint Resolution 30 seeking to nullify the Department of Labor “ESG Rule” concerning fiduciary duties with respect to employee benefit plans.

Under that final rule, issued on December 1, 2022, retirement plan fiduciaries may expressly consider environmental, social, and governance (ESG) factors, including climate change, when making investment decisions and when exercising shareholder rights, including voting on shareholder resolutions and board nominations.

Just before the votes utilizing the Congressional Review Act, which allows Congress to repeal a rule issued by a federal agency within 60 days of its going into effect, the Administration issued a statement that concluded, “if the President were presented with H.J. Res. 30, he would veto it.”

Despite the political rhetoric on both sides, we suggest that the veto will have no impact on the emergent and already huge, powerful, and overwhelming force that is ESG. It certainly was not the pyrrhic victory claimed by both sides. Who could have anticipated that something as arcane as utilizing  environmental, social, and governance factors to measure how an organization is managing risks and opportunities, used by investors as far back as 2005 for asset allocation, would today be hijacked by progressives and a rallying cry for conservatives? (Does anyone really think it is wrong for an investor to want data available on the gender makeup and diversity of a corporate board if that is an issue they think portends long term success of the business before they invest in that company?)

Political divisiveness across America reached a crescendo last week over this Department of Labor rule that is fuel on the fire for ESG zealots on both sides because it involves people’s retirement accounts – something a lot of people care about and accordingly which makes it “bad” facts when piled on broader matters of ESG.

We blogged about the Department of Labor rule at the center of this controversy last November in, Department of Labor Proposes to Remove Barriers to Considering ESG in Plan Management. But a bit of history is needed to appreciate that this is just Washington DC politics. By way of background, on Nov. 13, 2020, the Trump Administration published a final rule titled “Financial Factors in Selecting Plan Investments,” which generally required retirement plan fiduciaries to select investments and investment courses of action based solely on the materiality of “pecuniary” [financial] factors and not ESG factors or climate change. That rule, along with many others was repealed in part and otherwise publicly not being enforced by the Biden Administration by Executive Order.

That Executive branch action was all followed by this rule, issued by the Biden Administration on December 1, 2022, providing the near polar opposite (.. from the Trump rule) that retirement plan fiduciaries may now consider ESG factors including climate change when making investment decisions.

All of this is without any change in federal ERISA laws by Congress, which govern retirement plans that collectively invest $12 Trillion. All of this resulted in dramatic changes in policy by unilateral Executive branch action and other Presential fiat without the participation of Congress.

It is suggested neither Administration’s rule was good government. Employees with retirement plans have for more than 30 years relied on the mandate enacted by Congress and signed into law by the President “that when making decisions on investments and investment courses of action, plan fiduciaries must be focused solely on the plan’s financial returns, and the interests of plan participants and beneficiaries in their benefits must be paramount.” And that rests on top of “materiality.” Since the 1940s, the SEC has defined material information in the context of financial statements as “those matters as to which an average prudent investor ought reasonably to be informed before purchasing the security registered.” That generally means monetary matters, but it can also include a nonmonetary ESG factor or even climate change, but no new government rule is necessary or proper to accomplish that.

This ping pong of standards for retirement account investing that was at play here, with the ball bouncing from red side of the table to blue side, should not be seen as a rebuke of the ESG juggernaut or the like. Likewise, the moves by several states to halt state retirement fund assets from being invested using social factors including ESG (.. states are preempted by ERISA from having their laws apply to private retirement plans), has broad support because these teacher and government worker retirement accounts that cover more than 150 million Americans are a third rail politically and ESG suffers in perception when it is linked to a subject considered too controversial to even mention. 

But rather, this instability that is modern American politics has to be viewed in the context of the massive inexorable force that is ESG, seeming to crush everything in its way that we have known about the role of a corporation in society. The exponential growth in ESG in the last 3 years happened in a period without any subject specific ESG regulation, simply before ESG laws could be enacted. And no new laws are needed now. The marketplace will continue to control ESG (.. of course, within the guide rails of the longstanding and existing framework that governs companies). We believe in earnest no new ESG specific regulation is necessary or desirable. If it takes some new law to justify the existence of ESG, then ESG factors should not be financially relevant and taken into account in considering the risk and opportunity in investing in a company; but such is not the case.

This Congressional action will apparently be unsuccessful (i.e., it is going to be vetoed), but it is not the only challenge the rule faces. There are at least two lawsuits seeking to block the Labor Department from implementing the rule, including Utah v. Walsh filed by attorneys general from 25 states.  

