Reinstate the Commercial Energy Conservation Ordinance (CECO)

Assumptions

• 18.5 million square feet of commercial space is sold annually
• A building’s upgrade to a standard such as LEED-EB saves 20 percent per square foot on energy and other utility expenses
• Life cycle of energy efficiency improvements is 10 years

Analysis

The Commercial Energy Conservation Ordinance needs to have an easily ascertainable and enforceable mechanism for bringing existing buildings closer to the green standards that apply to new buildings. One way to do this is by requiring existing buildings to get a certain number of points under a standardized system, such as LEED for Existing Buildings, at the time of sale or smaller renovations (those not covered by the Green Building Ordinance). A cost ceiling also could be imposed along with the burden placed on the buyer, coupled with a loan or financing assistance. Within a few years, building owners will save money. Because it could include other requirements besides energy efficiency, CECO could cost-effectively help the city achieve climate change goals, and help San Francisco more efficiently use water, retain stormwater, and work toward the goal of generating zero waste. It would reduce more carbon per dollar than a building retrocommissioning requirement.

What we do now
Parallel to the RECO,San Francisco once had an ordinance that required commercial buildings to meet energy efficiency standards when they were sold or transferred. The Commercial Energy Conservation Ordinance was passed in 1989, but it was repealed in 1996 because it was unpopular and problematic to enforce.

What we could do
The city of Berkeley, which has a building stock far less diverse than San Francisco’s, has a CECO that has been in place since 1993. Berkeley’s CECO applies at the time of sale of commercial property, and also is triggered by major renovations that either increase conditioned area by more than 10 percent or cost more than $50,000. It requires an energy audit to determine the applicability, cost and benefits of various energy conservation improvements related to a building’s HVAC, furnaces, boilers, lighting and building envelope. Then the seller must implement upgrades with a cost ceiling of 1 percent of the sale price or assessed value, not to exceed $150,000. Exemptions are available for newer construction or low energy users.

San Francisco could revive its CECO to apply at the time of sale or upon smaller renovations that are not governed by the new Green Building Ordinance. The Green Building Ordinance covers major remodels that affect at least 30 percent of a building’s structural system, and one or more mechanical, plumbing or electrical systems. San Francisco could model its CECO after Berkeley’s ordinance, requiring an energy audit and imposing a cost ceiling. To align incentives, the compliance incentive could be placed on the buyer rather than the seller, or cost-sharing arrangements could be worked out. Another alternative is to peg energy requirements to some of the standards that now apply to new buildings through the Green Buildings Ordinance, LEED and GreenPoint Rated. LEED has a rating system for existing buildings operations and maintenance, LEED-EB, that San Francisco could require along with the city-specific modifications for water management, energy and wastewater it requires for new buildings.

Cost
We estimate the cost to DBI to implement a new CECO law at $200,000 per year, similar to the cost for implementing an updated RECO. Also like RECO, CECO requirements are inexpensive for the government, compared to the private costs of implementation. But while the up front costs may be high for owners, investments in building performance typically result in savings. A 2008 study of 23 LEED-EB¹ rated buildings found that LEED-EB certification cost an average of $1.61 per square foot, including both hard and soft costs. The majority of certified buildings subsequently reported an average annual utility savings of 33 cents per square foot over regional BOMA averages. One example, the California Environmental Protection Agency building in Sacramento, documented a 26 percent savings over 1998 Title 24 standards after completing the improvements that led to its LEED-EB platinum certification.

The annual cost of CECO, assuming a 10-year life of energy savings and a $1.61 initial cost per square foot, is $30 million, of which the government share is $200,000, or 0.7 percent. But the annual energy savings from the measure, assuming savings of 33 cents per square foot, is about $6.1 million. The simple payback is a few months shy of five years.

Carbon savings potential
Ultimately, if 18.5 million square feet of commercial building stock turns over every year, and if CECO — in whatever configuration — compels building owners to improve efficiency by 20 percent per year, commercial buildings could save 24,400 tons of carbon a year. Because this saving is cumulative, after 10 years the savings would abate 244,000 tons annually. The government cost to reduce one ton of carbon through this program is about $1.

Using the private cost estimations from the LEED-EB survey, a CECO requirement based on LEED-EB would pay for itself in four to five years. Over 10 years, commercial building owners would net $38 million.

Endnotes
¹ “The Economics of LEED for Existing Buildings for Individual Buildings,” 2008 edition, a white paper by Leonardo Academy, April 21, 2008, rev. Oct. 14, 2008, available from http://www.leonardoacademy.org/Resources/reports/index.htm.