Report Criticizes Mandatory Energy Labeling for Commercial Buildings

The Building Owners and Managers Association (BOMA) International and the Greater Boston Real Estate Board (GBREB) have announced the release of “An Economic Perspective on Building Labeling Policies,” a report co-authored by Harvard University Environmental Economist Robert N. Stavins that examines the extent to which mandatory building energy labeling results in reduced energy use. The research and the resulting report were sponsored by BOMA International and GBREB.

The project was prompted by increased interest in laws mandating energy scores and energy-efficiency programs throughout the U.S. and in Massachusetts. The city of Boston is currently considering mandated reporting for office buildings, apartments and condominiums. It seeks to answer the question of the effectiveness of these programs. Although BOMA and GBREB are committed to energy efficiency and many other measures intended to protect the environment, the organizations are opposed to policies that arbitrarily intervene with market forces, assign market value to buildings, stigmatize property or otherwise interfere with transactions.

According to Professor Stavins and his colleagues from the Analysis Group, a Boston-based economic consulting firm who helped conduct the review, there is no credible evidence to date that a regulatory approach is effective in achieving these goals for which they are intended. The report analyzes the effectiveness of mandatory energy labeling for commercial buildings in the U.S. The results of existing programs are still to be measured, but the report finds:

  • Building labels could affect property values with properties that receive a “green” score seeing appreciation in their market value and properties receiving a brown score experiencing depreciation.
  • Building labeling programs that are now in effect in select cities throughout the U.S. vary in the quality and usefulness of the information developed and the requirements and costs imposed on property owners. There is insufficient history, therefore, for any city to employ best practice in this area.
  • Building energy labels differ greatly from the energy labels currently placed on many consumer products, such as refrigerators and automobiles. Although product labels provide consumers with information about the energy savings from their product decisions, building labels provide no information on energy costs or savings. Moreover, they provide no information about how building owners can cost-effectively improve their building’s energy use. Building labels are also unique to each building, thus making them more costly to produce and more prone to error.
  • The premium associated with labels may “overvalue” the underlying energy savings, suggesting that other factors could be affecting market decisions.
  • If building scores are concentrated in particular neighborhoods, it could affect property values across neighborhoods. Likewise, building sectors may see overall appreciation or depreciation if scores tend to be high or low within individual sectors.

“Mandatory benchmarking and energy labeling often adds expense to building owners without necessarily improving energy efficiency significantly,” comments BOMA International Chair Joe Markling, managing director of Strategic Accounts with CBRE. “The voluntary marketplace has been making great strides in reducing energy consumption. Imposing mandates will impose a big burden on many owners who may or may not see improved performance or a return on their investment.”

“Unfortunately, cities follow one another passing laws like this in their competition to be greener than the next. Boston should not be another guinea pig until some definitive evidence shows that laws like these actually work,” adds Gregory Vasil, president of GBREB.

1 Comment on "Report Criticizes Mandatory Energy Labeling for Commercial Buildings"

  1. Don Lovell | April 5, 2013 at 8:00 pm |

    The study state that their …..”assessment of mandatory building labeling has identified limitations to these policies……While benefits are conceivable , there is limited evidence that these programs will result in meaningful changes in energy use, let alone energy savings that offset the program’s economic costs”.

    I think the study is flawed from the beginning and throughout because it equivocates labeling / bench marking with actually making energy upgrades and the costs associated with them. Decouple the two and it is clear that labeling / bench marking is a useful way for a prospective buyer or lessee to gain information that is crucial in making a sound business decision. If making this information available causes a building owner problems marketing their building and it is BOMA’S intention, through this study, to stop or slow down labeling / bench marking I must question the validity and motivation of BOMA. Does BOMA want to protect inefficient buildings?

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