The better question for each business is simply, is the world better off because your company is in it? The marketplace will be the judge.

Winners and losers will be selected by the marketplace and not by the Executive branch (.. whoever is President). We regularly articulate in this blog that solutions will come from the increasing number of businesses that believe profit should come not from creating the world’s problems, but from solving them.

A live webinar “Preparing for All Electric Building Codes” 30 talking points in 30 minutes, Wednesday, March 29 at 9 am EST presented by Stuart Kaplow and Nancy Hudes on behalf of ESG Legal Solutions, LLC. The webinar is complimentary, but you must register here.

We Need to do Better to Reduce Food Waste

More than one third of the food produced in the United States is never eaten, wasting not only the food itself but also the resources used to produce it, creating a multitude of environmental externalities.

Food waste is the single most common material landfilled in the U.S., comprising almost 25% of landfilled solid waste and of note, resulting in more than 14% of total methane emissions.  

The more than 133 billion pounds of wasted food annually, worth more than $160 billion, presents opportunities to increase food security, promote resource and energy conservation, and reduce greenhouse gas emissions.

The U.S. Department of Agriculture has recently reiterated that even if fossil fuel emissions were halted, our food system would prevent the achievement of the country’s stated GHG emission goals. Globally, food loss and waste represent between 8 – 10% of anthropogenic GHG emissions (4.4 gigatons of CO2e annually), offering an opportunity for meaningful reductions.

Reducing food waste can also help feed the world’s growing population. The world population is predicted to reach 8.5 billion by 2030. That population increase will require a dramatic increase in food. Decreasing food waste can lessen the need for new food production. In 2015, the United States announced a goal to halve U.S. food waste by 2030, but the nation has not yet made any significant progress.

This uneaten food results in a “waste” of resources, including agricultural land, water, pesticides, fertilizers, and energy; and, the generation of environmental impacts, including GHG emissions, consumption, and degradation of water quality, water scarcity, loss of biodiversity, loss of forested areas, degradation of soil quality and air quality. Each year, food waste in the U.S. embodies:

  • 5.9 trillion gallons of water (equal to the annual water use of 50 million American homes);
  • 778 million pounds of pesticides;
  • 14 billion pounds of fertilizer (enough to grow all the plant based foods produced each year in the U.S. for domestic consumption);
  • 664 billion kWh of energy (enough to power more than 50 million U.S. homes for a year); and
  • 170 million MTCO2e GHG emissions (not even including landfill emissions, equal to the annual CO2 emissions of 42 coal fired power plants).

Of considerable importance, this uneaten food also contains enough calories to feed more than 150 million people each year, far more than the 35 million estimated food insecure Americans. That more than 10% of U. S. households are food insecure should not be tolerated in the richest nation in the world and that was before March 1, when the pandemic era SNAP benefit is cut by at least $82 a month per person. Note that these Department of Agriculture estimates are conservative in comparison with other published studies.

The connection between food waste and climate change is increasingly recognized as important and this is a subset of organic material waste (e.g., yard waste) that only exacerbates solid waste landfill problems. Governments across the U.S. have failed to address these matters in any meaningful way despite that California has since last year required residents to separate food waste for curbside pickup and Maryland has mandated large businesses divert food residuals, neither of these nor any other similar laws we are aware of have moved the needle. Last year’s Maryland Climate Solutions Act of 2022 (Senate Bill 528) requires that sites be identified on state land for composting facilities before October 1, 2023.    

We need to reduce the impacts of wasted food by composting in homes and businesses recycling organic materials into a nutrient rich soil amendment or mulch through natural decomposition. How does this not make sense?

Moreover, in 2023 “upscale” compost has become a status symbol with small coffee size bags selling for as much as $25 a bag, not only in the U.S. but even in Great Britain where one can purchase compost from Althorp, Princess Diana’s childhood home.  As our culture and its values are changing toward valuing sustainability, artisan compost is more than mere fertilizer, it is a badge of high society.

But if all of that is not compelling enough, if we look beyond the very American term of food insecurity in the U.S., more than 50 million children under age five across the globe suffer from “wasting,” meaning they are below typical height and weight because they are literally starving. How dare we?!

And the problem is not new; how many of us grew up being told to be a member of “the clean plate club” because children in Biafra were starving? Many of our grandmothers composted egg shells and banana peals with leaves and sticks they gathered, but not our generation.

Yes, a broad mix of players are needed to solve today’s food challenges and business can do that including the ever increasing number of companies that believe profit should come not from creating the planet’s problems, but from solving them. We need to do better to reduce food waste.

Drafted in part with ChatGPT

Non Profits can Receive a Direct Payment for 30% of Their Solar Energy System Costs

Despite that The Inflation Reduction Act of 2022 was signed into law last August 16 and that it is a broad and wide legislative effort that does a lot in more than 500 pages from lowing prescription drug prices to investing in clean energy, the single question we respond to, week in and week out, are queries surrounding the new direct pay option that allows not for profit organizations to benefit from a significant tax incentive even though they do not pay taxes.

Non profits can now receive a direct payment from the Federal government for 30% of their total solar energy system installation costs, making solar installation more affordable. 

Admittedly scaled down in dollars from its first iteration as The Build Back Better Act, this Federal budget reconciliation bill broadened its breadth to gather votes such that following a vote a rama, the Senate passed the bill (as amended to gather constituencies) on a 51–50 vote, with all Democrats voting in favor, all Republicans opposed, and the Vice President breaking the tie. The House passed the bill on a 220–207 vote, with all Democrats voting in favor and all Republicans voting against it. And that final enactment provides any organization that has tax exempt status with the federal government is eligible for the nonprofit solar tax credit direct pay option. This includes public schools and universities, government buildings and organizations, charities, and other non-profits, as well as religious organizations.

Specifically, The Inflation Reduction Act modifies and more broadly extends the clean energy Investment Tax Credit to provide a 30% credit for qualifying investments in wind, solar, energy storage, and other renewable energy projects that meet prevailing wage standards and employ a sufficient proportion of qualified apprentices from registered apprenticeship programs. The Act now allows state, local, and Tribal governments, as well as non profit organizations and other tax exempt entities, such as rural electric cooperatives, to receive certain tax credits as payments, expanding the range of actors that will have a direct incentive to invest in clean energy.

To further promote broad based clean energy investment across the country, the Inflation Reduction Act allows these actors to receive certain tax credits as direct payments from the Internal Revenue Service, streamlining these entities’ access to key incentives and supporting their investments in greenhouse gas reduction.

This is significant when more than 10% of companies in the U.S. are non profits. In some metro areas from Boston to San Francisco and Santa Fe to Baltimore, the percentage is more than double that. And that non profits are often driven by a moral imperative that includes doing the right thing even when their specific mission may not be natural environment related so that the core values of non profits will make them elephantine participants in the marketplace of solar panels.

For forethinking entities, this incentive also allows it to be leveraged with other donations and growing numbers of community solar programs authorized around the country, maximizing funds available for the non profit, including lowering ongoing electricity costs while repairing the planet.

Additionally, clean energy use is among the nonfinancial ESG criteria for all businesses, but in particular non profits must increasingly consider to stay relevant to their stakeholders from donors and board members to program beneficiaries to regulators.

So again, this provision of the Act will be particularly efficacious because non profits will punch above their weight class. 

If there is something that may slow down market uptake, a significant number of the non profits we speak with are concerned the global solar panel supply chain relies heavily on government forced labor from China, and they can not accept the moral equivalence of reduced greenhouse gases, even with a 30% tax incentive, with the gross violations of human rights in Xinjiang, China. An increasing number of non profits are specifying only non Uyghur and other slave labor in the supply chain for their solar system. 

And while folks may always email or call, yes is the answer to the question, non profits can now receive a direct payment from the U.S. Treasury for 30% of their total solar energy system installation costs.

This Tuesday, February 21 at 9 am ET, is our live webinar “New Rules for Environmental Site Assessments,” 30 talking points in 30 minutes, presented by Stuart Kaplow and Nancy Hudes on behalf of ESG Legal Solutions, LLC. The webinar is complimentary, but you must register here.

German Law a Model for Safeguarding Human Rights in Supply Chains

While the new German law does have regulatory ramifications across the globe, in particular for suppliers to German companies, more significant is that it is being heralded as articulating a replicable ESG standard for safeguarding human rights in business supply chains by businesses that believe profits should come not from creating the world’s problems, but from solving them.

An example of the breadth of this law widely cited in German media is, in the event a German newspaper publishes information about human rights abuses in mines in Congo, the source of cobalt for EV batteries which batteries are purchased from a Chinese battery manufacturer by Volkswagen, then the law requires Volkswagen to conduct a supply chain risk analysis.

It is suggested other countries should emulate Germany, but there appears to be little political will by governments to do the right thing in this age when the lowest first price wins out above all and at a time when global supply chains transect a flat earth.

Thus, there is the opportunity for businesses to lead by treating people the way they want and need, or what some call the Platinum Rule (a twist on the Golden Rule, where you treat people the way you want to be treated).

With no morally defensible reason for not doing everything in our power to end human rights violations, including for the more than 50 million people living in modern slavery (.. think solar panels and cocoa, construction materials and batteries), the German law provides an ESG map and compass, if not marking a step by step trail for nongovernment organizations. 

The Lieferkettensorgfaltspflichtengesetz (LkSG) or Act on Corporate Due Diligence in Supply Chains (Supply Chain Due Diligence Act) became effective on January 1, 2023. The Supply Chain Due Diligence Act’s objective is to safeguard human rights and the environment in the global economy more effectively (.. although for the purposes of this post, we will focus on the human rights prohibitions). It obligates companies with 3,000 or more employees in Germany (maybe 600 companies), starting January 1, 2024, the number of employees is reduced to 1,000 (maybe 2,900 companies), and after an evaluation before 2026 expanding to smaller companies, to take “appropriate measures” to respect human rights and the environment within their supply chains “with the goal to prevent or minimize risks related to human rights or the environment or end the violation of duties related to human rights or the environment.” (Supply Chain Due Diligence Act art. 1, §§ 1, 3.)   

We have blogged on more than one occasion about Doing Something about Modern Slavery in Your Business Supply Chain, but this law is far broader. A risk related to human rights is defined as “a situation in which there is a sufficient degree of probability based on factual indications that a violation of one of the following prohibitions will occur:”

  • Prohibition on employing a child of 15 years or younger.
  • Prohibition of the worst forms of child labor of children under 18 in accordance with the ILO Convention on Worst Forms of Child Labor, 1999 (No. 182).
  • Prohibition of forced labor.
  • Prohibition of all forms of slavery or similar practices of domination or oppression at work.
  • Prohibition on disregarding the local applicable rules on workplace safety and working conditions if this could lead to workplace accidents or work-related health risks.
  • Prohibition on disregarding freedom of association.
  • Prohibition of employment discrimination.
  • Prohibition of wage discrimination.
  • Prohibition on causing harmful .. noise emission, or overconsuming water, which severely impairs the natural resources necessary to preserve or produce food, denies access to drinking water, destroys or impedes access to hygiene facilities, or has harmful effects on human health.
  • Prohibition on those who acquire, develop, or otherwise use land, forest, or water from unlawfully evicting persons from or depriving them of the use of such land, forest, or water when those persons are dependent on the land, forest, or water for their livelihood.
  • Prohibition on commissioning or using private or public security forces to protect a business project if, due to a lack of control, the security forces will infringe the prohibition on torture, harm life or limb, or interfere with freedom of association and the right to collective bargaining.
  • Prohibition of an action or inaction that is directly capable of infringing a protected legal interest in a particularly serious manner and whose illegality is obvious, taking into account all circumstances. (§ 2, para. 2.)

Companies within the scope of the Act (including many American companies that supply goods and services to German companies) must set up specific due diligence procedures to safeguard human rights, beyond simply establishing a risk management system, but also including: Taking remedial actions if a violation has already occurred or is imminent; Establishing due diligence procedures regarding risks associated with indirect suppliers that will be applied when the company has substantiated knowledge of a violation; and, Document the company’s due diligence procedures, risks identified, and measures taken, and then publish a yearly report on its website, which must be free of charge and publicly available. (§ 3.)

Companies can be fined. Large companies with an annual global turnover or more than 400 million euros (about US$475 million) can be required to pay fines of up to 2% of their annual global turnover. (§ 24.) Furthermore, companies that have been fined a minimum of 175,000 euros (about US$208,000) can be excluded from public procurement for up to three years. (§ 22.)

Companies that violate the Act are not civilly liable (§ 3, para. 3.), however, when a person’s “legal interest of paramount importance” protected in one of several international agreements has been violated, that person may authorize a nongovernmental agency or trade union to sue on his or her behalf. (§ 11.) Such protected legal interests of paramount importance include life and limb.

While there are modest anti modern slavery laws in the UK and a much scaled back enactment in California (there is legislation pending in Canada), there has been very little uptake by governments.

As businesses consider human rights in 2023, a paraphrasing of the first century Rabbi of Tarfon seems somehow appropriate, “it is not your responsibility to finish the work of repairing the world, but you are not free to desist from it either.” We believe strongly that human rights are much more than a business’ pursuit of the S in ESG, and this new German law provides all organizations with a guide on how you can now examine and assess your business practices including your supply chain.

We can assist your business in complying with this and other human rights laws and more than that for those that want to be among the winning companies of the future we would be pleased to share practical steps and best practices in anti modern slavery efforts as you work to repair the world.

A live webinar “New Rules for Environmental Site Assessments,” 30 talking points in 30 minutes, Tuesday, February 21 at 9 am EST presented by Stuart Kaplow and Nancy Hudes on behalf of ESG Legal Solutions, LLC. The webinar is complimentary, but you must register here.

You can Participate in our Survey on GHG Emission Measurement

We are currently undertaking a survey to assess and gauge the market uptake of greenhouse gas emission measurement, public claims, and reduction.

While the world has seen a ballooning of Net Zero GHG emission commitments by government and non-state actors alike, in particular by businesses in the United States, this is all still a new idea. With the fervor building around GHG emissions reduction impacting such a broad spectrum of ESG factors, our goal with this survey is modest in seeking to report on the current business acceptance and adoption of calculating GHG emissions such that our clients and other stakeholders can use these results as they make their company plans for GHG emission measurement, disclosure, and reduction in 2023.

ESG is such an uncharted territory that there are few authoritative sources of information, including that with no scholarly treatises and few if any peer reviewed published papers, so blogs like this one are the best source of reliable information. Concomitantly, readers of this blog are a target rich environment for current business ESG data, including the subset of GHG emission activity and a group who are ripe for surveying.   

The survey is not a truly scientific survey in that, after piloting a questionnaire, we have curated the survey methodology, sample design, and data collection with the aim of providing essential benchmarks that will on a timely basis offer predictive accuracy, in the emergent and fast growing and still a very new idea of GHG emission reductions, on how a company can move forward.

The survey is currently in the field and we thought you would be interested in what we are asking:

Does your company currently measure GHG emissions?

Does your company measure Scope 1, Scope 2, or Scope 3 GHG emissions?

Does your company have the expertise or other ability in house to calculate GHG emissions?

Are you witnessing increased demand, in the last 12 months, for your company to report GHG data?

Has your company ever measured GHG emissions, even as a pilot, part of an energy model during construction, or otherwise?

Has your company disclosed GHG emission data or information?

Has your company made a public GHG commitment (e.g., Net Zero by 2040 or the like)?

Do you believe companies will achieve their stated GHG reduction commitments?

Do you believe companies frequently overstate or exaggerate their GHG emission reduction progress when making disclosures?

Do you believe companies will face increasing litigation as a result of not achieving their stated GHG commitments?

Are you concerned about the potential impact GHG matters may have on brand perception or brand value?

Are you concerned about financial penalties resulting from non-compliance with GHG disclosure and reduction regulatory requirements?

Do you expect most companies will establish and communicate a Net Zero plan in the next 12 months?

Do you expect investors will reward companies that have communicated Net Zero plans with an increased valuation?

Do you believe there will be mandatory GHG disclosures and more GHG regulations that will impact your company within the next 12 months?

Do you favor mandatory GHG disclosures and more GHG regulations within the next 12 months?

Do you believe law firms should be doing more to support companies with GHG matters?

Does the law firm your company uses offer GHG capabilities to its clients?

Does your company engage outside consultants for compliance with GHG matters?

If you have not received our survey and would like to participate, a modified version is available for readers of this blog and we encourage you to click on

Note, in an effort to stay true to our sample design while allowing all who are interested to participate, that self selecting public version asks 10 questions of key import that will be tabulated in the results but does not require you to identify yourself or provide demographic information.

We expect our data collection will be complete within the next month and we plan to report shortly thereafter. We have committed to providing the survey results to clients and those who have participated first and then the data will be the subject of an upcoming blog post reporting on current market uptake on matters of GHG emissions as increasing numbers of businesses look to make the world better.   

A live webinar “New Rules for Environmental Site Assessments,” 30 talking points in 30 minutes, Tuesday, February 21 at 9 am EST presented by Stuart Kaplow and Nancy Hudes on behalf of ESG Legal Solutions, LLC. The webinar is complimentary, but you must register here.

Questions from our webinar “Does Your Lease Address New GHG Laws?”

This blog post is a compilation of responses to the top 10 questions from our webinar last week, “Does Your Lease Address New GHG Laws?” We saw the largest number of attendees at our monthly webinar series and while we answered questions live, we had requests to share the questions.

Our webinar introduced the need for commercial and multifamily leases alike to be amended now as a result of the Building Energy Performance Standards in Maryland Senate Bill 2022 528 (and other similar laws across the country), which law will require landlords to report with data and information that must come from tenants, whole building greenhouse gas emissions annually, achieve a 20% reduction before 2030, and be N​et Zero before 2040.

Also driving change in the landlord tenant relationship requiring continuous cooperation are ESG disclosures by tenants that include GHG emissions which can only be calculated with data and other information from the landlord.

The top 10 questions we received were:

How does a building owner count its greenhouse gas emissions to report to the government under this new Maryland law? Our non law affiliate ESG Legal Solutions can calculate your building’s GHG emissions. Greenhouse gas emissions are not actually measured or counted on a building by building basis, such is not commercially practicable; rather GHG emissions are calculated. Equivalency calculators, like our proprietary NET+ GHG Calculator, convert energy data and other inputs (i.e., utilizing energy bills, building employee census, number of computer screens, etc.) into the equivalent amount of CO2 and other GHGs. And by way of example, every gallon of home heating oil creates about 22 pounds of CO2.

What is the penalty for failing to comply with this new Maryland law? If a building does not meet its GHG reduction targets, then the owner can come into compliance by paying a fee for any emissions that are above target levels. That Alternative Compliance Fee (i.e., the law does not give the authority to assess penalties [although it has been suggested the Maryland Department of the Environment does not agree with that?], but by any name, this fee is a sanction) may not be less than the social cost of GHG adopted by MDE or the federal government (weaponizing the social cost of GHG, a measure intended to be used in cost benefit analysis, not used as it is described in SB 528). Dramatically increased estimates of the social cost of GHG (estimated at $51 per ton when SB 528 was passed in April 2022 to now over $200 per ton) were released in November 2022, by EPA.

You said that Maryland has announced it is moving toward an all electric building code, is the State coming for my gas stove? SB 528 says in relevant part, “it is the intent of the General Assembly that the State moves toward broader electrification of both existing buildings and new construction” and then ordered the Maryland Codes Administration to study mandatory electrification and report back by January 1, 2023. Many have suggested the State’s GHG emission goals can only be met with the elimination of natural gas and the resultant corporate transformations.

Is there an example of an all electric building code? The New Buildings Institute (NBI) has developed a Building Decarbonization Code that can be overlaid on top of the 2021 IECC and result in an all electric IECC. This is a good example of an all electric code that might be adopted in Maryland.

I did not understand your comment about the sources of electric power? The U.S. Energy Information Administration tracks total energy consumption including in Maryland. Many consider ‘consumption’ a better measure than “energy production” which only includes energy produced in the state when Maryland is a net importer of energy. Of import the largest source of electricity used in Maryland is by far natural gas, followed by nuclear, then coal, and only then renewables. So, an all electric building is still mostly natural gas powered. See, U.S. Energy Information Administration – EIA – Independent Statistics and Analysis

You said Maryland enacted the most rigorous state law in the country reducing greenhouse gas emissions? SB 528 explicitly requires the State to reduce statewide GHG emissions by 60% from 2006 levels by 2031, a near term target (that includes more than just buildings) unmatched by any other state.   

Okay, I understand there is a new law and there are yet to be regulations, but when do I have to first do something under this law? The first direct contact many businesses will have with this new law will be the new concept of Building Energy Performance Standards, which will initially require that commercial, including multifamily, building owners report direct GHG emissions to the State annually beginning in 2025. That is a big deal because most businesses have never calculated and do not know how to calculate their GHG emissions. As noted above, our non law affiliate ESG Legal Solutions can calculate your building’s GHG emissions today and we expect that cottage industry to become an increasingly significant portion of the work we do for clients.

Why are the GHG numbers I report in 2025 so important? For a host of reasons it is key to report accurately to the government, including that for many businesses GHG numbers will be part of ESG disclosures that your stakeholders may rely on that reporting, and key in Maryland will be that those numbers will be evaluated for the mandatory reductions in out years, including against similar building types. We can revolutionize your approach to success in GHG disclosures.

Are any building owners exempt from this new law? SB 528 law provides buildings, commercial or multifamily with a gross floor area of 35,000 square feet or more (excluding parking garages), except elementary and secondary school buildings, certain historic buildings, certain manufacturing buildings, and certain agricultural buildings, must achieve a 20% reduction in “net direct” GHG emissions from 2025 GHG emission levels of similar buildings before January 1, 2030, a 40% GHG reduction before January 1, 2035, and be Net Zero before January 1, 2040.

How does all of this work in a condominium? We do not yet have a good answer to how this new law will be implemented for residential condominiums except to say there is no exemption for buildings containing condominium units, however, we expect the soon to be proposed regulations that are to be adopted by June 1, 2023, will attempt to provide guidance. Many other matters should become clearer with the regulations. We expect to offer another webinar on the implementation of Maryland SB 528 after the promulgation of the regulations.

All of that responded to, it is clear that leases, including those with terms and renewals that run through the implementation dates of federal regulations and Maryland statutes, need to be amended now. And yes continuous cooperation in sharing the information necessary for GHG emission calculations must be provided for, however, there is far more that can be done by those that understand what is happening that can and will yield significant external rewards. This entirely new area of government regulation may be the biggest business opportunity in history, .. waiting to be unlocked!       

For more information you can read our blog post from last week, Does Your Lease Need Greenhouse Gas Provisions? | ESG Legal Solutions, LLC

Watch future postings on this blog or Twitter @esglawyers for announcements of the subject and date of our February webinar.

Does Your Lease Need Greenhouse Gas Provisions?

Yes. It would be one thing if this topic was only prospective, about leases to be entered into in the future, but the reality is there are very large numbers of existing leases including with renewal terms that are for premises that will be regulated by emergent greenhouse gas emission disclosure and reduction statutes, rules, and regulations.

Just as there is no one homogeneous building type, this topic has implications that vary from place to place, but in jurisdictions from Maryland to California, New York City to Denver, and Seattle to Washington, DC, building energy performance standards that are driving reductions in GHG emissions have already been enacted. And that state and local government activity targeting building owners lies beneath the surface of national ESG mandates aimed at the businesses that are tenants which new laws are in many instances GHG emission disclosure heavy.

A lease is the most common real estate transaction in America. And lest there be any question many, if not most of these issues apply not only in commercial leases but also in multifamily residential leases.

Buildings are the sweet spot for GHG emission reductions because buildings generate nearly 40% of annual GHG emissions in the U.S.  

To aid in your review of this broad ranging subject, this blog post will consider leases in Maryland.

The aim of this post, about how to repair the planet through leasing, is to set the stage for new ideas:

Review leases.  As a starting point, every existing lease should now be reviewed in light of matters of GHG emissions (a subject that may not have even been conceived of when the document was written). Landlords and tenants should carefully consider any existing provision about whose obligation it is to comply with laws and government requirements related to leased premises or the building (e.g., in the past such a provision may have had implications for ADA compliance or retrofitting for sprinklers), and while such a provision may have a dramatic impact on this subject, it is just the starting place.

Share data.  As a threshold edit, nearly all existing leases will have to be modified and new leases drafted to include sharing GHG emission data. Of note, Maryland law was amended last year by SB 528 and now provides,


Maryland Senate Bill 2022 528

But that information is not enough for building owners to comply with the State’s mandatory GHG emission disclosure and reduction. An owner will need more and additional information (census of employees, number of computer screens, etc.) directly from the tenant for the owner to be able to calculate GHG emissions and report them to the government as required, beginning in Maryland in 2025. And that provision does not even attempt to address that many tenants, including public companies, federal government contractors, and more each need GHG emission data from their landlords so that they can report it as part of the required ESG disclosures.

New defined terms.  In jurisdictions where there are mandates for reductions in GHG emissions (.. a step beyond mere disclosures), it is key that leases now include as a defined term the Building Energy Performance Standards to be applied, including if created by statute or code or by the contract that is the written lease agreement.

Borrowing a concept that has been widely utilized in Europe but not in the U.S., if the tenant is going to have an “energy consumption limit” that must obviously be expressed in the lease. In some instances this will also include a “plug load standard” and if that is the case, the term must also be defined. This is not necessarily the concern it had been in the past about who is paying for the power, but now the entire building will be on an energy diet to meet GHG emission limits.

In many instances the work of reducing GHG emissions will include the “retro-commissioning” of the building and that term must also be defined, including what will be recommissioned (i.e., HVAC, lighting, plug loads, .. but, will it include the roof, windows, etc.), and to what standard, like the appropriate LEED enhanced credit or ASHRAE or the like?

A lease should ideally provide for submetering of the tenant leased premises (and that may not be so easy with existing building utility systems). Electronic submetering software that provides simulated consumption data may have to be substituted for the real thing, but submetering is often regulated by public service commissions and the like. The goal is that the tenant’s consumption of electrical energy is measured (by meters capable of reading demand and KW hours to measure the demand and consumption of electric energy), in an existing building often installed by the landlord at the leased premises at the tenant’s cost and expense.

The definition of operating expenses might now include not only the actual costs of retro-commissioning but also costs to meet the Building Energy Performance Standards, including, but not limited to a prorata share of the costs to undertake the whole building retro-commissioning. And maybe that definition of operating expenses should also include capital expenditures made to comply with Building Energy Performance Standards, providing for some period of amortization of the work (over the lease term or some other reasonable period of time). The tenant should be required to participate in retro-commissioning including providing the necessary occupant data and other information.

Going forward, a lease must include requirements that initial tenant improvements (i.e., build-out) to the leased premises and any subsequent renovation must comply with the Building Energy Performance Standards and not increase the tenant’s utility usage. Such might include design criteria, landlord’s approval of plans and scope of work, etc.

Incentives.  Incentives to tenants may be key to rebalancing the traditional landlord tenant equities. Borrowing from an idea we have seen in some Canadian leases a landlord could pay a tenant a “GHG reduction bonus” equal to __ % upon completion of tenant improvements, based upon an energy model, which GHG reduction bonus could be amortized over the term of the lease payable to Tenant as a credit against monthly rent.

As another incentive, a tenant can be the beneficiary of and receive any available government incentives including tax credits (e.g., the 179D tax deduction) thru assignments of those incentives and other creative drafting in the lease.

If the landlord has installed an onsite renewable energy system at the building that can be used to supply electricity to the building, the tenant should be required by the lease to purchase electricity from that onsite renewable directly from the landlord. The landlord should be required to sell power directly to the tenant at a rate that is at or below the electricity rate offered by local public utilities. And maybe this includes as another incentive, if the landlord participates in a Power Purchase Agreement (PPA) for the building, the tenant is given the opportunity to participate in the PPA.

Penalties.  A provision must now be inserted making clear that the tenant is responsible for the payment of the penalties or excess emissions charges, alternative compliance fees, or the like, incurred by the landlord under the applicable Building Energy Performance Standards law like the Maryland Climate Solutions Now Act of 2022 (or in New York, Local Law 97), not just for a failure to report but also attributable to tenant’s consumption of energy or GHG emissions in excess of the energy consumption limit provided in the lease which tenant action could cause the entire building to be out of compliance. Such is made somewhat complicated to negotiate in that it should take into consideration any and all credits and alternative compliance fees with respect to the limit obtained by the landlord if the cost of the credit is included in operating expenses.

On the other hand, the landlord should be solely responsible for any portion of any penalties or charges levied upon the building under such law due to the failure of the landlord to timely meet reporting obligations under the relevant law, the consumption of utilities by any other tenant of the building, or the landlord’s failure to properly operate and maintain the building.

It is time to act.  While drafting a lease with GHG emission specific provisions is an art in its infancy, these risks and opportunities are not new and in point of fact in 2009 I published a law review article, Does a Green Building Need a Green Lease, which while dated, identifies most of the same risks and opportunities.

This blog post is not intended to be a comprehensive exposition on the subject, including that while many of these same considerations exist in multifamily residential leasing, time and space limit what can be said here except to note that there are opportunities for proactive property management. Our goal here is modestly to assist you in participating in the big hairy audacious goal of disclosing and reducing GHG emissions in real estate.

Today, as a threshold matter leases in Maryland need to be modified, beginning immediately, to at a minimum provide shared data and other information so that building owners can comply with 2025 State GHG emission reporting requirements and tenants can satisfy current and evolving ESG disclosures.

So yes, your lease does need GHG emission specific provisions both to comply with new laws and to repair the planet. It’s time to act. We would be pleased to speak with you about your lease and all things GHG emission reductions.

Live webinar “Does Your Lease Address New GHG Laws?” 30 talking points in 30 minutes, Tues, Jan. 24 at 9 am EST presented by Stuart Kaplow and Nancy Hudes on behalf of ESG Legal Solutions, LLC. Complimentary, but you must register here.